Greetings, and welcome to the DarioHealth Corp. 1st Quarter 2021 Financial Results Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. 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 Q1 2021 financial results. Leading the call today will be Erez Raphael, Chief Executive Officer. He'll 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 and 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 Q1 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 or 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 ks as well as the Q1 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 measures is useful for investors' understanding and assessment of the company's ongoing core operation and prospects for the future.
A reconciliation These non GAAP measures to the most comparable GAAP measures is included in today's press release. And with that, I'd like to introduce Erez Raphael, Chief Executive Officer of DarioHealth. Erez?
Thank you, Glenn, and good morning, everyone, and thanks for joining our call this morning. Joining me today are Rick Anderson, the President and General Manager for North America and Sveben 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 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, year and a half or 2 years With regards to 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 appealing. The second part the second pillar is the expansion into a SaaS high gross margins revenue And that's the second one.
The third one and obviously the most important one It's the transformation into the B2B2C. As you all know, this company started as a 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. And 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 3 of them together is going to create exponential growth for our company, And that's how we are looking into the business.
We also consider our digital therapeutics platform as the 2nd 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 on digital therapeutics platform like DALEO Health, 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 Health and Health in general, and this is what the market will see in the next few years in terms of the consumerization of So as I keep repeating, we think that B2B2C is the most important part that We're going to report on today in terms of progress, but at the same time, we need to make sure that our product We'll improve its value proposition. And when we are looking on the involvement of the market, we are looking 2, 3 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.
And at the same time, when we have more product lines, It's improving our financial profile in a way that we can, number 1, win more clients number 2, We can upsell more products for clients that we are winning. In other words, we also improve The total population that are eligible for our product. And number 3, because in more than 50% of the cases, Patients are suffering from more than one condition, eventually we can sell to 1 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, all of them are going to improve our financial profile And ensure that we are not just scaling the business, we are also doing that in a very healthy way, hence High margins and very healthy growth. And at the same time, we are increasing our mode in terms of our ability to deal with the future market as well.
So that's the way that we are looking on the business and we're always looking into these three pillars. So with that, I want to touch the high level results of our financials that we announced yesterday after the closing. So we ended the quarter with $3,600,000 in revenue, which is 73% Growth over Q4 of 2020, if we are counting also the revenue of Upright From the beginning of the quarter, hence also January, the overall revenue also known as pro form a It's $4,700,000 for the quarter. Usually, because of the majority of the revenue today is still coming from B2C, Specifically, for products like Upright, January is very strong. So January generated more revenue than what we have From Upright in February March, but in general, both businesses, DALEO Legacy Business and Upright, both of them were growing between Q4 to Q1.
So we feel that we also managed Post the acquisition of the of Upright, we turn around the business and bring the business back to growth. So we think that it's a good indication That we're going to keep continue growing the business into the Q2 as well and obviously through the rest of the year. In terms of gross margins, we ended the Quarter with 30.1 percent gross margins for the Q1. If we are Excluding the acquisition related amortizations, again, from the acquisition of Upright, We would almost double the gross margins to 44.7% On 24.2 percent that we had in Q4. So I think that this one speaks to the second pillar that I'm mentioning, The improvement of gross margins, so I see a very good improvement on that parameter.
And as mentioned in previous calls, we think that this parameter will keep improving the more we are Ending the penetration into the B2B market. So a few words about the B2B2C transformation and I'm going to give some highlights, but Rick will elaborate even more on that one. And 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 like the beginning of 2020, we consider this transformation as a multi year transformation.
We started with a team of like 4 or 5 commercial team in the States. And today, we are Around 35 from which we have like 14 sales people, Client success, marketing and so on. So we 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 and in Q1 2021, we started implementation and 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 the user experience, in terms of user engagement, user enrollment And also the ability to improve clinical outcome and save money to employers and plans. And I think that after a few months into the implementation, I'm very satisfied with the results. And I think that these Proved to be true because in somewhere like 10 weeks into the implementation, we already exceeded 40% enrollment rate.
So I think that in terms of winning accounts and winning our size over the competition, We show that we know how to do that in terms of implementing accounts. We show that we are showing so far a very good indication that we are hitting all the KPIs. So the product that proved to be very effective So on the B2B, including the enrollment and our ability to engage with users, and follow the acquisition of Right. And in discussions, close discussions that we have with clients, I think that also the thesis that clients want to see Multi chronic condition platform, they want to talk with 1 vendor, they want to know that their users are getting one voice For multi conditions and they want to also buy solution from an integrated company, I think that the thesis of Multi conditions that will accelerate our wins and will get us more sales and also more revenue, This thesis also proved to be true because more than 30% of our potential clients are interested also On the MSK solutions and potentially also in the behavioral health solution that we just announced acquisition this morning. With that, I want to provide a few words about the acquisition that we just announced.
