DarioHealth - Q2 2023
August 10, 2023
Executive Summary
- Q2 2023 revenue was $6.15M (flat YoY) amid delayed strategic milestone revenue from Sanofi; pro forma gross margin expanded to 51.5% on a richer B2B mix and amortization add-back.
- Management reiterated a 70% gross margin target for 2024 and guided for further OpEx reductions (3–5% in H2’23; 5–7% lower in 2024 vs. 2023), while noting Aetna enrollment has shifted to Q1 2024 (expands addressable population to ~30M lives).
- Strategic momentum: July launch with a large regional Blues plan (~3M members) via Solera, contract expansion to include diabetes (+~20% revenue opportunity), and amended Sanofi agreement to tighten alignment and accelerate development/marketing.
- Cash and equivalents of $52.6M provide runway through 2025; debt refinanced with a $30M Avenue facility (prime +4.5% floor 12.5%); management emphasized multi-condition, partner-led distribution (Amwell, Solera, Sanofi) as the 2024 growth catalyst.
- Potential stock reaction catalysts: gross margin trajectory, health plan launches ramping in late 2023/early 2024, and clarity on Aetna platform enrollments; headwind was the push-out of Aetna monetization to Q1 2024.
What Went Well and What Went Wrong
What Went Well
- B2B momentum and mix: B2B comprised ~63% of Q2 revenue, supporting a pro forma gross margin of 51.5% vs. 36.1% last year; management targets 70% in 2024.
- Health plan traction: Launched a large regional Blues plan (~3M members) via Solera in July and expanded contract scope to include diabetes (~20% higher revenue opportunity), validating multi-condition strategy.
- Strategic alignment: Amended Sanofi agreement to accelerate development milestones and marketing; Sanofi’s studies showed ~$5,000 annual cost reductions per Dario user vs. matched controls.
Quoted management: “Pro-forma gross margin was 51.5% for the second quarter of 2023, up from 36.1%…primarily resulted from shift in revenues from B2C to B2B”. “We signed an enhancement to the original [Sanofi] agreement…strengthening the strategic alignment…accelerating funds to speed up features… and revenue share”.
What Went Wrong
- Strategic milestone revenue timing: Expected Sanofi milestone revenue was delayed due to internal changes at Sanofi, reducing Q2 strategic revenue; total revenue was flat YoY.
- Aetna enrollment delay: Member onboarding shifted from Q3 2023 to Q1 2024 as Aetna moved to the behavioral health population; near-term ARR growth slower than anticipated.
- Continued losses: GAAP net loss remained high ($16.6M) though improved YoY; financial expense increased due to the refinancing, partially offset by interest income and warrant remeasurement.
Transcript
Operator (participant)
Good evening, and welcome to the DarioHealth Second Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chuck Padala. Please go ahead.
Chuck Padala (Investor Relations)
Thank you, operator. Good morning, everybody. Thank you for joining us today for a discussion of DarioHealth's second quarter 2023 financial results. Leading the call today will be Erez Raphael, CEO of DarioHealth, who will be joined by Rick Anderson, President. After the prepared remarks, we will open the call for Q&A. An audio recording and webcast replay of today's call will be available online as detailed in the press release invite for this call. For the benefit of those who may be listening to the replay or archived webcast, this call is being held on August 10th, 2023. This morning, we issued a press release announcing our financial results for the second quarter of 2023. A copy of the release can be found on the investor relations page of DarioHealth's website.
The actual events or results may differ materially from those projected as a result of changing market trends, reduced demand, or the competitive nature of DarioHealth's industry. Such forward-looking statements, and their implications may involve known and unknown risks, uncertainties, and other factors that may, that may cause actual results or performance to differ materially from those projected. Forward-looking statements discussed on this call are subject to other risks and uncertainties, including those discussed in the Risk Factors section and elsewhere in the company's second quarter 2023 quarterly report on Form 10-Q, filed this morning. Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company's press release issued this morning and in the company's other filings with the SEC. In addition, certain non-GAAP financial measures may be discussed during this call.
These non-GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful for investors' understanding and assessment of the company's ongoing core operations and prospects for the future. Reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in the morning's press release. With that, I'd like to introduce Erez Raphael, Chief Executive Officer of DarioHealth. Erez?
