DarioHealth Corp.
(DRIO - NASDAQ)
Current Price (5/19/21)
$15.60
Valuation
$24.00
OUTLOOK
SUMMARY DATA
Risk Level
Above Average
Type of Stock
Small-Growth
Industry
Med-Instruments
DarioHealth is a global digital therapeutics (DTx) company that pro-vides digital management of chronic conditions. Dario offers a blood sugar monitor and associated smartphone application which pro-vides diabetes monitoring and advice to prompt behavioral change and disease improvement. Dario added Upright Tech & wayForward to its platform in early 2021 helping deliver on the objective of a mul-ti-condition strategy adding MSK & behavioral health.
The DTx platform is targeting multiple parties, including retail, pro-vider, employer and health plan customers. The company’s strategy is to shift primary marketing efforts towards large health care provid-ers to generate greater subscriber growth and higher PMPM. Dario will add multiple chronic condition modules to its offering which should increase the PMPM total.
This move to target large healthcare providers is complemented by a shift from the previous B2C model to a high margin SaaS model and B2B2C approach addressing multiple chronic conditions.
Dario has conducted numerous studies leveraging its user data which have demonstrated improvement in clinical parameters. We expect additional studies to be conducted supporting the use of the device on a wide scale by payors and health plans.
52-Week High
$31.85
52-Week Low
$5.55
One-Year Return (%)
123
Beta
1.30
Average Daily Volume (sh)
285,119
Shares Outstanding (mil)
19.9
Market Capitalization ($mil)
$310
Short Interest Ratio (days)
3.61
Institutional Ownership (%)
33.6
Insider Ownership (%)
13.0
Annual Cash Dividend
$0.00
Dividend Yield (%)
0.00
5-Yr. Historical Growth Rates
Sales (%)
55.9
Earnings Per Share (%)
N/A
Dividend (%)
N/A
P/E using TTM EPS
N/A
P/E using 2020 Estimate
N/A
P/E using 2021 Estimate
N/A
Zacks Rank
N/A
ZACKS ESTIMATES
Revenue
(in millions of $US)Q1 Q2 Q3 Q4 Year
(Mar) (Jun) (Sep) (Dec) (Dec)
2020 $1.7 A $1.8 A $2.0 A $2.1 A $7.6 A 2021 $3.6 A $5.5 E $6.6 E $8.9 E $24.6 E
2022 $57.5 E
2023 $103.5 E
Earnings per Share
Q1 Q2 Q3 Q4 Year
(Mar) (Jun) (Sep) (Dec) (Dec)
2020 -$3.61 A -$1.16 A -$1.02 A -$1.19 A -$5.55 A 2021 -$1.11 A -$0.68 E -$0.65 E -$0.52 E -$2.90 E
2022 -$1.64 E
2023 $0.28 E
Zacks Small-Cap Research
Sponsored – Impartial - Comprehensive
scr.zacks.com 10 S. Riverside Plaza, Chicago, IL 60606
May 20, 2021
John D. Vandermosten, CFA
312-265-9588 / [email protected]1Q:21 Results Finding a New Way Forward
Based on our discounted multiple of earnings model DarioHealth is valued at approximately $24.00 per share. Our model as-sumes rapid revenue growth and positive EPS by 2023. We apply a 20x multiple to 2024 EPS and discount to present using a 25% discount rate.
WHAT’S NEW
First Quarter 2021 Financial and Operational Results
On May 17, 2021, DarioHealth Corp. (NASDAQ: DRIO) announced its first quarter 2021 operational and financial results and filed its Form 10-Q. Dario hosted a conference call the following morning to discuss results in further detail.
Highlights for the first quarter and to-date include:
Selection as employee health benefit by self-insured Fortune 500 subsidiary - January 2021
Appointment of Claudia Rimerman Kraut as VP of Broker and Consultant Partnerships - January 2021 Addition of Drs. Marilyn Ritholz and David Horwitz to the Scientific Advisory Board - January 2021 Recruitment of Chris Chan as Senior VP of Employer Sales - January 2021
Acquisition of Upright Technologies - January 2021 Closed equity financing of $70 million - January 2021
Publication of efficacy and engagement study retroactive analysis in JMIR - March 2021 Partnership with MediOrbis for remote patient monitoring of diabetes - April 2021 Acquisition of wayForward - May 2021
Dario generated revenues for the first quarter ending March 31, 2021 of $3.6 million, yielding a net loss of ($15.5) million, or ($1.11) per share.1
For the quarter ending March 31, 2021 and versus the year-ago quarter ending March 31, 2020:
Revenues totaled $3.6 million, or $4.7 million on a pro forma basis, which includes revenues from Upright over the January 1 to January 31 period, prior to its inclusion. Revenues from legacy Dario were approxi-mately $2.35 million2, which suggests organic growth of ~40%. Year over year growth using consolidated
numbers, which includes the two month contribution from Upright was 116%. Three new accounts were launched during the quarter, including two employer plans which added to the sales increase.
