DarioHealth Corp. Q1 FY2021 Earnings Call

Greetings and welcome to the DarioHealth Corp. First Quarter 2021 Financial Results Call. Please note this conference is being recorded. I will now turn the conference over to your host, Glenn Garmont of Investor Relations. You may begin.

Thank you, Shamali, and good morning everyone. Thank you for joining us today for a discussion of DarioHealth’s first quarter 2021 financial results. Leading the call today will be Erez Raphael, Chief Executive Officer. He will be joined by Zvi Ben-David, Chief Financial Officer, and Rick Anderson, President and General Manager of North America. After the prepared remarks, we will open the call for Q&A. An audio recording and webcast replay for today’s conference call will also be available online as detailed in the press release invite for this call. For the benefit of those who may be listening to the replay or archived webcast, this call is being held and recorded on May 18, 2021. This morning, we issued a press release announcing our financial results for the first quarter 2021, a copy of which can be found on the Investor Relations page of the company’s website. Actual events or results may differ materially from those projected as a result of changing market trends, reduced demand, and the competitive nature of DarioHealth’s industry. Such forward-looking statements and their implications involve known and unknown risks, uncertainties, and other factors that may cause actual results or performance to differ materially from those projected. The forward-looking statements discussed on this call are subject to other risks and uncertainties, including those discussed in the Risk Factors section and elsewhere in the company’s 2020 Annual Report on Form 10-K as well as the first quarter 2021 10-Q filed this morning. Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company’s press release today and in the company’s filings with the SEC. In addition, certain non-GAAP financial measures may be discussed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate the company’s current performance. Management believes the presentation of these non-GAAP financial measures is useful for investors’ understanding and assessment of the company’s ongoing core operation and prospects for the future. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in today’s press release. And with that, I would like to introduce Erez Raphael, Chief Executive Officer of DarioHealth. Erez?

