DarioHealth Corp. (DRIO) Earnings Call Transcript

Thank you. Good morning, ladies and gentlemen, and welcome to the Dario Health second quarter 2026 results conference call. At this time, all lines are in listen-only mode. During the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. call has been recorded on Tuesday, August 11, 2026. I would now like to conference over to Zoe Harrison, VP Accounting and Corporate Development at Dario Health. Zoe, please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining us today for a discussion of Dario Health's second quarter of 2026 financial results. Leading the call today will be Erez Rafael, Chief Executive Officer of Dario Health. He'll be joined by Hen Franker, our Chief Financial Officer, and our Chief Officer Laura Durder. Estevan Nelson, the company's President and Chief Commercial Officer is on medical leave. An audio recording and webcast replay for today's call will also be available online as detailed in the press release invite for this call. The benefit of those who may be listening to the replay or archived webcast, this call is being held on Tuesday, August 11, 2026. This morning, we issued a press release announcing our financial results for the second quarter of 2026. The copy of the release can be found on the investor relations page of Dario Health website. I'd like to remind you that on this call, management will make forward-looking statements within the meaning of the Federal Securities Law. For example, the company is using forward-looking statements when it discusses expected revenue growth and contribution from signed accounts, its path to profitability and positive cash flow, the continued reduction in operating expenses, and the continued reduction in operating expenses. expenses and losses, its expansion of channel partnerships and distribution, expected revenue and scaling from partner-led opportunities, expected onboarding, implementation and enrollment of large enterprise accounts, expected conversion of contracted annual recurring revenue into recognized revenue, expected expansion into care delivery, claims-based and outcomes-based models, expected benefits from care delivery participants, expected growth in recurring revenue and operating leverage, expected advantages and future impacts of Dario IQ and proprietary data assets, expected improvements in member engagement, retention and outcome, the anticipated benefits of artificial intelligence across the company's commercial operations and internal operations. anticipated expansion of existing customer relationships into additional chronic conditions. expected timing and contribution of new product offerings, the company's ability to increase revenue per customer through its multi-condition strategy, the expected benefits of provider-backed clinical care, and beliefs regarding competitive positioning and market opportunity. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond the company's control, including the risks described from time to time in its SEC filings. The company's results may differ materially from those projections. These statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements. I encourage you to review the company's filings with the SEC, including, without limitation, the company's annual report on Form 10-K, which identifies specific factors that may cause actual results or events to differ materially from those described in the forward-looking statement. With that, I'll hand it over to Erez Rafael, Chief Executive Officer of Dario Health.

