Good morning, ladies and gentlemen, and welcome to the DarioHealth Second Quarter 2025 Results Conference Call. This call is being recorded on Tuesday, August 12, 2025. I would now like to turn the conference over to Zoe Harrison, VP, Accounting and Corporate Development. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us today for a discussion of DarioHealth's Second Quarter 2025 Financial Results. Leading the call today will be Erez Raphael, Chief Executive Officer of DarioHealth. He'll be joined by our President and Chief Commercial Officer, Steven Nelson; and Chen Franco, our Chief Financial Officer. 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. For the benefit of those who may be listening to the replay or archived website, this call is being held on Tuesday, August 12, 2025. This morning, we issued a press release announcing our financial results for the second quarter of 2025. A copy of the release can be found on the Investor Relations page of DarioHealth's website. Actual events or results may differ materially from those projected as a result of changing market trends, reduced demand or the competitive nature of DarioHealth's industry. Such forward-looking statements and their implications may involve known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ materially from those projected. For example, the company is using forward-looking statements when it discusses the company's expectations regarding revenue gaps, growth, acceleration, expansion, collaborations, pipeline, new clients, AI leverage, cash flow breakeven and leadership in the field of digital health. 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 second quarter 2025 quarterly report on Form 10-Q. 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 issued this morning and in the company's other 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 operations and prospects for the future. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in this morning's press release. With that, I'll hand it over to Erez Raphael, CEO of DarioHealth.

Good morning, everyone, and thank you for joining us. We'll start the call with a high-level overview of the financial results, along with key metrics that we believe are leading indicators for improving performance in the future. We'll go to Steven for a commercial update and more on some very positive momentum with contracts and pipelines. We'll then turn the call over to Chen for a deeper look into our numbers. I'll wrap up with a quick message on our drivers for future growth and how AI is a fundamental part of our operations and offerings. Then we'll open the call for Q&A. Before we dive into the numbers, I want to start by acknowledging that our second quarter revenue results came in below our expectations. While we continue to make strong progress on growth indicators, especially around channel partnerships, recurring revenues, gross margins and client quality, there are a few short-term headwinds that impact top-line performance. As reported last quarter, we experienced a shift in scope with large national health plan clients earlier this year. While we were optimistic that the revenue gap would be offset quickly through new business ramp-up, that trend proved slower than expected. Several large accounts that we signed in 2025 are onboarding and generating revenue, but the full impact will be felt more meaningfully at the end of 2025 and into 2026. Some of the shift is also due to our focus on sustainable annual recurring revenue rather than one-time payments, which affected some of the changes in revenue for this quarter compared to Q1 2025. As a result, we are adjusting our estimates for reaching cash flow breakeven by approximately 12 to 15 months, which is now expected to be at the end of 2026 to the beginning of 2027. So while we see this quarter as a transition period, our forward momentum remains strong, and we are already seeing early evidence of that in the key metrics. We have signed 21 new clients year-to-date and remain on track to meet our goal of 40 by the end of the year. Eighty percent of the new 21 accounts are for multi-condition programs aligned with our strategy for a multi-condition platform. We have secured about $5 million in newly committed annual recurring revenues or CARR, plus our pipeline has grown to $53 million, with an additional over $5 million of which is in final stages towards CARR. New logos include some of the largest and highest quality accounts in the history of the company. This includes two health plans with national scale, representing multi-million dollar opportunities. One of them is launching in the second half of 2025. We are seeing increasing traction from our channel and consultant relationships, which are fueling requests for proposals or RFPs flow and bringing in the kind of strategic accounts that align with our long-term model. All of this gives us confidence that the short-term gap will be closed and growth will be accelerated. Importantly, our financial profile continues to strengthen. This is not just about growth; it's about the quality of that growth. GAAP gross margin increased to 55% from 44% year-over-year in the second quarter. Importantly, our B2B2C business continues to operate at over 80% gross margins on a non-GAAP basis. We reduced GAAP operating expenses by 36% and narrowed operating loss by 43% year-over-year this quarter. Our strategy, margin-driven, AR focused and powered by AI-enabled scale is working. Steven and Chen will share more on our commercial traction and financial performance, but I want to emphasize that we are building a company designed to thrive not just in today's environment, but in the future landscape of digital health where efficiency, outcomes and value will define the winners. I will now turn the call over to Steven Nelson, our President and Chief Commercial Officer.

Thank you, and good morning, everyone. Before I get started, I want to thank Lara Dodo for stepping in to handle my portion of the earnings call last quarter while I was out due to a medical emergency. She's an amazing COO, and it's a privilege to have her leadership and partnership at Dario. As Erez shared, this was a transition quarter, one that highlights the durability of our model and the momentum we're building. Our focus remains on sustainable recurring revenue growth fueled by differentiated solutions and disciplined execution. At the center is our multi-condition platform, fundamentally reshaping how healthcare is delivered for users and payers. To make that real, think about someone prescribed a GLP-1 for obesity or diabetes. Instead of a short burst of weight loss followed by a relapse, Dario surrounds that medication with personalized digital engagement, behavioral reinforcement and integrated chronic condition management that extends the benefit for years while lowering the total cost of care. We have more clinical and ROI data than anyone in the market to back this up. Dario delivers a 5x ROI, more than double other leading digital health solutions with medical cost reductions exceeding $5,000 per engaged user. Year-to-date, we serve over 100 clients, including four national health plans, six regional health plans, self-insured employers and five pharmaceutical partners. This diversified footprint is critical as we scale, and our health plan partnerships have grown meaningfully over the past year. Combined with PBMs, benefit consultants and other channel partners, these relationships give us access to most of our target employer market without the friction of lengthy contracting and security reviews, making Dario one of the easiest solutions to buy and implement. In the first half of 2025, we signed 21 new clients, including a top U.S. healthcare institution, two regional health plans and 18 employer clients, 80% of which are multi-condition programs. These wins reflect demand for unified clinically integrated platforms that address multi-chronic and behavioral conditions together with measurable outcomes, ROI accountability and strong customer engagement. This quarter also marked the completion of a full review of our channel partner network. We reset relationships, restructured contracts where needed to ensure product-market fit and align with partners' go-to-market models. The result is revitalized partnerships and a stronger value proposition that matches how benefits are bought and sold in the U.S., particularly around January renewal cycles. That work is paying off. We've seen significant traction from benefit consultants and channel partners. With months still to go, we already have contracts and verbal commitments for 2026, and our pipeline is the strongest and most qualified it has ever been. That includes two of our largest health plan cardiometabolic accounts, both with national scale, with one of them set to go live in the second half of this year. That launch will contribute revenue in 2025 while building significant momentum for 2026. Before I go deeper into each of our core segments, our new committed annual recurring revenue for next year now stands at approximately $5 million, with an additional $5 million in late-stage contracting, all outside of pharma. Our pipeline is healthy at roughly $53 million. This strong foundation reflects both new client wins we've secured and the high-quality opportunities we're advancing towards closing. Our revenue growth today comes from two levers: expanding eligible lives and improving yield. We've seen higher eligible lives from both new client wins and expansions within existing accounts and stronger enrollment yields driven by targeted engagement and integrated partner campaigns directly translating to ARR growth. In our Employer segment, our differentiated GLP-1 support program remains a leading entry point. We've built it as a digital utilization management solution that allows employers to control the cost of GLP-1 medications that are now at all-time highs. Through our partnership with a national third-party administrator, we are live and generating ARR with several new employer clients. The combination of clinical oversight, behavioral reinforcement and digital tools supported by outcomes-based pricing and claims-based billing is resonating with cost-conscious, ROI-driven buyers. We're also seeing accelerated RFP volume from leading benefit brokers, opening doors to high-value, mid-sized and jumbo employers ahead of the 2026 plan year. In fact, we are in final stages, specifically a clinical review with the largest employer in Dario's history, representing 125,000 employees for a January 2026 launch of our diabetes and hypertension offering. Momentum with health plans is also accelerating. Two top-tier payers are advancing full suite evaluations for 2026 implementation and several others are in pilots or preparing to launch additional conditions this year. At this time last year, we had three health plans in our pipeline. Today, that number is more than 25 qualified plans for 2026. With MediOrbis, we've expanded prescriber and remote monitoring capabilities, giving health plans more tools to manage utilization, cost and access, especially in Medicaid and Medicare Advantage populations. Our pharma business continues to evolve as a strategic high-margin opportunity for the future. As mentioned before, we've changed this channel from one-time revenues to recurring revenues. This channel is under transformation, and we believe a few of the top accounts, including Sanofi, will move to full commercial stage with recurring revenues. To be clear, none of the $5 million in committed ARR I mentioned earlier comes from pharma. I mentioned that GLP-1 is a leading entry point for us with new customers. GLP-1 medications are reshaping obesity and diabetes care, but without sustained behavior change, weight relapse is inevitable, and costs will rise. Dario's solution is designed for this reality, pairing medication with proven engagement strategies to drive lasting results before, during and after GLP-1 therapy. We ensure cost control through smart eligibility and short scripting, promote adherence through engagement-linked fulfillment criteria and secure long-term outcomes via post-medication behavioral reinforcement and habits. As the GLP-1 market matures beyond weight loss, we are applying our approach to other high-cost, high-need categories. In June, we entered the $150 billion sleep health market through our partnership with GreenKey, extending our platform into sleep apnea and related sleeping disorders, a natural and scalable addition to our multi-condition model. We are already in multiple active conversations that will leverage GreenKey's capabilities and Dario's engagement platforms to help health plans reduce the cost of care, specifically by addressing wasted spend on sleep apnea machines when other interventions can deliver better outcomes at a lower cost. Based on meaningful ROI we are modeling, we expect to sign our first client in this category in the near term. With more than 90 peer-reviewed publications and over two dozen American Diabetes Association presentations, Dario is widely viewed as a clinical and scientific leader in digital health. In Q2, a major study in the Journal of Medical Internet Research demonstrated improved flu vaccination outcomes in high-risk diabetes populations, another example of how our platform drives measurable behavioral change. We are winning strategic high-quality business. We are aligning operations with the buying cycles of our markets, and we are scaling through trusted, optimized channels. As we look to the remainder of 2025 and into 2026, our platform, partnerships and pipeline are well positioned for sustained commercial growth. With that, I'll turn it to Chen Franco. We are pleased to welcome Chen to Dario as our new CFO. The deep experience she has in healthcare and capital markets is great value to us.

So thank you, Steven, and hello, everyone. I'm truly excited to be here at Dario and contribute to our mission of delivering impactful, scalable digital health solutions. Before reviewing the numbers, I'd like to share how we strategically analyze, monitor and forecast revenues in our core B2B2C business, which is comprised primarily of health plans and self-insured employers. Our approach is built on three pillars. The first one, retention of existing clients and members. These are signed and onboarded accounts where we expect at least 85% retention year-over-year based on our historical performance and engagement levels. Second, expansion within current accounts. We leverage our robust multi-condition platform to cross-sell and upsell, adding new services and conditions to existing relationships. Here, we expect to see between 10% to 15% growth. The third one, new logo growth. Onboarding new clients is a key engine for long-term growth, subject to the timing and seasonality of benefits revenue cycles, as Steven described earlier. When analyzing Dario's performance across the three pillars, we see that the first and second pillars are performing in line with our targets. Retention of clients and users is strong, supported by the quality of our products and the efficiency of our member engagement. The third pillar, new logo acquisition is the area where we have the greatest opportunity to improve, and it remains a key focus for the organization. Looking at the broader financial profile of the company, we're seeing meaningful progress also in other parts of the P&L. Continued integration of AI across our solution and operational workflows is delivering measurable efficiencies and reducing operating expenses. Post-merger integration and ongoing efficiency initiatives continue to drive operating expenses down and narrow our operating loss year-over-year. Successful rollout of our SaaS-like pricing is shifting our revenue mix toward high-quality ARR and reducing reliance on one-time payments. Maintaining a high gross margin above 80% in our core B2B2C business is encouraging as it provides clear evidence that our model works. All these elements position us to continue reducing losses and strengthen our path toward achieving operational profitability and positive cash flow over time. Total revenues for the second quarter of 2025 were $5.4 million compared to $6.3 million in the second quarter of 2024 and $6.8 million in the first quarter of 2025. The decline reflects the non-renewal of a large national health plan earlier this year and our strategic shift towards a SaaS-like recurring revenue model. Despite the short-term top line impact, we are encouraged by our growing committed ARR, high client retention and an expanding pipeline, both in breadth and quality. Slower-than-expected ramp-up of new accounts and onboarding of new logos led to the revenue gap. We know our product continues to work well as demonstrated in high user engagement and measured improved outcomes. Gross margins were 55% GAAP and 64% non-GAAP. In our core B2B2C channel specifically, we have maintained a non-GAAP gross margin of around 80% since the first quarter of 2024, an important validation of our efficient business model. Operating expenses were $12.2 million, down 36% from $18.9 million in the second quarter of 2024, driven by post-merger integration, operational efficiencies, offshore initiatives and AI-enabled efficiencies. This resulted in a 43% year-over-year improvement in operating loss, narrowing it from $16.2 million to $9.2 million. We ended the second quarter with $22.1 million in cash and short-term deposits, strengthened by our recent debt restructuring, which provides additional flexibility for execution. I'm confident our strategy positions us for sustained growth over the coming years. With that, I'll hand it back to Erez to close the call.