Thank you, Glenn, and good morning everyone. Thanks for joining our call this morning. Joining me today are Rick Anderson, the President and General Manager for North America, and Zvi Ben-David, the CFO of the company. So, we are very excited this morning to report our Q1 results and also to give some updates about our news that we just put out earlier this morning about the acquisition of wayForward. I want to be very persistent, and therefore I want to reiterate the main three pillars that we keep mentioning every quarter for the last I would say 1.5 years or 2 years regarding how we are planning our strategy, how you see the future business, and how we are reporting our progress. So, the main three pillars are the expansion into multi-conditions, which is something that we keep repeating; the second pillar is the expansion into a SaaS high gross margins revenue; and the third one, and obviously the most important, is the transformation into the B2B2C. As you all know, this company started as direct-to-consumer. We are big believers in the consumerization of healthcare. And this is why we started B2C. We created one of the best products, and we are transforming the business into B2B. We believe that the combination of these three pillars together is something that each of them will have a very important impact on our financial profile, but the combination of the three of them together is going to create exponential growth for our company. And that’s how we are looking at the business. We also consider our digital therapeutics platform as the second generation of the digitalization of health. So, we have heard a lot in the market about the telemedicine revolution. From our perspective, telemedicine is about scaling up the capabilities of healthcare professionals. But when we are looking at digital therapeutics platforms like DarioHealth, we are very, very focused on how we can empower patients and how we can scale the treatment even more by getting patients involved with their own health. And I think that this is the future of digital therapeutics – digital health and health in general. And this is what the market will see in the next few years in terms of the consumerization of health. So, as I keep repeating, we think that B2B2C is the most important part that we are going to report on today in terms of progress. But at the same time, we need to ensure that our product will improve its value proposition. And when we are looking at the evolution of the market, we are looking 2, 3, and 4 years forward, how we can win health plans and employers, and this is why it’s important to improve our positioning in terms of the product. At the same time, when we have more product lines, it’s improving our financial profile in a way that we can number one, win more clients; number two, we can up-sell more products for clients that we are winning. In other words, we also improved the total population that are eligible for our products; and number three, because in more than 50% of the cases, patients are suffering from more than one condition, eventually, we can sell to one user more than one chronic condition, and we can provide a solution that is much more personalized, in other words, hyper-personalized. So, the combination of more clients for our portfolio of products, more eligible members, and higher ARPU average revenue per user, all these three parameters are going to improve our financial profile and ensure that we are not just scaling the business, but we are also doing that in a very healthy way, hence higher margins and very healthy growth. At the same time, we are increasing our moat in terms of our ability to deal with the future market as well. So that’s the way that we are looking at the business, and we are always looking into these three pillars. So with that, I want to touch on the high-level results of our financials that we announced yesterday after the closing. We ended the quarter with $3.6 million in revenue, which is a 73% growth over Q4 of 2020. If we are also counting the revenue of Upright from the beginning of the quarter, hence, also January, the overall revenue also known as pro forma is $4.7 million for the quarter. Usually, because the majority of the revenue today is still coming from B2C and specifically for products like Upright, January is very strong. So, January generated more revenue than what we have seen from Upright in February and March, but in general, both businesses, Dario’s legacy business and Upright, were growing between Q4 to Q1. So, we feel that we also managed, post-acquisition of Upright, to turn around the business and bring the business back to growth. We think that it’s a good indication that we are going to keep continue growing the business into the second quarter as well and obviously for the rest of the year. In terms of gross margins, we ended the quarter with 30.1% gross margins for the first quarter. If we are excluding the acquisition-related amortizations, again, from the acquisition of Upright, we would almost double the gross margins to 44.7% from 24.2% that we had in Q4. I think this speaks to the second pillar that I am mentioning, the improvement of gross margin. I see a very good improvement on that parameter. As mentioned in previous calls, we think that this parameter will keep improving, the more we are expanding the penetration into the B2B market. A few words about the B2B2C transformation, and I will give some highlights, but Rick will elaborate even more on that one. This is obviously the most important pillar. We are very focused on that one. So first of all, just as a reminder, we started the overall transformation when Rick joined at the beginning of 2020. We consider this transformation as a multiyear transformation. We started with a team of about 4 or 5 commercial teams in the states, and today we are around 35, from which we have about 14 sales people, client success, marketing, and so on. We have really changed the whole foundation of the company from a product offering standpoint and also from a headcount standpoint and we started to show the first few wins in Q4 of 2020. In Q1 2021, we started implementation. One of the themes or the thesis that we had is that we told the market we have one of the best products in the market in terms of user experience, user engagement, user enrollment, and also the ability to improve clinical outcomes and save money for employers and plans. I think that after a few months into the implementation, I am very satisfied with the results. I think that this thesis proved to be true, because about 10 weeks into the implementation, we already exceeded a 40% enrollment rate. I think that in terms of winning accounts and winning RFIs over the competition, we show that we know how to do that. In terms of implementing accounts, we show that so far we have a very good indication that we are hitting all the KPIs. The product that proved to be very effective on B2C seems to be very effective also on the B2B side, including enrollment and our ability to engage with users. Following the acquisition of Upright and in discussions with clients, we think that the thesis that clients want to see a multi-chronic condition platform also holds. They want to talk with one vendor and they want to know that their users are getting one voice for multi-conditions, and they want to buy a solution from an integrated company. This thesis proved to be true because more than 30% of our potential clients are also interested in the MSK solution and potentially also in the behavioral health solution that we just announced the acquisition of this morning. With that, I want to provide a few words about the acquisition that we just announced. The idea to expand into behavioral health has been out there for a while, and those that have been paying attention to our earnings calls know that this is the management strategy for expansion. We think that behavioral health is foundational to treating any chronic condition. We cannot see how we can keep improving our performance in terms of helping more and more people and improve more outcomes without having a very good solution on that end integrated with the rest of the platform. More importantly, we hear it from clients. Clients want to get this solution as well. The B2B2C transformation would be successful even if we didn't acquire wayForward. But with wayForward, we believe that it’s going to strengthen our position. It’s going to improve our moat moving forward in the next few years. This is why we made the decision to acquire wayForward. Rick will elaborate shortly on why wayForward is one of the best solutions in the market and why we made this specific choice. I think the knowledge our company possesses on the metabolic side and also on the behavioral health side, with the background that Rick and Omar Manejwala and others from the team are bringing puts us in a position where we will know how to integrate these solutions together into the best suite, so to speak. We are not positioning ourselves as a holding company. We are positioning ourselves as a portfolio technology software company. This is why it’s so important to know how to connect the solutions together into one integrated, harmonious experience for our users. With that, I want to hand over the call to Rick to provide additional information about the B2B2C transformation, potential wins, as well as the acquisition of wayForward. Rick?