So The idea to expand into behavioral health is out there for a while and those that are listening carefully to our earning calls Know that this is the management strategy. In terms of expansion, we think that behavioral health Is the basis in order to treat any chronic condition and 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 that is integrated to the rest of the platform and more important, We hear it from clients. So clients want to get this solution as well. The Bilibiliency transformation would be successful anyway, even if we wouldn't Acquire WayForward, but with WayForward, we believe that's going to strengthen our position. It's going to improve our mode moving forward in the next few years.
And this is why we made a decision to acquire WayForward. And Rick will elaborate shortly why WayForward is one of the Best solutions in the market and why we made this specific choice. I think that the knowledge that our company have On the metabolic side and also on the behavioral health side with the background that Rick and Omar Managuela and others The team are bringing put us in a position that we're going to we will know how to integrate these solutions together into The best of suite, so to say. So we are not positioning ourselves as a holding company. We are positioning ourselves as a portfolio technology software company, and this is Why it's so important to know how to connect the solutions together into one integrated harmonized experience for our users.
So with that, I want to hand over the call to Rick to provide additional information about the B2B2C transformation and potential wins, As well as the acquisition of WayForward, Rick?
Thanks, Therese. One of the keys To our strategy to moving to the B2B accounts is generating enrollment and revenue from those accounts. That's a key factor, not just winning them, but We're being able to enroll people, engage them and continue to generate revenue. And as Erez said, we launched Several accounts in the Q1, we've been very pleased with where that enrollment is running. We're running north of 40 Enrollment in under 10 weeks, which exceeded our internal goals.
And as I've stated several times, We use 35% enrollment in our pipeline and in our internal models. So since we are substantially above 40%, that Really shows what we're able to do and that it bodes well for converting from contracts to revenue. It also happens to be from what we know best in class in terms of enrollment of 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're 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, significant part of the healthcare future. And in this case, Mediorbis is providing the telehealth care to members and we're providing the remote patient monitoring and coaching to Mediorbis in support of those patients. We started in our existing population and we've now started expanding that beyond that. And we believe that this is a significant opportunity to generate revenue and the early pieces that we're seeing are just reinforcing Our views about that and one of the other things we think is exciting is that this is based largely on the Remote patient monitoring codes that you've heard us talk about several times for Medicare members, but what we're seeing in the marketplace This is that more and more commercial payers are actually starting to reimburse for the same code. So we have an expanding Market opportunity as well there, so we're very excited about that.
From a business development perspective, our pipeline is now north of $700,000,000 We continue to make progress in all three channels. I'll start with health plans. As we've stated, We continue to expect that we will have health plan agreements this quarter that will generate meaningful revenue in the second half of twenty twenty one. That is we are on track for delivering that based on where the contracts are with our customers and we're excited about that obviously. We also have several other opportunities for health plans in the late stage and we expect to see additional contracts in the later part of the year.
Those just won't 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 through the pipeline and health plans do remain a significant part of our pipeline. For us though also employers are a very exciting data point I think over the last As I've stated in the past, the majority, call it 70% of employers, maybe a bit more are on a January 1 to December 31 Cycle, which means we're in the sales cycle for 2022 launching contracts as we Speak and most of the increase in the pipeline in the last quarter is related to those employers. So we anticipated we would See that, we're seeing that, we're very excited about that. I think that speaks to the work that we've been doing, but also the name recognition that we're seeing, The fact that benefit consultants are seeing the opportunity with Dario and we're getting opportunities to pitch.
And as I've said in the past, When we get opportunities or at bats, we tend to do very well. So we're very focused on increasing those. So we're excited about that. And then on the RPM side, we have several contracts that are pending final signature. We believe that RPM will generate meaningful revenue in 2020 Strategically, we went after customers that can move faster earlier.
Most of that was going to be based on grants that they were getting. And then also, of course, the RPM codes that I mentioned a minute ago, and we're continuing to see the larger systems, We tend to move a bit slower, having increasing interest in that. The other thing that we've seen over the last quarter is an increasing interest from what I'll call partners. And that means everything from device companies that are looking for potential partnerships with us to distribution partnerships and also includes partnerships with other digital health companies. So we're continuing to see an interest in what Dario is doing.
We believe that relates not just to the success we're having with customers, but our expanding portfolio product portfolio. And at this point, really our product has expanded to us selling an integrated offering that's beyond the original metabolic Syndrome, at this point, we are offering diabetes, prediabetes, hypertension, obesity, Obviously, MSK with the Upright acquisition, which is taking 2 forms. 1, the Upright Go posture monitor, where we're seeing interest in the marketplace with that on the B2B side as well as the B2C side. And then also the newer offering that's going to incorporate more sensors and movement related items. We continue to get interest in both the employer and the health plan channel for the MSK So we think that 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 offering. So we truly are selling an integrated offering. We're also though offering each of those as an individual point solution and that is consistent with our strategy of having an integrated front end and back end. And in the middle, we are integrating best in class point solutions in a way that allows people to have a holistic experience and we can manage the multiple chronic conditions that folks have within the platform. But we can also sell those as individual point solutions and we will integrate because we're an open by design architecture.