Good morning, everyone. Thank you for taking the time to be with us today. Before reviewing the quarter, I would like to step back and discuss where Dario is today, and more importantly, how we believe the business is positioned going forward. For more than a decade, we have been building the foundation of this company. We built a digital health platform connected to our FDA cleared devices. the industry's first comprehensive multi-condition platforms. We expanded from diabetes into hypertension, musculoskeletal health, behavioral health, weight management, and additional chronic conditions. We generated extensive clinical validations with more than 100 published studies, built proprietary longitudinal datasets comprising approximately 13 billion proprietary data points, develop our AI capabilities, establish national challenge partnerships, and most recently moved into provider-backed clinical care. We have created a scalable enterprise platform capable of serving employers and health plans by delivering an end-to-end patient journey that is designed to optimize care for members while improving return on investment for employers and insurers. That investment phase has created something we believe the market is only beginning to recognize now. Today, we are leveraging a platform that has reached a level of maturity where we view each new commercial success as strengthening the value of everything already in place. The best way to think about value today is through the lens of compounding growth. Four drivers, each acting on a different part of the economics, and each one multiplying what the others produce. Account depth increases the revenue we generate from the customer we have already won. Distribution efficiency lowers what it costs us and how long it takes to win the next one. AI leverage raises the revenue we generate per member while reducing our costs to serve. And value chain participation gives us the access to a better future. to leverage full of healthcare spend from the same member base. More revenue per account, more accounts faster for less, more from every member and lower cost and more of the value chain. of those four are operating across our business today, the fourth is now beginning. Let me take them one at a time. The first is account debt, more revenue per account. Healthcare purchases increasingly want fewer vendors. We want integrated solutions capable of managing multiple chronic conditions on one platform, one member experience, and one implementation. recognized this shift years ago and deliberately built Dario as a multi-condition platform. Every additional condition increases the eligible population within the existing customer while leveraging the same commercial relationships. same implementation and the same technology platform. That has the potential to generate two to five times more revenue from the same account, while delivering a greater clinical value for a more integrated approach to care. The value we deliver is supported by more than 100 published studies demonstrating improved clinical outcomes across multiple conditions. significant hotel cost savings for our customers. Published research also shows that members managing three chronic conditions achieved better outcomes than those managing one. one clinical results and more revenue from the same member is rare alignment in this industry. The second is distribution efficiency. More accounts faster with less dependency on data or self resources. Over the past several years, we transformed our commercial model from primarily direct selling into channel enabled distribution. Who are channel partners? substantially more customers without proportionally increasing our sales organization. We spend less to acquire new business, we close it faster, and our reach expands while our cost base holds. The third is AI leverage, more revenue per member at a lower cost to serve. The foundation underneath everything I have described is what we have always said, it is the data. Dario is a data company that leverages generative and agentic AI on top of what we believe is one of the industry's most extensive proprietary longitudinal clinical data sets. The reason we are confident in that position is structural. We are fully vertically integrated. We design and manufacture our own FDA-cleared connected devices. Those devices generate continuous clinical data directly from the members in real time That data flows into our platform, our analytics, and AI run on top of it. From hardware to AI, the stack is ours. We do not license it, rent it, or depends on third party inputs. Today we hold over 13 billion proprietary real-world data points tied to actual clinical outcomes that cost multiple conditions at individual member level, we believe data set of that depth would be difficult to replicate in the short period of time. WIQ, our proprietary AI agent trained on that dataset, is the product expression of that advantage. It delivers personalized real-time clinical recommendations that a general purpose model cannot match because to our knowledge, no general purpose model has access to longitudinal data of this type to a real outcome. Value IQ is also what makes account depth work operationally. remember managing three conditions require one current clinical experience rather than three parallel programs. In WIQ, is what results into a single intervention path. DarioQ is an active deployment across existing book of business, and we measure it where it matters The recurring revenue it produces from customers will have already won. Based on current experience, we believe DarioIQ could contribute an increase of approximately 10 to 15% in recurring revenues from existing customers over time. to a higher engagement, utilization, and overall customer value. The same capabilities run inside our own operations, expanding what we can do by holding our cost base. That is a direct contributor reduction in operating expenses and operating loss, Chen will work with Foo. This is also where four drivers connect. Every new member deeper the data set. A deeper data set makes value IQ more precise. A more precise value IQ produces better outcomes and a higher engagement. And that is what wins the next account and expand the last one. We believe the advantage in DarioIQ capabilities may further enhance the value of our platform and dataset. Every advanced in AI raises the value of the underlying data, and we own the data. The moat is not a static asset. It compounds with every member we add. The fourth is the value chain participation, access to more of the healthcare dollar. I want to emphasize that we do not view this as a new strategy. It is a natural extension of the platform we have spent the past decade building. The market is moving beyond digital engagement alone toward integrated models that connect monitoring, AI driven insights and clinical intervention. Our provider-backed care capabilities allows us to extend from helping members manage chronic conditions between physician visits to closing care gaps diagnosis, prescribing, and clinical services were appropriate. Most companies in this market can tell Health Plan what is happening with the member. We can now treat that member and can be reimbursed for the treatment. The layer works because the first three already exist. Without the multi-condition platform, the clinical evidence, the AI capabilities, the enterprise relationship and the channel infrastructure provide the care could not create the same value. It is additive, it builds on business that is already compounding today. just four layers create a business that we believe is fundamentally different than it was only a year ago. We believe Dario is uniquely positioned in offering an integrated platform that the entire patient journey, from continuous monitoring and personalized engagements to high risk identification, coaching, clinical decision support, and now provider-backed clinical care are needed. By bringing those capabilities together on a single multi-condition platform, we help customers improve outcomes, simplify care delivery, reduce vendor fragmentation, and generate a stronger return on the healthcare investment. With that, let me turn the call over to Lara, who will discuss the strong commercial momentum we are seeing across our business and how we are executing on those opportunities.

