Dialogue Health Technologies Reports Third Quarter 2022 Results

Strong performance fueled by $6 million in new ARR, 52% growth in the digital business, and significant progress towards profitability objectives

MONTREAL, Nov. 14, 2022 /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 nine months ended September 30, 2022. Financial references are in Canadian dollars unless otherwise indicated.

"Dialogue delivered solid performance across all services. We generated 37% growth in revenue year-over-year, improved our gross margin significantly, and demonstrated strong cost discipline. Importantly, our core business, the Dialogue Integrated Health Platform^TM, was particularly robust with growth of 52% year-over-year," said Cherif Habib, Chief Executive Officer of Dialogue. "Despite the challenging macroeconomic environment, the employment backdrop remains healthy in Canada, and organizations continue to invest in their employee benefits and support. At the same time, we are maintaining our focus on improving the member experience, delivering better health and wellness outcomes, and making high-quality care more convenient and more accessible to all."

Navaid Mansuri, Chief Financial Officer, added: "We delivered a solid quarter for shareholders and continued to invest responsibly towards the execution of our long-term strategy. We focused on driving growth, adding $6 million of new Annual Recurring Revenue, and made steady improvements in our platform and business. We stayed the course with our profitability objectives, reducing the adjusted EBITDA loss to $3.9 million, and, through strong working capital management, used less than $2.5 million of cash. We remain excited by the opportunities we see ahead and confident in our ability to maintain our leadership position in the market."

Q3 2022 Financial Highlights
(All capitalized terms not defined herein, shall have the meaning and usefulness ascribed to them in the Management's Discussion and Analysis for the three and nine months ended September 30, 2022. Comparison periods in each case are the three and nine months ended September 30, 2021, unless otherwise stated.)

• Annual Recurring and Reoccurring Revenue ("ARR") grew 29.7% year-over-year to $97.8 million, driven by new Customer wins and by our acquisition of Tictrac Ltd. ("Tictrac"), but offset in large part by a decline in foreign currencies and by the non-renewal of a customer in our legacy Optima business. Dialogue's core digital business in Canada, which represents nearly 80% of the overall ARR, increased 51% year-over-year. New customer wins in the third quarter of 2022 include a global packaging equipment manufacturer and a national fashion retail chain. Moreover, our relationship with a leading provider of student health plans in Canada continues to expand, as many colleges and universities take important steps to support the health and well-being of their students. We also saw the addition of new services by several existing Customers, including a leading distributor of automotive parts.
• Revenue in the third quarter of 2022 increased by 37.0% year-over-year to $23.6 million, due to growth in Members, both Direct and from agreements with strategic distribution partners, an increase in the Attach Rate as existing Customers add more services, and the acquisition of Tictrac.
• Members grew to more than 2.7 million, an increase of approximately 950,000, or 53.9%, year-over-year, and nearly 320,000, or 13.2%, compared to the second quarter of 2022. Excluding the contribution from Tictrac, Members grew 38.5% year-over-year to more than 2.4 million.
• Attach Rate grew to 1.53 from 1.11in the third quarter last year.
• Member-Service Units ("MSUs"), which we define as total Members multiplied by the Attach Rate, rose 112.1% year-over-year to nearly 4.2 million from approximately 2.0 million in the third quarter last year. Excluding the contribution from Tictrac, MSUs grew 98.5% year-over-year to nearly 3.9 million. This increase demonstrates the success of Dialogue's land & expand strategy, as both existing and new Customers continue to leverage our integrated services.
• 65% of new direct Members signed up for two services or more in the third quarter of 2022. Combined with current Customer expansions, the cumulative number of direct Members with two or more services was 30% at the end of the third quarter of 2022, compared to 17% at the same time last year and 21% at the end of the fourth quarter of 2021.
• Average Monthly Net Retention Rate ("NRR") was 101.5% for the third quarter of 2022, marking another consecutive quarter of NRR greater than 100%. Churn within our mid-market and enterprise customer segments remained low in the period at approximately 2,800 members.
• Gross Margin increased to 52.2%, compared to 42.6% in the third quarter of 2021, as we realized efficiencies in our operations, continued to implement pricing increases to eligible Customers, continued to scale our Mental Health service and Employee Assistance Program ("EAP"), and integrated Tictrac's higher margin Wellness service.
• Adjusted EBITDA¹ loss was $3.9 million, compared to a loss of $4.9 million in the same period last year. The smaller loss was due to higher gross profit and strong cost control, partially offset by a deficit at Tictrac.
• Net loss was $6.0 million, compared to $6.3 million in the same period last year. The smaller loss in the third quarter of 2022 was primarily due to a larger deferred income tax recovery compared to the third quarter of 2021.
• Cash and Cash Equivalents were $58.7 million as of September 30, 2022, compared to $104.3 million as of December 31, 2021. The decrease was the result of cash used in operations during the first nine months of the year as well as the initial cash outlay to close the acquisition of Tictrac.