Erez Raphael (CEO)
Thank you, Chuck, and thanks to all of you for joining our call this morning. Q2 financial results continue to demonstrate the advancement of our multi-year strategy. Our financial profile continues to evolve toward a multi-tenant software as a service technology solution for healthcare industry. I'm not aware of any other digital health platform that has gained our level of consumer traction, proven and backed by real-world data evidence, especially studies that are done by third parties, such as the studies Sanofi has conducted on Dario's outcome. We continue to see the alignment of the strategy with our financial results and the market trends. While we are a bit lagging on the top-line scale, we are still confident that the model and the market fit is totally there. Let's examine. First, on our transformation from direct to consumer to B2B.
We generated sequential B2B2C ARR growth for the tenth consecutive quarter. We are showing that the fundamentals of the B2B business, hence selling into the self-insured employer and health plan market, have a positive impact on demonstrating Dario as a true software as a service type digital health business with high gross margins and stable year-over-year recurring revenues. A combination of significant reduction in the cost of member acquisition, the ability to scale and more revenue per member per month on the platform, is already shown in the result.
In terms of penetration strategy, we believe we are on the right path to accelerate our velocity as we put a lot of focus on the partnerships that we have executed in the last few quarters, including significant and meaningful relationships with partners such as Solera, who we just announced a large regional Blues plan, Virgin Pulse, Alliance, Amwell, Sanofi, and Aetna. While it is still early, we have already seen new customer pull-through from our strategic partnerships, including most recently, MedOne through Sanofi and large regional Blues plan for Solera. We also see top relationships getting stronger.
On Sanofi, I would like to disclose here that two weeks ago, we signed an enhancement to the original agreement that we signed 14 months ago, with main objective of strengthening the strategic alignment between the companies and accelerating funds to speed up features of our joint development program and revenue share. We also seen significant financial and people resources dedicated to Dario by Sanofi in marketing the solution and conducting and disseminating the recent clinical studies. On Aetna, despite a delay in the launch of the platform, we believe that the partnership is only getting stronger and the size of the opportunity is getting larger than what we originally anticipated. Amwell, that was announced Q2, represents a huge opportunity, with 90 million people having access to the platform into which our solution is integrated.
Both companies' teams are already engaged in selling the Dario solution through to the customers with concrete health plans opportunities. Pivoting now to the product-market fit with unique, integrated, consumer-first, multi-chronic condition platform that is clinically validated with the real-world data evidence. The strategy is not only aligned with, but ahead of the macro digital health market trends of consolidation of conditions under one platform with consumer-first approach and third-party real-world studies validating clinical and cost reduction outcomes. In fact, our current model for transforming healthcare into more consumer-centric whole-person care approach is better suited to the current macro financial environment that is looking for real proven cost-saving solutions to costly chronic conditions. We have seen, and will continue to see, attempts in the market to build and launch digital therapeutic solutions that have run into market penetration and macroeconomic challenges.
We believe that the true consumer-first approach with real-world evidence is the only way to successfully penetrate the market. Given the capital, the time, the sustained effort it took to build our consumer-first proven solution, we believe we have created a real differentiator and a real moat that has a unique market fit. We have proven again and again that the platform is performing in the real world with real users and real-world evidence, as opposed to a pre-designed, controlled clinical study environment that traditional healthcare companies, including digital therapeutics companies, have used. The two real-world, highly rigorous studies that Sanofi recently presented demonstrated that Dario's solution has the statistically significant and highly relevant improvement in clinical outcomes and reduction in cost. We are very excited about their studies and what they represent, not only for Dario, but to the whole digital health industry.
Let's take a deep dive into the financial results. Q2 shows continued improvement of the company financial profile. Our results continue to demonstrate that our model is working, even though we need to continue to scale up our revenues. Let's start by looking into the revenues and its components. As we pre-announced, revenues for the 2nd quarter were $6.15 million, compared to $6.18 million in the 2nd quarter of 2022. This flat growth is resulted from timing of anticipated strategic revenue, resulting from delay with one of the strategic partners. Our partnership strategy continue to mature and yield significant opportunities for long-term growth. Our recurring B2B2C revenue has now increased for 10 consecutive quarters in a row, which we believe speaks to the value that members place on our highly engaging digital health offering.