Thanks, Erez. One of the keys to our strategy to move into the B2B accounts is generating enrollment and revenue from those accounts. That’s a key factor, not just winning them, but actually being able to enroll people, engage them, and continue to generate revenue. As Erez said, we launched several accounts in the first quarter. We have been very pleased with where that enrollment is running. We are running north of a 40% enrollment in under 10 weeks, which exceeded our internal goals. As I have stated several times, we used a 35% enrollment in our pipeline and our internal models. Since we are substantially above 40%, that really shows what we are able to do, and that bodes well for converting contracts to revenue. It also happens to be, from what we know, best-in-class in terms of enrollment compared to our competitors, and we continue to be excited about that. The other operational piece I wanted to touch base on was the partnership that we announced with MediOrbis. This is really a virtual care offering, and we are offering it directly to patients in partnership with MediOrbis. We believe, as do many people in the industry, that virtual care is going to be a significant part of the future, a significant part of healthcare's future. In this case, MediOrbis is providing telehealth care to members, and we are providing remote patient monitoring and coaching to MediOrbis in support of those patients. We started in our existing population, and we have now started extending that beyond that, and we believe that this is a significant opportunity to generate revenue. The early pieces that we are seeing reinforce our views about that. One of the other things we think is exciting is that this is based largely on the remote patient monitoring codes that you have heard us talk about several times for Medicare members. However, we are seeing an increasing number of commercial payers starting to reimburse for the same code. So, we have an expanding market opportunity as well. From a business development perspective, our pipeline is now north of $700 million. We continue to make progress in all three channels. I'll start with health plans. As we have stated, we continue to expect that we will have health plan agreements this quarter that will generate meaningful revenue in the second half of 2021. We are on track for delivering that based on where the contracts are with our customers and we are excited about that, obviously. We also have several other opportunities for health plans in the late stage and expect to see additional contracts in the later part of the year. These will not generate as much revenue in 2021 or revenue in 2022, but we still anticipate that we will have contracts in this quarter. We also continue to progress some of the earlier-stage opportunities within the pipeline, and health plans remain a significant part of our pipeline. For us, though, employers are a very exciting data point. Over the last quarter, I've stated in the past that the majority—call it 70%—of employers, maybe a bit more, are on a January 1 to December 31 cycle, which means we are in the sales cycle for 2022, launching contracts as we speak. Most of the increase in the pipeline in the last quarter is related to those employers. So we anticipated we would see that, and we are seeing that. We are very excited about that. I think it speaks to the work that we have been doing, but also the name recognition we are seeing. The fact that benefit consultants are seeing the opportunity with Dario and we are getting opportunities to pitch. When we get opportunities, we tend to do very well. So we are very focused on increasing those. We are excited about that. On the RPM side, we have several contracts pending final signature. We believe that RPM will generate meaningful revenue in 2021, and it is already generating revenue. We expect that to continue to increase. One interesting thing is that we are seeing increasing interest from health systems. Strategically, we went after customers that can move faster earlier. Most of that was based on grants that they were receiving and obviously the RPM codes that I mentioned earlier. We are continuing to see larger systems, which tend to move a bit slower, showing increasing interest in that. The other thing that we have seen over the last quarter is increasing interest from what I will call partners. This includes everything from device companies looking for potential partnerships with us to distribution partnerships, and also includes partnerships with other digital health companies. We continue to see an interest in what Dario is doing. We believe that relates not just to the success we are having with customers but to our expanding product portfolio. At this point, our product has expanded; we are selling an integrated offering that goes beyond the original metabolic syndrome. We are now offering diabetes, pre-diabetes, hypertension, obesity, and with the Upright acquisition, we have also added MSK. We have seen interest in both the employer and health plan channels for the MSK offerings. We think that’s exciting since we just added that a couple of months ago, and we have been partnering over the last few months with wayForward to include behavioral health in our offerings. We truly are selling an integrated offering. We are also offering each of those as individual point solutions. This is consistent with our strategy of having a front-end and back-end that is integrated. In the middle, we are integrating best-in-class point solutions in a way that allows people to have a holistic experience, managing the multiple chronic conditions folks have within the platform. But we can also sell those as individual point solutions and integrate because we are an open architected system. We will integrate with other players in the ecosystem, and that has also been well-received in the marketplace. Lastly, we continue to grow the team. We have been adding, of course, on the sales side, but we also added a new Vice President of Client Success who is coming to us from Hello Heart. We continue to attract talent from our competitors and other digital health companies that are in the marketplace. I think that speaks volumes to the fact that they can see Dario’s unique value proposition and offering. These are individuals that have a front-row seat to what’s going on in digital health and with the customers, and they are seeing the differentiation that Dario offers. Just a few words on the wayForward acquisition. As Erez mentioned, our strategy has always been to be an integrated multi-condition platform. After acquiring wayForward, we believe that we will have one of the most robust platforms covering the most conditions in the industry. Looking at why we want to add behavioral health, we have talked about this in the past; we look to add conditions where behaviors play an outsized role in the outcomes for that condition. Behavioral health obviously has significant behavioral drivers as part of it. Depending on whose numbers you look at, 30% to 70% of all chronic conditions have a coexisting behavioral health condition. Behavioral health underlies all these conditions. This is an opportunity for us to help provide integrated support for our members. It’s a large addressable market, and as Erez mentioned, our customers are looking to add behavioral health solutions—specifically digital behavioral health solutions that have been true throughout the pandemic and continue to be true. It’s consistently in the top five priorities that they have to reduce costs and improve outcomes. This also increases the number of customer opportunities we can participate in. So, the number of RFPs and the breadth of those RFPs and/or selling directly to health plans, also, there is an opportunity with provider specialty providers at risk, as well as those providers looking to address behavioral health as part of their other remote patient monitoring solutions. It increases the number of people per customer that we can help. We estimate that we can now serve approximately half of a given population if we use our entire integrated suite of product solutions. We believe that this will also—and this is being validated in the market with the interest that we are getting—will increase the average revenue per member that we can achieve. So, it increases the overall opportunity concerning customers and the number of members and the average revenue per member that we can serve. Why wayForward? We believe wayForward has a unique offering. Most of the other digital health providers, all of the big names certainly that have gotten a lot of attention over the last year primarily focus on offering a telebehavioral health service. They may talk about other things they have in advance of that, but the main focus of their offering is really telebehavioral health. WayForward focuses somewhere else. They are addressing the gap that exists in most behavioral health offerings that does not advocate for members needing to see a provider. The gap between nothing or EAP and a provider network is really where wayForward is focusing. They are doing this through an AI-based screening mechanism that helps identify where members should go in the process, what are the appropriate resources and level of care they should access, and then provide digital cognitive behavioral therapy, or CBT, both in self-help and in combination with coaches, and where appropriate can refer to a customer’s existing face-to-face or telehealth provider network. If somebody wants them to bring a network to the table, then they can do that. This is a unique opportunity to partner with other people in the system and not compete with provider networks that exist or have an incentive to send people to the highest level of care. So, it allows you to address more patients, at a lower unit cost throughout the system. It’s a very efficient way to approach that, enabling different kinds of partnerships, including with the digital health companies that I mentioned—or the digital behavioral health firms. Their architecture fits well with our existing products and philosophy of being open and willing to integrate with other parts of the ecosystem as well, which we felt was important. Bringing with them approximately 20 employer customers, we will add about 20,000 members to our existing platform. They also provide digital technology for several EAP platforms, which actually runs into several hundred thousand folks that are out there as well. We have significant cultural and vision alignment with them, which was important. We look at everything at Dario through a cultural lens as well. They were a really good fit for us. We’ve understood this, as I mentioned, by partnering with wayForward for several months. It was clear that we had a good alignment between the teams and the way we looked at things as we went and pitched customers. The entire wayForward team, including the two founders, will be joining the Dario team, and we are excited to have them on board as part of Dario. In terms of deal structure, it was in the press release; the acquisition was $25 million upfront and a $5 million earn-out based on the 2022 revenue. The vast majority of that was paid in equity using a 60-day VWAP, because it was really important to wayForward to do a primarily equity deal to continue to share in the vision of building an integrated offering and the upside that we anticipate creating together. Of course, it also minimizes the impact on our cash balance and we don’t anticipate a very significant continued investment. There are nice synergies between the two companies in terms of using Dario's sales and marketing organization and some of the organizational pieces of wayForward. Therefore, we don’t believe that this will have a significant increase in burn and will contribute to revenue in 2021, but a much larger contribution in 2022. All the stock that was part of the transaction is subject to a lockup of 6 to 18 months, similar to what we did with the Upright transaction. With that, I will hand it over to Zvi.