Q3 2022 Business Highlights and Subsequent Events

• On July 4, 2022, Sun Life added Dialogue's Mental Health service to their Lumino Health Virtual Care platform. On September 1, 2022, Canada Life added Dialogue's Mental Health service and EAP to the Consult+ app. In both cases, these additional service are available to plan sponsors on an opt-in basis and now permit our largest insurance partners to offer more services from Dialogue's Integrated Health Platform^TM.
• On September 2, we surpassed the 1 million member milestone in our Direct customer channel.
• Subsequent to quarter end, on October 2, 2022, Sterling Capital Brokers, Canada's largest independent benefits consultant, partnered with Dialogue to promote health living by offering our Wellness program to its current and prospective customers.
• Subsequent to quarter end, on October 11, 2022, myHSA Ltd., an employee benefits platform, announced a partnership with Dialogue that allows advisors to offer Dialogue's full suite of services, including Wellness, to organizations in Canada, through an easy-to-use central application.
• On November 1, 2022, Dialogue became the first virtual care company to receive the Accreditation Canada Primer award, recognizing a high level of quality and safety of care.
• We were recognized by Great Place to Work® in the 2022 Best Workplaces^TM in Healthcare.
• We were ranked #29 on the 2022 Report on Business list of Canada's Top Growing Companies with a three-year revenue growth of 1,596%.

Financial Outlook

Dialogue is providing an outlook based on current market conditions and expectations. For the fourth quarter of 2022, we expect:

• Revenue to be in the range of $24.5 million to $25.0 million.
• Gross profit margin to be in the range of 51.0% to 53.0%.
• Adjusted EBITDA to be in the range of ($3.0) million to ($2.5) million.

Upcoming Events

• National Bank Financial Technology Conference in Toronto on December 7, 2022.

Notice of Conference Call

Dialogue will host a live video webinar on Tuesday, November 15, 2022 at 8:30 a.m. ET to discuss its financial results. Cherif Habib, CEO, and Navaid Mansuri, CFO, will co-chair the call. All interested parties can join the event at the following link, which is also available in the Events and Presentations section of the Company's website. The presentation will be accompanied by slides, which will be available on the screen view and will be made available prior to the start of the webinar on  the Company's website. Please connect at least 15 minutes prior to the event to ensure adequate time for any software download of Zoom that may be required to attend the event. Listeners that prefer to dial in by phone may do so by accessing the same web link and the dial in details will be provided by email upon registration.

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

This press release makes reference to certain non-IFRS measures, such as "EBIT" (which stands for net profit or loss before net financing (income) expenses and income taxes), "EBITDA" (which stands for net profit or loss before 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 financing (income) expenses, income taxes, depreciation of property and equipment, amortization of intangible assets, amortization of right-of-use assets, transaction costs, acquisition costs, change in fair value of conversion feature, share-based payments expense, change in fair value of contingent consideration, restructuring costs and foreign exchange gain or loss). These measures 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 nine months ended September 30, 2022 and 2021:

DIALOGUE HEALTH TECHNOLOGIES INC.
ADJUSTED EBITDA
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 and 2021

(in thousands of CAD)		Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021
		$		$		$		$
Net loss		(5,992)		(6,305)		(21,446)		(244,211)
Net financing income		(276)		(217)		(470)		(155)
Current income tax expense		36		—		84		—
Deferred income tax recovery		(538)		(90)		(789)		(244)
EBIT		(6,770)		(6,612)		(22,621)		(244,610)
Depreciation of property and equipment		52		81		456		347
Amortization of intangible assets		669		421		1,575		1,125
Amortization of right-of-use assets		223		150		574		448
EBITDA		(5,826)		(5,960)		(20,016)		(242,690)
Share-based payments expense		1,090		997		2,612		1,384
Acquisition costs		356		49		990		230
Change in fair value of conversion feature		—		—		—		225,417
Change in fair value of contingent consideration		133		—		267		—
Restructuring costs		39		—		53		—
Foreign exchange loss (gain)		275		—		1,609		87
Adjusted EBITDA		(3,933)		(4,914)		(14,485)		(15,572)

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.