We believe we will see revenues acceleration as we continue to get the signed accounts launched. Another important metric is gross margin. Here, we continue to show that we develop a true software-driven business with SaaS-oriented characteristics. Pro forma gross margin was 51.5% for the second quarter of 2023, up from 36.1% of revenues in the second quarter of 2022, which primarily resulted from shift in revenues from B2C to B2B. As mentioned in the last few calls, we are targeting an average gross margin of 70% by 2024. Looking at the operating loss, we are seeing an operating leverage on the infrastructure that we have built and real economic advantage of multi-condition approach.
Further reduced non-GAAP operating loss, excluding stock-based compensation, amortization of acquisition-related expenses, and depreciation for the second quarter of 2023 to $7.5 million, compared to $11.1 million for the second quarter of 2022, and $6.3 million in the first quarter of 2023. Looking into the balance sheet, we are also having a strong cash position of $52.6 million provide runway through 2025. With that, I want to hand over the call to Rick to elaborate on the commercial schedule. Rick?
Rick Anderson (President)
Thanks, Erez. Our revenue comes from two segments, B2C and B2B. Within the B2B segment, we have two components. First, annual recurring revenue from self-insured employers and health plans, or ARR, and second, revenue from our large strategic partners. In the second quarter, our B2B revenue represented approximately 63% of our total revenue. This mix reflects our strategic move to the B2B market and, as Erez pointed out, resulted in the higher gross margins in the quarter versus the same quarter last year. The decrease in revenue in the second quarter was due to a reduction in our strategic partner revenue, which is milestone-driven. We expected to recognize revenue from work with Sanofi that was delayed due to internal organizational shifts by Sanofi that were unrelated to Dario. I want to be clear that none of this has impacted our partnership or agreement with Sanofi.
In fact, the amended agreement referenced by Erez further aligns the two companies' interests and provides mechanisms for accelerating some of the contemplated collaboration. Sanofi continues to invest in sales, marketing, and studies in support of the Dario solution. We believe that the disruption from these internal changes is now largely behind us. On schedule, we delivered the private label behavioral health platform to Aetna and recognized strategic revenue based on this milestone in the second quarter. This is new digital platform that they are selling through to their self-insured customers. We had anticipated that they would begin enrolling members to the platform in the third quarter. However, due to a change in strategy by Aetna, we now anticipate that they will not begin enrolling members on the platform until the first quarter of 2024.
With the change in strategy, the platform is moving to the behavioral health population, which actually increases the total opportunity to approximately 30 million lives from the current 10 million lives. We continue to anticipate that the rollout will happen over several quarters once launched, and we have better visibility on platform additions in 2024 than we previously did. We maintain a strong relationship with Aetna and believe we may have additional strategic and other opportunities with them in the second half of 2023 and beyond. In the second quarter, we continued to maintain B2C revenues at levels consistent with the last two quarters, which allows us to maintain a self-funded innovation platform. For example, the last year's Sanofi development work was launched into this market for users' response and testing prior to launching it into the B2B market.
In the second quarter, we saw our tenth quarter of sequential B2B2C revenue growth. We launched MedOne, our first customer obtained through our Sanofi collaboration. In July, we launched a large regional Blues plan with approximately 3 million members, which is our first health plan through our partner, Solera. As we discussed on our first quarter call, this health plan saw several delays as Solera and the health plan finalized their agreement and launch plan. These delays are especially frustrating because we have a limited ability to impact them. We are, however, pleased that the plan is launched in the time frame that we communicated on the first quarter call. Excitingly, almost concurrent with the launch of this health plan, we expanded our contract to include diabetes, further validating the value of our multi-condition strategy.
We expect that this regional Blues plan and MedOne will both ramp up over the next several quarters, adding to our ARR growth in the back half of 2023 and into 2024. As we have discussed, partners are a major part of our strategy in both the self-insured employer and health plan markets. In addition to what we have announced, we continue to see traction in the pipelines of our partners, including Amwell, which we recently signed. Amwell, Solera, Sanofi, Vitality, Alliant, and Virgin Pulse all have significant installed customer bases that are pre-integrated and require little customer lift to access Dario. We believe that this is especially attractive to customers in this macroeconomic environment, where there is an increasing focus on the cost of evaluating and managing vendors such as Dario.
