DarioHealth Corp. (DRIO) Earnings Call Transcript & Summary

Good morning, and welcome to the DarioHealth webinar on navigating emerging digital health trends for strategic growth in 2022. [Operator Instructions] As a reminder, this webinar is being recorded, and a replay will be made available on the DarioHealth website following the conclusion of the event. I'd now like to turn the call over to your host, Erez Raphael, Chief Executive Officer of DarioHealth. Please go ahead, Erez.

Thank you, Tara, and good morning, everyone, and thanks for joining our webinar this morning. I'll start by giving a high-level overview of why we are having this webinar, and I think that the company did a lot of progress in the last couple of years, especially last year. And we felt that at that point of the year, when we are starting 2022, it's a good opportunity to pause for a second and provide an overview, not just on what's happening inside the company, but also what's happening in the industry. So we think more data points and more knowledge for our shareholders and potential investors about the digital health and digital therapeutics space is extremely important. And this is how we're going to start the webinar. But before we're going to go and start the webinar, I want to go into the forward-looking statement. And then I'm going to introduce the guests that we have today, and we're going to talk about the specific agenda. So I'll give it a few seconds so we can read it. And then I'm going to go ahead and introduce the guests. So I'll start by introducing Sari Kaganoff. Sari is a general manager at the consulting firm of Rock Health. Rock Health is one of the leading digital health and digital therapeutics-focused venture fund and advisory firm. Rock Health are advising a lot of clients, investors and companies in the digital health area and Sari will be able to give you a very informative insight on what's happening in the market. I think that Rock Health today has a very comprehensive information about the development of the space, investment and other things that are super interesting in order to understand where the category is going. So I'm happy that Sari will be able to provide overview on the space. We're also hosting Dr. David Kaplan, who is a physician and he's expert in health care and specifically expert in the employer market, which is one of the main channels that Dario have. So Dr. Kaplan led the clinical practices at Towers Perrin and also at Mercer. And he also was responsible in establishing the innovation function, as well as the founder at Mercer Labs. And he have a lot of knowledge and understanding on what exactly clients are looking to buy when they're looking for digital solutions. So we're going to start the webinar with Sari overview. Then, David is going to give us some information about the client demand. And then Rick, the President of the company and the General Manager for North America will join me on 3 different chapters. The first one is going to be about how Dario's strategy was evolved in the last 2 years and what's the strategy moving forward. And then we're going to provide some summary about 2021, that was a very important year for us. And then we're going to talk about what we should see in 2022. And then we're going to summarize, and then we're going to open it for Q&A. So I'm looking forward for a very fruitful overview and discussion about the space and about Dario specifically. And with that, I want to hand over the presentation to Sari to provide an overview on the space.

Thank you, Erez. We're going to dive right in here and look at some of the digital health investment activity over the last year and prior years. And I'm going to start off with a pretty big eye chart right here. So I'll walk you through what this is. And what you see here is, since 2011, each year, the amount of venture dollars that has gone in to digital health funding in -- for startups in the United States. So these are all companies headquartered in the U.S. And you see the light green bars, the amount of money that has gone into the space and the darker green bar is the amount of companies that were funded in that year, the amount of deals. What's fascinating is obviously this kind of hockey stick that pops up at the end. So in 2021, we saw almost $30 billion, so $29.1 billion of investment pouring into venture-backed startups in the U.S. That's almost twice what we saw in the prior year, and several orders of magnitude what we've seen in the years before that. So there's clearly a big uptick this year in venture funding for new startups. On the dark green bar, we saw 729 start-ups receiving that funding. And that's also a pretty big jump from 2020. However, as you'll see on the bottom bubble, it's actually not quite the same order of magnitude of funding. And what that means is actually the average deal size has gone up. So the bubbles on the bottom represent the average deal size. And 2021, the average deal size was $39.9 million, so definitely larger than the prior year of $30.8 million. So we can definitely see that although there's been consistent funding into the venture space in the last decade, the last couple of years and especially 2021 has definitely seen a big surge. Moving to the next. We look at which of the therapeutic areas have received the most funding. And these are actually the top 5 therapeutic areas by funding in the same market. So from 2017 until this past year, you can see this blue line shooting up at the top is mental health. Mental health has received, by far, the most funding over that time frame with the next leaders being cardiovascular and diabetes, so those are pretty quickly following. And then after that, primary care, oncology and musculoskeletal. So what's interesting, here, of course, today to talk about DarioHealth. So the 3 areas in which Dario operates actually some of the top invested therapeutic areas in this space. Moving on to the next. We want to consider valuations a bit here. And again, focusing on those 3 therapeutic areas. What you see on the left is the therapeutic areas of mental health, musculoskeletal and diabetes. And then in the cross sections of the Venn diagram, we have companies that operate in multiple of those categories. So Dario is in the middle, along with Teladoc Health and Omada and new operating involve mental health and diabetes. What's interesting here is that on the right, you can see the valuations of these companies and actually quite large valuations that many of these companies are commanding. One note I'll make is that all of these companies, with the exception of Omada, has raised money or had, had evaluation externally in 2021. So all of these companies are pretty recent other than Omada, which last raised in 2019. But you can see the mental health space valuation's above the $3 billion mark, and the diabetes space ranging from $2 billion, $4 billion, and then in the musculoskeletal, some of the leaders at a $6 billion and $2 billion valuation. So really kind of very high-value companies operating in this space. We're going to shift gears and talk about exit activity. So exit being any companies that have either gone public via an IPO or SPAC or those who have been acquired. On this slide, you see those companies that have gone public in the last 10 years since actually not -- has not been historically many companies that went public in the digital health space. Very few in the early years, and then what we call the public exit drought in 2017 and 2018 that no company is going public. And then a few more in 2019 than 2020. But in 2021, we saw 23 companies going public, 15 of those through SPAC vehicle and the other 8 through an IPO. So a lot of these companies are maturing and exiting on to the public markets. If we consider the other opportunity for exit, which is M&A, we also see significant activity there. So 2021 saw over 200 deals. In fact, 272 M&A deals as compared to the 146 that we saw in 2020. So significant M&A activity. The one thing that's interesting to note is the majority of these acquirers are actually other digital health companies rather than incumbents. So those also are active in the space, the vast majority are actually through other digital health start-ups acquiring. And you can see some of the notable acquisitions on the right. Headspace acquiring Ginger, Invitae acquiring Ciitizen, K Health acquiring Trusst, et cetera. By the way, 2 of these are actually in the mental health space, Headspace, Ginger, K Health and Trusst. Again, shifting gears here, we wanted to look at some of the different activity by countries. And what you see here, this is FDA approvals. There's been an increase in FDA approvals recently, and this by showing FDA approvals for technologies that are AI or ML-enabled devices. And this is based on data from the FDA that they've published a database on companies that have received clearance or products that have received clearance. On the left-hand side, you can see the origin of those companies or the headquarters of those companies by country. The dark green bar is the U.S.-based companies, that's 177 of the total, and the lighter green is the non-U.S.-based companies. But if you look to the right and split out the origin, the location of those non-U.S.-based companies, you see that Israel is actually by far topping the list. And the second country beyond the U.S. is the most FDA-approved AI and ML-enabled devices. So just kind of a little shout out to Israeli companies here. And then moving on to what we expect to see more of, main trends that we see happening today in digital health and that we continue -- we expect to see continuing in the coming years. The first is around consumerization of health care. And this is companies -- or consumers taking a more active choice in their health care decisions often actively pursuing digital health solutions that will help them as well as choosing their own health care plans and choosing the technologies that they use, whether they're paying for them directly or through an employer. The second is consolidation. So we've seen a lot of M&A like we talked about. We expect to see more. And part of this is driven by platform or where companies are gathering up point solutions into broader platforms. Part of this is driven by talent shortages and large amounts of venture funding and also just a return of the industry. And lastly, wider market adoption. We've definitely seen it's not just funding going in, but it's also people using these technologies to consumers, it's employers now adopting those technologies and it's every other stakeholder as digital health moves from a niche fun thing to a real mainstream part of the market. I know that was a bit of a whirlwind, so if you have any questions, feel free to put them in the chat, and I'll address them at the end of the presentation. And with that, I'll hand back to Erez to continue with our topics for today.

