DRIO - NASDAQ

Greetings, and welcome to the DarioHealth Fourth Quarter 2022 Results Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Glenn Garmont. Please go ahead, sir.

Thank you, operator, and good morning, everybody. Thank you for joining us today for a discussion of DarioHealth's Fourth Quarter and Full Year 2022 Financial Results. Leading the call today will be Erez Raphael, Chief Executive Officer of DarioHealth. He'll be joined by Rick Anderson, President. After the prepared remarks, we'll open the call for Q&A. 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 webcast, this call is being held on March 9, 2023. This morning, we issued a press release announcing our financial results for the fourth quarter and full year 2022. 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. 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 2022 annual report on Form 10-K 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 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. And with that, I'd like to introduce Erez Raphael, Chief Executive Officer of DarioHealth. Erez?

Thank you, Glenn, and thanks to all of you for joining this morning's call. For the last 3 years, we have implemented a multiyear strategy, and when exploring our 2022 financial results and specifically the last 2 quarters of the year, it is hard not to see the success of our strategy as it's being reflected in our numbers. Before we deep dive into actual results, I would like to reemphasize our strategy. First, our multi-chronic condition strategy where we managed 5 different conditions on 1 integrated platform. This strategy is not only aligned but ahead of the macro digital health market trend of consolidation and consumer-centricity. In fact, our current model is better suited to the financial macro environment we are facing today. The consolidation of conditions into one integrated platform enables less vendors and more conditions, especially in a market that looks to save money and be more efficient while better caring for its patients. Employers and buyers are looking for best of suite solutions backed by clinical evidence. Also our clinical outcomes data suggest that an integrated model is better than separated single point solution. Second is our transformation from direct-to-consumer to B2B. This change has resulted in a significant improvement in the financial profile of the company because of the significant reduction in the cost per acquisition, the ability to scale and more efficient economic model per member that is getting on the platform. Overall, our multiple -- multidimensional strategy of multiple conditions, and moving to B2B model increases revenue stability while establishing a dependency that is difficult to break. In other words, it will take several vendors to replace our integrated solution. And overall impact is more runway to execute on our strategic plan with a significant reduction in the financial risk profile of the company. Let's take a deep dive into the financial results. Q4 shows continuation in the improvement of the financial profile of the company and continues the trend we demonstrated in Q3, representing a real evidence that shows that our model is working and creating a long-term shareholder value. Let's start by looking into the revenues and its components. Full year of 2022 revenues is $27.6 million, increased 34.8% over $20.5 million in 2021 as the pivot to B2B model more than offset managed wind-down of B2C. More interestingly, full year 2022 B2B revenues is greater than 59% of the total revenue versus just 4% for the full year of 2021. Overall, B2B growth year-over-year is 1,800%. Another important metric is gross margin. This is where results are even more exciting as we are showing a true software-driven business with a SaaS, Software as a Service-oriented characteristic. Pro forma gross profit was 58.1% of revenues for the fourth quarter of 2022, up significantly from 22% of revenues for the fourth quarter of 2021. As mentioned in the last few calls, we are targeting an average of 60% gross margins for 2023 to reach our goal of 70% gross margins by 2024. Looking at the operating loss, we are seeing true operating leverage of the infrastructure that we have built and real economic advantage for multiproduct [ line ] approach. We demonstrated [ 58.4% ] reduction in operating loss in the fourth quarter of 2022 compared to the fourth quarter of 2021. It is also a 38.2% reduction in operating loss compared to the third quarter of 2022. Notably, operating loss in the fourth quarter on a non-GAAP basis declined by more than 60% to only $6 million compared to $15 million in the fourth quarter of 2021. The underlying reasons for this economic advantage of multi-condition is the improvement of the following key parameters. We have more eligible population per every account that we are signing on. We have higher ARPU, average revenue per user. And overall, we can generate between 4 to 8x more dollar per every account compared to a single condition platform. Looking into our balance sheet. We ended the fourth quarter in a strong financial position with cash and equivalents of $49.3 million. We also continue to improve our financial profile of the company. Losses are declining, and we believe that this momentum will continue into 2023, which is something that will extend our overall run rate. Before handing over the call to Rick, a few highlights on the commercial side. We achieved our goal of 100 accounts by the end of 2022. We believe that we are positioned to accelerate growth in 2023 and 2024 as the overall foundation for client wins is improving with larger sales team and meaningful partnerships that should give us a significant larger access to clients. In fact, we effectively multiplied our commercial capacity by multiple [ points ]. We have made and continue to make substantial progress in building our relationship with Sanofi, which we believe can take us to the next level in terms of this relationship. Our relationship with Aetna is progressing, and we recognized revenue this quarter and anticipate accelerating revenues throughout 2023 and beyond. Additionally, we are working on another, at least one strategic partnership that will help us expand our commercial outlook. With that, I want to hand over the call to Rick to elaborate on the commercial side.