Thank you, Rick. Revenues for the first quarter ended March 31, 2021, were $3.6 million, a 73% sequential increase from the fourth quarter ended December 31, 2020, and a 116% increase from the $1.7 million in the first quarter ended March 31, 2020. Revenue generated during the first quarter ended March 31, 2021, was primarily derived from the sales of DarioHealth’s products and services as well as from the consolidated revenues of Upright commencing February 2, 2021. Gross profit in the first quarter of 2021 was $1.081 million, an increase of $302,000 or 38.8% compared to the gross profit of $779,000 in the first quarter of 2020. Gross profit margin was 30.1% in the first quarter of 2021, compared to 46.7% in the first quarter of 2020. Pro forma gross profit, excluding $526,000 of amortization of expenses related to the acquisition of Upright Technologies, was $1.6 million. Pro forma gross profit margin, excluding the amortization of expenses related to the acquisition of Upright, was 44.7% in the first quarter of 2021, a sequential increase from 24.2% in Q4 2020. Total operating expenses in the first quarter of 2021 were $15.4 million compared to $10.9 million in the first quarter of 2020, an increase of $4.5 million or 41.6%. The increase resulted from an uptick in our research and development activities, sales and marketing expenses, and from the consolidation of Upright Technologies, partially offset by a reduction in stock-based compensation. Operating loss in the first quarter of 2021 was $14.3 million, an increase of $4.2 million or 41.7% compared to the $10.1 million operating loss in the first quarter of 2020. This increase was mainly due to the rise in our operating expenses. Net loss was $15 million in the first quarter of 2021, an increase of $5.1 million or 51.3% compared to the $9.9 million net loss in the first quarter of 2020. Cash and cash equivalents totaled $81.1 million at March 31, 2021. Now with that, I will turn the call back to Erez.