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.sedar.com. 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 AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(in thousands of CAD except share and per share data)	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
	$		$		$		$
Revenue	23,614		17,235		67,338		49,133
Cost of services	11,295		9,891		34,814		28,550
Gross profit	12,319		7,344		32,524		20,583
Operating expenses
General and administrative	12,084		7,955		35,201		23,788
Sales and marketing	3,116		2,940		9,505		8,337
Product and development	2,799		2,064		7,827		6,267
Share-based payments expense	1,090		997		2,612		1,384
	19,089		13,956		55,145		39,776
Operating loss	(6,770)		(6,612)		(22,621)		(19,193)
Other expenses
Change in fair value of conversion feature	—		—		—		225,417
Net financing income	(276)		(217)		(470)		(155)
	(276)		(217)		(470)		225,262
Net loss before income taxes	(6,494)		(6,395)		(22,151)		(244,455)
Current income tax expense	36		—		84		—
Deferred income tax recovery	(538)		(90)		(789)		(244)
Net loss	(5,992)		(6,305)		(21,446)		(244,211)
Other comprehensive (loss) income
Items that may be reclassified subsequently to net loss
Foreign currency translation (loss) gain	(352)		(94)		261		535
Total comprehensive loss	(6,344)		(6,399)		(21,185)		(243,676)
Loss per share - basic and diluted	(0.09)		(0.10)		(0.32)		(4.62)

DIALOGUE HEALTH TECHNOLOGIES INC.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT SEPTEMBER 30, 2022 AND DECEMBER 31, 2021

(in thousands of CAD)	September 30,		December 31,
	2022		2021
	$		$
Assets
Current assets
Cash and cash equivalents	58,738		104,296
Trade and other receivables	19,932		13,659
Prepaid expenses	3,121		1,811
	81,791		119,766
Investment	1,004		—
Property and equipment	1,181		1,137
Right-of-use assets	1,571		1,568
Intangible assets	8,548		5,819
Goodwill	27,426		6,963
Deferred income tax asset	3,464		—
	124,985		135,253
Liabilities
Current liabilities
Trade payable and accrued liabilities	14,783		9,534
Unearned revenue	489		68
Current portion of contingent consideration payable	3,977		718
Current portion of long-term debt	400		400
Current portion of lease liabilities	798		541
	20,447		11,261
Non-current portion of lease liabilities	573		911
Non-current portion of long-term debt	807		1,074
Non-current portion of contingent consideration payable	716		1,300
Deferred income tax liability	764		766
	23,307		15,312
Commitments and contingencies
Shareholders' equity
Share capital	459,446		458,962
Equity reserve	5,952		3,514
Cumulative translation adjustment	608		347
Deficit	(364,328)		(342,882)
	101,678		119,941
	124,985		135,253

DIALOGUE HEALTH TECHNOLOGIES INC.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(in thousands of CAD)	Nine months ended September 30,
	2022		2021
	$		$
Operating activities
Net loss	(21,446)		(244,211)
Items not affecting cash
Increase on contingent consideration	267		(358)
Foreign Exchange gain on contingent consideration	(38)		—
Deferred income tax recovery	(789)		(244)
Change in conversion feature on preferred shares	—		225,417
Depreciation of property and equipment	456		347
Amortization of right-of-use assets	574		448
Net financing income	(470)		(155)
Amortization of intangible assets	1,575		1,125
Loss on intangible assets write-off	115		—
Share-based payments	2,612		1,384
	(17,144)		(16,247)
Net changes in non-cash operating working capital items
Trade and other receivables	(6,273)		(470)
Prepaid expenses	(1,310)		(1,657)
Trade and other payables	5,249		1,328
Unearned revenue	421		(266)
Interest paid	(138)		(113)
Interest income	519		544
	(18,676)		(16,881)
Investing activities
Purchase of property and equipment	(442)		(473)
Purchase of intangible assets	—		(87)
Sale of asset held for sale	—		910
Acquisition of Botfront	—		(292)
Acquisition of e-hub Health Pty Ltd. net of cash acquired	—		(3,138)
Investment	(1,004)		—
Payment of Optima contingent consideration	—		(1,500)
Payment of Botfront contingent consideration	—		(199)
Payment of e-Hub Health Pty Ltd. contingent consideration	(849)		—
Acquisition of Tictrac Ltd. net of cash acquired	(24,253)		—
	(26,548)		(4,779)
Financing activities
Issuance of shares	—		100,008
Share issue costs	—		(9,371)
Performance share units settled in cash	(172)		—
Options exercised	484		537
Repayment of liability related to asset held for sale	—		(430)
Repayment of long-term debt	(200)		(300)
Repayment of lease liabilities	(707)		(507)
	(595)		89,937
Effect of foreign currency translation	261		535
Net (decrease) increase in cash and cash equivalents	(45,558)		68,812
Cash and cash equivalents, beginning of the period	104,296		42,067
Cash and cash equivalents, end of the period	58,738		110,879

SOURCE Dialogue Health Technologies Inc.

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