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've 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 be able to attract talent from our competitors and other digital health companies that are in the marketplace. And I think that speaks volumes to the that they can see Dario's unique value proposition and offering.
These are people that have a front row seat to what's going on in digital health and with the customers and they're seeing the differentiation that Dario offers. Then just a few words On the WayForward acquisition, as Erez mentioned, our strategy has always been to be an integrated multi condition platform. Post acquiring WayForward, we believe that we are one of the most robust platforms covering the most conditions in the industry. And as we look at why do we want to add behavioral health and we've 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 that are part of it. It also has significant comorbidity with chronic conditions.
Depending on whose numbers you look at, 30% to 70% of all chronic conditions have a coexisting behavioral health condition. Behavioral health underlies All of these conditions and this is an opportunity for us to help provide on an integrated way that support for our members. It's a large addressable market. And as Rez mentioned, our customers are looking to add behavioral health solutions, specifically digital behavioral health solutions. That's been true throughout the pandemic, but continues to be true, and it's consistently in the top five priorities that they have to reduce costs and improve outcomes.
It also increases the number of customer opportunities that we can participate in. So number of RFPs And the breadth of those RFPs and or selling directly to health plans and there also is An opportunity with providers, especially providers that are at risk, but also providers that are looking to address behavioral health as part of their other remote patient monitoring solution and 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're using our entire integrated suite of product solutions. And we believe that This will also and this is being validated in the market with the interest that we're getting, will increase the average revenue per member that we can achieve. So It increases the overall opportunity in terms of customers and increases the number of members and the average revenue per member that we can serve.
So 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 are primarily offering a telebehavioral health service. Yes, they may talk about things that they have in advance of that, but the main focus of their offering is really a telebehavioral health. WayForward actually focuses somewhere else.
They're focusing on the whole that exists in most behavioral health offerings That does not address those members that need to see a provider. So if you will, the hold that exists between nothing or EAP and a provider network is really where WayForward is focusing. And they're doing that through an AI based screening Mechanism, which helps identify where members should go in the process, what are the appropriate resources and level of care that they could get and then provide digital cognitive behavioral therapy or CBT in both self help and in combination with coaches and then where appropriate can refer to a customer's existing face to face or telehealth provider network. And if somebody wants them to bring a network to the table, then they can do that. But this really is focused on something that's different and that provides An opportunity to really partner with the other people that are in the system and not in fact compete with the provider networks that exist or have an incentive to send people to the highest level of care.
So you can address people, more people than you do now, and address those people at a lower unit cost throughout the system. So it's a very efficient way to approach that, Enables different kinds of partnerships, including with the digital health companies that I mentioned or the digital behavioral health companies that I mentioned earlier. 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 and we'll add about 20,000 members to our existing platform, but they also provide the digital technology
for several EAP platforms, which is
actually runs into the several forms, which is actually runs into the several 100,000 folks that are out there as well. And we have a significant cultural and vision alignment with them, which was important. We'd look at everything at Dario through a culture lens as well. So they were really a good fit for us. And part of the way that we've understood that, as I mentioned, is that we've been partnering now with WayForward for several months.
And it was just clear That we had a good alignment between the teams and the way that we were looking at things as we went and mutually pitched customers, it was a good fit from that perspective as well. And the entire WayForward team, including the 2 founders, will be joining the Dario team, and we're excited to have them on board as part of Dario. In terms of deal structure, it was in the press release, but The acquisition was $25,000,000 upfront and a $5,000,000 earn out based on the 2022 revenue. The vast majority of that was paid in equity using a 60 day VWAP. It was really important to WayForward to do a primarily equity deal in order to be able to continue to share in the vision of building an integrated offering and the upside that we anticipate that we will create together.
Of course, it also minimizes the impact on our cash balance and we don't anticipate very significant continued investment. There's Nice synergies between the two companies in terms of the ability to use Dario sales and marketing organization and some of the organizational pieces of WayForward. So we don't believe that that will have a significant increase in burn and will contribute to revenue in 2021, but much larger contribution in 2022. And all of the stock that was part of the transaction is subject to a lockup of 6 to 18 months, much similar to what we did with the Upright transaction. So with that, I will hand it over to Zvi.
Thank you, Rick. Revenues for the Q1 ended March 31, 2021 were $3,600,000 A 73% sequential increase on the 4th quarter ended December 31, 2020 and 116% increase On the $1,700,000 in the Q1 ended March 31, 2020, Revenue generated during the Q1 ended March 31, 2021, were derived mainly from the sales of Dalio Health Products and Services and from the consolidated Revenues of Upright commencing February 2, 2021. Gross profit in the Q1 of 2021 was $1,081,000,000 an increase of $302,000 or 38.8 percent compared to the gross Profit of $779,000 in the Q1 of 2020. Gross profit margin was 30.1 in the Q1 of 2021 as compared to 46.7% in the Q1 of 2020. Pro form a gross profit excluding $526,000 of amortization of Expenses related to the acquisition of Upright Technologies was $1,600,000 Pro form a gross profit margin, excluding The amortization of expenses related to the acquisition of Upright was 44.7% in the Q1 of 2021, A sequential increase from 24.2 percent in Q4 2020.