Thank you, Zvi, and thanks, Rick, for the overview. A few closing remarks first. I want to reiterate that the B2B2C transformation, hence, winning employers, health plans, and providers, is our first priority. As Rick stated, we believe we will win over health plans in this quarter. Another important data point that I think investors should understand is that in terms of implementing employers, we are showing that we know how to do that. We have managed to take the B2C capabilities and transform them into B2B. So from a product and team standpoint, we have all the tools to succeed in this transformation. I think that the fact that we also managed to conclude two acquisitions in four months is another indicator of our aggressiveness in a positive manner regarding how we want to lead the market in building the digital therapeutics platform. I want to emphasize our digital therapeutic platform for chronic condition management, hence consumer-centric and scalable. We are integrating with telemedicine platforms to provide one integrated experience, but we believe the future of the market and scalability will only be achieved by involving users with their own health. That’s why we keep improving our strategic position. I am very glad that after we raised more than $100 million in the last 12 months, we are utilizing the capital in a very smart way. The two acquisitions that we made required minimal cash expenditure. The acquisition of wayForward is now going to add to our burn rate something that is meaningful. Practically, we are utilizing the capital effectively and we feel we have a long runway. As Zvi stated, we ended the quarter with more than $81 million in cash. We already see, inside Q2, that we will continue the growth from Q1 to Q2. I am referring to organic growth. With that, I would like to open this call for Q&A.