Thanks, Erez. In the fourth quarter, we continued our revenue growth trend with increasing year-over-year and sequential quarterly growth. During the fourth quarter, we continued to manage down our B2C revenue to reduce our cost of customer acquisition, improve our gross margin and reduce our overall burn while maintaining the strategic advantages of our B2C business. We expect to maintain the B2C businesses at the current level throughout 2023. On the other hand, we saw strong growth in our B2B revenue in 2022 with 1,800% year-over-year growth, which more than offset the 42% decrease in B2C revenue. And the fourth quarter B2B revenue accounted for 70% of total revenue. This validates our strategic move to focus on the B2B market based on the explosive growth we have already seen in B2B revenues. We increased our B2B contracts in the fourth quarter to achieve our target of 100 B2B contracts in 2022, which represents 100% year-over-year growth. In addition, we have additional contracts that were not signed until after year-end that are expected to launch in the first quarter. Including these additional contracts, our signed contract value is approximately $65 million at year-end. As Erez noted earlier, the majority of these new contracts are multi-condition, which generate more revenue per customer than single condition contracts. As we are seeing strong demand in the market for vendors that can provide several conditions, which reduces the cost and work of integrating and operating several vendors in this environment, Dario's platform is unique. Our platform covers more chronic conditions than almost all our competitors, and it covers those conditions in 1 integrated platform. It provides 1 journey, 1 experience and 1 coach for a multitude of conditions. Alongside of our B2C roots of our solution, we believe this yields better member engagement, which drives better clinical and financial outcomes. In fact, one of our recent studies demonstrated that people who manage both, diabetes and hypertension, on the Dario platform had better clinical outcomes than those that manage diabetes alone. This adds to the growing body of clinical studies that supports the outcomes of the Dario platform overall and in multiple demographics, including members over 65. This is a demographic that has a higher prevalence of chronic conditions and we believe is attractive to Medicare Advantage health plans. In addition to customers seeking more conditions from less vendors, they also are looking to add new vendors and benefits through their existing partners. As such, distribution and strategic partners will be a pillar of our commercial strategy in 2023. We will continue to invest resources in the partnerships through which we have already acquired customers like Virgin Pulse, the largest wellness vendor in the country; Solera, which has multiple health plan customers; Vitality; and Alliant. Given the dozens of companies that these partnerships give us access to, we believe we'll be able to accelerate revenue in a cost-efficient manner. In 2023, we will seek to expand our partnerships to a small number of important partners that we believe will expand our reach and accelerate our revenues. We added 3 health plans in 2022, one being Aetna. As we have previously discussed, we have been anticipating 2 additional risk-bearing/health plans through 2 of our strategic partners. While these have been delayed past year-end, we continue to expect them in the relatively near term with both expected to generate significant revenue in 2023. One is already integrated and ready for launch, and the other is in final contracting. As we previously discussed, Aetna is integrating our technology into their new behavioral health platforms. We recognize revenue in the second half of 2022 related to delivering the new platform to Aetna and anticipate accelerating revenue throughout 2023 as Aetna brings on more members to the platform. As we are paid for members that have access to the platform, we expect that this will contribute to growing revenue in 2023 and beyond. Just over a year ago, we entered into a 5-year, $30 million strategic agreement with Sanofi, which we expect to make significant contribution to revenue again in 2023. The agreement has 3 main parts: co-promotion the Dario solution through their market access team, development of Sanofi-directed ideas on the Dario platform, and data in studies. The co-promotion immediately added 5x the sales resources, selling to health plans and at-risk entities and substantial additional marketing dollars being deployed to promote our solution. Our co-marketing efforts have played out in other partnerships as well, including our recent agreement with Dexcom. We completed the first year of development milestones, and we are well into year-2 milestones. And we are progressing on what are expected to be some of the most robust studies in the industry. Studies of this quality should add considerable additional support for customers adopting the Dario solutions. We recently announced new relationship with Dexcom, a leader in the continuous glucose monitoring or CGM industry, which will enable us to fully integrate their CGM device into the Dario platform. We expect that this will expand the services we can provide CGM users, increase the data available on our platform to inform our member personalization and ultimately, to make our offering more valuable to payers and employers. In addition, this will enable our user-centric platform to enable value-based care for CGM at the patient level. Clinical and cost improvement data will be obtainable. We also believe that this can enable new opportunities to provide better care and innovative offerings with our partner, Sanofi. Overall, we believe we are well positioned as we move into 2023 for our significant growth trajectory as we have demonstrated that we can convert contracts into revenue by expanding the number of contracts that are multi-condition, achieving average enrollment rates of 30% or better, and average engagement between 70% and 80%. Over the last year, we have more than doubled the number of reference accounts, which, based on experience, is the basis to accelerate growth of customers on the platform. Another immediate result of customer satisfaction is we are already seeing multiple customers who have seen initial results evaluate expanding conditions or populations on our platform. To leverage the proven business model and sales momentum we have seen, we have recently more than doubled our direct sales team and believe that we can expand our contract value in 2023 by tens of millions of dollars across self-insured employers and health plans with a focus on increasing the average deal side through larger customers and continuing to increase the portion of our contracts that are multi-condition past the 50% currently in our pipeline. In addition, we believe that we can double the number of strategic partners and more than double large customers. I would also like to take a moment to address a question we frequently are asked lately. To date, we have not seen any significant decrease in demand due to macroeconomic factors. In fact, surveys that have been recently conducted show that many companies continue to express a desire to expand and change their digital health benefits. And as we focus on costly chronic conditions with a definitive ROI, companies can reduce their expenditures by implementing our solutions. In summary, we believe we will continue to see strong growth in both, the number of customers and contract value, in 2023 through our direct sales efforts and through our partners. With that, I would like to turn it back over to Erez.

Thank you, Rick. So to summarize the call, first, despite the macroeconomic factor and the possibility of recession, we don't see a slowdown in the digital health market. In fact, we continue to see a tailwind as payers and employers seek to better manage their patients and reduce health care costs. We believe that in this environment, employers are trying to find ways to save money and create efficiencies and will look in to leverage multi-condition platform that offers a better health profile and will see Dario as the most competitive solution. This will help us continue to win more clients and achieve significant market share. Further, our commercial capabilities grew considerably in the past year with a larger sales team and more strategic partnerships, which we expect to accelerate not just more contract wins but more meaningful contract wins such as the Aetna and other large accounts. We are seeing a trend of big traditional health care players in large pharma such as Sanofi and big medical devices companies looking to tap into the digital health space by partnering with companies like Dario. So they, too, can play a role in health care transformation. We expect to make more larger and strategic partnerships in 2023. We believe that by having each of these building blocks in place, we are in a position to build a truly differentiated digital health company with the potential to reach profitability with $60 million to $80 million in revenue. We anticipate accelerating growth in 2023, 2024 that should increase shareholder value. Thank you all. And now I want to hand over the call to a Q&A session.

[Operator Instructions] Our first question comes from Charles Rhyee with TD Cowen.

Congrats on the quarter. Hey, Erez, I want to talk about ending the year strong. And on top of that, we're now expecting -- onboarding Aetna at some point this year. But we also doubled the number of accounts from 50 to 100. I think -- I assume a lot of those have January starts. So maybe you can talk about sort of how the 1/1 starts have progressed so far. And would that suggest that we should still see sequential improvement in revenue in the first quarter over the fourth quarter? And then as we move and then potentially another step-up as we -- as the Aetna contract starts to ramp up as well?

Yes. Thanks for the question, Charles. So I think that we need to look into the revenues in 3 portions. One is the B2C that was kind of slowing down and is getting stabilized in Q4 and into next year, we think we're going to see more of the same rates. The other part is revenue that we are getting from strategic partners like Sanofi and also Aetna, because Aetna have a few portions. We have the development services, and we have also per user per month at some point this year. That's another portion. And the third portion is the accounts and the [ pure ] revenue that is coming from users that are on the platform. When it comes to the second one, as we stated in previous calls, there are some revenues that are being delivered according to milestones. So for Sanofi, for example, we have the data milestone. We have development milestones. So it's hard to look into this revenue as something that is growing sequentially quarter-over-quarter. However, on a yearly basis, this is something that is repeating every year. We do have multiple launches in Q1. And this is why we should expect growth that will go from Q4 of 2022 into Q1 of 2023. And moving forward, we're going to see more and more significant growth as we are getting to high volumes from big accounts, for example, Aetna and other accounts that we expect to launch later this year.

Okay. So then if we think about the strategic partnership bucket sort of that is tied to milestone payments, can you remind us in the fourth quarter in the B2B revenue, how much was related to those kind of deliverables?

Yes. So overall, out of $6.8 million, we had like 59% that is the combination of strategic and pure ARR. Around 60% of that -- 60% or 65% of that is coming from the strategic accounts.

Okay. So if we think of it that way, is it -- do you have any visibility here, now we're already in March, whether we've kind of -- we have hit some milestones to recognize some additional of those payments? Or is this -- are those -- do those tend to come sort of at the end of the quarter?

Yes. We do -- we will recognize more milestones that are coming from strategic accounts such as Sanofi and Aetna in Q1. Definitely, yes. We know that it's happening. And we're going to see also increase on the pure B2B ARR that is coming from accounts that we are enrolling to the platform. So the answer is yes, we're going to see both revenues in Q1.

And then in terms of the ARR portion of it, the 40%, is this one of those things where you have a 1/1 start, but you still have to wait for members to opt in and get started, so it takes a little bit of while to start to recognize revenue? Or so -- I guess in other words, while it's going to be sequentially up, is that the piece that we should -- that's probably going to grow a little bit -- take a little bit longer to start ramping up, and we'll see more of it maybe in the second quarter?

Yes, you're correct. So usually, as we stated before and the time that it takes for an account to reach to its goal is somewhere between 10 weeks to 15 weeks from the start time. So a lot of the accounts are not starting exactly 1/1. Sometimes it's waiting for the second month of the first quarter. So overall, you're going to see the ARR definitely going between Q4 to Q1. And in the last 5 quarters, we have seen they are growing quarter-over-quarter sequentially in a very consistent way. But if you are looking on this spike in terms of the growth, it's going to continue into Q2 and then Q3 based on the accounts that we are signing up. But we -- it's not like everything is up on 1/1, and then you see a big spike at the beginning of the year. As I said, it's like 10 to 15 weeks to get to the run rate of an account.

[indiscernible]

Yes, and not including the huge one, which is Aetna, which is a different story. And this is something that we expect to grow as we move forward along the year.

And for Aetna, I think the start date, you've kind of talked about as sort of midyear. Should we would then expect because it's being paid on a PMPM basis for members that it's made available to -- should we assume kind of then a meaningful step-up in the third quarter? Or is this also one where -- yes, it would seem like that's the way the contract works. Just wanted to clarify that.

Yes. Yes. I think that we should expect a significant step up. And not only due to that account, we have another few accounts of health plans that we believe that are going to launch also this quarter and gradually are going to grow. But to your point, Aetna, specifically, we're going to see a significant step up in Q3. But it doesn't mean that we are not generating revenue from Aetna. As we stated before, because we are part of the platform of Aetna and because there are elements that related to customization and integration, Aetna already vested into this relationship. And Aetna spend a lot of money, a lot of dollars into the integration and the localization of the platform. And this is something that we recognized in Q4, and we believe that we are recognizing also in Q1 and 2 of 2023. So overall, this is something that gives us the confidence that the company is going to grow in these quarters as well.

Our next question comes from Alex Nowak with Craig-Hallum Capital Group.

First, just on the DTC side, there's $2 million of DTC revenue in this quarter, does that take another step down in Q1, or is that going to basically normalize at this level?

We believe that we're going to normalize it in this level. For us, and I think that this is very important to note, B2C is part of our R&D. We need data. Data is what is educating our software, and we want to keep it in a most efficient way. In these levels, we are not losing money on the P&L of the B2C. And more or less, we're going to stay in this level into next year -- into this year.

Okay. That makes sense. So I mean, continue the last set of questions with regard to how to think about 2023. You got the DTC piece that's normalizing here. Although it has taken a step down throughout 2022, but it's going to be normalized for 2023. You've got a number of existing deals that are ramping, whether it be Aetna, Sanofi, you're having milestone payments come in, potentially some new health plans plus the rest of the, call it, the 100 contracts that you have under -- are already signed. So I mean, when you end 2023, Erez, when we're doing this call a year from now and talking about 2023, where do we want the growth rate to be? If we come up with 30% growth, are we happy? Are we disappointed? Help us out here.

Yes. So overall, I think that the way to look at it is in terms of the accounts that we have signed on, and Rick in presentation, he disclosed that we have like total accounts signed of $65 million. We were happy with the number of accounts that we have signed on. The way that we are designing the business is that eventually, we want to grow in a significant way in the ranges of like 70% over the next 2 years. This is more or less what we see. And this is with some kind of a margin of safety, because if you're looking into the growth of the accounts, we were growing by 100%. We're growing the ARR from $35 million at the beginning of the year to $65 million as of today. So overall, if we are taking some kind of margin of safety, which we believe we should take in terms of implementation and delays, overall, over the next 2 years, we are looking into 70%-plus growth for the full business and looking into the end of 2024.

Okay. Makes sense. That helps us get some guideposts here. Maybe just around the OpEx side. Obviously, OpEx came down pretty significantly this quarter in Q4. Maybe talk about kind of the puts and takes there. What drove the OpEx down? What's going to be maybe a onetime reduction in Q4? Will we maybe see step-ups in 2023? And where is the OpEx coming out of? Any pieces of the business that would be hurt from this?

Yes. So thanks for this question. I think that this is where the company made the significant progress in the last year. And this is something that needs to be taken in the context of the whole digital health market. So what we see in the whole digital health market, and we have -- the majority of the companies are still private. And we see companies that are generating, I don't know, $30 million in revenue, $50 million. We've seen in the public market a company that was acquired that was generated $400 million in revenue. What we have seen consistently is that companies were losing a lot of money. And when we were thinking about the Dario business, we are trying to put the foundation to get to cash flow positive, somewhere between $60 million to $80 million in revenue. In order to do so, we need not just to have all the building blocks of offering which is the multi-condition that gives us 6x on every account in terms of revenue generation, it's also about how we build the infrastructure of the OpEx of the company. Today, Dario has 250 employees that are in between India, Israel and the States. The major -- all the commercial team, regulation and everything is running from the U.S., but the rest is running out of the U.S. So overall, if we are looking on the overall OpEx, we had 3 main elements that eventually helped us take the OpEx down. Element #1 is the focus on the B2B and the slowdown of the B2C. Element #2 is the fact that post the 3 acquisitions that we did in 2021, we consolidated all the activities together into 1 organization, 1 R&D team, 1 product team, which is something that is saving money. And usually, companies that are making acquisitions, usually this is the trend that you see 12, 18 months later after the acquisition. So that's the reason #2. And reason #3 is the overall structure and the offshore, which is something that Dario is doing, and it's not being done by other digital health companies. And this is why we think that we build here something different that gives us the opportunity to build a real SaaS profitable business. There is another element. Dario is a pure digital company. So if you compare us to other digital health companies on the private side that are also growing, the ratio that we have, coach per patient is very digital-driven. And this is another reason why this whole financial structure that we have can drive this company to be profitable, which is something that we don't see in the digital health space. And this is where I think investors need to understand the difference between what we are building in Dario to what exists in the market. Overall, the OpEx that you see in Q4 was down by around 40% comparing to the year before. I think that this is where we're going to see the baseline, and we're going to continue with this OpEx into 2023. And overall, we're going to see a reduction in the loss, because the revenue is going to go up to our -- the gross margins are going to be this year in the range of 60% with the target of 70% next year. So what we're going to see for this OpEx that is going to stay stable, we're going to see a reduction in the loss because of the growth in the revenue and the improvement of the gross margin. So I would say that this OpEx is more or less the new baseline that we have. And from here, we are growing revenue and making our bottom line much more efficient with additional reduction in loss into next year and reduction in the burn rate of the company and the extension of the runway that we have.

Okay. Extremely helpful. One last question. Just in the last couple of weeks or so, you're seeing a big uptake in the digital health side around weight loss, particularly those adding drug prescriptions like Ozempic, Wegovy onto it. I know you have a weight loss program. Is that a trend that you're seeing? Is that something you want to get more involved in?

So this is Rick. We are definitely seeing that this is having an impact... [Technical Difficulty]

Excuse me, ladies and gentlemen, it does sound like we're having some technical difficulties. We ask you to please hold while we reconnect our speakers.

You hear me, Alex?

Yes, Erez. Yes, I can hear you. This is Alex here.

Yes. I think that we lost Rick, sorry for that.

That's okay. He just started to talk about the trend that he's seeing. So I don't know if you want to pick up where he left off?

Yes. I'm going to continue, yes. I'll pick it from here, yes. So we see this overall evolution with the drug. And this is where we feel that -- and this is where we have discussions with pharma companies. The one that we are working with and others, we see that overall, the digital part is going to be there as a foundation and as a connectivity to help manage the full chronic condition. When we think about weight loss as a standalone, this is where we are seeing some kind of a support for the chronic condition management. One of the things that we are running now is a study that is showing the relationship between weight loss to the overall management of the chronic condition. And overall, we see the comorbidity part between these 2 elements. So this is a long way to say that we think that this kind of drugs are going to make a huge change in the market. And we see these kind of things as supportive to all the digital management that we are doing.

Your next question comes from Rahul Rakhit with LifeSci Capital.

Congrats on a solid quarter. I apologize if this has been asked before. I'm kind of jumping between calls, but we're just kind of wondering, given the level of off-cycle account growth we saw in the first half of 2022, is it reasonable to expect a similar cadence this year? Or do you anticipate heavier account growth coming in the back end of the year? Just trying to understand as you add these 100 accounts, what the breakdown might look like.

Yes. Thanks for the question. So in the Q1 of last year, we started the relationship with Sanofi and because the revenue is divided into a few buckets, one of them is data, another one is service, and another one is market access, we have seen a big spike in terms of revenue in Q1 of last year. I don't expect the same kind of milestone and the same spike in Q1 of this year. To my point to Charles from Cowen, I think that we're going to see some kind of continuation of the growth that we have seen in Q4, but not something that even reminds what we have seen in Q1 of last year. Overall, when the business is growing, and we are getting more partners and more big accounts, the way that we want the business to grow is in a more kind of stable way. And we are trying to manage our overall accounts and activities in a way that we're going to see a more sustainable and less fluctuated kind of spikes in our revenues and more stable. So long story short, you're not going to see same spike.

Got it. That's helpful. And then I think at the end of Q3, you said the contract value was around $60 million. By year-end, you have 100 accounts, jumped to $65 million. So I guess I was wondering if you can just kind of share any detail on the composition of accounts that are in the pipeline for 2023. It's going to help get you to 200 accounts in terms of size or type of accounts. And maybe help us understand what that total contract value might look like once you get to 200 accounts.

Yes. Thanks for the question, Rahul. I think it's very important to explain to investors how we look into account. So when we started last year, we started to commercialize our multi-condition. And as I stated, the multi-condition is like 6x more revenue comparing to a single account because of the overall privilege in the population. The way that we are looking into the growth this year is less being focused on the number of accounts that we are signing. We want to see other parameters that are going to improve. #1 is the size of the account, whether we're going to sign on an employer with 10,000 employees or 20,000 employees. I think that the total amount of accounts that were big this year were less than 20, I would say, out of the 50 that we have signed on. Moving forward, we want to see a bigger portion of big accounts that are above 10,000, 15,000 users. The other element is signing on multi-condition and not single condition. And here, we are very, very confident that with the market trends and what we have seen in the second half of the year because in the second half of 2022, we have seen that 52% of the accounts that we have signed on are for more than one condition. And that's something that we expect to move forward. At the moment, in the pipeline, more than 50% of what we have is for more than one condition, which is something that gives us the confidence that we can get more multi-condition accounts or full suite accounts. And that's the second parameter that we're going to measure. And 1 more important thing is the diversification, because at the moment, if you're looking into the $65 million value that we have, you have like 1 account that is more than 40%, which is Aetna. And this is something that we'll try to -- when we move forward to have more kind of Aetnas that are going to join. And while going to a much higher contract value, we want to diversify the way that we are looking into the contracts. And this is something that I think that investors should like about Dario, because the way that we are thinking about the business is very diversified in terms of the different clients that we have. We have both, employers and health plans, and also the different conditions that we have, which is something that gives us the ability to operate on a much more stable kind of foundation for growth. So this is how we're going to look into the growth moving forward. We need also to remember that until 2.5 years ago, Dario was a pure B2C company. So the brand when it comes to benefit consultant, when it comes to health plans and employers, the brand was not there. And now when we are out there and we are showing accounts that are more than 1 year old on a full suite, and we have a very good result. We were doubling our reference clients. This is something that is helping us win bigger accounts. And this is how we're going to focus our commercial team in terms of the quality of the accounts and not just the number of the accounts, and that's the next stage of the growth of the company.

Your next question comes from Ben Haynor with Alliance Global Partners.

First off for me, on the B2C business at the current level throughout 2023, can you maybe talk a little bit about how much sales and marketing spend is required to maintain the present level?

You're talking about the B2C or you're talking about the full...

Just the B2C. I mean, it's not like that kind of offsets whatever gross margin you're making from those customers. But can you kind of give us a sense of what's required there on the operating expense side?

Yes. So overall, if you're looking on the overall operating expenses side, cash-wise, then we were down from 16 -- approximately [ 16.5 ] in Q4 of 2021 to somewhere around a bit less than $10 million in Q4 of 2022. And I'm talking about the cash side. I'm not looking into stock-based compensation and other elements. So this is like a 39% reduction. As I stated before, I think that getting into 2023, this is going to be the new baseline. It might go a bit up as we are growing the revenues, but this is the baseline of the company. Specifically, to your point, the sales and marketing is in the range of $3 million a quarter out of the $10 million that we have. And this is something that we expect to grow as we are moving forward on the overall -- in terms of the overall portion of sales and marketing from the overall OpEx. It's going to grow not because of the B2C, it's going to grow because we are spending more money into sales and marketing. We are expanding our teams. Our team today is bigger. We were growing it in Q4. And overall, we're going to see that the OpEx is going to grow a little bit, and sales and marketing is going to keep growing. In terms of R&D, we're going to see a slight reduction. In terms of G&A, we're going to see also a slight reduction in terms of the OpEx.

Okay. That's helpful and then -- go ahead. Sorry.

I was just going to say one of the things is -- on the B2C side is that we're relying more on the recurring business from our existing customers and the subscriptions that we have there and less on a new acquisition. And that's why we're able to lower the digital advertising spend in that area, in the D2C area.

Okay. So I guess if I'm understanding right, the attrition rate on the existing customers is probably lower than it was, call it, a year ago.

Yes.

Okay. Got it. And then can you talk about -- I know you have the milestone payments mixed in, and that obviously I would think improves gross margin quite a bit. But perhaps I'm wrong on that. But could you talk a little bit about kind of the B2B patient level or per patient per month gross margin and how that's tracking and maybe how you see it tracking going forward?

Yes. Generally, you're right, Ben. We have a portion in the strategic that this data and data is very high in gross margins. That's true. At the same time, looking into the pure B2B2C business, the ARR, this is -- if we are looking into the numbers of Q3 and Q4, this is already hitting -- hit the target of 70%. So this is where we feel confident that the core business, the pure ARR on the PMPM base or per engaged member per month base, this is something that is already on the target that we have. On the development side, when we are running development for parties, we are usually not running in a 70% gross margins. So long story short, looking at the full business as a pure SaaS model kind of characteristics and ARR, we already had a 70%. And this is why we feel confident that in the overall merge between B2C to the B2B2C in 2023, we can be at the 60% target. And looking into 2024, we can hit the target of 70%. We are already there for the core business.

Okay. Got it. That's helpful color. And then lastly for me on the Dexcom agreement, how does that work? I mean, is there any money that changes hands? Or is it mostly a technology integration? And then does the kind of higher resolution glucose rating capture, does that help you at all? And then also is something that's available to B2C customers, or is that more B2B-focused?

So the real drivers of that from our perspective are a fewfold. One is that we do have members on our platform today that are using Dexcom devices. We know that, but we are not able to capture as much of the information that we would want, and that's important for a few reasons. One is because we look to personalize the solution, more data is better. And in those cases, we're getting less data than we are from folks that are using our BGMs. And we're driving that towards having better capture, that better personalization, but that also drives, because we're on a per engaged member per month, better engagement and therefore, drives revenue from that perspective for us. The other component to this, in part, is just making that available. It will be available for B2C customers to use as well as B2B, but we anticipate the primary impact of it will be on the B2B side. Also, there's a big push from not just Dexcom but others in that -- in the CGM market to try and get into the type 2 diabetic population, right, which is a lot bigger than the type 1 population, which is separately penetrated by CGM. And one of the ways that you can try and argue for the coverage of a CGM, which is much larger, is to be able to demonstrate overall cost reduction, which also implies things like hypertension, which is heavily comorbid with type 2 diabetes. And so the ability to have that data at that level is important to our partners. And also this is part of our overall strategic approaches with Sanofi as well. So it's a direct deal between Dexcom and Dario, but there are also considerations for our Sanofi relationship.