Total operating expenses in the Q1 of 2021 were $15,400,000 compared to $10,900,000 in the Q1 of 2020, an increase of $4,500,000 or 41.6%. The increase resulted from an increase 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 Q1 of 2021 was $14,300,000 an increase of $4,200,000 or 41.7 percent Compared to the $10,100,000 operating loss in the Q1 of 2020. This increase was mainly due To the increase in our operating expenses, net loss was $15,000,000 was $15,000,000 in the Q1 of 2021, An increase of $5,100,000 or 51.3 percent compared to the $9,900,000 net loss in the first Quarter of 2020. Cash and cash equivalents totaled $81,100,000 at March 31, 2021.
Now with that, I'll turn the call back to Erez.
Thank you, Tri, and thanks Rick for the overview. So a few closing remarks. First, I want to reiterate that the B2B2C transformation Hence, winning employers, health plans and providers is our first priority. And as Rick stated, we believe we will have a win of HealthFair in this quarter. Another very important data point that I think that investors should understand is that in terms of implementing Employers, we are showing that we know how to do that.
We managed to Take the B2C capabilities and transform them into the B2B. So from a product standpoint, from From a team standpoint, we have all the tools in order to be successful in this transformation. And I think that the fact that we also managed to conclude 2 acquisitions in 4 months, this is another indication On our aggressiveness in terms of in a positive manner on how we want to Lead in the market in terms of building the digital therapeutics platform. And I want to emphasize digital therapeutic Platform for chronic condition management, hence consumer centric, scalable, We are integrating with telemedicine platforms in order to provide one integrated experience, but we believe That the future of the market and scalability will be achieved only by involving the users with their own health. And that's why We keep improving our strategic position and I'm very glad that after we raised more than $100,000,000 in the last 12 months, I would say.
We are utilizing the capital in a very smart way. The 2 acquisitions that we did were minimal in terms of spending cash and also the acquisition of WayForward He's not going to add on our burn rate something that is meaningful. So practically, We are utilizing the capital in a very smart way and we feel that we have a long runway. So as we stated, we ended the quarter with $81,000,000 more than $81,000,000 in cash. And we already see inside Q2 that we will be able to continue the growth from Q1 to Q2, and I'm talking about gold that is organic.
With that, I would like to open this call for Q and A.
And at this time, we
will be conducting a question and answer session. A confirmation tone will indicate your line is in the question It may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question is from Alex Nowak with Craig Hallum Capital Group. Please proceed with your questions.
Great. Good morning, everyone. Thanks for the call here. We've continued to see the pipeline get built up Here, dollars 700,000,000 now, dollars 600,000,000 last quarter. But it also looks like the conversion to deals has been quiet the last 2 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 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 and part of that was just where we are in the transition. Really starting in mid-twenty 20 For the most part, for most of the markets that we're pursuing, from a very low number and then Continuing to expand that as we go forward, we're not expecting that the pipeline will continue to grow at the rate that it's been growing In the future, as these deals most of the sales cycles for health plans, as you've heard me say several times, are 18 months To 2 years, we're very pleased that we have some that look like they will come out of the pipeline in essentially a year or under a year, which is pretty quick and I think that that speaks to the value proposition and the opportunity that's there. But there also are ones that will continue to move on what we would think would be a normal cycle.
As I mentioned, the employers, most of the employers that we're working with that are in the pipeline, although not all of them are 22 launches, which means those contracts which you're referencing will be coming to play in the Q4. We have a couple, including some things that are fairly large that we would anticipate would come probably in the 3rd Quarter based on where we are in terms of the contracts, with some revenue in 2021, but the majority of it really launching into 2022. And then on the RPM side, that's where we anticipate certainly a larger volume of contracts over a period of time. And at the moment, we have A fairly healthy number that are sitting out waiting for signature. So, it may be the nature of the beast that sometimes get a bunch in clumps as it relates 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've probably seen An increase in the potential for contracts, especially through partners around that and all of those comments are pre Acquisition of WayForward, which we anticipate will also contribute now to that as well. But excluding that, I would say we're in the same or a little bit better place than we were last quarter in terms of having those come out. Certainly understand the Some of the frustration as it relates to seeing those on a regular basis, I think we'll see more RPM contracts on a regular basis.
Health plans, like I said, we really 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 little bit further in between, but we are We believe we're well positioned for this quarter and then going forward for the rest of the year, we also anticipate some additional.
Okay. That's great. That's really helpful. Okay. On the behavioral health with the Waveform acquisition, Rick, you've obviously Have experienced with favorable health companies before.
You mentioned the reason why this drew your attention to wave forward, But you also said you don't need to make any major investments to it. So I guess just expand on that because I'm sure you want to shape WayForward into a little bit of the vision that you've had from your prior experience? And then ultimately, what do you need to do to modify the Waveform platform To fit the Dario network, is it going to be something similar to what you're doing with Upright? I guess I didn't necessarily get that message. And then just last question on the bunch here.
Among the 20,000 customers that WayForward has, what is the revenue from that? And do you expect to expand the Diabetes solutions into the 20 employer plans that WayForward has.
Sure. So let me try and make sure I get all of those. If I missed 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 a significant burn to what we're already spending. So we're not expecting a very large additional incremental So Byrne associated with that.
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 really been doing some great work and we They are operating that platform. So a lot of that heavy lift has already been done as it relates to that. The primary pieces in terms of bringing WayForward In with Dario is really the integration, as I talked about, we want to make this available. And this by this, I mean the different offerings Available to members, not necessarily all in the same application. We don't think that that is the best member experience.
So we anticipate We will continue to maintain different applications, but have integration as it relates to things like 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, consistent look and feel, So you feel like you're in an integrated experience and of course the whole thing is supported and underlied by our AI journey engine, which enables us to do a more personalized and hyper personalized approach to those members. So we will be integrating the data feeds And then the recommendation engines, etcetera, that come from that AI engine into the WayForward piece. And we anticipate that that will happen over the next couple of months. But WayForward is a little different than Upright to the extent that they are already operating. Most of their customers Our self insured employers, whether that's direct contracts or through resellers that they have.
So their offering is already a B2B offering. And like I mentioned, we have been partnering with them on RFPs already Earlier well, throughout the 1st part of this year as we've entered, especially on the employer side. So there's not a lot That needs to be done for us to start that process over the next few months, we'll be integrating them into sort of that overall You'll look and feel from that perspective. And I feel like I missed one of your questions.
Just on the revenue contribution that you'd 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 in terms of the billing. The 20,000 members Approximately that they're bringing like I said, that doesn't include their technology solution. They're a little different in terms of The way that they're billing and that they are billing per user or excuse me, per member per month. So there are actually a fixed charge every month, related to those folks because of the way that their platform works It is the ability to screen people and then provide the digital CBT and the CBT plus coaching.
Most of the rest of our solutions are being built on an engaged member basis. They have existing customers that are on a PMPM basis, and they have ones that are in process of being implemented as well. So we'll continue to see so there's contracted revenue there that will continue to come into play over the rest of 2021 and really building into 2022 as they continue to expand.
Okay, understood. And then just any update how the Upright acquisition that transformation is happening moving that into more of a B2B platform?
In terms of from an offering perspective, we have already integrated. As I mentioned, we have several opportunities actually For MSK as a standalone and we also have several where it's integrated, where we're working with a couple of different health plan customers and we've been including it from that perspective. We've also seen initiatives by the way in the Upright Go from a B2B perspective as well, so there are and that is obviously an existing product It is in process and we expect that we will have all of the pieces that we need from a B2B side in the late summer. Erez, do you want to add anything to the B2B integration for MSK?
Yes. So that's something that as we stated in our last earnings call, we're going to get This MSK offering repackaged into the B2B market for Q3. That's still the plan that we have. So and we are we start to commit to clients to get it delivered for Q3. The existing product, as Rick stated, Go to is distributed now for some of the B2B accounts.
All right. That's great. And then your last question, just to confirm, what was the revenue of just Dario Organic excluding Upright in the quarter?
That's something in the ranges of $2,300,000 or $2,400,000 I'm not sure the exact number, but that's the ranges. I mean, we had growth from Q4.
And in
terms of the upright, yes.
Yes. That makes sense. Okay. Yes, and understood on the upgrade. We can back on that.
All right, excellent.
Thank you. Appreciate the update.
Okay. Thank you, Alex.
And our next question is from Charles Rhyee with Cowen. Please proceed with your question.
Yes. Hey, guys. Thanks for taking the question. Maybe first just to follow-up on Upright. So you talked about that the I think in the release that you talked earlier, a The chunk of the Q1 revenue is typically captured in the Q1.
So is that just a function of seasonality? And So when we think about revenue from Upright for the rest of the year, should we be using sort of February March monthly kind of run rate Has the run rate through, let's say, the middle of the year and then more of Upright revenue comes in the Q4 and Q1 of the year?
Yes. Thanks for the question. So yes, since the majority of the revenues that we are generating today is still BC And that's also the case for Upright. There is a seasonality. So usually, January is very strong, and this is why January is higher than February March for Upright.
And then towards the end of the year, November December are going to be Again, high comparing to the month before. So between, I would say, February And September, October, these are the months and as you said, you should consider the run rate and the
Okay. That's helpful. So When you guys talk about, I think at one point in the release or I think you've mentioned once that there was about 90,000 active users for Upright. Does that represent the sort of steady state membership of this February to September period? Because my guess is right there, if you're paying a monthly PMPM, what And maybe correct me if I'm wrong.