Our first question is from Alex Nowak with Craig-Hallum Capital Group. Please go ahead with your question.

Great. Good morning everyone. Thanks for the call here. We have continued to see the pipeline getting built up here, $700 million now, $600 million last quarter. But it also looks like the conversion to deals has been quiet the last few months, maybe a little bit slower than you would have thought. I think last quarter, the expectation was 20 to 30 different deals could be signed over the course of 2021. You mentioned the health plans. You mentioned a couple of employers that are in the works and a couple of providers. But can you provide an update on the deals that you expect to sign over into customers during 2021 and just the status across providers, employers, and payers? Thanks.

Sure, Alex. Thanks for that question. Yes, the pipeline has continued to grow. Part of that was just where we are in the transition, really starting in mid-2020 for most of the markets we are pursuing from a very low number, then continuing to expand that as we go forward. We are not expecting that the pipeline will continue to grow at the rate it’s been growing in the future, as these deals—most of the sales cycle for health plans, as you have heard me say, are 18 months to 2 years. We are very pleased to have some that look like they will come out of the pipeline in essentially a year or under a year, which is pretty quick. I think that speaks to the value proposition and the opportunity that’s there. There are also ones that will continue to move on what we would think would be a normal cycle. As I mentioned, employers—most of the employers we are working with that are in the pipeline, although not all of them, are January 1 to December 31 launches, which means those contracts, which we are referencing, will be coming into play in the fourth quarter. We have a couple, including some things that are fairly large, that we would anticipate will come probably in the third quarter, based on where we are in terms of the contracts, with some revenue in 2021. However, the majority of it really launches into 2022. On the RPM side, that’s where we anticipate a larger volume of contracts over a period of time. At the moment, we have a fairly healthy number sitting out waiting for signature. It may be the nature of the beast that sometimes we get several in clumps relating to that. We still anticipate the same number of contracts that we were anticipating last quarter. Nothing has changed from that perspective. If anything, we have probably seen an increase in the potential for contracts, especially through partners around that. All of those comments pre-date the acquisition of wayForward, which we anticipate will also contribute to that. Excluding that, I would say we are in the same position or we are a little bit in a better place than we were last quarter, in terms of having those come out. Certainly, I understand the frustration as it relates to seeing them on a regular basis. I think we will see more RPM contracts on a regular basis. For health plans, we aren’t going to see a ton of those until we get later in the year because those are 2022 revenue launches, with a few exceptions, and health plans tend to be a bit further in between. But we believe we are well positioned for this quarter and going forward for the rest of the year, and we also anticipate some additional.

Okay, that’s great. That’s really helpful. On the behavioral health with the wayForward acquisition, Rick, you have obviously experience with behavioral health companies before. You mentioned the reason why this drew your attention to wayForward. But you also said you don’t need to make any major investments in it. So, I guess just expand on that because I am sure you want to shape wayForward into a bit of the vision that you have had from your prior experience. Ultimately, what do you need to do to modify the wayForward platform to fit the Dario network? Is it going to be something similar to what you are doing with Upright? I guess I didn’t necessarily get that message. And then just last question of the bunch here. Among the 20,000 customers that wayForward has, what is the revenue from that? Do you expect to expand the diabetes solutions into the 20 employer plans that wayForward has?

