Dialogue Health Technologies Reports Second Quarter 2023 Results

Dialogue's core digital services continued to drive growth with more than $6.7 million in net new ARR, while the adjusted EBITDA loss narrowed for a sixth consecutive quarter to less than $1 million

MONTREAL, Aug. 14, 2023 /CNW/ - Dialogue Health Technologies Inc. (TSX: CARE) ("Dialogue" or the "Company"), Canada's premier health and wellness virtual healthcare platform, announced today its financial and operational results for the three and six months ended June 30, 2023. Financial references are in Canadian dollars unless otherwise indicated.

"We delivered another strong performance during the second quarter and are executing well on our plan to drive profitable growth in the near future. We are well positioned to continue winning market share across our services, signing more than $6.7 million in net new ARR in our core digital business, including several large enterprise customers," said Cherif Habib, Chief Executive Officer of Dialogue. "Importantly, we concluded a notable licensing agreement with Sun Life in the United States, providing us with new growth opportunities and immediate scale in the world's largest addressable health and wellness market. Furthermore, we are excited about the prospects of joining forces with Sun Life, a company with whom we share a common purpose of helping people live healthier lives, and expect to drive continued innovation as we combine the strength of both organizations."

Navaid Mansuri, Chief Financial Officer, added: "We have continued to mature as an organization, transitioning from a growth-at-all-cost mindset to one that focuses on building a sustainable business for long-term success. We realized further efficiencies in our member-facing operations and reduced our operating expenses to 63% of revenue compared to nearly 76% at this time two years ago. As a result, we expanded our gross margin once again and saw a sixth consecutive quarterly improvement in adjusted EBITDA. We are well within reach of delivering our first quarter of breakeven EBITDA by the end of 2023. Getting there has been a key objective for our team and will provide Dialogue with valuable flexibility to keep innovating and to support our growth plans."

Q2 2023 Financial Highlights
(All capitalized terms not defined herein, shall have the meaning and usefulness ascribed to them in the Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2023. Comparison periods in each case are the three and six months ended June 30, 2022, unless otherwise stated.)

Results presented below for the comparable period in 2022 reflect continuing operations only and exclude the Occupational Health and Safety ("OHS") segment in Germany which was divested on December 31, 2022.

• Annual Recurring and Reoccurring Revenue ("ARR") from continuing operations in the second quarter of 2023 grew 18.7% year-over-year to $109.7 million, driven by new Customer wins, by existing Customer and Partner expansions, by price increases, and by the addition of Tictrac. The increase was offset in part by previously disclosed churn at Optima. Dialogue's core digital business in Canada, which represents 88% of total ARR, maintained a strong momentum with growth of 36.7% year-over-year.
• Revenue from continuing operations in the second quarter of 2023 increased by 17.2% year-over-year to $25.5 million. The improvement was driven mainly by (i) organic growth in our core digital services due to a solid increase in Members, (ii) an expansion of the Attach Rate as existing Customers added more services, (iii) price increases, as (iv) full quarter contribution from Tictrac. Overall growth was offset in part by a revenue decline at Optima related to previously disclosed churn.
• Members grew to just under 2.8 million in the second quarter of 2023, an increase of nearly 447,000 or 18.6%, year-over-year. Excluding the contribution from Tictrac, Members grew 20.7% year-over-year to approximately 2.6 million.
• Attach Rate grew to 1.57 in the second quarter of 2023 from 1.52 in the same period last year.
• Member-Service Units ("MSUs"), which we define as total Members multiplied by the Attach Rate, rose 22.5% to 4.5 million in the second quarter of 2023 from approximately 3.6 million in the same period last year. Excluding the contribution from Tictrac, MSUs grew 24.6% year-over-year to 4.2 million. This increase demonstrates the success of Dialogue's land & expand strategy, as both existing and new Customers continue to leverage our integrated services.
• 38% of new direct Customers signed up for two services or more in the second quarter of 2023. Combined with current Customer expansions, the cumulative number of direct Members with two or more services was 34% at the end of the second quarter of 2023, compared to 24% at the same time last year.
• Rolling 12-month Net Retention Rate ("NRR") was 120% for the second quarter of 2023 compared to 118% as of June 30, 2022. We did not experience any churn within our direct mid-market and enterprise Customer segments in the second quarter of 2023, compared to a churn of 782 Members in the same period last year.
• Gross Margin from continuing operations increased to 59.7% in the second quarter of 2023, compared to 48.7% in the same period last year, as we realized efficiencies in our operations, implemented price increases, continued to scale our Mental Health service and Employee Assistance Program ("EAP"), and integrated Tictrac's higher margin Wellness service.
• Adjusted EBITDA[1] loss from continuing operations was $0.9 million in the second quarter of 2023 compared to a loss of $4.5 million in the same period last year. The smaller loss was due to higher gross profit and strong cost control, partially offset by inflationary cost increases across the business.
• Net loss from continuing operations was $5.8 million in the second quarter of 2023, compared to $6.7 million in the same period last year. The smaller loss was primarily due to higher gross profit and interest income, offset in part by higher operating expenses and a higher deferred income tax expense compared to the second quarter of 2022.
• During the first quarter of 2023, we purchased $25.0 million in short-term guaranteed investment certificates. Cash and cash equivalents and short-term investments were $54.2 million as of June 30, 2023, compared to $62.7 million as of December 31, 2022. The decrease in the first six months of the year was mainly the result of cash used in operations and for working capital purposes, as well as the repayment of long-term debt and lease liabilities.