Cost of revenues rose 183% to $2.5 million from $0.9 million primarily driven by consolidation of Upright’s costs and amortization of inventory step up and acquired technology. This yielded a gross margin of 30.1%. Excluding the amortization of acquired intangible assets and inventory step up, gross margin was 44.7%.
Research & development expense rose 116% to $2.7 million from $1.2 million with the increase attributable to the addition of research and development costs related to Upright Technology;
Sales and Marketing expense was $7.1 million, rising 74% from $4.1 million due to consolidation of Upright; General and administrative expense was essentially flat, increasing 0.9% to $5.6 million;
Net loss was ($15.5) million vs. ($11.2) million or on a per share basis ($1.11) and ($3.61); despite a great-er net loss, net loss pgreat-er share has declined due to the large increase in weighted avgreat-erage shares outstand-ing.
As of March 31, 2021, cash and equivalents totaled $81.2 million, increasing dramatically from the previous quarter ended December 31, 2020 due to a $65 million net capital raise. Dario continues with no debt on its balance sheet. Cash burn for the quarter totaled $10.6 million. Following the end of the reporting period, Dario announced the ac-quisition of wayForward, which requires the payment of $6 million in cash.
1 Note: Our calculated EPS of ($1.11) does not agree with the EPS provided in company documents of ($0.92) which varies from our calculation due to accounting conventions related to the Series A Convertible shares.
2 Management indicated that revenues from legacy DarioHealth were “in the ranges of $2.3 or $2.4 million.” We assume the midpoint for the purposes of our analysis.
wayForward Acquisition
Concurrent with the company’s first quarter earnings release, Dario announced that it will acquire the digital behav-ioral health platform wayForward (PsyInnovations, Inc.). The platform leverages AI-based screening to triage and navigate patients to suitable interventions. The platform offers digital Cognitive Behavioral Therapy (CBT), self-directed care, coaching, and access to in-person or telehealth provider visits. In acquiring wayForward, Dario add-ed the target’s 20,000 members and 20 self-insuradd-ed employers under its umbrella. The wayForward platform is unique in leveraging AI to screen users, as well as innovative in its implementation of digital tools and coaching, al-lowing a streamlined and efficient approach to serving patients’ varying degrees of psychological and psychiatric needs, in-network, filling a gap in appropriate access and driving clinical outcomes. In terms of strategy, acquisition of wayForward enables integration with existing in-person and telehealth-based solutions. wayForward is a winner of innovation challenges with Anthem and Blue Cross BlueShield of Illinois. In third-party studies, wayForward has demonstrated a 48% reduction in anxiety and 59% reduction in depression. wayForward founder and CEO, Ritvik Singh, and CFO, Dr. Navya Singh, will join Dario, as will the rest of the wayForward team.
Exhibit I - wayForward Screening3
Dario has agreed to pay $30 million to acquire wayForward, with $25 million due at closing and future payment con-tingent on revenue thresholds in 2022. The upfront will be paid with a combination of $6.0 million in cash and $19.0 million in value of Dario common stock, which is equivalent to approximately 891,182 shares based on 60-day vol-ume weighted average share price at close of May 14, 2021. The future milestone payment of $5.0 million would be issued in common shares.
Exhibit II – Behavioral Health Market Landscape4
3 Dario Investor Presentation - May 2021 4 Source: Dario Investor Presentation – May 2021
The wayForward acquisition makes progress in realizing Dario’s mission to achieve a comprehensive platform, now covering diabetes, hypertension, pre-diabetes, musculoskeletal and behavioral health. The addition of wayForward is part of Dario’s strategy to be a multi-condition, one-stop platform for employers, health plans and members. Management has guided that the impact of wayForward’s financial contribution on the bottom line will be minimal in 2021 and the contribution in 2022 will be larger. No additional sales and marketing expenses are expected as the existing commercialization team is already in place and ready to go.