Thank you, Sari, for the very interesting overview. It seems like -- I mean, we're going to get into what Dario did in 2021 in more depth. But from an overall coverage standpoint, the chronic conditions that we are covering from the MSK to the overall health, to the metabolic side, including diabetes, this is where Rick and myself pitching for the last 2 years that we're going to go and expand into multi-conditions. And today, we feel that we are right with the right overall offering and with the right timing in the market. So that's something that we're going to elaborate about later. And the valuation is another thing that we see overall, the majority of digital health and digital therapeutics, most of them are still private health companies and there is some disconnection between public and private at this point. And we believe that in the future, things are going to adjust. So with that, I want to hand over the presentation to Dr. Kaplan to give some overview about the employer market. Dr. Kaplan?

It's been a heck of a year for employers and their employees. And when we go and we look at the employers, what is it that they're focused on now? Well, the first thing that they're focused on, not surprisingly is COVID, getting back into the office, figuring out how people are going to be working, et cetera. And that's taking up enormous amount of [indiscernible] The second issue, which I think is going to be a longer-term problem is the whole notion of how are they going to retain and recruit talent. The Great Resignation is a very real entity, and employers are really struggling to make sure that their good employees continue to work with them and their ability to continue to recruit folks in an environment where less people are participating in the workforce. So a big, big issue. The other issue that employers are thinking about is addressing the equity issues in the workplace. Last summer with the George Floyd, et cetera, there was a lot of employers that came up publicly and said, yes, we have significant equity issues to address within our workplace. And they're really looking at ways in which they have addressed it, which is very, very important. And one of the areas is there's a real lack of equity in terms of access to excellent health care, depending upon where you live, racially, et cetera. And so what we see is, folks looking for things that will even the playing field. And that's one of the things where digital health solutions have been very, very, very powerful. And the final thing that's in today's priorities for employers and their HR team, is they've really got to prepare for a resource-constrained environment if the economic conditions deteriorate, and many of them are really thinking about what are they going to do in a tight economy and whether they're going to be able to continue to deliver to those employers, especially with the kind of priorities that we've just spoken about. Next slide, please. So when employers look to put in new programs, what are they looking for? What's important to them? What are the key purchasing considerations? Well, the first one is the ability to build this program through their medical budgets. Employers have 2 budgets. They have the medical budget which goes and pays for the health care for their employees, and we're talking about self-insured employers now, and there is a huge budget. And therefore, if I had a program that comes out of that budget, it's rounding error or less. And so it's relatively easy to come up with the funding to put that in. And on the other hand, if you just come out of the programmatic budget, that's the fixed budget, and it's a budget that's really going to be very vulnerable in tighter economic times. So one of the real helpful things that we've seen is the availability of billing codes for management, monitoring, et cetera, which allows programs that are going to be managing folks and using monitoring, et cetera, like Dario to be able to build through their medical budgets. And this is going to be a really important thing moving forward. Second thing is, again, folks need and demand a demonstrable return on investment if they're going to put a program in. And they're looking for pretty hard and well done analysis to get there and to really see this. So again, companies that are investing in measurement and can show a significant return on investment are going to do much better in terms of having employers buying those programs. So again, a lovely correlation with some of the data we now have from some of the Dario programs, which is very, very good. The next thing is, folks are looking to simplify their health care ecosystems, consolidate solutions. They can't have a million solutions. It's just too confusing for the employers. It's just confusing for them. So folks are looking for, is there a single vendor that can provide us multiple programs? This makes it more accessible and easier for the employees, as well as administratively more simple for the employer. Folks are interested in programs that are focusing on rising cost areas. We certainly see the cost for mental health exploding, which is probably why we're seeing, as Sari pointed out, so many digital health companies in the mental health space coming out. We're also seeing challenges in the musculoskeletal space, immune chronic challenges in the diabetes and heart space. So folks really are addressing the areas that employers care about. And finally, it's the notion of they want to put in programs, they're going to delight their employees. They're going to be consumer-centric, they're going to be individualized. And it's really, really important. So they expect to see high-quality programs with outstanding customer satisfaction and then our structure to really meet employee needs. So that, in summary, is kind of what's happening on the employer world and the kinds of programs folks are going to be buying in the coming year.

