DarioHealth Corp. (DRIO) Earnings

Management highlights

### Strategic Positioning and Compounding Growth Drivers - Management frames Dario Health as a company exiting a decade-long foundational investment phase, with four compounding growth drivers that multiply value across the business: account depth, distribution efficiency, AI leverage, and value chain participation, three of which are fully operational today, with the fourth now launching. - Account depth: The multi-condition platform generates 2x to 5x more revenue per existing customer by expanding to additional chronic conditions, leveraging existing commercial relationships, implementation work, and technology infrastructure, supported by over 100 published studies demonstrating improved clinical outcomes and cost savings. - Distribution efficiency: The commercial model has shifted from primarily direct sales to a channel-enabled model that expands reach without proportional increases to sales cost, shortening sales cycles and lowering customer acquisition costs. - AI leverage: Dario's vertical integration from FDA-cleared connected devices to proprietary AI generates 13 billion first-party longitudinal clinical data points that cannot be easily replicated, powering the proprietary DarioIQ AI agent that delivers personalized clinical interventions general-purpose models cannot match. - Value chain participation: A natural extension of the existing platform, new provider-backed clinical care capabilities allow Dario to move beyond digital engagement to deliver diagnosis, prescribing, and clinical services and earn reimbursement for treatment, expanding total addressable revenue per member. ### Commercial Operational Highlights - As of Q2 end, Dario has over 180 signed employer and health plan accounts, including 5 Fortune 50 companies, with approximately 25% of the B2B2C client base drawn from the Fortune 500. - Approximately 75% of all new accounts are now sourced through channel partners, enabling access to the large, hard-to-reach small business employer market and reducing sales and marketing spend as reach expands. Notable recent wins include a fifth Fortune 50 employer covering 100,000+ eligible employees for diabetes and hypertension, and a major Arizona-based health insurer secured via the Amwell channel partnership that opens the insurer's entire ASO book to Dario's cardiometabolic solution. - Over 80% of contracted and late-stage recurring revenue is now multi-condition, reflecting successful account expansion: a top-five U.S. health plan expanded its relationship during the quarter to add hypertension to its existing behavioral health program, tripling Dario's revenue opportunity under the contract, and a Celera channel partnership expanded the hypertension program to cover all acuity levels. - New product launches in the quarter include an integrated GLP-1 program combining Dario's AI platform with licensed provider services and access to FDA-approved GLP-1 therapies, available across direct-to-consumer, employer, and health plan channels. Two new condition-specific programs, Dario Women for perimenopause/menopause and Dario Sleep for obstructive sleep apnea, were also added to the platform and are expected to begin generating revenue in Q4 2026. ### Financial Operational Highlights - Disciplined expense reduction and AI-driven operational efficiency have driven consistent improvements in profitability, with most core infrastructure for future growth already in place, creating significant operating leverage as revenue scales.

Guidance

- The $13.1 million in contracted and late-stage annual recurring revenue reported at the end of Q2 2026 is expected to begin converting to recognized revenue in the second half of 2026, with the majority of contribution occurring in 2027 due to the typical 4-5 quarter lag between contract signing and full run-rate revenue, driven by plan year open enrollment timelines and progressive member enrollment. - DarioIQ is expected to deliver a 10% to 15% increase in recurring revenue from existing customers over time, driven by higher member engagement, utilization, and retention. - Revenue acceleration is expected to begin in the second half of 2026, with sequential growth from Q3 2026 to Q4 2026 and building further momentum into Q1 2027. All incremental revenue from already signed accounts is expected to flow efficiently to the bottom line, reducing net losses. - The $36.8 million pro forma cash position provides sufficient runway to execute all commercial growth initiatives and advance toward positive cash flow.

Segment performance

Dario Health reports overall consolidated results and does not break out separate product segment financial performance in this call. Q2 2026 total revenue was $5.2 million, down from $5.6 million in Q1 2026 and $5.4 million in Q2 2025. This decline reflects an intentional strategic exit from lower-quality pharmaceutical services revenue to focus on higher-margin recurring B2B2C revenue. Overall gross margin improved to 62% in Q2 2026, up from 57% in Q1 2026 and 55% in Q2 2025. B2B2C gross margin held steady at approximately 80% for the 10th consecutive quarter, representing the majority of the firm's high-quality recurring revenue base. Operating expenses declined 8% sequentially quarter-over-quarter and 21% year-over-year, leading to an 11% sequential reduction and 30% year-over-year reduction in operating loss. Net loss for Q2 2026 was $7.9 million, a 39% improvement from the $13 million net loss reported in Q2 2025. As of June 30, 2026, pro forma cash position totaled $36.8 million, including $14 million in existing cash, equivalents and deposits plus $22.8 million net proceeds from a July 2026 registered direct financing.

Risks & headwinds

- All forward-looking statements regarding expected revenue growth, path to profitability, conversion of contracted recurring revenue, AI contribution, and new product performance are subject to material risks and uncertainties, many outside of the company's control, that could cause actual results to differ materially from projections. Key risks are detailed in the company's periodic SEC filings, including the annual Form 10-K. - Data compliance regulations restrict the use of B2B customer data for AI model training, creating a dependency on B2C first-party data for model development, which could slow AI innovation if B2C data growth is lower than expected. - Revenue recognition is dependent on customer plan year cycles and member enrollment patterns that are outside of Dario's control, which could delay conversion of contracted ARR to recognized revenue.

Analyst Q&A

• Q: What caused the sequential Q2 top line revenue decline, and when can we expect revenue acceleration from recent new customer wins in back half of 2026?

  A: The slight decline stems from final cleanup of the business after exiting pharmaceutical services, a transition management intentionally pursued to improve long-term revenue quality. The $13.1 million in contracted ARR from recent wins will begin converting to revenue in the second half of 2026, with sequential growth from Q3 to Q4 and building momentum into 2027 Q1. All incremental revenue from signed accounts will flow efficiently to the bottom line due to improved operating efficiency, helping reduce net losses.

• Q: How does DarioIQ's 10% to 15% projected ARR increase for existing customers work commercially, and is this included in the current $13.1 million contracted ARR?

  A: The increase comes from improved member engagement and retention from AI-powered personalized experiences, not direct price or PMPM increases at renewal. This incremental revenue is additive to the $13.1 million ARR, which only includes new accounts and new condition expansions for existing clients. AI also reduces internal operating expenses by automating end-to-end processes from client acquisition to member management, with these savings already reflected in recent OPEX reductions.

• Q: How do implementation timelines and ROI differ for channel-partner-sourced enterprise accounts versus direct-sold enterprise accounts?

  A: Timing is driven more by client type (employer vs. health plan) than distribution channel: 75% of employer accounts align to annual January plan year enrollments after signing, while health plans typically enroll members 3 to 6 months after contract signing. Many channel partners handle member enrollment themselves, reducing Dario's sales and marketing costs and improving ROI, which will strengthen profit margins as channel-sourced account volume grows.

• Q: What share of the 13 billion data points underlying DarioIQ is first-party data from Dario's own devices, and how is compliance managed for data usage?

  A: The 13 billion data points combine B2C and B2B data, but regulatory compliance rules mean almost all AI model training is done purely on first-party B2C data, which makes up the majority of the total dataset. All new features and multi-condition capabilities are tested and refined first in B2C to learn comorbidity patterns before being rolled out to B2B clients, allowing Dario to build AI capabilities in line with healthcare regulatory requirements.