Exhibit III - Digital Behavioral Health Solutions5
BH Company Focus Areas Features
Lyra Mental health, anxiety, stress, resilience, self-harm CBT, DBT, self-care, coaching, medication tracking
Spring Health 10 mental health conditions Therapy, mindfulness, coaching, self-guided therapy and exercises
Modern Health Depression, bipolar disorder, anxiety Self-assessment, connect to care, group learning, coaching, therapy
wayForward Anxiety, stress, depression Self-guided, BH coaching, video, in-person, psychiatry
joyable Anxiety, depression 5 minute activities, intro quiz
meQuilibrium Resilience, stress, productivity Personalized learning, reinforce strengths, address areas for growth
Upright Technologies Acquisition
Dario announced its acquisition of Upright Technologies in a January 27th press release, which was followed by an
analyst call discussing the transaction in further detail. We recently updated our estimates and increased our target price as a result of the transaction. The merger was completed and Upright was consolidated with Dario’s financials on February 1, 2021. We discuss these details in our recent report.
Upright Technologies is a leader in the musculoskeletal (MSK) space with over 90,000 users on its platform and most $13 million in revenues in 2020. The company has been historically focused on the consumer market with al-most all of its current members falling into this category. Upright’s device is a small, approximately 2” long by 1” wide sensor that adheres to the patient’s back. When the user slouches, the device sends a signal that can prompt behavior to improve posture. Users can also purchase accessories such as a lanyard and adhesive patches to hold the unit in place. An application is available to download on the user’s phone and a coaching service and member-ship are available.
Exhibit IV – Upright Go 2 Attached to Patient6
5 Compiled from Zacks Analyst Research
Dario paid $31 million in consideration to acquire Upright Technologies based on the closing price as of the transac-tion agreement date. $1.5 million was denominated in cash and was prepaid to guarantee the deal and $29.5 mil-lion was to be tendered in ~1.7 milmil-lion equity shares. The transaction closed on February 1, 2021.
Upright is complementary to Dario’s current offerings in diabetes, hypertension and obesity. The acquisition adds to Dario’s product offering and addresses demand from employers and health plans that desire MSK solutions. It ex-pands the company’s offering into the MSK market that is estimated to be $213 billion7 annually. Upright has
con-ducted several studies at San Francisco University, Texas Tech University and Oregon Health and Science Univer-sity demonstrating the benefits of postural intervention and related positive health outcomes, in line with Dario’s phi-losophy to generate clinically supportive data for its DTx. We see a number of synergies from this combination that can leverage existing sales infrastructure, coaching, management and other operational shared services. Dario re-ported high gross margins in excess of 60% for Upright and sees a path to exceeding 70% in a few years.
Looking Forward
While Dario management does not expect to consistently provide guidance, the CEO expects a double digit incre-mental increase in revenues which includes the contribution from Upright and recent wins in the remote patient monitoring (RPM), health plan and Fortune 500 customers. In late January, the company identified >$500 million of opportunities in its pipeline which has now grown to $700 million,8 reflecting additional prospects that are expected
to convert over the next several years. The commercial team has grown from 6 to 35 in the United States over the last fifteen months, increasing Dario’s penetration in all the market segments. In the presentation release in con-junction with the first quarter report, Dario disclosed that it has 165,000 users, including those in the MSK category from Upright.
Dario is now modifying the Upright product to reflect the demands of the health plan market and expects to have this ready to roll out by July 2021.
Exhibit V – Product Roadmap9
$70 Million Capital Raise
Concurrent with the announcement of the merger of Upright, Dario raised $70 million gross in capital with proceeds to be used for general corporate purposes. 3,278,688 shares of common stock were sold at $21.35 per share. In-vestors in the deal included Nantahala Capital Management, LLC Perceptive Advisors, Driehaus Capital Manage-ment, Farallon Capital ManageManage-ment, Pura Vida Investments, Phoenix Insurance Ltd., More Provident Funds, and others. Cowen served as financial and capital markets advisor to Dario for the acquisition transaction and private placement. Cowen, Stifel and SternAegis Ventures served as placement agents for the financing. Combined with amounts on the balance sheet, cash is expected to be over $90 million following the deal close.
7 According to a 2016 report by the United States Bone and Joint Initiative (USBJI). This amount represents treatment, care and lost wages. 8 This amount is calculated by multiplying the 1) number of lives in the opportunity, 2) 10% diabetes prevalence (ignoring other conditions), 3) an-ticipated 35% enrollment rate, 4) $59/month, 5) 12 months. Backing this out, the pipeline of $600 million represents about 24 million lives. 9 Source: DarioHealth Corporate Presentation, May 2021
Recent B2B Sales Milestones
On January 5, 2021, Dario announced that it had entered into its most recent commercial agreement to provide its digital therapeutics solution to eligible employees of a subsidiary of a US Fortune 500 technology and engineering company. The agreement represented the first self-insured US employer client acquired through Dario’s partner-ship with Vitality Group. Dario will provide its diabetes and hypertension solution as part of the agreement, which began enrolling members in January 2021.