Sure. Let me try and ensure I get all of those. If I miss something, let me know. Yes, I probably wasn’t as clear as I could have been in terms of we don’t expect it to add significant burn to what we are already spending. Part of that is because they are generating revenue, and part of that is because they already have a robust software development team. Their software development team is located in India and has done some great work, and we anticipate they will continue to do that great work and refine the offering of wayForward. They have built the platform; they are operating that platform. So, a lot of that heavy lift has already been done regarding that. The primary thesis in terms of bringing wayForward into Dario is really the integration. As I talked about, we want to make this available in this—by this, I mean, the different offerings available to members—not necessarily all in the same application. We don’t think that is the best member experience. So, we anticipate we will continue to maintain different applications but have integration concerning members being able to see where they are across different conditions if they have those and have ease of use back and forth between them with a consistent look and feel, so they feel like they are in an integrated experience. The whole thing is supported by our AI journey engine, enabling us to do a more personalized, hyper-personalized approach to those members. We will be integrating the data feeds and the recommendation engines, etc., that come from that AI engine into the wayForward piece. We anticipate that will happen over the next couple of months, but wayForward is a bit different from Upright. The majority of their customers are self-insured employers, whether that is direct contracts or through resellers that they have. Their offering is already a B2B offering. We have been partnering with them on RFPs already throughout the first part of this year as we’ve entered especially on the employer side. There isn’t a lot that needs to be done for us to start that process. Over the next few months, we will integrate them into an overall look and feel from that perspective. I feel like I missed one of your questions.

Just on the revenue contribution that you would expect once the deal closes?

We don’t expect it to be terribly material to our existing revenue that we have in the current year. The— you asked the question regarding the billing, the 20,000 members, approximately that they are bringing. Like I said, that doesn’t include their technology solution. They are a bit different concerning billing in that they are billing per user—excuse me, per member per month. They actually have a fixed charge every month related to those individuals because of how their platform works- the ability to screen people and provide digital CBT and the CBT plus coaching. Most of our other solutions are billed on an engaged member basis. They have existing customers on a PMPM basis and some that are in the process of being implemented. We will continue to see that contracted revenue there come into play over the rest of 2021 and build into 2022 as they continue to expand.

Okay, understood. And then just any update on how the Upright acquisition, that transformation is happening moving that into more of a B2B platform?

In terms of offering, we have already integrated. We have several opportunities for MSK as a standalone, and we also have several where it’s integrated with some different health plan customers. We have partnered with a couple of different health plans and we have been including it from that perspective. We have also seen interest from Upright Go from a B2B perspective as well. So, there are existing products that are in process. We expect that we will have all the pieces needed from a B2B side in the late summer. Erez, do you want to add anything to the B2B integration for MSK?

Yes. That’s something that, as we stated in our last earnings call, we are going to get this MSK offering packaged into the B2B market for Q3. That’s still the plan that we have. We have started to commit to clients to get it delivered for Q3. The existing product, as Rick stated, Go 2, is distributed now for some of the B2B accounts.

Alright. That’s great. And then last question, just to confirm, what was the revenue of just Dario organically excluding Upright in the quarter?

That’s something in the range of $2.3 million or $2.4 million. I am not sure of the exact number, but that’s in the ranges. I mean we had the growth from Q4. In terms of the Upright,...

Thank you, Alex.

And our next question is from Charles Rhyee with Cowen. Please proceed with your question.

Yes. Hi guys. Thanks for taking the question. Maybe first, just to follow-up on Upright. So, you talked about a good chunk of the first quarter revenue is typically captured in the first quarter. Is that just a function of seasonality? So, when we think about revenue from Upright for the rest of the year, should we be using sort of February and March monthly kind of run rate as the run rate through, let’s say, the middle of the year, and then more of Upright revenue comes in the fourth quarter and first quarters of the year?

Yes. Thanks for the question. Yes, since the majority of the revenues that we are generating today are still the same, and that’s also the case with Upright. There is seasonality. So usually, January is very strong, and this is why January is higher than February and March for Upright. Then towards the end of the year, November and December are going to be again high compared to the month before. So between, I would say, February and September, October, these are the months. As you said, you should consider the run rate and the potential growth of this run rate from February, March, and onwards. That’s the way to think about it.

Okay. That’s helpful. So, when you talk about— I think in the release you mentioned there were about 90,000 active users for Upright. Does that represent the sort of steady-state membership during this February to September period? Because my guess is right, if you are paying a monthly PMPM and maybe correct me if I am wrong. The fourth quarter, first quarter effect, is that really a lot of people trying it out because of the holidays or they want to get better or whatever reason, but then they can’t— people cancel, right? Maybe they choose not to continue. What you are really seeing in February to September are the consistent active users?