The 4th quarter, 1st quarter effect, is that really a lot of people trying it out because of Holidays or they want to get better or whatever reason, but then they can't people cancel, Right. Maybe they choose not to continue and what you're really seeing in February September are the consistent active users?
Yes. So first of all, I just want to emphasize that we put a new Back on our website this morning and we provided the link on the press release and also on our 8 ks. So information about number of users and so on is Close this part of the presentation. So it's out there. Just as a comment, with regard to your question, We have the majority of users that are coming from the metabolic are moving into a membership program.
That's the transformation that we had in the last couple of years. In terms of the Upright users, those that are coming From the B2C, are buying the device as one time and then trying it and then They are getting back to the platform and keep trying it. So they are more on the program that is one time And the others that are joining as part of the B2B are getting on programs That are more like a membership program. That's the way to think about it.
I see. So it's a little bit less about the subscriptions that are saying, but it's also the device charge as part of the upright that are people purchasing more in the More as gifts 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, and this is why we see the seasonality and it's less about the membership program because that's the nature of the B2C says that we are doing. And when I'm talking about the transformation of the Upright business into B2B MSK, I'm talking about Turning it into a membership under a yearly program where you're going to see something that is more kind of less seasonal and more stable. So the more we move the business and overall revenues into the B2B, you're going to see this stability improving. Obviously, this is something that you also already see in the Dario metabolic disease because we started doing this transformation A year and a half ago, and that's something that you're going to see through the end of the year also for the MSK business.
Okay. But just on the B2C part of Upright, just to be clear, right, it's we should be modeling More of the February, March run rate through September and then ramp up in 4th quarter And in Q1 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 that it sits in this middle part between Either not getting care, but or getting all the way to like a real full blown telebehavioral health kind of visit. What part of the market because if you think about and I'm looking at your slide deck right now and you show this Venn diagram of the addressable market Of $9,000,000,000 is this just a segment of the behavioral health that you think that Waveforward represents? Or is this Just or is this you're just saying this kind of a 1% penetration?
Because I'm trying to understand like what part of the behavioral health market fits into Where Waveforward is trying to play in?
Yes. That represents where We think that they're playing right at the moment. But if you think about behavioral health as a pyramid for the moment where You're looking at the number of people that would be in a level of acuity, let's just call it For the moment, it's probably not exactly the right term. But at the very top of the pyramid, you're going to have a small number of people We're seriously persistently mentally ill and they have very high costs associated with them on the behavioral health side. And also, by the way, on the physical health side, the next group of people down is a little bit bigger Number of people, but those are people that are usually incurring significant amount of costs, maybe on the medical side instead of the behavioral side, but they have significant behavioral health issues.
And then there's, depending on how you want to look at it, 2 to 3 categories below that, that have decreasing severity of behavioral health condition and also decreasing costs. So if you really look at That on an overall basis, the base of that pyramid is the largest group of people that have behavioral health conditions that would benefit from care. And if care is not provided, a significant portion of those will continue to progress into higher levels of acuity and cost associated with that. The challenge with the bottom end of that pyramid is that they don't cost a lot of money. They're not spending money on behavioral health.
They don't really need a traditional provider visit the way that we would think about it necessarily in a lot of cases, some do, But a lot of them really could benefit from other interventions. And so the trick has always been How do you provide services to that low end of the that pyramid there at a very cost effective way? And what I think is unique and interesting about what WayForward is doing is that they're really 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 pieces.
And in some cases, providing that care themselves and in some cases, sending folks to care outside of themselves part of the referral. And don't get me wrong, that referral is part of the value. The ability to do that referral is part of the value as well. But this is really kind of addressing that lower end piece of the market on a cost effective basis. And because they are not providing and making their money.
So several of the players that are out there are essentially charging for telehealth visits or telebehavioral health visits at significant cost, oftentimes actually in excess of what it would cost for an in person visit. So if that's where you're making your money, you're incentivized only to send people to that level of care, which is not necessarily appropriate or needed for those members. So it's a better member experience. It's more convenient. It gives them what they need and also allows you to address this very large portion of the market.
And doing that, the only way you can do that is through a digital approach to doing that. And that's also why Their structure from business model perspective is a true PMPM versus an engaged member piece. So I mean, we think that the opportunity is even potentially larger than that Charles that's there, but we're starting with something that is smaller, but we think appropriate.
Okay. Last question, can you give a rough estimate of what the PMPM is for WayForward?
It really depends
on what the underlying services are, but it's going
to run somewhere between
But it's going to run somewhere between 250 and 4.
Okay, great. Thanks guys.
Thanks, Charles.
And our next question is from David Grossman with Stifel. Please proceed with your question.