Thank you, Aries. Our commercial organization executed well during the quarter, and I want to walk through what we are seeing across three areas. How we are winning new accounts, how we are growing the accounts we already have, and how quickly we are able to bring new capabilities to market. We have been serving more than a dozen health plan customers over the past four quarters, three of them national carriers. As of the end of the second quarter, we have more than 180 signed accounts across employers and health plans. Five of those are Fortune 50 companies and approximately 25% of our B2B2C client base is drawn from the Fortune 500. I'll start with new accounts. Approximately 75% of our new accounts now come through channel partners. That is a structural shift in our commercial model. It means we are gaining access to employers and plan populations we have not previously reached, with shorter sales cycles and materially lower customer acquisition costs than a direct sales model. Nearly half of all private sector employees in the United States work for small businesses. market is very difficult to reach economically through a direct enterprise sales model. Our growing network of channel partners gives us access to those same employers at scale, diversifying our client base and further expanding our target markets. As a result, our commercial reach continues to expand while sales and marketing spend continues to decline. All at the same time, we are efficiently signing and serving channel partners that are activating through and with and to some of the largest employers and health plans in the U.S. Two examples from recent weeks. The first, we signed another Fortune 50 employer covering more than 100,000 eligible employees for diabetes and hypertension. That is our fifth Fortune 50 client. Another example is through our channel partnership with Amwell. We signed a major health insurer with a stronghold in Arizona, opening that insurer's entire administrative services book, the ASO, to our cardiometabolic solution. Instead of selling employer by employer, this relationship gives us access to a broader employer population through a single enterprise channel, significant potential for scaled adoption across diabetes, hypertension, and weight management. Aligned with the growth of our client base through channel partners, we are in the final stages of adding a new channel partner with a broad reach across employers, health plans, and health systems. forward to sharing more details and the early impact of this relationship as it progresses. The second area to discuss is growth inside the accounts we already have. And this is where our multi-condition strategy shows up most clearly. This works in two ways. We land with one condition and expand, and increasingly we would mount our condition from the first day of the relationship. Today, nearly all of our new enterprise opportunities involve multiple conditions. During the quarter, one of the five largest health insurers in the United States expanded its relationship with us by adding hypertension to the behavioral health program it was already running. We stated publicly that this expansion has the potential to approximately triple our revenue opportunity. It is the third health plan customer to expand beyond an initial deployment of Dario. We also expanded our reach through our channel partnership with Celera by extending our hypertension program across the full spectrum of severity. This expands our addressable population from lower acuity patients who can benefit from early intervention to higher acuity patients requiring more intensive management. This is exactly what we built the multi-condition platform to do. Once a customer experiences the value of the platform, adding conditions and reaching members across the full acuity spectrum becomes the natural and logical next step. We serve more members through a single integrated solution while simplifying contracting, implementation, reporting and vendor management. Every additional condition broadens the eligible member population and has the potential to create meaningful recurring revenue without the need to require or acquire a new customer. The result is visible in the composition of our book. More than 80% of our contracted and late stage recurring revenue is now multi-condition. the clearest metric of how this strategy is compounding and it is why we are increasingly confident in the revenue per account that we can generate going forward The third area to discuss is speed, how quickly we can turn a new capability into something commercial. Only weeks after announcing our provider-backed care strategy, we launched our integrated GLP-1 program, combining Dario's AI-powered engagement platform with licensed provider evaluation and access to FDA-approved GLP-1 therapies when clinically appropriate. The program will be available through three channels, including Dario's Direct-to-Consumer Shop, B2B2C employer programs, as well as health plan marketplaces, which extend our reach into new distribution channels. This rapid launch was possible because the technology platform, the AI infrastructure, and the commercial relationships are already in place, which means new offerings can be introduced and commercialized across our existing customer base quickly. We also broadened the platform itself during the quarter with two new programs. Warrior Woman supports members navigating perimenopause and menopause. That stage is frequently associated with weight changes, sleep disruption, and increased cardio metabolic risk. Carrier Sleep addresses obstructive sleep apnea, a significant contributor to cardiometabolic disease and rising healthcare costs. are expected to begin contributing revenue in the fourth quarter and both are conditions we can sell into accounts we already hold. execution. A side account is just the beginning of the revenue opportunity. As activations progress and eligible members enroll over time, the same enterprise customer generates increasing recurring revenue quarter after quarter. Many of the customer wins and contract expansions announced over the past several quarters are currently progressing through activation and enrollment. I want to spend a moment on how that translates into revenue, because it is part of our model most often misread. Contracted annual recurring revenue does not convert on the day an agreement is signed. Three things happen in sequence. First, the program launches and launch timings is set by the plan year cycles and open enrollment windows rather than by the signature date. Secondly, eligible members enroll progressively over the quarters that follow as benefit communications reach them. Third, customers expand into additional conditions and across the acuity spectrum, the eligible population. This process progressively unlocks recurring revenues from the signed contract. From signature to full run rate revenue, the sequence may typically take 45 quarters. We ended the quarter with approximately $13.1 million in contracted and late-stage annual recurring revenue, more than 80% of which is multi-conditioned. Applying that four to five quarter cycle, we expect to begin seeing this convert into revenue in the second half of this year, the majority of the contribution showing up in 2027 as implementations mature and enrollment ramps across the base. What I'd like to leave you with is this. Customers are no longer evaluating individual point solutions. They are looking for integrated platforms that manage multiple chronic conditions, use AI to improve engagement and outcomes, and increasingly connect members to clinical care when appropriate. That is precisely the platform that Dario has built.