Yes. So first, I want to emphasize that we put a new deck on our website this morning and provided the link on the press release and in our 8-K. Information about the number of users and so on is disclosed as part of the presentation. Regarding your question, the majority of users coming from the metabolic are moving into a membership program. That’s the transformation we've been making in the last couple of years. For Upright users, those coming from B2C are buying the device as a one-time purchase and then trying it, getting onto the platform and testing it. They are more on a program that is one-time. The others joining as part of the B2B are getting into programs that are more like a membership. That’s the way to think about it.

I see. So it’s a little bit less about the subscriptions side, but it’s also the device charge as part of the Upright that people are purchasing more at the end of the year or at the start of the year?

Yes. People are buying more online towards the end of the year and the start of the year; hence we see the seasonality. It’s less about the membership program because that’s the nature of the B2C sales that we are doing. When I talk about transforming the Upright business into B2B MSK, I mean turning it into a membership under a yearly program, where you are going to see something that is more stable and less seasonal. So, the more we move the business and overall revenues into the B2B space, the more stability you will see improving. Obviously, this is something you also already see in the Dario metabolic disease because we started this transformation 1.5 years ago, and you will see this towards the end of the year also for the MSK business.

Okay. But just on the B2C part of Upright, just to be clear, right, we should be modeling more of the February, March run rate through September and then ramp up in fourth quarter and in first quarter for not only this year but as we think of next year as well, right?

Yes, that’s exactly right.

Okay. I just want to ask one more question around wayForward. You talked about how it sits in this middle part between either not getting care or getting all the way to a real full-blown telebehavioral health visit. What part of the market because if you think about—and I am looking at your slide deck right now and you show this Venn diagram of the addressable market of $9 billion. Is this just a segment of the behavioral health that you think that wayForward represents, or is this just saying this kind of 1% penetration estimate? I’m trying to understand what part of the behavioral health market fits into where wayForward is trying to play?

Yes. That represents where we think they are playing right at the moment. But if you think about behavioral health as a pyramid for the moment, where you are analyzing the number of people at each level of acuity, this isn’t an exact term. At the very top of the pyramid, you’re going to see a small number of people with serious, persistent mental health issues that come with high costs. The next group down is a slightly larger number but those are people usually incurring significant amounts on the medical side instead of the behavioral side, but they also have significant behavioral health issues. Depending on how you want to gauge it, two to three categories below that have decreasing severity of behavioral health conditions and decreasing costs. The base of the pyramid is the largest group of people that have behavioral health conditions that can benefit from care. If care isn’t provided, a significant portion of those will continue to progress into higher levels of acuity and costs associated with that. The challenge with the bottom end is that they don’t cost a lot of money. They aren’t spending money on behavioral health. They don’t necessarily need a traditional provider, the way we think about it in a lot of cases, some do. Most of them would benefit from other interventions. The key has always been how do you serve the low end of that pyramid efficiently and cost-effectively. WayForward is unique and interesting because they're focused on using sophisticated screening to understand who’s in what category, what kinds of treatment or care would be appropriate and then helping direct them to those resources. In some cases, they provide that care themselves and in others they send folks to care outside of themselves as part of the referral. This referral is part of the value; the ability to do that referral is vital as well. This is about addressing that lower piece of the market on a cost-effective basis. Because they are not providing and earning their money primarily through telehealth visits or telebehavioral health visits, which often exceed the cost of an in-person visit, their business model allows them to deliver effective services without sending people to the highest level of care. It provides a better member experience and is more convenient, offering what they need in addition to addressing a large portion of the market. This can only be done through a digital approach. We believe the opportunity may be larger than that, Charles. We are starting with something smaller but appropriate.

Okay. Last question: could you give a rough estimate of what the PMPM is for wayForward?

It really depends on what the underlying services are, but it’s likely going to run somewhere between $250 and $400.

Thanks, Charles.

And we have reached the end of the question-and-answer session. I’ll now turn the call back over to management for any closing remarks.

Thanks everyone for joining our call this morning. I want to reiterate that we had a new presentation loaded to the website with additional information that can be complementary to the press releases we put out this morning and also to this earnings call. Thanks for your continued support, and have a good day. Bye-bye.

This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation.