MDxHealth Q4 2023 Earnings Call Transcript

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March 6, 2024

There are 8 speakers on the call.

Operator

gentlemen, and welcome to the MDx Health Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, March 6, 2024. Before we begin, I would like to remind everyone that the company will make forward looking statements during today's call.

Operator

Whether in prepared remarks or during the Q and A session, these forward looking statements are subject to inherent risks and uncertainties. These risks and uncertainties are detailed in the Risk Factors section of the company's filings with the Securities and Exchange Commission, specifically in the company's annual report on Form 20F. I would now like to turn the conference over to Michael McGarity, Chief Executive Officer. Please go ahead.

Speaker 1

Thanks, Luty, and thank you all for joining us for our Q4 and year end 2023 earnings conference call for MDx Health. With me today is Ron Kalfas, Chief Financial Officer. Commercial execution and operating discipline are the 2 foundational drivers of our business and performance. And our Q4 and full year results for 2023 demonstrate the continued success of this strategy. It is also becoming clear that our strategy is creating multiple sources of growth for our company, including test menu augmentation, cross selling of complementary diagnostic solutions and expanding payer coverage.

Speaker 1

With these growth drivers in place, we believe MDx Health remains well positioned to continue to deliver sustainable growth that will lead to adjusted EBITDA profitability in the first half of twenty twenty five. I would now like to review a few of the financial and operating highlights from our Q4 and full year 2023 results that clearly demonstrate this execution. 4th quarter revenue was $19,400,000 an increase of 50% over the prior year period. For the full year, revenue increased to $70,200,000 an increase of 89% year over year. Excluding the impact from GPS, total revenues in 2023 grew 42% year over year.

Speaker 1

In the 4th quarter, gross margin improved to 65.3% versus 56% in the prior year period, which represents a year over year improvement of 9.3 percentage points. And for the full year, gross margins were 62.6% compared to 51.9% for the prior year, an improvement of 10.7 percentage points, which reflects continued focus on operating discipline, cost management and expanded payer coverage for our full menu of precision diagnostics. So what these financial metrics speak to is that we are delivering on our mission to become a premier growth company in precision diagnostics focused in the urology. In fact, when we step back and look at the progress from only a few years ago, our growth trajectory has been, I believe, quite compelling. In 2019, MDx Health reported annual revenue of $11,000,000 Today, we are now projecting 20.24 revenues of $79,000,000 to $81,000,000 which represents a 5 year CAGR or compound annual growth rate of over 50%.

Speaker 1

Importantly, we have also maintained our operating discipline over this period of extraordinary top line growth. Gross margins have dramatically improved from essentially no gross profit generated by the business in 2019 to over 62% for the full year 2023. And our focus on sales force productivity is allowing us to manage and maintain our operating expenses as we go forward. This dynamic is providing clear leverage in our P and L and reinforces our confidence in reaching adjusted EBITDA profitability. Of course, our world class technology, outstanding clinical lab operations and improved reimbursement for our tests are all major factors in our success.

Speaker 1

But without question, one of the ultimate drivers for sustained execution is the strong and we believe enduring relationships we have built in our urology customer base and key opinion leader community. In my experience, these initiatives and resulting effect on our business underpin the strength of our business model. To that end, we remain relentlessly focused on the customer experience in order to maintain and advance our best in class reputation. Before my closing comments, I will turn the call over to Ron for a review of our financial and operating results. Ron?

Speaker 2

Thank you, Mike. As Mike mentioned, we are pleased to report our positive results for the Q4 year end 2023 with strong reported growth in revenues and solid improvements in gross margins. Revenues for the Q4 ended December 31, 2023 increased by 50% to $19,400,000 versus $12,900,000 for the Q4 of 2022. 4th quarter revenues of $19,400,000 were comprised of $8,800,000 from GPS, dollars 5,900,000 from Confirm, dollars 3,200,000 from Resolve and $1,300,000 from Select. For the year 2023, our revenues were $70,200,000 representing an increase of 89% over the same period last year.

Speaker 2

Excluding GPS, full year 2023 revenue increased 42% over the same period last year. Moving below the revenue line, our gross profit for the Q4 was $12,700,000 an increase of 75% as compared to $7,200,000 for the Q3 of 2022. Gross margins were 65.3 percent for Q4 'twenty three as compared to 56% for Q4 'twenty two, an improvement of 9.3 percentage points. For the full year 2023, gross profit was $43,900,000 an increase of 129% as compared to $19,200,000 for the full year 2022. Gross margins were 62.6 percent for the full year 2023 as compared to 51.9% in the prior year, an improvement of 10.7 percentage points.

Speaker 2

Operating loss for the Q4 was $6,300,000 compared to $8,900,000 for the Q4 of 2022, representing a reduction of 30% driven by top line growth and improved gross margin. Full year 2023 operating loss was $27,300,000 compared to $37,900,000 for the same period last year, a reduction of 28%. Cash and cash equivalents as of December 31, 2023 were $22,400,000 Our total use of cash for the Q4 was $10,300,000 The increase in cash used in the 4th quarter was driven by non operating non recurring cash payments of $2,300,000 primarily attributed to the transition to a sole listing on NASDAQ. This concludes my brief overview of the results and I will now turn the call back to Mike.

Speaker 1

Thanks, Ron. As I've consistently communicated, MDx Health is a growth company. Everything we do is based on and in a commitment to growth. Growth of our revenue, margins and profitability growth in our shareholder base, attracting high quality institutional investors who understand our business and who have set high expectations for consistent execution and results. Simply put, we strive to say what we're going to do and then execute and deliver, which we believe will lead to recognition, appreciation and differentiation of this consistency and associated long term sustainable growth potential of our business.

Speaker 1

Growth of our offering is reflected in our progression over the last 18 months from 1 to 4 revenue generating tests, with all of our prostate cancer tests covered by Medicare and included in the NCCN guidelines. And finally, growth stemming from our proven best in class channel, which has catalyzed multiple inbound opportunities for partnership, M and A and distribution. In our evaluation of any of these opportunities, we will apply the same diligence and rigor as we have with the GPS acquisition and resolve channel opportunity. And we have found ourselves with the luxury of being very selective with our opportunities and partners. As a final note, I often convey to people in any venue that we pass the friends and family test.

Speaker 1

This concept implies in my belief that if you have a friend or family member navigating the complex confounding and anxiety inducing diagnostic pathway of prostate cancer, you would want the clinician and patient to have access to the MDx Health menu. No other company offers a precision test at the multiple points along this pathway. We have a clinically actionable diagnostic from elevated PSA to initial biopsy, whether the result is negative or positive, we're ruling out unnecessary intervention and for risk stratification of patients that may need intervention. And we continue our efforts to advance into optimal monitoring of the approximately 1,500,000 patients in active surveillance annually with our monitor project. So it was particularly powerful at our recent national sales meeting to focus on the patients and the clinicians that we serve and believe we are doing just that and doing it the right way with the right people.

Speaker 1

To me personally and all of us collectively MDx Health that was quite compelling. So in closing, we at MDx Health will remain committed to driving sustainable growth, which will serve as the foundation for value creation

Speaker 3

for all of our

Speaker 1

stakeholders, including patients, customers and shareholders. So thank you for your interest in and support of MDx Health. And I'll turn the call back over to Luti for questions.

Operator

Thank Your first question comes from the line of Andrew Brackmann from William Blair. Your line is open.

Speaker 3

Hi, guys. Good afternoon. Thanks for taking the question. Maybe just starting on guidance, can you maybe peel back the onion for us a little bit in terms how you're thinking about this from a buildup of a test level? I guess any color that you can share in which areas of the portfolio might grow faster than others and how you're thinking about price here as well?

Speaker 3

Thanks.

Speaker 1

Andrew, we feel good about the balance of our menu. I think as we've discussed and as I've communicated, we're very confident that our sales force is selling not a test or going in with one of our tests, but selling our pathway. And that each of them has over the past number of quarters, including GPS, demonstrated consistent growth as we go forward. We expect that to continue. And our resolve, obviously, at some point, the growth rate on that will normalize.

Speaker 1

But again, that was really important to validate our thesis that we can take advantage of channel opportunities that fit with our menu offering and into our customer base. So we think, the adoption is sustainable. And then we have 2 drivers on the revenue side. It's important to note that both, I think, are working in parallel definitely over the last few quarters. So our sales team drives unit adoption into our customer base and then our market access managed care team drives coverage which shows up in our ASP and we're confident that we can continue to drive the menu, but growth within each test from both the unit and revenue perspective.

Speaker 1

So we feel like it's pretty balanced and we believe that's sustainable.

Speaker 3

That's great. Thanks for that. And then as you move throughout 2023, you showed some nice leverage on the P and L. From here, can you maybe just sort of talk about the levers that you have there? Is it mainly revenue growth at this point or is there any more room, I guess, in the cost side to also drive some further reductions in net adjusted EBITDA loss and burn here?

Speaker 3

Thanks.

Speaker 1

Thanks, Andrew. Yes, I think revenue growth obviously is key. Our gross margin has gotten to a point where it can drive the P and L below that line. And then I really think the strength of our business as we go forward is that, we feel very confident that we can hold our OpEx pretty straight away through our inside model period, but definitely through 2024 and beyond. We think we're very confident that our sales channel is right sized.

Speaker 1

So we have 70 total people in the field, 50 direct reps. And the way we're driving adoption in a sustainable way through our pathway allows for what I commented on, which is will drive rep productivity. It's the Stryker model that I'm familiar with. And so we think the leverage is really in holding our OpEx. We've driven it to the point through significant discipline on cost and headcount and operating discipline across our organization.

Speaker 1

So really when we look at our P and L revenue growth, the gross margin where it is and leverage in our OpEx where really the expansion there is largely based on scale, the volume into our lab and our RCM group.

Speaker 3

I'll leave it there. Thanks guys.

Speaker 1

Thanks, Andrew.

Operator

And your next question comes from the line of Thomas Brinken from KBC Securities. Your line is open.

Speaker 4

Hi, this is Thomas. Thanks for taking my question and congratulations on the nice margin improvement. Two questions from my side. The first one is with regards to the multiple high growth opportunities that you mentioned that are under evaluation. Can you give us a little bit more granularity there?

Speaker 4

Should we understand these more like in house type of R and D projects? Or are you really considering business development here?

Speaker 1

Thomas, as always, thank you for staying up late. And I likely cannot give you a whole lot of granularity there, but only to point to what we've done so far, right? So we run a growth strategy process here. We have for the last 2 years. To give you detail, we meet every other Thursday and we've always been focused a group of us on what's out there, right?

Speaker 1

What's important in the space that we need to focus on, pay attention to, make sure we don't miss anything and we were always looking outbound. I would tell you over the last 2 years in that process, it's really flipped to inbound as we've, I think become more obvious. I've commented, my view is we had to do 2 things with MDx Health. We had to de risk the business, which I think we are largely achieving. And we had to become more obvious and that's showing up in inbound opportunities based on how challenging it is in the market dynamics today to A, build a channel and B, have access to driving adoption of diagnostic, but we're going to be Resolve is a good model for that.

Speaker 1

That was really important. All of our diligence, which was very rigorous, as I noted, has played out in our ability to drive adoption, sustainable sticky adoption into our customer base without diluting our focus. Those are all part of the criteria that we look at with opportunities that are coming our way. And I think we have good examples as I noted with both in M and A, with the successful integration and driving growth into a product, and secondly, with the channel opportunity. So we'll take a balanced look at opportunities that make sense for us.

Speaker 1

There's a lot of room in our space in the urology and we're confident that the way I would characterize it, I think, Thomas, is that if you looked at our menu 18 months ago, it looks very different today. And if you made the assumption that it might look different in 18 months from now, I think that's a reasonable assumption.

Speaker 4

Okay. Thanks. And maybe as a second question, I wanted to zoom in a little bit more on the revenue guidance for 2024. And I noticed that the window is rather narrow, only but €2,000,000 variation. Could you comment on what drives this increased precision versus previous guidances from previous years?

Speaker 1

Yes. I got that question a number of times as we went through our process to put our guidance. And I think as we've it's been difficult over the last few years. I mean, the combination of the pandemic as well as launching additional tests into our menu per my previous comment. I feel like we now have history, right, which is informs how you predict and project your business more accurately.

Speaker 1

So we believe that that's indeed a tight band, but we're confident that we can meet or exceed the expectations that we've put out to the Street for 2024 for sure.

Speaker 4

Okay. Thank you.

Speaker 1

Thanks, Thomas.

Operator

Your next question comes from the line of Dan Brennan from TD Cowen. Your line is open.

Speaker 5

Hey, good afternoon, guys. This is Kyle on for Dan. Thanks for taking the questions. I just want to ask on the quarter, if there's any granularity you can provide on maybe the volume from confirm in selectresolve2, is there anything you can share there?

Speaker 1

Hey, Kyle. I'm not sure I understand the question. So we've seen as reflected in the revenue and the growth per test, we've seen consistent growth with each of those from a unit perspective. We have seen ASP accretion. That was the point I made as far as our revenue drivers are twofold, right, unit adoption and then our coverage, which shows up in our ASP.

Speaker 1

And so we've seen we're confident that we have seen that with each of our tests individually in the menu collectively. We don't put out a press release on every coverage positive coverage decision we get, but we have noted a couple of key ones in the past few quarters with United on GPS and Select with Cigna. So we're confident we can see consistent growth that's driving our guidance of mid teens. We believe that's very sustainable.

Speaker 5

Got it. And so on the volume side though in the Q4, was there anything you've disclosed there across the different tests?

Speaker 1

Just what we disclosed, Kyle.

Speaker 6

Got it.

Speaker 5

Okay. And just had one more on the adjusted EBITDA profitability in the first half of twenty twenty five. Can you just remind us of your confidence there? You reiterated that you'll get there in the first half of twenty twenty five, but if you found a target that was the right asset for the portfolio that might push this target out a bit, what are your thoughts on that?

Speaker 1

Well, if I understand your question, you're asking would an additional opportunity that we're not currently offering be the catalyst for that? My answer is no. Right, right. Okay. Yes, no, we're confident that we're not basing that on additional opportunities that will come in.

Speaker 1

So we're confident we can get there with our current menu very clearly.

Speaker 2

Got it. Thank you.

Speaker 1

Thanks, Kyle.

Operator

Your next question comes from the line of Jason Bednar from Piper Sandler. Your line is open.

Speaker 7

Hey, good afternoon, guys. I'll pack a few in here just to start. Look at the performance in the quarter, Resolve was the really the big upside driver in the quarter, at least for all the DART model. So really just a few questions here that come to mind. I mean, at first, how much more room for growth is there from this specific test?

Speaker 7

When do those trends start to normalize? And then, Mike, you kind of alluded to that maybe happening at some point in 2024, but any other clarity there would be helpful. And then second, given its size, it's probably becoming increasingly relevant from a margin standpoint. So can you remind us where margins on Resolve sit versus your other tests? And then just maybe to come back to one of the questions earlier, but as you think about commercializing other tests, you've obviously validated your ability to commercialize something with Resolve.

Speaker 7

Are you exclusively looking in urology, male urology? Is that where you're as you evaluate partnerships or M and A?

Speaker 1

Jason, thank you. Yes, so with Resolve, candidly that's exceeded. We set our expectation internally, but it's exceeded our expectations. And I think it's based on the diligence that we did. And one aspect of our diligence I should note is that we which may not be customary, but we really involve our sales team and our smart reps who have access and understand how our customers adopt.

Speaker 1

And so all of that, our thesis is held with that. Now the growth rate that we've had, clearly that will normalize. But what I would say is that that market to the second part of your question related to resolve is, of the 10,000,000 cases that present annually with UTI in the U. S, 20% of them present to urology. So we have room to grow.

Speaker 1

Yes, I would expect that to normalize as we go forward. The second part of your question was related to margin. All our margins are criteria, which I've noted on any sort of channel opportunity be it M and A or partnership license distribution. That's one of our key criteria, right, that it's accretive to our gross margin day 1, dollar 1. And that's proven to be true.

Speaker 1

So while we don't break out margin by product, I think the accretion in our gross margin has been material, but expected. We saw that coming. We knew how it would build based on the way we're building our menu and our expectations on cost control and pricing. So that's held and we expect that to continue to hold. And then as far as our growth opportunities, yes, urology is our focus.

Speaker 1

So we are a growth company focused in the urology. And I would just say without speaking specifically, there's a number of opportunities for growth that we see and per my previous comment on the process we run, which is quite disciplined. We have a dashboard of opportunities that we see as viable and that coupled with to your question from an R and D perspective or the previous question, our monitor project, we're very excited about the potential there. Now we're not guiding to that. We're not building that into any of our assumptions.

Speaker 1

But we think that that can really change the landscape for the patients in active surveillance.

Speaker 7

Okay. All right. Very helpful. Maybe if I can drill in on gross margins a bit, maybe it's related to my last question there. But pretty strong exit rate, putting up the 65% plus exiting 23%.

Speaker 7

Was that strength due to testing mix with RESOLVE being stronger? And then maybe talk about the sustainability of that gross margin performance as we think through modeling future years? Should we be anchored to the 65% or plus or minus that level here in 2024 and 2025?

Speaker 1

Yes, I think plus or minus is probably right. And you're right in each of your assumptions of your question, right? So mix on any given quarter, mix can move our margin a couple of points. But our goal, if we go back to a year ago, our goal was to target 65%, plus or minus. So as we look at the quarters coming up, I think anywhere in that range of 2 or 3 points below or 2 or 3 points above is reasonable based on mix.

Speaker 1

Ultimately, could our margin start with a 7? It could, but we're not guiding or projecting to that right now. So we think we're building and it's really important. The two things we control are coverage, which drives our ASP and cost, which we are very focused on. And so there's as we scale our business, we're continually looking at ways to drive cost benefit that would affect margin.

Speaker 1

But also as we look at opportunities, that last criteria I noted was it's critical. We won't we really won't look at anything that isn't accretive, even if initially not unlike resolve where it builds and we have visibility to how it lands on our targeted gross margin. That's the way we think about those things and we're confident that that margin is sustainable.

Speaker 7

Okay, great. And one last clarification question here. The $6,300,000 operating loss in the period, I just want to confirm that included one time costs from the SOL listing transition, correct? That really figure would have been a $4,600,000 operating loss if not for those one time costs. Do I have that right?

Speaker 2

That's correct, Jason.

Speaker 6

Okay. Thanks, Ron. Thanks, guys.

Speaker 2

Thank you.

Speaker 3

Jason, thank you.

Operator

And your next question comes from the line of Mark Massaro from BTIG. Your line is open.

Speaker 6

Hey guys, congrats on a great 2023. Yes, so obviously a lot of the questions have been asked, but okay. So if you're looking to either partner or acquire, I'd just be curious if you have a preference to either. And then Mike, you indicated that whatever you do would need to be accretive on day 1. So I have to assume that if you do look to bring in another clinical test, is it safe for us to assume that reimbursement would need to be in place already?

Speaker 1

That's a good assumption, Mark. We had a quite an odyssey as you know with the reimbursement landscape is challenging for everybody in the ClearLab diagnostics sector. So yes, that is indeed a key criteria for sure. And to the front part of your question, when we think about clearly the GPS acquisition was somewhat transformative for us, particularly at our stage when we made the acquisition. From an M and A perspective, Resolve is a good example of and that's why I comment on it was really important that we got that right.

Speaker 1

So now we have a model for that for what I would refer to. I obviously refer to more as channel growth opportunities that don't require the capital investment than an M and A or GPS. But any M and A would have to look like the GPS, right, where we bought immediate revenue and gross margin accretion to the business. But I think your assumption is correct that it would probably be more of the latter on our more near term growth opportunities that we're looking at.

Speaker 6

Okay, great. And then as we're thinking about tuning up our models, the 2024 revenue guidance is looking for 12% to 15% top line. Is it fair for us to assume mostly volume growth for the year? Are there certain tests that you might see some ASP expansion? I know Select is pretty not quite achieved maturity yet.

Speaker 6

So how should we just think about that volume versus price dynamic?

Speaker 1

Yes, I think you're right in your assumption. Volume drives the majority of our growth projection. We tend to lean on ASP as I don't want to say upside, but support for that growth. But we expect our sales team to drive the growth that you're referring to through straight adoption from our customer base. And their expectations individually and as a group read on that.

Speaker 6

Okay, great. And then if I'm looking at the numbers correctly, it looks like the OpEx came in at around $71,000,000 for the year. I believe that's a 25% growth year over year. How should we be thinking about OpEx in 2024? And then maybe just sort of reconciling, I think you were at a $10,000,000 use of cash, you've got $22,000,000 on the balance sheet.

Speaker 6

Just help me think about cash utilization in 2024?

Speaker 1

Yes. So Ron can comment on your OpEx number. I think that's a little high with what we reported. But to your question, we're confident that we can hold the OpEx here, as I noted, going forward. Sorry, Mike, the second part of your question was forgive me.

Speaker 6

Yes. The cash utilization for the year, I know that you've talked about getting to adjusted EBITDA profitability in the first half of twenty twenty five, but help us walk through that.

Speaker 1

Yes. So I think my comment there, Mark, would be, look, we want to be smart and prudent with our balance sheet. And I would just say that we have we believe we have optionality there to continue to fund the business and fund our growth as we go forward. And it's probably as specific as I'll get. I mean, we have access to additional debt and we're confident that we'll keep the company in a strong position here as we go forward to drive continued growth.

Speaker 6

All right. That's it for me. Thanks, guys.

Speaker 1

Mark, thank you.

Operator

Thank you. And we have reached the end of our Q and A session. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

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Key Takeaways

  • In Q4 2023, MDx Health delivered $19.4 million in revenue (up 50% YoY) and full-year revenue of $70.2 million (up 89% YoY), while gross margins improved to 65.3% in Q4 and 62.6% for the year.
  • The company’s multi-pronged growth strategy—test menu augmentation, cross-selling of complementary diagnostics and expanded payer coverage—has created multiple growth sources and aims for adjusted EBITDA profitability in H1 2025.
  • Over the past five years MDx Health achieved a compound annual revenue growth rate of over 50% (from $11 million in 2019 to a projected $79–$81 million in 2024) and raised gross margins from near zero to over 62% while maintaining operating discipline.
  • The successful GPS acquisition and Resolve integration exemplify the company’s rigorous M&A and partnership approach, targeting assets with existing reimbursement and day-one margin accretion in urology diagnostics.
  • Focused on commercial execution, the company leverages a 50-rep direct sales force and a dedicated market access team to drive unit adoption and ASP gains, underpinning guidance for mid-teens top-line growth and sustained ∼65% gross margins.
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Earnings Conference Call
MDxHealth Q4 2023
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