With that, I'll turn the call over to Hen to review our financial results. Thank you, Lara. Our second quarter results reflect our continued progress in building a more efficient and scalable business while positioning Dario for the next phase of commercial growth. The underlying financial trends during the quarter were particularly encouraging. Revenue for the quarter was $5.2 million, compared with $5.6 million in the first quarter of 2026 and $5.4 million in the second quarter of last year. As we discussed, this reflects the timing of implementation as well as our strategic decision to move away from pharmaceutical services revenue in favor of higher quality recurring B2B2C revenue. that transition has impacted near-term reported revenue, we believe it's threatened the quality and long-term predictability of our business. Gross margin increased to 62%, up from 57% in the first quarter and 55% a year ago. our unknown gap B2B2C gross margin remained approximately at 80% for the 10th consecutive quarter. At the same time, we continue to improve operating efficiency, reducing operating expenses by 8% sequentially and 21% year-over-year, while improving operating loss by 11% quarter-over-quarter and 30% year-over-year. Net loss for the quarter was $7.9 million, compared with $13 million in the second quarter of last year. 39% improvement. A reconciliation of gap to non-gap measures has been provided in the financial statements table included in our earnings press release. We also increasingly applying AI within our own operations. which is helping us hold the line on cost even as we scale the business. That is a direct contributor to the expense discipline I just described. These results demonstrate continued focus on disciplined expense management while investing in areas that will drive future growth. From a financial perspective, what excites us most is the operating leverage embedded in our business model. Much of our infrastructure needed to support future growth has already been built. new enterprise customers are implemented, existing customers spend into additional conditions. AI drives higher engagement and retention, and new provider-backed care offerings are commercialized. We expect those revenues opportunities to leverage our existing technology platform, commercial organization, and operating infrastructure. We believe that positions us to deliver improving financial performance as revenue accelerates. We also significantly strengthened our balance sheet during the quarter. As of June, Already, 2026, our pro forma cash position is $36.8 million. as we ended the second quarter with $14 million in cash, cash equivalent, and share-time deposits, plus $22.8 million net of offering expenses from the Register Direct Financing we closed in July. This offering was priced at the market with participation from both existing long-term shareholders and new fundamental institutional investors. We believe that financing reflects confidence in our strategy, and importantly, it provides the cash run rate to execute on the commercial opportunities we've discussed today, advancing our path to cash flow positives. As Lara noted, many of the new customer implementations and existing customer condition extensions announced over the past several quarters are expected to begin contributing more meaningfully at the end of 2026 and continue ramping throughout 2027. Combined with the anticipated benefits of Dalio IQ and our provider-backed care initiative, we believe we are well-positioned to continue improving both the scale and quality of our revenue over time.

Thank you all for joining us today. I want to close where I started. Direct compounds across four drivers account that generating more revenue from customers who have already gained. And you saw that this quarter in a top five health plan expansion with the potential to approximately triple opportunity under that relationship. Distribution efficiency is bringing us more accounts faster for less, with roughly three-quarters of our new accounts now arriving to channel partners. AI leverage is raising the value of every member while lowering our costs to serve, and it is a direct contributor to the operating expense and loss reduction. just walk through. And value chain participation now allows us to participate more broadly in clinical care delivery and reimbursement. three of those four are operating in a business today. The fourth is now beginning. That is why we believe the composition of revenue is stronger than it has been, even in a quarter where the top line came down. What is increasingly clear is this. We own our hardware, our data, and the AI capabilities that run on top of them. We have commercial engine designed to compound over time, and we have a clinical foundation, more than 100 peer-reviewed studies that power our expansion from digital engagement into care delivery. Before I hand it back to the operator, I want to thank the people who make this possible. to our employees, your dedication to our members and to each other. that drives everything we do. To our partners and channel ecosystem, your trust and collaboration are central to how we scale. And to our shareholders, thank you for your continued support and confidence in our platform and in our mission. I will now turn the call over to the operator for Q&A.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. And your first question comes from David Grossman with Cecil. Your line is now open.

Hi, all. This is Aidan Kniff on for David. Thanks for taking the question. I just wanted to start on the top line revenue with the sequential decline. in the B2B2C. Is there any incremental details you can kind of give there? What kind of led to that decline? And then with the recent wins you guys have had, how should we think about the kind of magnitude of the acceleration in the back half um.

from the health plans? Yes. Thanks for the question. So as we stated on the call, we signed accounts with contracted ARR of $13.1 million that we believe that in a few quarters we're going to gain this ARR in actual revenues. The slight decline is coming from additional cleanup that we did post all the transformation and after closing the pharma challenge. Just in the last two to three months, we announced on the large expansion of a national health plan from the health to to cardio metabolic. We have a huge employer that we signed on. and we have more that are coming in. So we think that in the second half, we're going to start to see this revenue starting to gain traction. you're going to see the growth between Q3 to Q4 with more momentum into Q1 of next year. That's how we expect things to happen. Meanwhile, we made the entire P&L much more efficient from a gross margin perspective, OPEX perspective. We expect that every additional dollar that will be added from accounts that we already signed on is going to be extremely efficient in its ability to go to the bottom line and reduce the loss.