We remain especially excited about our Amwell relationship, where we are the only cardiometabolic solution integrated into their platform. With an installed base of approximately 2,000 customers, including 55 health plans, we believe this represents an extremely large opportunity. Their health plan customers include several Blues plans, including the largest Blues plan in the country. They are actively selling to their customer base, and we anticipate we may see customers through this partnership as early as the fourth quarter of this year or early 2024. In addition, we believe there is the potential to see additional health plans through Solera and our other partners late this year. We added a handful of contracts in the second quarter, most of which will contribute to revenue beginning in the fourth quarter of 2023.
We remain in the normal annual sales cycle for self-insured employers, the majority of which are on a January to December benefit cycle, with most employer contracts signed in the late third and fourth quarters. Based on our current pipeline, we anticipate announcing a larger number of contracts towards the end of this year and realizing significant growth in our B2B2C ARR revenue starting in 2024 from new customers. In the current macroeconomic environment, and with the healthcare cost trends at levels not seen in many years, customers are showing increasing focus on cost and ROI. We believe we are well positioned to benefit from this trend, given the depth of our data and pricing.
Sanofi recently presented their second study that demonstrated a statistically significant clinical improvement in Dario users as compared to a matched control group, and released additional data from this healthcare utilization study that they presented in the first quarter. This additional cost data showed that Dario's users' costs were reduced by approximately $5,000 more per year than a matched group that did not use Dario. Given that the full suite solution costs less than $1,100 a year, you can see the significant potential ROI. It is important to note that these studies were conducted independently of Dario, which is unusual for digital health companies, and they are some of the most rigorous studies that have been conducted in the space.
This high level of rigor is another differentiating factor for the Dario platform that we believe will have the most value in the health plan market as the demand for high-quality studies continues to increase. As we look towards the rest of 2023, we expect the B2B2C revenue to grow throughout the rest of the year, although at a slower rate than originally anticipated, with the Aetna platform enrollment pushed back to the beginning of 2024. We expect that the B2C revenue will remain relatively constant with past levels. With the Aetna platform delivered and due to the delays with Sanofi, we expect to continue to see volatility in our strategic milestone-driven revenue through the end of this year.
We do believe that our multi-condition strategy, partner focus, and demonstrated ability to turn contracts into revenue have positioned us to experience significant growth throughout 2024. A few things to consider: We have created a growing base of B2B2C revenue that will carry into 2024 with strong retention. As noted above, we are seeing expansion opportunities in both the self-insured employer and the health plan segments of our business. Expansions of additional population and customers expanding the number of conditions are both happening. We expect the Aetna platform to launch in the first quarter of 2024. We have a growing pipeline of additional B2B2C self-insured employers we anticipate adding in Q1 of 2024 based on our current sales efforts. We also have a significant pipeline of health plans with the potential to contribute to revenue late this year and in 2024.
Finally, we have established several quality partnerships, and those partners are starting to generate Dario customers from their growing pipeline that we anticipate will contribute significantly to revenue in 2024. With that, I would like to turn it back over to Erez Raphael.
Erez Raphael (CEO)
Thanks, k. Despite slower than anticipated launch by Aetna, in the big picture, we believe we have all components, and we are showing all the evidence to be successful and show significant growth in 2024. We also believe that we have evidence that the core B2B2C model is working as we generated a sequential B2B2C analyzed recurring revenue growth for the 10th consecutive quarter. We have created a growing base of B2B2C revenue that will carry into 2024 with strong retention. We see existing clients, mainly health plans, expanding platform to larger population and/or adopting additional chronic conditions. We have growing pipeline for both health plans and employers through 2024. Our relationship with top players like Sanofi and Aetna are getting stronger. In the last two weeks, we enhanced the existing agreement with Sanofi to reflect tighter alignment of the strategy between the two companies.