Good morning. Thank you. I'm wondering, I know you gave us some good statistics on some of the pro form a numbers for the Q1. And I was just wondering if you look at the clients that are currently under contract and ramping, Can you give us a sense for what the run rate revenue is under that definition, just if you assume that All of the visibility that you have that's in the process of ramping, what that run rate would look like?
So the run rate of the revenue at the moment in between, I mean, we need to count in Both the B2C of the metabolic, the B2C of Upright and the B2B that started, I would say that the run rate is above at the moment is above the $4,700,000 pro form a that we presented To Q1, okay, because we are in the middle of Q2, so it's above that numbers. I cannot provide the accurate split or how it's divided between B2C to B2B, But I would say that it's more like in the ranges of 15% B2B and 85% B2C. That's High level and we don't have an accurate number for that one, but that's on high level.
Right. And I guess similarly on the OpEx for the balance kind of the year, Was the Q1 kind of the EBITDA loss, is that a high watermark do you think for the year, Erez? Or is there how do you want to think about how that trends for the balance of the year? Yes.
So I think that some of the Answers that we had in Q1 were higher because of the acquisition. So we had their expenses of legal and From a cash flow perspective, we had to cover that and other things. So I think that in terms of losses and burn, you shouldn't think that Q1 is going to be The run rate for the rest of the year, I think that we're going to see a gradual decline in the losses and in the burn. Like I would say like as we move forward something in the ranges of 15 percent decline as we move forward. So that's on high level.
Q1 was a very Special quarter with this acquisition of Upright. The impact of WayForward with regards to cash, As Rick stated, it's going to be very minor because again for WayForward, We are not making any B2C investment because everything is on the B2B side. And in terms of the commercial teams, The team at WayForward is relatively small and we're going to ramp up the sales So, WayForward with the team that we already have on board from Dario and this is something that is reflected into our OpEx already. And in terms of the operational theme of WayForward, including the AI and the software development team, The costs are lower than the average that we have in the company, because it's in the majority of the team is in India. So with regards to that, we think that from a cash flow perspective and P and L perspective, The impact of WayForward to the OpEx is going to be very low.
And in fact, it also gives us an opportunity When we are extending our teams to rely on the development center in India and moving forward To improve our financial profile also in terms of cost, when we want to grow with additional employees, We have also the India side. So that's an operational opportunity also for the rest of our business that we are very happy about.
Got it. And just to be clear, when you said that it will have nominal impact on your losses, does that mean that they're losing less as a percentage of revenue or that they just have nominal absolute losses currently?
They have So the losses that are relatively low, if we are considering the revenues that is getting in versus the expenses and the losses are very low. The idea of doing M and A is and this is something that I did before in my previous company, Usually what we are seeing in year 1 is that the 2 P and Ls are getting together and We're not going to see cost reduction here, but at the same time way forward are not losing a lot of money. So it's relatively very, very, very small comparing to our overall expenses. And usually in the 2nd year, we start to see an improvement in cost effective activities that will improve the overall P and L. And so we're going to send that to your previous point, we think that moving forward toward the second half of the year, we're going to see improvement in the P and L and obviously Into 2022, we want to be in a much better position in terms of losses.
Got it. Thanks very much for that. And then just on The revenue model, I think a question came up a moment ago about the PMPM in WayForward. When you go in to sell a bundle, are each of these products going to be sold separately? Are you going to have a base Price for the platform like you were talking about when you closed up right.
I just want to get a sense of how to think of New clients coming on and how to think of a base revenue per client and how that may scale by adding the different products?
Yes. So I would think about that. We as I mentioned in the comments, So our primary objective is really to sell an integrated solution. We're getting a lot of interest and traction from that, From having that integrated solution, because that does make it different than other things that are out there in the marketplace, and we have been market testing Different kinds of pricing models in looking at that. We will be offering it on both an engaged member, per Engage member per month.
So really kind of translating
that NPM to a term loan as well as a line on a NPM basis
And we're offering standalone as well as on an integrated basis. So the reality in the marketplace is that different players want to address Different things in different ways and we do pride ourselves on our flexibility in terms of both the offering and the ability to integrate with others And then also how we deliver on that value to our partners. So the way that I would probably Think about it just because it's probably easier is to think about it on a per engaged member per month basis from a model perspective. And it's just a matter of adding additional dollars to that to cover that on an integrated basis.
Got it. And just one other question was, I was just wondering, If you look at how you're selling today and what you may look like kind of 12 months from now, Do you have any change to the channels that you're using? And the ones that you're using today, maybe give us a sense How those are performing and what I mean is channels outside of the internal direct sales efforts and Just trying to get a sense for how your partners are performing now and what you're expecting to add over the next several months, if any?