____________________________

¹  Adjusted EBITDA is a Non-IFRS financial measure. Refer to the reconciliation contained in the Non-IFRS Financial Measures section, beginning on page 3 of this earnings release.

Q2 2023 Key Business Developments and Subsequent Events

• We launched Dialogue's Well-Being Score, a monthly pulse to help members proactively manage and improve their health and well-being. The Well-Being Score is seamlessly incorporated into Dialogue's Integrated Health Platform^TM, across all programs, enhancing support and directing members towards the right care, at the right time.
• We developed new nutrition-focused content and features, expanding Dialogue's Wellness program even further. The new Eat Well Healthy Habit Collection equips members with carefully curated, clinically-vetted advice for building healthy nutrition habits into their existing routine.
• We hosted Dialogue's 5th annual Think Tank, focused on fostering resilience through employee well-being. The successful event brought together senior leaders from various client organizations and created a space for sharing expert experiences, insights, and perspectives.
• For a fourth consecutive year, we have been certified as a Great Place to Work^TM organization by Great Place to Work® Canada. This employee-validated recognition positions Dialogue well to get noticed as an employer of choice and attract great talent, while branding Dialogue as a company that cares and wins the attention and loyalty of customers.
• On July 26, 2023, Dialogue entered into a definitive agreement to be acquired by Sun Life Financial Inc. ("Sun Life") for $5.15 in cash per common share. For more details about the transaction, please consult our press release. In connection with and subject to closing the transaction, Dialogue will apply to have its common shares delisted from the TSX and will cease to be a reporting issuer under Canadian securities laws.

Changes to the Board of Directors

Melissa Kennedy, Executive Vice-President, Chief Legal Officer & Public Policy Officer at Sun Life, stepped down from Dialogue's board of directors. The Company does not intend to fill the vacancy left by Ms. Kennedy's departure.

"It was a pleasure serving on Dialogue's board to further their mission of helping Canadians improve their health and well-being." said Ms. Kennedy. "The Company's recent announcement regarding the proposed acquisition of Dialogue by Sun Life is an important milestone and an exciting opportunity for both organizations. In light of the upcoming transaction, it was an appropriate time for me to step down from the board. Thank you to our Chair, fellow board members and management team."

Notice of Conference Call

As a result of the announcement on July 26, 2023, that Dialogue has entered into a definitive agreement to be acquired by Sun Life, the Company will not host a conference call with analysts.

Non-IFRS ("International Financial Reporting Standards") Financial Measures

This press release makes reference to certain non-IFRS measures, such as "EBIT" (which stands for net profit or loss before net profit or loss from discontinued operations, net financing (income) expenses and income taxes), "EBITDA" (which stands for net profit or loss before net loss from discontinued operations, net financing (income) expenses, income taxes, depreciation of property and equipment, amortization of intangible assets and amortization of right-of-use assets) and "Adjusted EBITDA" (which stands for net profit or loss before net loss from discontinued operations, net financing (income) expenses, income taxes, depreciation of property and equipment, amortization of intangible assets, amortization of right-of-use assets, disposal costs, acquisition costs, restructuring costs, transaction costs, share-based payments expense, change in contingent consideration, asset write-off and impairment and foreign exchange gain or loss). This earnings release also makes reference to Annual Recurring and Reocurring Revenue ("ARR"), Net Retention Rate ("NRR"), Member-Service Units ("MSUs"), Attach Rate and Members, which are key performance indicators. The key performance indicators used by the Company may be calculated in a manner different than similar key performance indicators used by other companies. These measures and key performance indicators are not recognized under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management's perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information as reported under IFRS. We also believe that other users, such as securities analysts, investors and other interested parties, frequently use non-IFRS measures, particularly in the evaluation of issuers.

Management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation. Where applicable, we provide a clear quantitative reconciliation from the non-IFRS financial measures to the most directly comparable measure calculated in accordance with IFRS.