We also believe that relationship with Sanofi will expand in the future and should be beyond the $30 million contract that we already signed. We believe we have unique opportunity as well as a product market fit with real competitive mode and real-world, third-party, validated scientific evidence. The Sanofi studies demonstrate real win-win through improved member health and lower cost for payers in exceptionally rigorous real-world studies, the holy grail of digital health and healthcare in general. We are seeing a trend of big traditional healthcare players, including large pharma such as Sanofi and other big medical devices companies, looking to tap into the digital health space by partnering with companies like Dario, so they can too be part of the footprint in healthcare transformation. We expect to make more large and strategic partnerships.
Based on the foundation we have built, we believe we are positioned to accelerate our multi-year strategy to drive revenue and profitability substantially higher with our partners, health plans, and employers. With that, I want to hand the call over to the operator for a Q&A session.
Operator (participant)
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the questioning queue. You may press star two if you would like to remove your question from the queue. For participants using the speaker equipment, it may be necessary to pick up your headset before pressing the star key. One moment please while we pull for questions. Our first question comes from Rahul Rokde with LifeSci Capital. Please go ahead.
Rahul Rokde (Analyst)
Hey, guys. Thanks for taking the questions. I was just wondering if you could help kind of quantify, you know, the potential impact on, on top line from the expanded partnership with the large regional health plan. I mean, I guess how, how should we think about where the potential revenue opportunity was and, and what it could be now?
Operator (participant)
Excuse me, ladies and gentlemen, please wait to the reconnection of the speaker. Thank you.
... Excuse me, ladies and gentlemen. Please wait to the speaker's reconnection. Ladies and gentlemen, please continue to stand by. The event will continue momentarily. Again, please continue to stand by. The event will continue momentarily. Excuse me, please, Erez Raphael, you may proceed.
Rick Anderson (President)
Thank you.
Operator (participant)
Rahul Rokde, please proceed with your question, please.
Rahul Rokde (Analyst)
Sure. I was just wondering if you could help us understand the increase in potential revenue from the large regional health plan now that you guys are expanding beyond hypertension?
Rick Anderson (President)
You're, you're talking about the expansion of, of the membership beyond the, the 3 million, Well, it's, it's 3 million members, and you're talking about the expansion of going from hypertension to hypertension, diabetes?
Rahul Rokde (Analyst)
Yeah.
Rick Anderson (President)
It's probably, I mean, it's the same population that we're talking about, but it, it probably will increase the, the revenue opportunity by about 20%, give or take a bit.
Rahul Rokde (Analyst)
Got it. Okay.
Rick Anderson (President)
Diabetes is obviously the smallest prevalence of, of the conditions that we're covering. It's usually about 8% of a commercial population, versus hypertension is going to be in the 30%-35%.
Rahul Rokde (Analyst)
Got it. Okay, that makes sense. I appreciate that color. Maybe could you also provide just some detail on the process that led to the client's decision to expand the partnership? I mean, how actively were you guys pursuing expansion, or, you know, did it kind of come organically? I guess, you know, on that end, how should we think about potential for expansion for other existing plans, as we look to the back end of the year?
Rick Anderson (President)
I think e-expansion, it takes, like, generally two forms, let's say. You know, one of those is expanding conditions like we saw with that health plan. The other is expanding, you know, especially in a health plan from one population to another. We have active opportunities in our pipeline right now for existing customers expanding in both ways, you know, both population, you know, lines of business. You know, where we may be in Medicaid, thinking about commercial or Medicare populations with, with plans, things of that nature. We're having conversations like that ongoing. Obviously, we're pursuing them. Frankly, though, this one, we were a little bit surprised by the timing.
You know, we're always having conversations, and I think really what this one shows is, is the value of the, the multi-condition platform, because this was an opportunity where the customer said, "Look, you know, we like what we're doing. Even though we haven't launched yet, you know, we like what we're doing with you guys as it relates to hypertension. We want to expand that, and we like the fact we can expand it on the same platform." You know, I think that's, you know, what you're seeing is, is that ability to access a broader population through having a multi-condition strategy.
Rahul Rokde (Analyst)
Got it. Okay, that's helpful. I appreciate the, the insight there. Then, Erez, just kind of wondering, as we think about the back half of the year, should we expect any more changes to, to OpEx?