Okay. Got it. And then just one last thing that I forgot to ask. When is that integration ready?

Well, it's ongoing at the moment. We're anticipating that we'll -- so usually what we do in terms of the steps of those as we complete what the development piece of that, then we'll put it into the B2C market for a little bit. And then we'll take that data and then we'll push it into B2B, but it will be in the first half of this year.

Your next question comes from David Grossman with Stifel.

Great. I think most of my questions really have been addressed already, but I just had a couple of quick follow-ups. And one was just going back to the contributions from Aetna and Sanofi and how -- when you focus on the more development milestone-type payments, are those -- when you aggregate the Sanofi payments in '22 and you compare them to what you would expect in '23, are you thinking that it's going to be flattish? Do you think it will be a revenue headwind, tailwind? Just give us some sense of how to characterize the [ more ] milestone non-ARR payments and those revenue streams and how they may impact growth in '23.

Yes. Thanks for the question. Generally speaking, we are not a development services company. So this is something that is very important to mention. That's number one. So it's not just development. It's market access, it's data. And the way that we were designing the business a while ago is that eventually, we're going to generate revenue from users that are operating on the platform and membership. And on top of that, we knew that the data at some point will be monetized. And this is what we see now. So some of it is the monetization of the data to some extent, because there are a lot of things that can be learned from this data in terms of how to design a future business, specifically for pharma companies. So the way that we are looking into the stream, and I will call it the strategic stream and not the development stream, the strategic stream where we see revenue from a combination of development and data, this is something that at least should be flat or grow because if we're going to win more strategic accounts and I think that we will win more strategic accounts, we're going to see additional need or additional opportunity to sell these kind of capabilities that the company created over the years. I don't know how many companies have this kind of data that is coming from the consumer and is also now even more valuable as we are running multi-conditions under 1 integrated platform. To my note, the summary, and this is something that I was mentioning, we do see that digital health is starting to be more and more mainstream. In other words, the Sanofi interest in digital health is not just coming from Sanofi. It's coming from other big pharma companies that understand that eventually, you need to touch the users in a digital way. That's #1. And #2, health plans are going to play a pure value-based kind of health care. And this is where models need to be adjusted, and getting there, you need to have a digital platform. So we expect that we're going to see more strategic partners like Sanofi and Aetna. And this is why we think that at the minimum, the revenue should be flat or even grow moving forward.

And just a quick follow-up to that. I think you mentioned $65 million of bookings and that included, I think did you say 40% of that was Aetna? Is that right? I just want to make sure I got that right.

I said that 40% out of the 60% of the total revenue is the ARR, and the rest is Sanofi and Aetna.

Okay. I thought it was about [ that. ] But when you think about that $65 million, how much of that is the ARR?

Almost all of it is ARR.

Okay. So you didn't include development milestones and things like that in that amount then.

I didn't.

Okay. Got you. And then just the last thing is going back to some of your commentary about expenses. I think you said you were at $10 million in cash OpEx, right, in the fourth quarter. If I heard that right, how do you -- it sounds like you want us to think about that as being a baseline and just based on your current plan that, that would be somewhat flattish into 2023. Is that the way you want us to think about cash expenses going forward?

Yes, the way that I want you to think about it is that eventually, we did 3 major changes. One is the consolidation of the M&A. Two is some kind of offshoring. And #3 is the reduction of the B2C into a steady state. After doing all these kind of activities, we created a new baseline, which is $10 million. From here, we're going to grow the revenue. We're going to grow the -- more expenses into sales and marketing moving forward under this new baseline. And this is why I think that moving forward, we're going to see a very small growth in the OpEx, and we're not going to see significant changes in terms of spending more. We're going to keep the spend as very close to the baseline. We're going to grow by another 4%, 5%, 6% along the year on the OpEx. And I think that in terms of the loss, we're going to see another significant reduction between 2022 to 2023 because of the gross margins that are going to be [ 60 ] for the full year on average and because the revenues are going to go up. And this is where I feel very confident that we're going to see a continuation of the reduction in the operating loss in another big step into 2023.

Ladies and gentlemen, there are no further questions at this time. I would like to turn the floor back over to Erez Raphael for closing comments.

Thanks, everyone, for joining our call this morning and for following our story. Have a good day.