MDxHealth Q2 2024 Earnings Report

MDxHealth EPS Results

• Actual EPS: -$0.31
• Consensus EPS: -$0.26
• Beat/Miss: Missed by -$0.05
• One Year Ago EPS: N/A

MDxHealth Revenue Results

• Actual Revenue: $22.16 million
• Expected Revenue: $20.66 million
• Beat/Miss: Beat by +$1.50 million
• YoY Revenue Growth: N/A

MDxHealth Announcement Details

• Quarter: Q2 2024
• Date: 8/21/2024
• Time: N/A
• Conference Call Date: Wednesday, August 21, 2024
• Conference Call Time: 4:30PM ET

MDxHealth (NASDAQ:MDXH), headquartered in Mechelen, Belgium, with a U.S. presence in Newton, Massachusetts, is a molecular diagnostics company focused on improving the accuracy of cancer diagnosis and treatment decision making through epigenetic biomarker assays. The company specializes in developing and commercializing tests that detect DNA methylation changes associated with urological cancers, enabling more precise risk stratification and patient management.

MDxHealth’s lead product portfolio includes ConfirmMDx and SelectMDx. ConfirmMDx is an epigenetic assay performed on prostate biopsy tissue to identify men at risk of harboring occult high-grade prostate cancer following a negative biopsy result. SelectMDx is a non-invasive urine test designed to assess the likelihood of clinically significant prostate cancer before an initial biopsy, helping to reduce unnecessary procedures. Both tests are performed in MDxHealth’s CLIA-certified laboratory in the United States and its ISO-certified laboratory in Europe, and are used by urologists worldwide to guide biopsy and treatment decisions.

Founded in 2003, MDxHealth has established a global footprint, serving patients and healthcare providers across North America, Europe and select international markets through direct lab services and strategic partnerships. The company is led by President and CEO Caroline Palm, who brings extensive experience in molecular diagnostics and life sciences. MDxHealth is publicly traded on the Nasdaq under the ticker symbol MDXH.

MDxHealth Q2 2024 Earnings Call Transcript

Key Takeaways

• Second quarter revenue of $22.2 million (+32% YoY) on approximately 21,000 tests (+31% unit growth), driven by balanced commercial execution and market access initiatives raising average selling prices.
• Segment performance showed tissue-based tests CONFIRM and GPS growing 15% YoY with accelerating ASPs, while liquid-based tests Select and RESOLVE saw 35% unit growth; the newly launched hereditary germline test is set to contribute in H2.
• Integration of GPS test operations acquired from Exact Sciences is complete, with field sales unified mid-2023 and laboratory functions transitioned to MDx Health’s Irvine facility, fortifying the company’s comprehensive prostate cancer diagnostics menu.
• Financial metrics improved with Q2 gross profit up 33% to $13.3 million and gross margin at 60%, a 4% reduction in operating loss to $7.4 million, and cash balance of $21.3 million as of June 30, 2024.
• Raised full-year 2024 revenue guidance to $85 – 87 million (over 20% YoY growth), supported by Medicare coverage, NCCN guideline inclusion, and multiple sustainable growth drivers in the $5 billion U.S. urology diagnostics market.

Presentation

[Operator]

Welcome to the MDxHealth Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. A brief question-and-answer session will follow the formal presentation. As a reminder, this call is being recorded. Before we begin, I would like to remind everyone that we will make forward-looking statements during today's call. Whether in prepared remarks or during the Q&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 our filings with the Securities and Exchange Commission, specifically in the company's Annual Report on Form 20-F. I would now like to return the call over to Michael McGarrity, CEO. Thank you, Michael. You may begin.

[Michael McGarrity, CEO at MDxHealth]

Thanks, Paul, and thank you all for joining us for our second quarter 2024 earnings conference call for MDxHealth. With me today is Ron Kalfus, Chief Financial Officer. I am pleased to report that our business continued to generate strong financial performance in the second quarter and first half of 2024, with revenue growth of 32% and 34% respectively over 2023. Our results reflect our continued focus on commercial execution and operating discipline, which we believe will drive sustainable growth through 2024 and beyond. On our last call, I noted our strategy of creating multiple sources of growth. That proved to be the case again in Q2, and in a moment, I will provide greater detail on some of the key factors that helped drive our strong performance.