Thanks, Dr. Kaplan for the overview. So it's very interesting that -- and this is something that we see worldwide that more and more industries are becoming more consumer-centric. Employees are driving the demand and employers, and we're going to talk also about health plans. Rick and myself, are more and more aligned with the consumer need and with what people want to adopt. And I think that this is something that speaks to the overall future of the digital health and digital therapeutics industry that are trying to drive more consumer-centric capabilities, different experience, more digital. And that's something that is going to penetrate into the market more and more, and clients are getting aligned. So it was very thoughtful, and I offer you thanks, Dr. Kaplan. With that, I want to hand over the presentation to my partner, Rick, to give you some high-level overview about the product strategy and I'll continue. Please, Rick.

Thanks, Erez. So just to spend a few minutes talking about how we've been evolving our strategy from a product direction, we really see the market heading in 3 directions. And as Sari talked about, one of those is increased user-centricity or consumerism in health care. And really, what that means for us is increased personalization for these. So molding the solution around the member more and more because personalization drives engagement, retention and improved outcomes. Solutions that cover more conditions, this is something we're hearing loud and clear in the marketplace. From a user perspective or from a member perspective, people have multiple conditions and challenges, and they're really looking to be able to handle those in one place. And if you think about the user experience of having to go to 5 different companies, 5 different applications, 5 different experiences for my 5 conditions, that's not nearly as user-centric or friendly for me as it is if I can go to one place and manage those, and I feel like I've got a unified approach to that. And what that really results in is, people not using solutions. So they'll start dropping solutions associated with that. And then from a customer perspective, obviously, the need to manage more vendors is -- costs a company more, requires more thought process around it. Everything is just 5x more expensive for them to handle if they can find one vendor that can supply, multiple different conditions. And we really kind of look at that also in terms of the relative comorbidity between those conditions for that to make sense, not just disparate conditions. And then also, the market is evolving. It's not the fastest evolvement, but it's definitely evolving towards solutions that enable value-based arrangements. In the simplest form, that's proven ROI, as David mentioned earlier, studies and data supported associated with that and its ultimate conclusion, it's really a digital health platforms enable risk and revenue sharing based on these proven outcomes. So you can actually not only understand what they are on a user-by-user basis, but you can track them appropriately. And so on the right hand really, here in the slides, it's lining up with what Dario is doing currently, 4.9 out of 5 stars on the Apple App Store, 80% retention. Obviously, we're having an impact on the members for them to stay onboard for those kinds of things. We've grown the platform to 5 conditions in an integrated basis, and we have a demonstrable ROI and we have now 26 studies. Some of those studies are almost 40,000 users. They're 2 years in length. We've got a couple of these. So it's large real-world studies that are showing that the results are there. And when you think about having a one consolidated experience, that's about driving that experience. As most of you know, we drive the experience through the phone. So that's the user experience, the ability to move between these conditions without exiting an application, going back into an application is important from a user perspective. But we're really providing one journey, one coaching program, fully integrated solution for those folks. And one of the things that we're hearing a lot about in the market right now from a feedback perspective is the fact that some of our competitors are providing multiple conditions, but they're doing it on a modular basis, meaning maybe they have a musculoskeletal solution, but it's its own solution versus being an integrated solution with the diabetes and weight management. So it's that integration that we're really getting traction with and the level of personalization that we're able to do through the AI engine that we've developed over a period of years. And then really understanding how to be able to manage a patient across that requires one consolidated view of the member. That integrates devices and the readings that are coming out of those devices, applications, the coaching and what the coaches are doing with that and really brings all those pieces together in a platform that includes rewards and gamification activities, knowledge base, et cetera. And that, for us, is Dario Engage, which we use as our own coaching platform. And it also -- we can make that available to some of our customers if they so desire in order to be able to use that to help manage their members, and we can integrate other data into our system as well to give a more holistic view of the member experience, and that really helps. From where are we going perspective, the 3 areas that we're looking to expand our product offering in are: personalization and automation and scale. So increased technology tools and devices that will enable greater levels of personalization and efficiency. We're looking to integrate additional conditions. And when we look at additional conditions, we really have like a 3-part test: one, is it a pain point for the customers? Usually, that means it's something that's expensive to the customers to manage. Behaviors is a significant driver of outcomes. Fundamentally, at our core, our platform is a behavior change engine. That personalization enables people to make the 1, 5, 10, 20, 100 changes that they need to make over a period of time and engages them in the platform long enough to make those changes and make them a behavior. So we're looking for conditions where behaviors play an outsized role. So you won't see us, for example, playing in cancer. But you may see us playing in some of the other areas that are behaviorally driven. And lastly, does it have a high level of comorbidity with our existing conditions? Because it needs to make sense for us from an integrated perspective. And a significant challenge in today's market is how to provide employees and members the ability to navigate the solutions in a way that can provide them the most value and our customers the most value, so we're looking to expand our existing capabilities in these areas in terms of how do we screen people, how do we get them to the right place on our own conditions and then even have some potential opportunity to navigate to other solutions as well as part of an integrated offering with our own. So one of the things that we're very happy to announce this morning is the fact that we've acquired Physimax which is a computer vision technology company. This brings a validated technology to the MSK portion of our platform that provides us with objective scoring using evidence-based functional movement, artificial intelligence, automated exercise allocation. So the ability to basically, based on the screening, understand what kinds of exercises would be appropriate for a member, whether that's a member that is experiencing pain currently or whether that's a member who has an injury or even in some cases, it's the ability to predict the risk of an injury assessment, and then assign exercises that will help mitigate that risk through strengthening certain areas of the body. The cutting-edge technology allows us to improve our screening navigation, which, as I just mentioned, is one of the important ways that we're looking to expand. It makes our humans and our MSK solution more efficient and effective. So in some cases, it will allow us to reduce the number of humans, move faster through things and actually be more accurate. And if you will, make those humans, super humans with the additional information coming out of the AI, and ultimately to provide a higher value solution at a lower cost for employers and health plans. At this point, what we would like to do is, show everybody a product demo to give you a better idea of how our product is working at this point. [Presentation]

Thank you. So before we move to the next -- to the next chapter, which is the 2021 summary, one more word about the acquisition and a few points to what Rick mentioned. It's not about just adding additional conditions, it's about knowing how to integrate technology in a very effective way. And I think that post the Upright acquisition that has been -- that was done in January 2021 and wayForward that was done in May 2021, we managed to integrate both of them into the platform and launch to the market, the integrated solution. So we are very confident that we know how to find the right technology, how to integrate it to the platform in order to provide a very scalable solution for our clients. Eventually, digital therapeutics, think about it as a Software as a Service. We want to scale up treatment for people with chronic conditions. That's exactly what you have seen in this showed video. And that's exactly how Physimax is going to help us on the Dario move path, scaling up capabilities, a more effective screening and more effective program assignment to users. And so I think that from a technology standpoint, the platform that we have is very comprehensive and integrating solutions is something that is very important for us, so we're going to keep our search for very good solutions in a very good price that will eventually create a lot of value for our users, first of all, and also to our shareholders. With that, I want to go into summarizing 2021. So it was a very active year for us. We did a lot of things, and it was like we moved fast. We moved very, very fast with a lot of agreements that we have signed on. And we wanted to pause and give some high-level understanding with some metrics as what we did. We have heard a lot from investors that they need more data and metrics in order to know better how to analyze the business and chances to growth. So we're going to show some information about 2021. And then I'm going to hand it over to Rick to provide some information about how to analyze the business model of the company and how to analyze the total dollar value behind our accounts. So before handing over to Rick, I want to give a few key information about 2021. It was intensive for us. So first of all, the overall revenue is growing from 7 point -- approximately $7.6 million to $20.4 million, approximately 170% growth year-over-year. If we look into the gross margins and we remove -- we eliminate the amortization, and we look into non-GAAP numbers, we see that overall, the business is improving significantly the gross margins. The gross margins increased to around 46%, 47% from mid-30s that we had in 2020. I think that moving forward, we're going to see a continuous improvement. We think that 2022 is going to be higher in terms of gross margins. And the overall objective of the business is to be nose to 70% gross margins, which is something that is typical for Software as a Service company, and we're going to invest more into the software and making the business more and more scalable, building very strong ARR business that is very consumer-centric. Overall, growth of the users, including the acquisitions is from 63,000 to 223,000. And one of the most exciting things is the momentum that we created, especially in the last 5 months of the year, where we were growing from like 5 accounts to 51 accounts that have been signed from which one of them was health plan, a national health plan that should have a significant impact on our revenues. And last thing is the expansion. We did 2 acquisitions in 2021. One of them was in January, the second one was in May. Both of them already integrated to the platform, and are being launched into production as we speak. The third one was announced this morning. So overall, we are covering 5 different conditions. And we are talking about multi-condition platform for a while, and overall, that was our strategy. And today, if we look into the pipeline, and this is something that we disclosed on our last quarter, overall, the need for multi-condition was something that was identified by us as an integrated platform and the pipeline tells the story, 80% of what we have in the pipeline is for multi-condition needs. So we think that this is something that will have a very significant impact on our ability to generate more revenue for every account that we are winning, and Rick is going to get into the metrics of that very shortly. Overall, if you look into our journey, this slide provides the overall story. I mean, it started as a direct-to-consumer company. We are very proud being direct-to-consumer company because we believe that that's the only way to develop the best product in this environment, when we want to transform the whole health care industry from being doctor-centric to being user-centric. We hear a lot about telemedicine companies and telehealth companies, I want to make sure that investors and shareholders understand very well the difference between scaling up treatment through the doctor or through the users. What we are trying to do here is scaling up chronic condition management. For many years, the doctor was the broker between the disease to the user. And the overall expenses in health care was growing like crazy. The only way to scale up treatment is to provide tools to the users and help them manage themselves between the doctor visits, and that's exactly what we did. We understood from day one that we cannot manage a single condition. We need to integrate all of them. That's the hyper-personalization that will get users manage themselves between the doctor visits, so it's super important to give them these kind of tools. We expanded organically from diabetes to hypertension and weight management and inorganically through the acquisitions that we did in 2021 into behavioral health and musculoskeletal. A key point in the transformation of the company is moving from B2C to B2B, which is something that we started in 2022, and you can see the significant growth in the user base, as well as the significant growth in the client base from 5 to 51 at the end of 2021. And this year, we had another 3 wins, 2 employers and one health plan. And looking into the overall client base that we have today, so we have 35 employers, 2 health plans. The second one was announced this morning, a regional health plan. And we believe that we're going to see more. We're going to talk about it. We have 8 providers, and we have 9 different partnerships that are accelerating and scaling up our ability to penetrate, especially into the employer market. So overall, 3 wins this year. Total accounts that we have today on the platform are 54 accounts. If we zoom into revenues growth, think about us as a direct-to-consumer company beginning of 2020. And today, kind of a B2B company that continue the transformation, we believe that the transformation is going to be much more intensive in 2022. But overall, that's the growth that we achieved in the last 8 quarters, 3.5x. Overall, growth from $7.6 million to $20.4 million. And I think that very, very important thing is the improvement in the gross margins of the company. Again non-GAAP, we improved from 35 to around 46, 47. We're going to see this momentum continues in 2022, and we believe that we're going to achieve our objective to be nose to 70%. And that's the Software as a Service mentality and business model that companies like Dario bring into the health care industry. And that's something that is super important that will create a lot of value to shareholders in the future. I think that health care as an industry was not designed like companies in the technology, pure software technology industry. And this is part of the things that companies like Dario and other digital health and digital therapeutics companies are bringing into the health care industry. So with that, I want to hand over to Rick to give a few highlights about what we should expect in 2022.

Thanks, Erez, I appreciate that. As we -- just for a little bit of basic context, we've really moved in 2021, 2022 into selling in 2 general models. One is a variation of our per engage member per month with our enterprise customers in all 3 channels. You've heard us speak about that in the past. We continue to do that. We get high receptivity in the market from the enterprise customers for looking at engaged members, and we're seeing the market move more and more towards asking their vendors for what's your engagement around this. And this is because they've started to catch on really with what's been going on in the industry and getting built for people that are not actually engaged in the product. So that has been very well received, and we will continue to push that as we move into 2022. And it is a form of value-based contracting, which is another trend that I talked about earlier that's going on in the market. And we also have a newer per employee per month model that is a flat fee for access to our platform. This most frequently is showing up in our BH stand-alone product, our behavioral health stand-alone product. One of our health plan relationships is actually in this model. And then we're also looking at it as part of a small business version of our full suite product. And some of the distribution deals that you've seen us announce over the last few months are actually in support of this strategy where we have brokers that are serving the smaller end of the market. By smaller end, I mean, smaller employers. And they are looking to provide our solution in a flat fee basis, that's a very standardized product. So we're excited about seeing how that evolves. I think that the market is evolving from where we had only very large enterprise employers were using digital health solutions. And now as that's become more accepted in the industry, you're starting to see smaller employers say, "Hey, what about us? Why can't we access these solutions?" And Dario being a direct-to-consumer company initially is actually uniquely positioned to provide solutions to smaller, because if you think about it, in a lot of cases, we're providing solutions to ends of one. So providing to a 500, a 1,000-, a 300-, 200-person employer as possible. And there is enough of those employers that it is a significant recurring revenue opportunity at that end of the market as well. The bottom part of this slide is really here to give you a little bit of a standard view of what the cycle looks like. So from the time that we win an agreement, we have implementation that can take anywhere from 30 to 60 days, generally speaking. And then some customers are doing soft launches and they may do that for a month or so. And that's where we're looking at making sure everything is working for them before they launch into their broader population. Several of our customers actually skip the soft launch and goes directly into user ramp. And then we're generally going to be looking at a 6- to 12-week period in order to ramp up to our 35% enrollment rate. As I mentioned in the past, our employer customers are currently running at a higher enrollment rate, but we continue to use that for internal forecast. And when we talk about numbers, we're still using the 35% enrollment rate. Just to speak a little bit about what the impact has been, both in terms of what is our business model, how do we get from population that is eligible down to the revenue that we derive out of that as well as what the impact has been of expanding our platform to more conditions over the last year. As we increase the population we serve and the services we provide within that, we're increasing the revenue opportunity for each account. So if we just look at our standard economics or business model, let's just take diabetes only as an example since that's where we started, you'll have an 8% to 10% of customers population will likely be eligible. And we're charging $59 per engaged member per month in that population, and then 35% enrollment on top of that. So if you take the total population, you multiply it by 8% to 10% times $59 times a 35% enrollment rate and then adjust that for retention over a period of time, that's how we're driving numbers like when we talk about what our pipeline looks like. For the multi-conditions, though, instead of 8% to 10%, if we had a full suite product, as you can see on the right, that actually can take us up to 40% eligible, and we're charging $89 per engaged member per month and the same 35% enrollment. So the net effect of having a greater eligible population and a higher per engaged member per month yields us 3 to 5x more revenue per account for a full suite deal versus a single condition deal. And as we look at account momentum, 2021 was a year of increasing momentum for our B2B business. We started with a limited number of reference customers. We're demonstrating what we can do in the marketplace. We've been out promoting Dario to employers, to health plans, also to the benefits consultants underlying it, and we've gone from 5 to more than 50 accounts with 70% of those accounts signed in the back half of the year. And that really shows the momentum as we're moving into 2022 and really reflects, like I said, more customers and consultants understanding Dario and our offering. We believe that this positions us to have another step function increase in accounts in 2022 with a target of doubling the number of accounts on an overall basis in 2022, and we think that's doable based on -- and that's actually smaller growth than what we've seen in the last year based on where we've positioned things over the last year as well. And we've heard a lot of questions and people wanting to understand what does this really mean? What are the accounts that you guys have signed? Meaning, so here, what we're showing is the potential for annual recurring revenues, or ARR, for full implementation of the clients that we have. And I think if you look when in 2021 with 5 accounts, ARR potential of approximately $3 million, moving to 54 accounts. And you can see the momentum of that into a $35 million plus ARR potential for those clients, which exist, which includes some of the pieces that we're still closing out, as it relates to that. So a significant jump in that. And then the move from that to doubling the number, if you will, of accounts to $100 million of ARR is our target, tying that back to the last slide. And what that reflects is, both an increase in number of accounts. But also what I talked about a minute ago in terms of as we move from mostly single condition accounts at the beginning of 2021 or in 2021 to multi-condition accounts. And as we've talked about in the past, roughly 3/4 of all of our opportunities in the pipeline are multi-condition accounts and -- so that means bigger revenue per account and more accounts, so dramatic growth potential as it relates to that. Just a couple of notes here. ARR potential is achieved after the implementation and ramp up, so this doesn't tie directly to revenue. And another thing is, this is only the B2B side. So this does not include any discussion of our B2C revenue, which is obviously significant as well, so that would get wrapped into that. So we will be looking to update and give better visibility to our ARR going forward, and we will update this periodically in the future. So looking at our 2022 objectives, we're launching right now several of the clients that we've announced in the past or launching in the first quarter. A few of them launched actually at the end of 2021, but most are launching in 2022 by the end of the first quarter. We actually still have a couple of holdovers, if you will, of customer contracts that we're still finishing that are looking to launch in early 2022 as well. We're looking to have 100% growth in our client base as we go into 2022, add an additional 3 to 5 health plans to our client base in 2022. Obviously, this morning's announcement of a contract that we've been working through for quite a while that has been delayed as it was hung up partly due to the COVID situation within the state government approval, has been approved and now signed, so we're excited about getting that going in the near term. And then we're looking to have more than 40% of our signed accounts being multi conditions. And given that we have about 3 quarters in our pipeline that are that that seems very reasonable to us. And then we're looking to establish 1 to 3 strategic partnerships in 2022. This creates an opportunity for us both from a revenue perspective, some nondilutive capital and also to accelerate penetration into the marketplace. And we have continued to progress. We've mentioned on our quarterly earnings calls for the last 2 quarters, that we have strategic relationships that are progressing, and we have one that is continuing to progress quite aggressively on a time line perspective at this point, so we're excited about doing that. We think it will increase our speed into the market above and beyond what we're doing on our own, as well as like I said, provide nondilutive capital and revenue to the company. Erez?

Thank you, Rick. Yes, so a few comments for summary. We see what's happening in the capital markets today and there is a lot of noise out there on virtual solutions and biomed in general. But I want us to disconnect for a second and look into the fundamental thing that is happening in the health care industry. And if I'm looking on all the numbers that Sari presented here, it's -- we are definitely in a stage where health care is going to become more consumer-centric and more value-based, and that's a fact. And this specific industry of digital health and digital therapeutics is being created. And eventually, the health care industry will be more digital, will be more consumer-centric and will be much more value based. That's the only way to scale up treatment, and I'm very proud that Dario positioned itself ahead of time in a place where we can really lead this whole category and drive this change into the market. I think that all the data that we just saw here is something that speaks to the fact that we can get there. Another important thing is that the technology mentality, the software technology mentality or Software as a Service companies is something that companies like Dario and other digital health companies that were mentioned by Sari are bringing into the health care industry. So I think that we are creating here a new creature that eventually will also drive gross margins and multiples that belongs to SaaS companies, and this is what we are creating here. And eventually, with the success in signing deals and then transforming these deals into revenues and growth, we're going to help a lot of people, and we're going to help scale up the overall treatment. And I'm very confident that all the foundation that we put in the last few years is something that will create a lot of value in the next few years. It's not an overnight journey. It's many years of journey, and we see this market, Rick and myself, for many years. We see all the changes, and we know what are the steps that need to be taken in order to lead the category. And I think that this is what we are doing. And I'm very excited about 2022, in our ability to accelerate the growth and the momentum. And when a new category is being created, a lot of people, sometimes investors are very skeptic what we see, and I want to touch another one last point that was provided by Rick, a lot of the, let's call them the nondigital health care companies, like big pharma and big medical devices companies that in a lot of cases were sitting aside and not jumping into this new created category are now looking to be part of the category. And I think that we see 2 types of giants, the consumer digital giants, the biggest one would be Apple and other software companies that want to get into the health care space. And on the other side, the less digital, more doctor-centric companies like big pharma and big medical devices companies. These 2 giants will eventually try to make this health care market -- will have to make this health care market much more consumer-centric and digital-centric. And this is why we see a lot of interest from these big health care giants that want to be part of this space, and this is why we get a lot of interest. And this is why we think we're going to have at least one or even 2 or 3 strategic partnership that will accelerate the penetration of companies like Dario and others into the health care industry in a more significant way. So I think that we have -- we're going to have a very exciting couple of years. And with that, I want to hand over back to Tara or Chuck for a Q&A session.

[Operator Instructions] Our first question comes from David Grossman of Stifel.

I wonder if we could just start with some of your comments about the quarter and the outlook. And you mentioned that you had some delays, I guess, and maybe it was the ramp of a new health plan. Perhaps you could quantify just how much of an impact that had on the fourth quarter? And then you did a good job of summarizing your new client activity for 2022. And perhaps you're going to do this when you report the fourth quarter, but maybe give us some insights into how to dimension the number of new clients that you've added? And how those layer in over the course of 2022 on top of your fourth quarter run rate?

Yes. So thanks for the question, David. So yes, a few things about Q4 and the transformation of the revenue from B2C to B2B. One of the things that we stated over and over is that eventually, we believe that the company will keep operate as a B2C company because we believe that that's the only way to get the best product. So we're going to still maintain our direct-to-consumer activity. But at the same time, in order to improve our financial profile, we're going to start and move more and more resources and commercial -- and investment into the commercial side. So overall, you are looking now on the financial profile where still the majority of the revenue is coming from B2C if we're looking into Q4. In Q4, usually, there is a seasonality of B2C that is usually higher sales. This year, the B2C was not performing like previous years. And so it's slightly below what we anticipated. At the same time, this is something that is not making a big impact on the business because anyway, the growth of the B2C into next year -- into this year and moving forward, is not going to be significant. We're going to put the majority of the efforts on the B2B side. Number two, with regards to the launch of the few accounts, the big health plan, the national health plan that we got from Board and announced, I think, in November. This one was planned to be launched end of November. It seems like it's going to be launched in the next few weeks. So this is something that also created some kind of delay. I think that we need to take everything at the right perspective because the amount of business that we got in, in terms of getting accounts that are signed. And looking on the big picture, I think that we should be comfortable with the growth of the company because we created multiple growth engines. It's not just one health plan. Now it's the second health plan, and we're going to see a few more. It's not just one channel, it's like 3 channels, not including the strategic channel that we are establishing now that will also drive nondilutive capital. And I'm talking about strategic partnerships that we think we're going to achieve this quarter. So all in all, we think that in terms of volume of revenue, looking on the full year and in the next few years, we are very confident that we can provide a significant growth. And with regards to this specific quarter, Q4, yes, it's a bit lower than what we anticipated, but may mainly due to seasonality of B2C that was not as expected. It's a tactical from our perspective, and does not speak for the future of the business.

But could you maybe address the second part of that question as well in terms of how to think about layering in some pretty strong new client activity over the course of 2021 on top of the fourth quarter run rate as you think about '22 revenue?

Yes. So I think that -- I mean, Rick provided the information about the total value behind the accounts and the clients that we have signed with. And he showed a number that is $35 million. One of the things that he also mentioned that the overall implementation time is 4 to 6 quarters. I think that we should take assumption about, I mean -- and this is an ARR, this is a run rate that should be on top of the numbers that we have today that we just showed, so we can discuss multiple scenarios in terms of how quickly this is something that will ramp up. One of the things that Rick mentioned in the slides, and everything will be filed, so you can have all the information. We are talking about full ramp-up of between 4 to 6 quarters. So overall, I think that a portion of this ARR should definitely be achieved in 2022 on top of what we are doing on the B2C. And this is why I'm confident about -- I'm very confident about the growth of the company. And just let's take into account that on top of the 54 accounts that we have today, we can win more accounts in the next few months that will also contribute into the 2022 revenues, so that's the way to think about it. I think that the business is -- because of the many growth engines that we have, I'm confident that the business is going to grow significantly, and I'm very confident that moving forward, it's going to grow. But being very precise in a level of a single quarter, is still very challenging given all the activities that we are doing on 4 different channels and with many clients. So we need to give it another few quarters before we can be more and more precise in the level of a single quarter.

Our next question comes from Charles Rhyee from Cowen.

Maybe first going back to the earlier presentation. Dr. Kaplan, you had talked about employers are really looking for ROI on their investments here in digital health. Is that a quantified -- is that a hard ROI that employers are looking to calculate? Or how often do more intangible factors such as maybe employee satisfaction build into it? And like how is ROI being calculated from what you're seeing?

Well, I think that what we're seeing is ROI is being calculated with a greater degree of scientific rigor these days there. And while the client says the section is fine, I think that people really are looking for some sort of hard return on investment, especially since we have so many companies that are actually showing reasonably good return on investments. The folks with these chronic conditions caused employers a lot of money, where 2, 3, 4x as expensive as an average person. So to invest in them, if you get an ROI is a relatively easy decision. So I'm going to take the position that ROI in itself is important.