Rick Anderson (President)
Yes. We, we, we, we'll keep optimizing our OpEx and, you know, our objective is to build viable business in digital health that is getting to cash flow positive around $80 million in revenue. We keep consolidate activities. We did some more offshoring, and we believe that in the second half of the year, we're going to see another 3% to 5% reduction in the overall OpEx. Overall, 2024, despite revenue growth, we're going to see an OpEx that is probably lower by 5% to 7% to what we see in the overall 2023.
It's, it's multiple activities that we are running in between some offshoring activities, optimization of the acquisitions that we did in 2021 and consolidation of activities, and also post few years that we invested into integrating the platform. Now we have multiple health plans that are in production, and to Rick's point, we have those that are already in production, seeing the results and opening the platform and asking to open the platform for additional population.
Erez Raphael (CEO)
... We believe that we can optimize our investment. We see overall OpEx that is declining a bit. Not something that is too big. There is some kind of decline.
Speaker 6
Got it. Yeah, no, great to see, you know, the, the improvement based off of those activities. Thanks for taking the questions, guys.
Erez Raphael (CEO)
Thank you, Owen.
Operator (participant)
Our next question comes from Charles Rhyee with TD Cowen. Please go ahead.
Speaker 7
Hi, this is Lucas on for Charles. Wanted to ask about the Aetna partnership. Understand that you guys now are going to have a 1/1 start in 2024, and that you're now selling it to a larger population compared to the original EAP population of 10 million. In your press release, you guys noted that it could present a larger revenue opportunity, obviously selling into a larger population. Is there anything else that we should think about in terms of selling into, you know, the behavioral health side of this, of Aetna, compared to the EAP population, that would also kind of warrant higher revenue opportunity? Then also, are there any differences in terms of how this will be sold within Aetna, other than obviously being a different side of the business?
Rick Anderson (President)
Yeah, so the... They're related sides of the business, but they're, they're different populations, and they're, they're sold differently. Behavioral health can, can sell independently, but they also sell a lot alongside their medical benefit counterparts. You know, that is one difference. There's a different group of people, essentially, and the way it gets packaged is a bit different. You know, just for clarity, they're selling this solution through to their customers. This isn't, you know, because they've purchased the platform, which is their new behavioral health platform, their digital platform, that they're selling through to their end customers. It's their sales force that, that is selling it. It's going to be a different sales force that's doing it. It's already in process.
We, as I noted, during the call, we have a little bit more visibility than we had previously in terms of what the status is of that, of that is. You know, they're selling it to bigger opportunities in a bigger context, I guess, is what I would say as it relates to it. The primary, you know, increase in opportunity is largely due to the different size of the population that they currently have.
Speaker 7
Okay, cool. Thinking about the employer market, looking over the past few announcements you guys have made, most of your recent wins have been with health plans. Can you give us an update on what you're seeing in the employer market? Have you gotten any sense that there's any pressure on, on employers currently? Do you think you could see that turn around?
Rick Anderson (President)
I mean, I think that we're definitely seeing-- So I guess I would... This is what I would say: is the economy is not the same for all companies. You know, so we're seeing a lot of differences between organizations that are still struggling for talent versus those that are, you know, maybe under more pressure based on results, et cetera, in, in this current economic environment, and they are responding differently. The other big trend that we're seeing, or starting to see in the market is medical renewals, meaning what, customers are paying for their cost of delivering, you know, basic medical care, is the trend rates are much higher than they've been in, in a decade. That's impacting people as they try and, you know, find ways to reduce that.
I mean, some people are talking about trend rates that are as high as 20%, you know, which is extremely high in context. You know, I think that's impacting some people's decisions and pushing some things back in the year. That's what we hear from the benefit consultants continuously. All of that said, I mean, we continue to get traction, in terms of, you know, selling into the market. I mean, some of that has to do with the fact that Dario is a newer player, relatively. You know, our increases are, you know, maybe differential to what the overall market experience is, if you're, if you're looking at that through that lens.
I think the other thing that's really important that, that drives is we're seeing more and more focus on, you know, less vendor or, yeah, less vendors and more conditions per vendor, trying to reduce their cost of administering these kinds of plans, as well as looking for solutions that lower their overall costs. You know, this is where we lean into the Sanofi studies, where, you know, I believe the Sanofi studies will be most valuable in the health plan market, but they definitely are validating. I mean, these are third-party studies, which are almost unheard of. You know, the results from very rigorous studies are showing that we're getting significant cost reductions, and that's the kinds of things that, you know, self-insured employers are looking at in this kind of environment as well.
I think we've got a very strong, ROI story as it relates to that, and I think we're benefiting from the trends, you know, in the marketplace as it relates to that. I think, by the way, that we will continue to benefit from that as we go into next year.
Speaker 7
Okay, great. Then my last question is around artificial intelligence. At a recent conference, you guys noted that you have been utilizing GenAI for some elements in the business around personaliz- personalization and making recommendations to members on the platform. Could you give us more details on how you've seen users take to this sort of capability and feature? Then, is it something that is becoming an attractive feature for health plans and employers? Can you, I guess I'd be curious to hear what sort of success you've had in terms of, driving business through these features, if that's a, a factor or not.
Erez Raphael (CEO)
Yes, absolutely. I think that one of the unique parts about Dario is the fact that we are consumer first. The idea of collecting data and learning from data, how people behave. This is one of the biggest differentiator that we have. We hear all the all the noise in the market around positive noise in the market around AI. From our perspective, this is something that we are doing for years and collecting a lot of data. Based on the data, we learn about the behavior of the users, and then we are reinforcing this learning into a better engagement.
I think that the best way to think about it and to, and to, and to understand whether we are achieving a goal or not, is by looking into real-world studies, data that we have, and the two, the two Sanofi studies showing that we have the ability to engage with users and to save, and to save money. I think that with AI and generative AI, our ability to iterate and keep improving, because every month the platform is becoming better and better, because the platform is learning better and better. Today there are tools in the market and capabilities and data that we have that can make our iterative process toward improvement much faster than what we used to see, like, four or five years ago.
I think that, when we think about digital health and we think about how companies can create platforms, sometimes I'm being asked by investors, "Hey, why don't this company and the other company can create this platform overnight by investing $200 million?" I think that the, the big point here is time and data, and the time that we are operating as a consumer-centric solution and the data that we collected is something that eventually helps us iterate faster and get better results because we have a lot of data. Specifically for health plans and employers, they are getting the benefit of the AI by having users that are more engaged in improving outcomes.
The, the, the bottom line is the, is the studies that we were presenting with Sanofi that shows that it's performing, and for us, it's a, it's a big, big, big differentiator that helps us sell into these two channels.
Dane Leone (Analyst)
Thanks. That's really helpful. I'll jump back in queue.
Erez Raphael (CEO)
Thank you, Lucas.
Operator (participant)
Our next question comes from Dane Leone with Alliance Global Partners. Please go ahead.
Dane Leone (Analyst)
Good morning, guys. Thanks for taking the questions. I just wanted to hit on a couple items. On the recurring B2B2C revenue, you know, obviously congrats on 10 consecutive quarters of growth there, but can you give us a sense of, you know, what that sequential growth looked like in the quarter? I mean, is it, you know, is it 5%, is it 50%? What, what kind of growth did you have there?
Erez Raphael (CEO)
Yes, overall, if you look on the overall revenues that we have, the total B2B is around 63% from the total revenues.
Dane Leone (Analyst)
Mm-hmm.
Erez Raphael (CEO)
Breakdown between strategic to the membership, I, I don't want to call it ARR, and I will explain in a second why.
Dane Leone (Analyst)
Mm-hmm.
Erez Raphael (CEO)
If you are looking into pure membership, it's around 50/50 out of the B2B. This is the ballpark number. When we think about the strategic, just to re-emphasize, in the strategic, some of it is also considered an ARR, because as part of the strategic, we are getting paid for data and things that are also recurring. They are milestone, milestone-driven on a yearly in terms of revenue recognition, but on a yearly-
Dane Leone (Analyst)
Mm-hmm
Erez Raphael (CEO)
... basis, it's also recurring. I just want to make sure that investors, that when they think about gross margins and recurring revenue, we are counting both the members that are on the platform as ARR, but also the portion of the strategic, which is data-related, it is also recurring. I think that this is very important because eventually the objective is to create a business that is very SaaS-oriented model with very high gross margins.
Dane Leone (Analyst)
Mm-hmm
Erez Raphael (CEO)
... of existing business that is rolling year-over-year of at least 80% of the today's revenue should roll into next year because of, because of, user retention and, and because of, the ability to generate revenue also from the data. In other words, data monetization.
Dane Leone (Analyst)
Okay. Basically, data plus, you know, continuing, retained customers make up the recurring B2B2C on, on the B2B side, if, if I'm hearing you right?
Erez Raphael (CEO)
Yes.
Dane Leone (Analyst)
Okay.
Erez Raphael (CEO)
Yes.
Dane Leone (Analyst)
Got it.
Erez Raphael (CEO)
Just to be, just to be accurate, in these results, you have seen around, I think that the number is 63% B2B, and the rest is B2C. Inside the B2B, you have around.
Dane Leone (Analyst)
Mm-hmm
Erez Raphael (CEO)
... 50% of it is membership, and then on top of that, you have additional, that is data and so on. I would consider, like, 75% of what you see, as part of the B2B is kind of recurring that you can count on rolling into next year.
Dane Leone (Analyst)
Okay. Okay, that, that, that's helpful. Okay, so, so... Do you have a sense of, you know, what sort of growth there was there? I mean, I would imagine sequentially, I mean, I imagine, you know, it's probably more on the order of, you know, 10% than 30%, just with the, you know, doing the math.
Erez Raphael (CEO)
Yes, it, it's in the ranges of more than 10% and 30%. Overall, year-over-year, we are somewhere around between 70%-100% growth at the moment, so the pure AR.
Dane Leone (Analyst)
Okay.
Rick Anderson (President)
One thing, one thing to keep in mind about growth of this sort is it's not linear because of the fact that you have it's impacted significantly by when we add new customers on the platform.
Erez Raphael (CEO)
Yeah.
Rick Anderson (President)
A few quarters after that. If you think about, you know, health plans can happen throughout the year, but, you know, they're, they tend to be large, so they can impact that growth rate. Also because most employers come on the platform in the first quarter, that impacts it earlier in the year, right? You have, you'll tend to have higher growth rates, you know, if you exclude the health plans for a moment, you'd have higher growth rates at the beginning of the year. Those growth rates would slow down in the back half of the year before you added the new customers in the first quarter. What impacts that is, like, when we bring on a health plan, like we did this quarter, that obviously, you know, accelerates the growth in those, in those periods.
You shouldn't think about it as being linear.
Dane Leone (Analyst)
Yeah. It's kind of more stair-step?
Rick Anderson (President)
Yes.
Dane Leone (Analyst)
Got it. Okay. Makes sense. Then on the, the B2C, you know, you've been talking a while about that kind of being at a constant level, but it actually has ticked up a little bit the past couple quarters. Why is that? Is that, you know, more people finding you and getting on the, the B2C platform? Is it taking a little bit of price? What goes into that?
Rick Anderson (President)
you know, largely, it's, there's a couple things that go into it. You know, some of it is going to be, you know, cyclical in terms of, you know, what quarter that you're in, because the way that people tend to spend on those types of devices. It's also, we've seen a reduction in the acquisition costs. As we balance what we're doing, and, you know, depending on what the demand is in the market conditions as it relates to, you know, digital advertising for that kind of revenue, we may, you know, put some more additional money behind that if we think we can generate, you know, additional profit. It's, what you're seeing is really just what I would call, like, kind of between the hedges optimization.
Dane Leone (Analyst)
Okay. Got it. Excellent. Well, that's, well, that's all I had, guys. Thanks for taking the questions.
Rick Anderson (President)
Thank you.
Erez Raphael (CEO)
Thank you so much, Dane.
Operator (participant)
Excuse me, ladies and gentlemen. If you would like to pose a question, please press star 1. There are no further questions at this time. I would like to turn the floor back over to Erez Raphael for closing comments. Please go ahead.
Erez Raphael (CEO)
Thank you so much. I'd like to thank all of you for joining our call, this morning and looking forward to keep following the story. Thank you.
Operator (participant)
This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation, and have a good day.