[Michael McGarrity, CEO at MDxHealth]

But first, a few brief highlights from our results that support our view that our growth trajectory is sustainable. We reported second quarter revenue of $22.2 million, an increase of 32% over prior year period. Of note, and as I've consistently stated, we have two levers of revenue growth. The first is with our sales team driving unit adoption from our urology customer base, and the second is our market access managed care team driving coverage, which shows up in our average selling price. In Q2, we clearly delivered on both levers, with total billable test volume of approximately 21,000 tests, representing total test unit growth of 31%.

[Michael McGarrity, CEO at MDxHealth]

These two important metrics clearly underscore the balance and sustainable execution of our commercial team and the growth opportunity that lies ahead for us as we expand our menu offering in a $5 billion total addressable U.S. market and build our market-leading position in precision urology diagnostics. Based on the expansion of our business and test menu, and in an effort to continue to provide good visibility to the market, we are now disclosing volume and growth rates for our menu by segment. Volume for our tissue-based test, consisting of Confirm and GPS, achieved 15% year-over-year growth in the second quarter, with ASP clearly continuing to accelerate. Our liquid-based tests, consisting of Select and Resolve, provided 35% unit growth in Q2 over last year, and we expect the recently introduced hereditary germline test to begin to contribute to growth in this segment of our menu.

[Michael McGarrity, CEO at MDxHealth]

For context and refresh on the value of our expanded menu driving our growth, I think appropriate to characterize the value of each test. ConfirmMDx is a tissue-based test performed after a negative biopsy, which is the only test that analyzes each core of the biopsy with our proprietary methylation technology and delivers a result with a 96% negative predictive value. Additionally, a positive ConfirmMDx test can identify patients harboring undetected, clinically significant prostate cancer, which regrettably biopsies miss up to 30% of the time. We are seeing increasing understanding of the importance of this test by our urology customers and by pathologists advocating for the value of ConfirmMDx after a negative biopsy.

[Michael McGarrity, CEO at MDxHealth]

Our GPS test is a highly advanced multiplex gene test from tissue following a positive initial biopsy, in which we interrogate the tumor for risk stratification, directing again, clinically actionable follow-up by urologists and providing informed decision-making for patients. It should be noted that the GPS test has twenty-year follow-up data for adverse pathology and prostate cancer-specific mortality and requires materially less tissue than any other test on the market, which is critical to our pathology stakeholders. To be clear, we are the only company that can provide an actionable diagnostic on the other side of initial biopsy, whether positive or negative. As an additional update, I've commented on the complexity of the integration of the GPS test post-acquisition as a carve-out from Exact Sciences.

[Michael McGarrity, CEO at MDxHealth]

We completed the integration on the field sales organization mid-year 2023, and importantly, we have now completed the laboratory operations transition from the Exact Redwood City lab to our MDxHealth lab here in Irvine. Credit to Exact as our partner and our laboratory and information technology groups for completing this complex transition. We are confident that our diligence and thesis of the value of this acquisition has been realized and will continue to show in our growth trajectory, cementing our offering as the most comprehensive diagnostic menu for the pathway of prostate cancer. On the liquid-based side, our SelectMDx test is utilized after elevated PSA and can deliver a 95% negative predictive value, essentially avoiding unnecessary biopsies and associated risks to patients.

[Michael McGarrity, CEO at MDxHealth]

Our ResolveMDx is a urine-based test for DNA of organisms that can lead to complex and recurrent infections, with the 10 million cases of UTI that present annually, 20% of whom present to urology. It is, again, a highly multiplex test of pathogens, and importantly, also provides a broad and comprehensive susceptibility profile to treating clinicians, effectively getting to the right drug for the right bug. We believe this additional transparency provides a more consistent and granular view of our growth across our business. In addition, Q2 of last year was the strongest quarter for the business, and we believe this quarter's unit and revenue growth over that comp reflects both customer understanding of our value proposition, as well as our sales team's execution.

