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 .

Financial Results

Consolidated Metrics (GAAP vs prior periods; oldest → newest)

Metric	Q2 2022	Q1 2023	Q2 2023
Revenue ($USD Millions)	$6.18	$7.07	$6.15
Gross Profit ($USD Millions)	$1.14	$3.17	$2.07
Gross Margin % (GAAP)	18.4%	44.8%	33.7%
Net Loss ($USD Millions)	$(18.03)	$(12.83)	$(16.59)
Diluted EPS (Loss)	$(0.74)	$(0.45)	$(0.58)

Non-GAAP detail: Pro forma gross margin (ex-amortization) was 36.1% in Q2 2022 and 51.5% in Q2 2023; Non-GAAP adjusted loss improved to $(7.51)M in Q2 2023 from $(11.13)M in Q2 2022 .

Segment / Channel Disaggregation

Revenue Source ($USD Millions)	Q2 2022	Q1 2023	Q2 2023
Commercial (B2B)	$2.85	$4.95	$3.92
Consumers (B2C)	$3.34	$2.12	$2.24
Total	$6.18	$7.07	$6.15

Additional mix/KPIs:

B2B revenue ~63% of total in Q2 2023 .
Cash and cash equivalents: $52.6M at 6/30/2023 .
ARR commentary: 10th consecutive quarter of sequential B2B2C ARR growth (qualitative) .

Comparison vs Estimates

Wall Street consensus estimates (S&P Global) for Q2 2023 were unavailable via our data connection at this time. We attempted to retrieve “Revenue Consensus Mean” and “Primary EPS Consensus Mean” but were rate-limited by S&P Global. As a result, estimate comparisons cannot be provided for Q2 2023 [GetEstimates error].

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Gross Margin Target (Pro forma)	FY 2024	~70% target (prior calls)	Reiterated ~70% target	Maintained
Operating Expenses (OpEx)	H2 2023	Not specified	Reduce 3–5% vs H1 2023	Lowered
Operating Expenses (OpEx)	FY 2024	Not specified	5–7% lower than FY 2023	Lowered
Aetna Enrollment Timing	Platform launch/enrollment	Expected Q3 2023	Enrollment moved to Q1 2024; BH population (~30M lives)	Delayed (but larger TAM)
Near-term ARR Growth	H2 2023	Faster rate anticipated pre-Aetna shift	Growth to continue but slower than originally anticipated	Lowered

Earnings Call Themes & Trends

Topic	Q4 2022 (Previous-2)	Q1 2023 (Previous-1)	Q2 2023 (Current)	Trend
Multi-condition & B2B shift	Emphasized multi-condition and B2B strategy; pro forma GM 58.1% in Q4’22	Continued B2B growth; B2B ~70% of revenue	B2B ~63%; pro forma GM 51.5% in Q2	Sustained mix shift to B2B; GM structurally higher
Sanofi partnership	Strategic, co-promotion, development, data; milestones expected	Year two milestones and studies underway	Amended agreement; delayed Q2 milestone revenue; studies show ~$5k annual savings	Alignment strengthened; near-term timing variability
Aetna platform	Expected mid-2023 ramp, paid PMPM for access	Platform delivered; 2023 revenue from development; enrollment anticipated	Enrollment moved to Q1 2024 into BH, expanding population to ~30M	Timing delay, larger TAM
Health plan launches (Solera/Blues)	Anticipated health plan additions	Near-term plan launch pending	July launch of large regional Blues (~3M members), expanded to diabetes	Execution progressing
AI/personalization	Not highlighted	Some machine learning studies	Generative AI used for personalization; iterative improvements from data	Increasing emphasis
Macro/cost/ROI	Tailwinds from customer focus on ROI	Employer/health plan focus on cost reduction	Sanofi studies: ~9.3% lower HCRU, ~23.5% lower hospitalizations; ~$5k annual savings	Strengthening ROI narrative

Management Commentary

“Our financial profile continues to evolve towards a [multi-tenant] SaaS technology solution…We generated sequential B2B2C ARR growth for the 10th consecutive quarter” .
“Pro-forma gross margin was 51.5%…up from 36.1%…primarily resulted from shift in revenues from B2C to B2B…we are targeting an average gross margin of 70% by 2024” .
“Despite a delay in the launch by Aetna…the partnership is only getting stronger…moving to the behavioral health population increases the total opportunity to ~30 million lives” .
“We signed an enhancement to the original [Sanofi] agreement…accelerating funds to speed up features…Sanofi continues to invest in sales, marketing and studies…we believe disruption from internal changes is largely behind us” .
“Sanofi studies showed Dario users’ costs reduced by approximately $5,000 more per year than matched non-users…underscoring significant ROI” .

Q&A Highlights

Health plan expansion: Adding diabetes to the Blues plan increases revenue opportunity by “about 20%” for the same population .
OpEx trajectory: Expect 3–5% OpEx reduction in H2’23; 5–7% lower OpEx in 2024 vs. 2023 from offshoring, consolidation, and efficiency .
Aetna: Enrollment moved to BH (~30M lives), sold by a separate Aetna sales force; start targeted for 1/1/2024 .
B2B2C growth cadence: Sequential ARR growth >10% and <30%; not linear due to timing of large health plan adds and employer cycles .
AI: Generative AI supports more rapid personalization and engagement; differentiator for health plans/employers .

Estimates Context

We attempted to retrieve Q2 2023 S&P Global consensus for revenue and EPS but were rate-limited; therefore, consensus benchmarks are unavailable for this recap, and we cannot assess beat/miss vs. Wall Street at this time [GetEstimates error].

Key Takeaways for Investors

Margin story intact: Pro forma gross margin expansion and B2B mix support the 70% GM target for 2024; execution on multi-condition PMPM should continue to lift unit economics .
2024 setup: Near-term ARR growth moderates due to Aetna enrollment delay, but expanded BH population (~30M lives) and partner pipelines (Solera, Amwell, Sanofi) set up a stronger 2024 trajectory .
Strategic validation via evidence: Independent Sanofi studies showing ~$5k annual savings per Dario user reinforce payer ROI and should aid health plan adoption and contract expansions .
Liquidity and runway: $52.6M cash and the Avenue credit facility provide flexibility through 2025; watch debt cost, covenant compliance, and operating leverage progress .
Trading lens: Near-term catalysts include Blues plan ramp, additional health plan adds via partners, and clarity on Aetna enrollment; risks include milestone timing variability and macro-driven employer purchasing cycles .
Monitor mix: Continued reduction of consumer hardware revenue with rising B2B services should structurally improve margins; watch commercialization pace across diabetes, hypertension, MSK, BH .

Appendix: Other Relevant Q2 2023 Press Releases

July 24, 2023: Agreement with large regional health plan (hypertension) launching in July; preliminary Q2 revenue $6.0–$6.15M; cash $52.6M; partnership wins include MedOne (Sanofi-attributed) and the plan (Solera-attributed) .
Q2 2023 10-Q filed Aug 10, 2023: Full GAAP results and Sanofi amendment details (Exhibit 10.1) .

DarioHealth Corp. (DRIO)·Q2 2023 Earnings Summary