Thanks, Chen. As we wrap up today's call, I want to take a step back and talk about the broader digital health landscape and where Dario fits within it. Recent IPOs like Hinge Health and Omada have signaled how the market values digital health. It's about delivering high-margin recurring revenues, clear operating leverage and real-world impact, just like Dario. These companies are now trading at 5x to 10x revenues, and that's creating a meaningful benchmark for Dario. Here are the key fundamentals driving our path to profitable growth. One is our B2B2C business has delivered non-GAAP gross margins of approximately 80% since Q1 2024. Two, our contract renewal rate is 85% with increasing contract sizes and multi-condition scope; we leverage cross-selling and upselling opportunities with a goal to expand clients' value by another 10%. Three, our strategy with partners works. We see significant growth coming from the partnerships we have. Four, we operate with a lean cost structure and scalable financial profile, creating a clear pathway to achieving cash flow positive. But beyond the fundamentals, what truly sets us apart is our AI-powered operating model. Our generative AI is built to create value across three core dimensions. For operating efficiency, we are embedding AI agents internally to streamline operations and reduce cost to serve. To further enhance our member engagement, we are leveraging conversational intelligence to deliver hyper-personalized, proactive, and clinically guided interventions, boosting customer value. We are supporting employers and health plans clients with a measurable, scalable ROI model for managing chronic populations. Our proprietary AI engine built on 13 billion data points and 25 years of user journeys powers personalization at scale. It's already driving measurable improvements in engagement and outcomes, while enabling approximately 15% cost reductions in operating expenses for Dario through automation of onboarding, care navigation and support over the next 12 to 15 months. We believe this combination of strong clinical validation, high-margin annual recurring revenue and embedded AI makes Dario one of the most differentiated platforms in the digital health space. We are not chasing growth at all costs; we are building a company that can scale efficiently, deliver results, and become a long-term category leader. Thanks again for your continued support. With that, let's open it up for a Q&A session.

Your first question comes from Charles Rhyee with TD Cowen.

This is Ethan on for Charles. So just looking at the sequential revenue decline in 2Q, I know you guys talked about a scope reduction with the health plan as well as some new clients maybe ramping a bit more slowly than previously expected. But we're just thinking, was there any churn that maybe also contributed this quarter?

Thanks for the question. As we mentioned in the script of the call, we haven't seen a churn in the ARR of the company. We had a one-time revenue that appeared in Q1 that didn't repeat in Q2. Overall, the ARR given the clients that we have and as we mentioned, 85% retention on the clients and the members, this is what we see year-over-year. So here, we haven't seen any additional reduction with the exception of the big health plans that we mentioned in the previous quarter that created the reduction year-over-year that we have. As we mentioned on the call, we had a lot of new business going in that didn't manage to offset the one big health plan loss we had in Q1 of this year.

Do you think you could give a little bit more color on potentially any of the services that health plan may have decided to discontinue?

They decided to discontinue a Medicaid maternity program and in-sourced it, so it wasn't our decision. It was more about their desire to bring that work in-house. This gives more context to their objectives. We still see opportunities in maternal health, particularly within Medicaid. For them, this initiative provided a good return on investment, leading them to take that capability in-house.

The next question comes from David Grossman with Stifel.

This is Aidan on for David. I just wanted to start back on that health plan and just dive into like what reduction in that health plan is different from kind of the wins you're seeing in that space going forward in the second half? And why should we not expect any others to kind of reduce scale going forward?