Exhibit VI – Expanding Client Base10
Adding to a list of wins in Dario’s B2B2C initiative, the company announced on April 20, 2021, that it had entered in-to a partnership with MediOrbis, providing remote patient moniin-toring (RPM) services in-to MediOrbis for Medicare pa-tients with diabetes. MediOrbis is a telehealth provider specializing in chronic conditions. Covered members hav-ing Medicaid can receive, under existhav-ing Medicare benefit, telehealth support provided by MediOrbis and RPM pro-vided by DarioHealth. The virtual care program will also be made available to Dario’s approximately 75,000 mem-bers with diabetes with 30% of these memmem-bers over age 65. The virtual care program will also be marketed to qual-ified Medicare members who aren’t current Dario members, a population that the Centers for Medicare and Medi-caid Services estimates to be 20% of its 62 million beneficiaries.
Management reported over 40% enrollment in the first ten weeks for contracts started in 2021 and guided towards double-digit quarterly percentage increase in revenues, expecting growth in all areas of its offerings. Management also noted that the beginning of the year offers an opportunity for self-insured employers on an annual cycle to come on as users, which could be recognized in 1Q:22. There are also opportunities off-cycle as well, which Dario will pursue throughout 2021. Management estimated the pipeline now to be approximately $700 million, of which 10-20% could be converted to clients per year.11
Drs. Marilyn Ritholz and David Horwitz Join Scientific Advisory Board
In a press release issued January 13, 2021, Dario informed that Dr. Marilyn Ritholz and Dr. David Horwitz were to join Chairman Eric Milledge on Dario’s Scientific Advisory Board (SAB). The role of Dario’s SAB is to advance its DTx platform, leveraging SAB member experience and expertise, specifically in the area of broadening Dario’s of-fering in chronic conditions.
Dr. Ritholz is Senior Psychologist at Joslin Diabetes Center, treating both adults and adolescents with diabetes. She is on the faculty at Beth Israel Deaconess Medical Center and is Assistant Professor of Psychology at Harvard Medical School. Dr. Ritholz is experienced in qualitative research and has explored qualitative aspects of
healthcare, namely patient-provider relationships, provider communication, and psychosocial factors associated with diabetes technology including continuous glucose monitoring.
10 Source: DarioHealth Corporate Presentation, May 2021
Dr. Horwitz is currently a Senior Consultant with Numerof & Associates and is President of DLH Biomedical Con-sulting. He previously served as Global Chief Medical Officer of Johnson & Johnson Diabetes Institute after holding the position of Vice President, worldwide Clinical Affairs & Evidence-Based Medicine at LifeScan, Inc., a Johnson & Johnson company. He has held roles in clinical research, medical affairs, regulatory affairs and advocacy & profes-sional affairs. Dr. Horwitz previously held faculty positions in the University of Chicago and University of Illinois medical schools and has published over 100 articles in scientific and clinical journals with focus on diabetes and metabolism. He is a Board-Certified internist and endocrinologist and a Fellow of the American College of Physi-cians. Dr. Horwitz also has experience with the FDA, having served as an industry representative on the Clinical Chemistry and Toxicology advisory panel.
Recent Study Results
On March 2, 2021, Dario publicized highlights from a study evaluating engagement levels and diabetes control. The study was published in Journal of Medical Internet Research (JMIR) Diabetes, and was entitled “Role of Digital engagement in Diabetes Care beyond Measurement: Retrospective Cohort Study.” The study evaluated the level
of user engagement versus their ability to control blood glucose. The study found a statistically significant im-provement during the initial period of 13% relative to less engaged users at 9%. Also, changes in engagement in the same subject over the study period also were associated with reduction in monthly average glucose levels. Fi-nally, a 43% decrease in monthly average glucose levels was observed in the month following increased digital en-gagement from the month prior during the initial six month period.
Summary
First quarter 2021 was eventful for Dario. The company has added to its offering and membership through partner-ship and acquisition. Dario acquired Upright Technologies and wayForward expanding its exposure to the MSK and behavioral health end markets and delivering on its promise to be a multi-condition provider. Dario was also select-ed by a Fortune 500 subsidiary to provide an employee health benefit and startselect-ed three new accounts during the period. Claudia Rimerman Kraut and Chris Chan were appointed VP of Broker and Consultant Partnerships, and Employer Sales, respectively. Dario also added to its Scientific Advisory Board with Drs. Marilyn Ritholz and David Horwitz bringing expertise in qualitative research, psychosocial aspects of diabetes, and regulatory affairs. Finally, Dario also published analysis of engagement versus efficacy in the Journal of Medical Internet Research. We main-tain our target price of $24 per share.
Exhibit VII - Dario Market Opportunities12
PROJECTED FINANCIALS
DarioHealth, Corp. - Income Statement
DarioHealth Corp.
2020 A
Q1 A
Q2 E
Q3 E
Q4 E
2021 E
2022 E
2023 E
Total Revenues ($US '000)
$7,576
$3,595
$5,508
$6,600
$8,912
$24,615
$57,492
$103,506
YOY Gro wt h 0 .2 2 % 116 % 2 0 8 % 2 2 3 % 3 2 8 % 2 2 5% 13 4 % 8 0 %
Cost of Revenues
$5,063
$2,514
$2,809
$3,300
$4,278
$12,901
$23,350
$35,117
Pro d uct Gro s s M arg in 3 3 .2 % 3 0 .1% 4 9 .0 % 50 .0 % 52 .0 % 4 7.6 % 59 .4 % 6 6 .1%
Research & Development
$4,433
$2,655
$1,974
$1,626
$1,680
$7,935
$9,125
$9,855
Sales & Marketing
$15,227
$7,132
$6,130
$7,362
$6,480
$27,104
$29,814
$31,305
General & Administrative
$12,756
$5,621
$5,050
$5,050
$5,098
$20,819
$21,444
$22,087
Income from operations
($29,903) ($14,327) ($10,455) ($10,738)
($8,624)
($44,144) ($26,241)
$5,141
Op erat ing M arg in -3 9 5% -3 9 9 % -19 0 % -16 3 % -9 7% -179 % -4 6 % 5%
Financial Expenses
($458)
$639
$0
$0
$0
$639
$0
$0
Deemed Dividend
$3,658
$544
$0
$0
$0
$544
$1,000
$0
Pre-Tax Income
($33,103) ($15,510) ($10,455) ($10,738)
($8,624)
($45,327) ($27,241)
$5,141
Net Income
($33,103) ($15,510) ($10,455) ($10,738)
($8,624) ($45,327) ($27,241)
$5,141
Net M arg in -4 3 7% -4 3 1% -19 0 % -16 3 % -9 7% -18 4 % -4 7% 5%Reported EPS
($5.55)
($1.11)
($0.68)
($0.65)
($0.52)
($2.90)
($1.64)
$0.28
Basic Shares Outstanding
5,963
14,026
15,400
16,500
16,538
15,616
16,648
18,291
S o urce: Co mp any Filing / / Zacks Inves t ment R es earch, Inc. Es t imat esHISTORICAL STOCK PRICE
DarioHealth, Corp. – Share Price ChartDISCLOSURES
The following disclosures relate to relationships between Zacks Small-Cap Research (“Zacks SCR”), a division of Zacks Investment Research (“ZIR”), and the issuers covered by the Zacks SCR Analysts in the Small-Cap Universe.
ANALYST DISCLOSURES
I, John Vandermosten, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject se-curities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the recommendations or views expressed in this research report. I believe the information used for the creation of this report has been obtained from sources I considered to be reliable, but I can neither guarantee nor represent the completeness or accuracy of the information herewith. Such information and the opinions expressed are subject to change without notice.
INVESTMENT BANKING AND FEES FOR SERVICES
Zacks SCR does not provide investment banking services nor has it received compensation for investment banking services from the issuers of the securities covered in this report or article.
Zacks SCR has received compensation from the issuer directly or from an investor relations consulting firm engaged by the issuer for providing non-investment banking services to this issuer and expects to receive additional compensation for such non-investment banking services provid-ed to this issuer. The non-investment banking services providprovid-ed to the issuer includes the preparation of this report, investor relations services, investment software, financial database analysis, organization of non-deal road shows, and attendance fees for conferences sponsored or co-sponsored by Zacks SCR. The fees for these services vary on a per-client basis and are subject to the number and types of services contracted. Fees typically range between ten thousand and fifty thousand dollars per annum. Details of fees paid by this issuer are available upon request. POLICY DISCLOSURES
This report provides an objective valuation of the issuer today and expected valuations of the issuer at various future dates based on applying standard investment valuation methodologies to the revenue and EPS forecasts made by the SCR Analyst of the issuer’s business.
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ADDITIONAL INFORMATION
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