Yes. I mean, we're seeing additional interest from if I understand your question correctly, we're seeing additional interest From distribution partnerships and we kind of look at those in 2 broad buckets, one being making it easier for our customers to What we're doing, so they have some ability to either pass data or facilitate Payment or they already have contracts in place and we can fit or tuck in underneath that as part of their offering, We think we will see some expanded relationships there over the next couple of quarters. And then we look at it as folks that are truly really kind of reselling what we're doing. And there's fewer of those opportunities, but we have gotten definitely gotten some traction with some of the ones that we have. We're not Really pursuing those in a significant way right now from that perspective, we're more interested in the first part of partnership the first category of partnerships And the direct sales pieces that we're doing, but that will continue to evolve and we're always reassessing Where is the market going?
How is it doing deals? Who can we partner with? I think that there's more and more emphasis in the marketplace Right now in terms of, and I think there was a Wall Street Journal article that was timely and appropriate is there is a certain amount of point solution fatigue in certain parts of the market. But the other thing that's interesting thing that's going on is because digital health has been in the market now for a while, But it's primarily been in the larger employer part of the market. There's now an interest that says, okay, How do we get this into smaller customers that just aren't economically feasible for somebody like Adario to pursue 100, 200, 500 employee type of contract and there are some interesting partnerships that are happening in that area as people are looking to how They could leverage their existing base of customers at that level and pursue that.
So I think we'll see some activity there as well.
All right, great. Thank you. That's it for me.
Thanks, David.
And our next question is from Steven Hopper with Cantor Fitzgerald. Please proceed with your question.
Hey, guys. Good morning. This is Joe Downing on for Steve. And just a quick question for me. So given the experience of the management team at OnTrak, Do you guys expect integration of the WayForward business to be go more smoothly than past acquisitions?
And could this potentially lead to future behavioral health partnerships with some other companies? So it absolutely could lead to other partnerships. As I said, I mean, I think WayForward is well positioned to be a partner in the ecosystem, which fits with our philosophy versus compete With a lot of the offerings that are out there directly, now they can definitely they have partners, we have partners that we can bring to the table to provide those offerings and we anticipate we'll have more partnerships to do that in the future. We do have behavioral health expertise in the organization, but I think we're also That is part of the reason for doing the WayForward acquisition is that we're bringing their expertise and their platform to the table. But we certainly understand how behavioral health fits in the overall offering that we're doing and how those Pieces are integrated and we also have several advisors that are assisting us with that as well that are coming from other places, but have that behavioral health experience.
And our clinical coaching leads also coming from a variety of different companies that are out there, including Cigna, etcetera, that are very familiar with how the behavioral health pieces work in relation to overall chronic conditions. So yes, we I mean, on an overall basis, yes, we believe we're well positioned to integrate WayForward into the overall and operations of the company, given the breadth of experience that exists within Dario today, and we're really pleased to bring the offering and the expertise that WayForward brings to the table as well. We also think that, by the way, WayForward will enhance our behavioral science approaches as well. So that's an additional benefit that they're bringing to Dario? Great.
Thanks, guys.
And our next question is from Nathan Weinstein with Aegis Capital. Please proceed with your question.
Good morning, Erez, Rick and Zvi. Congrats on the WayForward acquisition and thanks for taking my questions. So just one quick one. There's been a lot of discussion about how the pandemic has had a deleterious effect on mental health. And so luckily, we're seeing an influx of innovation in the space.
So I'm just wondering, When we think about the next few years for this acquisition and for DarioHealth, how you see the opportunity evolving in the market, especially as the country goes through reopening?
Okay. So we are part of this industry for the last 8, 9 years. I think, Rick, is almost From our perspective, healthcare is managed in an inefficient way And the idea of starting all these businesses is to digitalize the space and we think that the consumer is the way to digitalize it. We have seen the pandemic accelerating our vision, which is good, and we are happy about it. And We truly think that eventually all the changes are here to stay and we're going to See the continuous of the transformation.
So from our perspective, the strategy is to provide the consumer centric To get the users under one journey, so I think as one of the statements that I had in this earning call Is that we are not a holding company, we are the technology company. We are going to eventually integrate the solutions That users will have one journey in a thoughtful way. It's not that we're going to have one app necessarily. We're going to have A very hyper personalized experience. And as I said, we think that it's the next generation Of the digitalization of the space, we have seen in the last 15, 20 years, a lot of telemedicine solution.
We have seen that companies are trying to scale up treatment by getting a software solution to healthcare professionals. We are going one step forward with our digital therapeutics platform. We are scaling up the capabilities through the users and we are supporting them with health Professionals and not the other way around. And I think that that's the future if we want to create scalability And if we want to create high margin business that will be able to scale up treatment and that's what we are focusing on. And today with this acquisition, you have seen the seed for all our plants in the next 2 3 years.
So we really think strategic And we really think few years in advance.
Thank you very much. Appreciate the insight. Thanks, guys.
And we have reached the end of the question and answer session. And I'll now turn the call back over to management for any closing remarks.
So thanks everyone for joining our call this morning. Just want to reiterate that we had a new presentation loaded to the website with additional information that can be complementary to the press releases that This morning and also to this earnings call. And thanks for your continuous support and have a good day. Bye bye.
This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.