Yes, to clarify, this contract was part of the Twill business and had been in place for three years, but it was not renewed by the end of last year into this year. This should not be viewed as a loss. It was a significant deal in terms of revenue, but when we look at our more than 100 active accounts, we don't see a similar concentration. Our largest account is around $2 million, indicating a high level of diversification at this point. Regarding the maternity business, while it is not our primary focus currently, we are still able to support it and might see some business in this area. However, we have not encountered any loss trends in our current offerings, including metabolic and mental health services. Additionally, the issues with this specific account were linked to the capital structure of Twill that we acquired, which affected our relationship with the client. We continue to maintain our relationship with them and are looking for other business opportunities in this area. We expect to renew our relationship with this client, so I wouldn’t interpret this renewal void as a trend affecting the broader business. Conversely, we are experiencing positive trends, as mentioned by Steven and myself, with two large accounts, one already signed and another in the process of being signed. Both have substantial national distribution potential that will influence our revenues. Overall, the outlook is positive, and we consider this particular account situation to be an exception, which we previously noted.

Okay. And then just on the partnership network. I think last quarter, you called out like Rula Health having three or four clients live, the sleep apnea one going live shortly. Can you just talk a little bit about how you've kind of restructured that program, just the partnership program in general and kind of the positive impacts that are coming from those changes?

Yes. I think, first of all, our five core conditions being cardiometabolic, behavioral health, and MSK, we have grown our two conditions primarily around adding in a virtual care network to behavioral health. That's Rula. We're still progressing with them as a partner, targeting our clients today that would like to add in those services, but they add in virtual services or our combined services for January and beyond. Again, Rula is really important for that for adding virtual care. But then the expansion, as you noted, into sleep is kind of an extension of the conditions that we have. Again, putting cardiometabolic services together with sleep, specifically obstructive sleep apnea, adds us into a different category and gets us some different business around cardiometabolic, but obviously connected to a partnership. So we're trying to grow partners where we don't want to grow our own capabilities and we're specifically anchored around commercial deals where we help them, and together, we can attack the market and get some business. So we're thinking about how we add on the conditions, but strategically adding conditions or reaches or extending our reach to our clients for new revenue opportunities. Did that answer your question?

Yes, great. And then just one last one. In terms of the cash flow outlook being pushed out, I wanted to start with the reduction of operating expenses from AI. Can you elaborate on those initiatives and what is being recognized, as well as how we should expect those expenses to unfold over the next 12 to 15 months?

We are very proactive in enhancing the company's efficiency and are committed to integrating AI capabilities. Since acquiring Twill, we have significantly reduced our costs. This has involved eliminating duplicate roles, moving some operations offshore, mainly to India, and implementing AI agents throughout the organization. While we aim to increase revenues aggressively, we plan to reduce operating expenses by 15% over the next year. Our goal is to maintain operating expenses around $8 million per quarter by the end of next year. We are focused on improving how we manage and enroll members on our platform, ensuring their retention, and optimizing other organizational elements related to general and administrative functions as well as sales and marketing, where AI can be quickly adopted. There are also additional AI initiatives related to product performance that we are handling separately. Overall, the expenses are tied to how effectively the company can leverage AI agents to keep costs low.

The next question comes from Theodore O'Neill with Litchfield Hills Research.

I have a question about the claims-based billing infrastructure. In your prepared remarks, you noted you're adding this. I was wondering if you could talk about the issue this solves or what the key benefit is for you or the customer for adding this?

Yes. For us, this is Steven Nelson. For us, adding in the claims-based billing, today, all of our engagement billing goes through to the admin budget of the employer or the health plan. As we engage, we get paid for engagement that comes from administrative budgets. Instead, we're trying to add in clinical oversight to our capability, and with clinical oversight, we now get to render those as claims, and that then passes through as premium. So today, we're doing very little billing through premium and claims, and we're adding in that enabler so we can really get after what I would say is the larger profit pool of the industry. If you look at our competitive set of Omada or even if you look at what Hinge has done, and they've been very articulate in stating how they've grown and where they've grown, there's a channel play and then there's how you're rendering the revenue. We're trying to get closer to claims-based billing so we can close the loop on that. We think we're there in terms of the channels now, getting after TPAs, starting into PBMs and going after health plans to get to one-to-many types of executions. But then we need to close the loop on that by having claims-based billing infrastructure, again, clinical oversight applied to coaching, engagement, etc., that allows us to render claims. And that gets into CPT codes and how you bill. Really, the majority of the industry, I'd say, a significant portion, 90% to 95% of the industry is all billing through claims. This opens up a brand-new revenue path for us.

There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.