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DarioHealth Corp. (DRIO)·Q2 2022 Earnings Summary

Executive Summary

  • Q2 2022 revenue was $6.18M, up 17.5% year over year but down 23.3% sequentially, driven by a contracting delay with a large national health plan and a strategic reduction in Direct-to-Consumer (DTC) activity .
  • GAAP gross margin compressed to 18.4% (from 28.7% in Q2 2021 and 49.4% in Q1 2022), while non-GAAP B2B2C gross margins exceeded 70% in the quarter; pro-forma gross margin was 36.1% .
  • Operating expenses declined both year over year and sequentially; cash and equivalents ended at ~$68M, supported by an OrbiMed credit facility up to $50M and strategic payments (e.g., Sanofi), extending runway into 2024 .
  • Management expects the Q2 revenue impact to reverse in H2 2022 as the national health plan begins contributing in Q3; full-year non-GAAP gross margin above 50% and improving in 2023, with continued pivot to B2B2C and reduced DTC spend .
  • Wall Street consensus estimates via S&P Global were unavailable at time of analysis; result vs estimates cannot be assessed (S&P Global consensus not retrieved).

What Went Well and What Went Wrong

What Went Well

  • Non-GAAP B2B2C gross margins “exceeded 70%” in Q2, affirming unit economics as mix shifts toward B2B2C .
  • Strategic B2B2C momentum: 69 accounts signed, $55M total commercial contract value, and a second-phase agreement with a national health plan providing access to ~10M members and expected recurring revenue of ~$25–$35M at full implementation .
  • Management emphasized greater efficiency and improved runway: “OpEx is going down…losses are going to go down…run rate is going to be expanded,” with cash of ~$68M and additional financing flexibility from OrbiMed .

What Went Wrong

  • Sequential revenue decline (-23.3% QoQ) due to contracting delay in one large health plan and deliberate DTC slowdown, pressuring gross profit and operating loss sequentially .
  • GAAP gross margin fell to 18.4% (down from 49.4% in Q1), reflecting mix shifts and lower B2B2C revenue timing; GAAP gross profit decreased sequentially .
  • Net loss widened sequentially to $18.0M, with diluted loss per share of $0.74; management acknowledged near-term revenue pressure from reduced DTC and lumpiness in strategic (Sanofi) revenue recognition .

Financial Results

MetricQ2 2021Q1 2022Q2 2022
Revenue ($USD Millions)$5.261 $8.059 $6.183
GAAP Gross Profit ($USD Millions)$1.508 $3.985 $1.138
GAAP Gross Margin %28.7% 49.4% 18.4%
Pro-forma Gross Profit ($USD Millions)$2.655 $4.917 $2.284
Pro-forma Gross Margin %49.4% 61.0% 36.1%
Total Operating Expenses ($USD Millions)$19.511 $19.857 $18.493
Operating Loss ($USD Millions)$(18.003) $(15.872) $(17.355)
Net Loss ($USD Millions)$(17.765) $(15.916) $(18.028)
Diluted EPS ($USD)$(0.99) $(0.74) $(0.74)

Segment breakdown (Q1 2022 disclosed):

  • Commercial (health plans, employers, providers): $4.549M
  • Consumer: $3.510M

KPIs and balance sheet

KPIQ4 2021Q1 2022Q2 2022
Accounts Signed (number)54 61 69
Total Commercial Contract Value ($USD Millions)$36 $42 $55
Cash & Equivalents ($USD Millions)$35.8 (12/31/21) $55.6 $67.9 (6/30/22)
B2B2C CAC ($ per user)n/an/a< $20

Notes:

  • Pro-forma figures exclude non-cash amortization of acquired technology and other adjustments per the company’s non-GAAP definitions .
  • “Non-GAAP B2B2C gross margins exceeded 70%” in Q2 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue trajectoryH2 2022n/aExpect Q2 decline to reverse in H2 as national health plan contributes from Q3 Raised (qualitative)
Gross Margin (non-GAAP)FY 2022, FY 202350–60% in 2022 (prior commentary) “For the full year, we expect to be above 50%, and >60% next year” Maintained/clarified
Operating ExpensesQ3–Q4 2022n/aAdditional ≥10% OpEx reduction between Q2 and Q4, largely from DTC pullback New (lower)
Contract countYE 2022Target ~100 accounts On track; anticipate more customer announcements through year Maintained
Cash runwayThrough 2024Through 2023 (prior 10‑Q) “Significant run rate for 2024” Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2021)Previous Mentions (Q1 2022)Current Period (Q2 2022)Trend
Pivot to B2B2C and DTC reductionEmphasized shift; targeted 50–60% GM in 2022 B2B exceeded B2C for first time; reduced DTC ads Formal strategic decision to “slow down significantly” B2C; 70% lower CAC vs DTC Accelerating pivot
Sanofi partnershipAnnounced $30M multi-year agreement; co-promotion & development Expected ~$8M 2022 revenue recognized over year Strategic revenue lumpy intra-year; continued co-selling; evidence generation Building
Health plan expansionNational plan with additional phases pulled forward Expect multi-millions 2022 from expanded agreement National plan ramp begins Q3; ~10M members access; ARR potential clarified Ramp starting
Gross marginsGoal 70–75% LT; 50–60% 2022 Non-GAAP 61% in Q1; variability expected Non-GAAP B2B2C >70% in Q2; GAAP compressed on mix/timing Mixed (LT positive)
Operating efficiency & cashCash $35.8M at YE21 Raised $40M; confident to 2024 Cash ~$68M; OrbiMed up to $50M; runway into 2024 Improved
Behavioral health demandPlatform integrated; MSK/BH acquisitions Strong BH demand; off-cycle wins BH remains strong; navigation model; Medicaid traction noted Robust

Management Commentary

  • “We…made a strategic decision to slow down significantly the B2C business and to move resources into the B2B. The implication…is starting to show up in Q2…OpEx is going down…Gross margins are going to improve.”
  • “We now see B2B2C contract values totaling $55 million…a national health plan…allowing us to reach approximately ten million additional members…we anticipate that this will reverse in the second half of 2022.”
  • “Our B2B2C cost of acquisition…is now below $20…we are seeing 70% and above margins from [that] business.”
  • “We ended the quarter with $68 million, which is…giving us a significant run rate for 2024…additional $25 million credit line…from OrbiMed.”

Q&A Highlights

  • B2B vs B2C dynamics: Sequential B2B revenues softened on timing; DTC to be rationalized to breakeven or better; B2B to drive 2023–2024 .
  • Sanofi revenue recognition: ~$8M expected for 2022, recognized across quarters by deliverables (market access, development services, data) .
  • National health plan phases: Second phase underway; per-member PMPM plus buy-ups; revenue begins Q3 with ramp into 2023–2024 .
  • CAC and margins: B2B2C CAC < $20; non-GAAP B2B2C gross margin >70% .
  • Cash burn and OpEx: Burn to decline Q3–Q4; at least 10% OpEx reduction between Q2 and Q4 as DTC is pulled back .

Estimates Context

  • Wall Street consensus estimates (S&P Global) for Q2 2022 revenue, EPS, and EBITDA were unavailable at time of analysis; beats/misses vs consensus cannot be determined. Values from S&P Global could not be retrieved due to system limits during the request.

Key Takeaways for Investors

  • Mix shift to B2B2C is structurally improving unit economics (CAC < $20; non-GAAP B2B2C gross margin >70%), setting the stage for margin expansion as health plan revenue ramps; near-term GAAP margins are sensitive to revenue timing and mix .
  • Sequential revenue decline was largely timing-related; management expects a reversal in H2 as the national health plan contributes from Q3, making Q3/Q4 key catalysts for trajectory confirmation .
  • Strategic (Sanofi) revenue provides multi-year support but will be lumpy intra-year; monitor quarterly disclosures for deliverables recognition and evidence-generation outputs .
  • Operating discipline is tangible: OpEx trending down, DTC spend rationalized, and cash runway extended into 2024 with ~$68M cash and OrbiMed facility up to $50M—de-risking execution into 2023 .
  • Contract momentum (69 accounts; $55M total value) and national health plan access (~10M members) underpin 2023–2024 recurring revenue growth potential; watch conversion pace (enrollment, buy-up rates) .
  • Gross margin recovery path: Expect >50% for FY22 and >60% for FY23 on non-GAAP, supported by B2B2C mix; GAAP margins will reflect amortization and quarterly mix/timing effects .
  • Without available consensus, traders should focus on sequential revenue inflection in Q3 and operating leverage improvements as key stock reaction catalysts.

References:

  • Q2 2022 8-K press release and exhibits .
  • Q2 2022 earnings call transcript .
  • Q1 2022 10-Q and call .
  • Q4 2021 call .