Okay. That's helpful. Erez, I wanted to follow up on David's question a little bit. And I think, Rick, you guys -- you showed a slide with the ARR. And I think if I caught that correctly, on the 54 clients you have, you're looking at something like an AR of about $35 million just on the B2B side. If you think that it obviously takes time to ramp up, but is that right to think that understanding those clients today, we should be exiting at about a $35 million run rate on the B2B side?

Yes. So what we have showed, Charles, and one of the assumptions that we put there is that the full ramp-up is between 4 to 6 quarters. So I think that that should be the goal, not including, again, the numbers that we have on the B2C side and not including potential additional deals that we're going to sign this year. And as we stated, we think that we're going to double the number of accounts. So that run rate plus the B2C plus additional accounts that we're going to sign on is what we should see in 4 to 6 quarters.

Okay. And then, Erez, you mentioned that the health plan that you signed last November, there was a little bit of some delays and it's about to get launched now. I think at the time, you had talked about that was sort of Phase 1 of the launch, and there would be an expansion of that as we come into March. Does that push out that expansion that we would have expected in March? Or is it kind of getting rolled together? Can you talk a little bit about the phasing of this client as it kind of expands?

Yes. So we expect that the second phase, it's still something that is planned somewhere between March to June. This is what we see at the moment. And that's something that is still -- I mean all 3 phases is something that we still expect to happen, including the Phase 3 by the end of this year to be launched. So the delays, let's call it, 4 to 8 weeks delays, this is what we see at the moment. We saw that the Omicron situation got health plans and some employers to pause for a second before they are starting a significant launch. And that's what we have seen also with this national health plan. So there was a bit of a slow in the market, and we see things are starting to gradually get back to normal. So I would say a delay of Phase I by 4 to 8 weeks and delay in Phase II by another 4 to 8 weeks.

And that's helpful. And if I remember correctly that the Phase II and Phase III weren't necessarily contracted. Are those contracted at this point? Or maybe I misremember that. Is that all? Are the contracted? Or is it...

No, that's accurate. They're still in discussion/contracting process. Yes.

But is it fair to say it's similar when you've talked in the past about in contracting, there's a high expectation that it will be completed?

Yes.

Okay. And lastly, just going back to the B2C part of it. Erez, you kind of said there was something tactical in sort of the -- in your positioning here that might have impacted the revenues a little bit in the fourth quarter. Can you talk a little bit about what we should expect in the B2C? Because I remember, particularly in the diabetes, you're really kind of pushing the higher -- the gold product trying to get people away from the basic subscription, there's some expectations for that to kind of wind down over time. Maybe just remind us a little bit what to expect on the B2C side, particularly in the diabetes product?

Yes. Yes. So on the B2C side, we need to remember that -- and this is something that we see now a lot in the digital health and digital therapeutics industry, is that a lot of companies are choosing to go first direct-to-consumer in order to have the sandbox and to collect data that it can be shared with health plans and make the penetration into the B2B easier. So for example, when I'm talking about launching our product, the full integrated platform into the B2B. This is something that we are first doing on the B2C in order to get the experience and the data and see that things are operating the way that we expect it to operate. And that's something that we still want to do. So -- and that's number one, that is super important. Number two, specifically about Q4, usually B2C have a seasonality. Q4 is usually strong, Q1 is usually strong. This year, I don't know because of the cost of traffic in the world and other things, we have seen that B2C was slower than usual. That's something that we saw. At the same time, again, it's not that our business is relying on the B2C for significant future growth. And that's one issue that we had. With regards to the expansion into building the business as a membership only, this is something that we are still pushing to happen. And one of the objectives that you have and you remember it correctly, Charles, is that eventually, we don't want to have users on the platform that are not members. At the moment, all the B2B is for members only. On the B2C, a portion of the users are still not members. They are just those that are buying the devices, especially on the diabetes side. And as part of the transformation into B2B, and it's part of slowing down the progress of the B2C; eventually, we're going to close the platform for only members. And eventually, this is something that will also contribute to the gross margins of the company. So think about it, ramping up the B2B, slowing down the expenses on the B2C, making it more and more effective by making it eventually members only. And eventually the combination of more B2B and more cost-effective B2C is something that will get us to the goal of 70% gross margins. We are not there yet. And 2022, we believe, we're going to eventually switch and get to a point where more than 50% of the revenues eventually are going to come from the B2B side and that's something that will impact significant in the financial profile.

Our next question comes from Alex Nowak from Craig-Hallum.

A question for Sari. Digital health has seemingly had some low barriers to enter, maybe lower barriers to entry than some other places in health care. And this could potentially lead to some overcrowding or market saturation. Just curious, how do you envision the digital health space morphing over the next couple of years? Are there going to be several large winners in this space? And what do you believe is necessary for Dario or essentially others to become that longer-term winner at the space?

Yes. That's a great question. I think maybe the very center is different -- in other places in health care and there's a lot more tech-focused and consumer-focused than more traditional health care. I think we will see a lot of consolidation, which I talked about a little bit, but we still feel like the next 5, 10 years is going to be a transition period. So it's not like we'll have 3 or 4 big players. There will be a number of platform players, a number of different companies offering slightly different, but similar services. So we're definitely going to move from this everything is a point solution of today to more consolidated, but it's not -- we don't expect it to be really just a few large players. So it will be a period of time where there will be a number of players. That said, I think the things that will really drive differentiation and things that Dario should really focus on are really creating a good user experience, and that experience is both for the end user, the patient, but also for the customer. So the employer or the payer, whoever is paying in health care, that's one of the interesting things is that you have more than one customer really, so that's one thing. It's really a really good experience. The second is really thinking about outcomes. I flashed FDA slide before, and we definitely see many more companies focusing on achieving clinical outcomes and improving those in a rigorous way. And that is going to slowly differentiate the leaders from the chat, if you know what I'm saying. And so I would say those are really the 2 main things I would focus on in order to grow. And then the last when materials already had in that direction, the third area is a comprehensive solution. I mentioned there's a lot of point solutions that people don't really want both employers and patients and everybody else doesn't want like 10 different solutions. I mean, just like you don't want all the airline apps on your phone that you have in order to track your tickets, right? You really want one consolidated solution. So I think focusing on creating a comprehensive set of offerings for a particular set of patients or consumers or payers even is really the way to go. So that's probably the 3 things I'd highlight.

No, that's great. That's really helpful. And actually, that's a good kind of segue to -- for a question for Rick. Speaking to that platform on the multiple conditions, is the MSK and the behavioral health offering fully integrated into the consumer and the physician-facing app and the coaching app at this point? And I guess what else do you need to do to integrate these with the diabetes offering?

They are integrated on a user experience basis. We're finishing the back end integration, which should be done late this quarter, early next quarter, which will fully integrate all of the data into the AI engine and allow us to use that data we're using, part of it at the moment, but the full integration isn't quite complete on the backside. But from a user experience perspective, yes, it is integrated.

So I guess like speaking to the demo video that we saw, is that fully -- that will be fully live once you integrate the back end, so let's say, middle of this year?

It's fully -- from a user -- what you saw from a user experience is fully live right now.

Okay. Got it. That's helpful. And then one last question, just kind of going back to one of the first questions during the Q&A here, just around the revenue ramp. I just want to make sure I'm correct and also try to get a little bit more specific. Just given the 4- to 6-quarter ramp up around contracts, I mean the contracts that were signed exiting 2021 are really going to form the basis of all the revenue in 2022. So I'm just making sure I'm correct with that assumption. And then again, getting more specific to Street's assuming this doubling of sales this year, 2022. And when you put together that revenue run rate, you combine it with the signed accounts, the enrollment ramp-up that you expect, do you assume that we can hit that number of doubling of sales? Or when can you get more specific around a revenue range here?

Yes. So I think that if you look on all the value of these contracts, this is something that is achievable. I think that it's going to take us another 1 or 2 quarters to implement accounts and to show sustainable growth and being more and more and more predictable. One of the reasons that we shared all this data, including the dollars, behind the account is to give investors the confidence that it is doable and achievable. And again, I just want to emphasize, the B2C is not counted into this $35 million value. The $35 million value is an ARR run rate that is expected and it's not including other potential deals that we can sign on. So if you do the math, I think that the numbers are achievable. And I mean that's the most accurate prediction that we can give at that point.

And just -- sorry, just to add on a little bit in terms of the earlier part of your question there. The -- in terms of what sign, yes, that obviously provides a good ramp into 2022 from a revenue perspective. But the only accounts that are really on a cycle like that are employer accounts. So -- and that really only includes the enterprise level. So we expect we will continue to see some of the contracts come through that we've seen over the last few months as it relates to some of our behavioral health stand-alone. Health plan accounts happen when they happen. And we also have 7 1 on the employer side. So I'm just making that point in the fact that, yes, the big bolus of signings that you'll see because employers, just from a volume perspective or more, will now move to the 2022 signings for 2023, but there will continue to be additional opportunities for revenue that will come online in the current year.

Okay. Got it. And then just last question and actually one more is on strategic partnerships. Just expand on what sort of flavor could those strategic partnerships look like? I remember the Dans biopharma deal from a while back. Is that something similar that you'd expect here in 2022? Or just any sort of hint around what to expect there?

The -- they will likely be different than that and more broad in terms of really aimed at digital health in the Dario digital health solution as well as expanding the digital health solution for new opportunities and also to help penetrate the market using partners resources as well Dario's. So really a little bit more of a partnership, more of a focus on broad-based digital health rather than combining our software with a particular device or pharmaceutical. While that may be part of it, we would anticipate it would be broader than that.

One more comment to your point, I mean, Alex, about the revenue, I just want to emphasize another thing, which is the financial profile and the ability, at some point, to achieve profitability. So we have seen other companies that were focusing on a single condition or 2 conditions that eventually at a $200 million or $300 million in revenue didn't get to profitability. And I think that the way that we build the technology and the offering and the multi-condition, and Rick was very precise on his slide when he was showing the overall economic for a single account for multi-condition versus a single condition. So if you assume the same amount of investment into commercial effort and for every account, we can get more dollars because we are serving multi conditions, we have better ability to engage the users, higher ARPU, average revenue per user, a higher number of rate of eligible members. Eventually, for every dollar that is invested into commercial, we get more dollars into the bottom line. And that's something that we pay off as we move forward and taking this business to profitability at some point. And I think that in a lot of digital health companies, we see that the top line sometimes is growing, but eventually, the path for the profitability is not clear. The way that we are trying to structure the business, the technology, the offering will eventually create a much healthier financial profile that we eventually can take the company to profitability below $300 million or $200 million run rate. That's the objective.

Our next question comes from Rahul Rakhit from LifeSci Capital.

I'll try and squeeze one in here. Just given the success in the employer market in 2021, can we expect a similar level of deals with that segment in 2022? And maybe you can talk just should we expect the same cadence for provider networks and health plans as well?

So in terms of -- as I noted in the slides, I think -- and if you think about timing, from an employer perspective, we would expect that we will see a step function in accounts. But remember that 70% of employer business is -- or between 70% and 75% is on a January 1 to December 31 time cycle. So normal process even though it got delayed in 2021, largely due to the impact of the pandemic and people getting started a little bit later. But the normal cycle would be first quarter planning, second quarter RFPs and responses to that. By the end of the third quarter, selection process and starting of contracting and then really in fourth quarter, you're looking at finishing contract implementation. Obviously, like I said, we were a little bit delayed, especially with some customers this year. So by that, what I'm saying is I wouldn't expect to start seeing the mass amount of those contracts or the bolus of those contracts until later in 2022. We are expecting, as we said, some additional 1 to 3 health plan relationships in the current year, so a little bit more accelerated from 2021. And we expect that from a provider perspective, we will start to see a little bit more of a regular cadence associated with that, but it's sort of consistent with what we've seen over the last couple of months. And then on top of that, we have the behavioral health stand-alone product, which we continue to see strong demand for in the marketplace, and we expect those to come throughout the year.

Our next question comes from Nathan Weinstein from Aegis. It looks like he may have dropped off. So Erez, I'll turn it over to you for closing remarks.

Yes. So I would like to thank everyone for attending our webinar. As always, feel free to shoot an e-mail to Rick or myself or to approach us on our Investor Relations page. And we are looking forward for a very exciting 2022. Thank you.