The following table reconciles net loss to Adjusted EBITDA loss for the three and six months ended June 30, 2023 and 2022:

DIALOGUE HEALTH TECHNOLOGIES INC.
ADJUSTED EBITDA
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 and 2022

(in thousands of CAD)		Three months ended June 30,				Six months ended June 30,
		2023		2022		2023		2022
		$		$		$		$
Net loss		(5,757)		(8,387)		(8,412)		(15,454)
Net loss from discontinued operations		—		1,648		—		2,037
Net financing income		(518)		(169)		(1,020)		(194)
Current income tax expense		17		25		23		48
Deferred income tax expense (recovery)		920		(165)		920		(250)
EBIT		(5,338)		(7,048)		(8,489)		(13,813)
Depreciation of property and equipment		186		244		344		381
Amortization of intangible assets		491		472		979		841
Amortization of right-of-use assets		107		160		214		267
EBITDA		(4,554)		(6,172)		(6,952)		(12,324)
Share-based payments expense		1,231		954		2,091		1,522
Acquisition costs		—		541		—		634
Change in contingent consideration		201		43		(245)		134
Restructuring costs		260		15		356		15
Disposal costs		—		—		4		—
Transaction costs		1,989		—		2,112		—
Foreign exchange loss (gain)		21		165		(61)		165
Adjusted EBITDA		(852)		(4,454)		(2,695)		(9,854)

About Dialogue

Incorporated in 2016, Dialogue is Canada's premier virtual healthcare and wellness platform, providing affordable, on-demand access to quality care. Through our team of health professionals, we serve employers and organizations who have an interest in the health and well-being of their employees, members and their families. Our Integrated Health Platform™ is a one-stop healthcare hub that centralizes all of our programs in a single, user-friendly application, providing access to services 24 hours per day, 365 days per year from the convenience of a smartphone, computer or tablet. Dialogue is the first virtual care provider to receive the Accreditation Canada Primer award, a third-party validation of safety and high-level quality of care.

Forward-Looking Information

This release includes "forward-looking information" and "forward-looking statements" (collectively, "forward-looking statements") within the meaning of applicable securities laws. Forward-looking information may relate to our financial outlook (including revenues and Adjusted EBITDA), and anticipated events or results and may include information regarding our financial position, business strategy, growth strategies, addressable markets, budgets, operations, financial results, taxes, dividend policy, plans and objectives.

In some cases, but not necessarily in all cases, forward-looking statements can be identified by the use of forward-looking terminology such as "plans" "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "is positioned", "estimates", "intends", "assumes", "anticipates" or "does not anticipate" or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might", "will" or "will be taken", "occur" or "be achieved". In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances contain forward-looking statements. Forward-looking statements are not historical facts, nor guarantees or assurances of future performance but instead represent management's current beliefs, expectations, estimates and projections regarding future events and operating performance.

Forward-looking statements are necessarily based on a number of opinions, assumptions and estimates that, while considered reasonable by Dialogue as of the date of this release, are subject to inherent uncertainties, risks and changes in circumstances that may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ, possibly materially, from those indicated by the forward-looking statements include, but are not limited to, the risk factors identified under "Risk Factors" in the Company's latest annual information form, and in other periodic filings that the Company has made and may make in the future with the securities commissions or similar regulatory authorities in Canada, all of which are available under the Company's SEDAR+ profile at www.sedarplus.ca. These factors are not intended to represent a complete list of the factors that could affect Dialogue. However, such risk factors should be considered carefully. There can be no assurance that such estimates and assumptions will prove to be correct. You should not place undue reliance on forward-looking statements, which speak only as of the date of this release. Dialogue undertakes no obligation to publicly update any forward-looking statement, except as required by applicable securities laws.

Although we have attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other risk factors not currently known to us or that we currently believe are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking information. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, you should not place undue reliance on forward-looking information. The forward-looking information represents our expectations as of the date of this earnings release (or as the date it is otherwise stated to be made) and is subject to change after such date. However, we disclaim any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable Canadian securities laws. All of the forward-looking information contained in this earnings release is expressly qualified by the foregoing cautionary statements.

DIALOGUE HEALTH TECHNOLOGIES INC.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF NET LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(in thousands of CAD except share and per share data)	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	$		$		$		$
Continuing operations
Revenue	25,539		21,791		50,071		41,328
Cost of services	10,294		11,172		20,750		22,696
Gross profit	15,245		10,619		29,321		18,632
Operating expenses
General and administrative	11,630		11,228		20,433		19,400
Sales and marketing	4,064		2,960		8,470		6,323
Product and development	3,658		2,525		6,816		5,200
Share-based payments expense	1,231		954		2,091		1,522
	20,583		17,667		37,810		32,445
Operating loss from continuing operations	(5,338)		(7,048)		(8,489)		(13,813)
Other expenses
Net financing income	(518)		(169)		(1,020)		(194)
	(518)		(169)		(1,020)		(194)
Net loss before income taxes from continuing operations	(4,820)		(6,879)		(7,469)		(13,619)
Current income tax expense	17		25		23		48
Deferred income tax expense (recovery)	920		(165)		920		(250)
Net loss from continuing operations	(5,757)		(6,739)		(8,412)		(13,417)
Net loss from discontinued operations	—		(1,648)		—		(2,037)
Net loss	(5,757)		(8,387)		(8,412)		(15,454)
Loss from continuing operations per share - basic and diluted	(0.09)		(0.10)		(0.13)		(0.20)
Loss from discontinued operations per share - basic and diluted	—		(0.02)		—		(0.03)
Loss per share - basic and diluted	(0.09)		(0.12)		(0.13)		(0.23)

 

DIALOGUE HEALTH TECHNOLOGIES INC.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(in thousands of CAD)	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	$		$		$		$
Net loss from continuing operations	(5,757)		(6,739)		(8,412)		(13,417)
Net loss from discontinued operations	—		(1,648)		—		(2,037)
Net loss	(5,757)		(8,387)		(8,412)		(15,454)
Other comprehensive loss from continuing operations
Items that may be reclassified subsequently to net loss from continuing operations
Foreign currency translation gain	(79)		(18)		(707)		(69)
Item that will not be reclassified subsequently to net loss from continuing operations
Changes in fair value of investments recorded at fair value through other comprehensive income	—		—		1,004		—
Comprehensive loss from continuing operations	(5,678)		(6,721)		(8,709)		(13,348)
Other comprehensive loss from discontinued operations
Foreign currency translation gain	—		(236)		—		(544)
Comprehensive loss from discontinued operations	—		(1,412)		—		(1,493)
Total comprehensive loss	(5,678)		(8,133)		(8,709)		(14,841)

DIALOGUE HEALTH TECHNOLOGIES INC.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT JUNE 30, 2023 AND DECEMBER 31, 2022

(in thousands of CAD)	June 30,		December 31,
	2023		2022
	$		$
Assets
Current assets
Cash and cash equivalents	29,181		62,697
Short term investments	25,000		—
Trade and other receivables	19,571		17,190
Prepaid expenses	3,631		2,443
	77,383		82,330
Investment	—		1,004
Property and equipment	787		936
Right-of-use assets	570		784
Intangible assets	5,358		6,237
Goodwill	24,978		24,586
Deferred income tax asset	2,642		3,511
	111,718		119,388
Liabilities
Current liabilities
Trade payable and accrued liabilities	16,933		16,724
Unearned revenue	420		912
Current portion of contingent consideration payable	1,701		1,425
Current portion of long-term debt	400		400
Current portion of lease liabilities	402		404
	19,856		19,865
Non-current portion of lease liabilities	109		343
Non-current portion of long-term debt	474		707
Non-current portion of contingent consideration payable	—		664
Deferred income tax liability	422		458
	20,861		22,037
Shareholders' equity
Share capital	462,028		459,962
Equity reserve	6,261		6,112
Changes in fair value of investments recorded at fair value through other comprehensive income	(1,004)		—
Cumulative translation adjustment	819		112
Deficit	(377,247)		(368,835)
	90,857		97,351
	111,718		119,388

DIALOGUE HEALTH TECHNOLOGIES INC.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(in thousands of CAD)	2023		2022
	$		$
Operating activities
Net loss	(8,412)		(15,454)
Items not affecting cash
Increase (decrease) of contingent consideration	(245)		134
Unrealized foreign exchange gain	(61)		—
Deferred income tax expense (recovery)	920		(250)
Depreciation of property and equipment	344		404
Amortization of right-of-use assets	214		351
Net financing income	(1,020)		(194)
Amortization of intangible assets	979		906
Share-based payments	2,091		1,522
	(5,190)		(12,581)
Net changes in non-cash operating working capital items
Trade and other receivables	(1,649)		(4,014)
Prepaid expenses	(1,188)		(1,990)
Trade and other payables	376		381
Unearned revenue	(492)		691
	(8,143)		(17,513)
Investing activities
Purchase of property and equipment	(194)		(419)
Purchase of intangible assets	—		(1)
Short term investments	(25,000)		—
Investment	—		(1,004)
Payment of Tictrac Ltd. contingent consideration	(136)		—
Acquisition of Tictrac Ltd. net of cash acquired	—		(24,253)
Interest income received	376		222
	(24,954)		(25,455)
Financing activities
Performance share units settled in cash	—		(172)
Options exercised	180		92
Repayment of long-term debt	(233)		(200)
Repayment of lease liabilities	(252)		(512)
Interest paid	(70)		(84)
	(375)		(876)
Effect of foreign currency translation	(44)		613
Net decrease in cash and cash equivalents	(33,516)		(43,231)
Cash and cash equivalents, beginning of the period	62,697		104,296
Cash and cash equivalents, end of the period	29,181		61,065

SOURCE Dialogue Health Technologies Inc.

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