[Michael McGarrity, CEO at MDxHealth]

Our core technology provides multiple drivers of growth with our menu covered by Medicare and our prostate cancer test included in the NCCN guidelines. So it is our expanded menu and execution that serve as the basis for our recently raised 2024 revenue guidance to $85-$87 million, from the initial $79-$81 million provided at the beginning of this year. This new guidance represents greater than 20% year-over-year top-line growth, which we view as a long-term sustainable goal. In a moment, I will provide some closing comments on the considerable progress we have made, as well as our view forward. But first, let me turn the call over to Ron for a brief review of our financial and operating results for Q2. Ron?

[Ron Kalfus, CFO at MDxHealth]

Thank you, Mike. To follow on Mike's remarks, we are very pleased to report strong performance in the second quarter of 2024. Revenues for the second quarter ended June 30, 2024, increased by a robust 32% to $22.2 million versus $16.7 million for the first quarter of 2023. All of this growth was organic and delivered without expansion of our sales organization, which is a testament to the leverage we are generating from our sales channel and reflects greater market penetration of our full line of tests into the $5 billion U.S. addressable market. Revenue from our tissue-based tests made up approximately 81% of our Q2 2024 revenue.

[Ron Kalfus, CFO at MDxHealth]

It should be noted that the recently introduced hereditary germline test did not contribute to our growth for the second quarter, and as stated previously, we expect it to begin to contribute to our revenues in the second half of the year. Moving below the revenue line, our gross profit for the second quarter of 2024 was $13.3 million, an increase of 33% as compared to $10 million for the second quarter of 2023. Gross margins were 60% for the second quarter of 2024, as compared to 59.7% for the second quarter of 2023.

[Ron Kalfus, CFO at MDxHealth]

Operating loss for the second quarter was $7.4 million, compared to $7.7 million for the second quarter of 2023, representing a reduction of 4%, driven by top-line growth, improved gross margins, and continued operating discipline. Cash and cash equivalents as of June 30, 2024, were $21.3 million. This concludes my brief overview of the results, and I will now turn the call back to Mike.

[Michael McGarrity, CEO at MDxHealth]

Thanks, Ron. Our top-line revenue growth of 32% in the second quarter speaks to multiple positive factors that are driving our business and positioning our company for long-term growth. These factors include the strength of our underlying precision diagnostics technology, the incomparable breadth of our menu offering, the extraordinary network of relationships that we have built with healthcare providers, recognized and expanded reimbursement for our tests, and of course, the significant opportunity for growth from the precision diagnostics end markets. Our menu has been custom-built to help fundamentally change how the confounding and complex diagnosis of prostate cancer, and be more effectively navigated for both clinician and patient. Each year, our technology is enabling a growing number of patients and their physicians to make better-informed and personalized treatment decisions.

[Michael McGarrity, CEO at MDxHealth]

What is clear is that the adoption of precision diagnostics is only accelerating, and we believe we are uncommonly positioned to take advantage of these long-term, sustainable trends in the high-growth urology market. I will again comment that our inside mission is that there is a patient and family on the other side of every sample we receive. With that in mind, we pass the friends and family test. That is, if you have a friend or family member being worked up for potential prostate cancer, you want them on our menu and pathway, front to back, full stop. And as always, we carry a great deal of responsibility to provide value to all of our stakeholders, including patients, customers, payers, and shareholders. So thank you for your interest in and support of MDxHealth, and now I'll turn the call back over to Paul for questions.

[Operator]

Thank you. We'll now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Thank you. Our first question is from Andrew Brackmann with William Blair. Please proceed with your question.

[Andrew Brackmann, Partner and Senior Equity Research Analyst at William Blair]

Hi, guys. Good afternoon. Thanks for taking the questions. Maybe to start here, you know, you're obviously seeing some nice pickups in volume on both sides of the business, on the tissue and the liquid side of things. But can you maybe just sort of talk about the drivers of this on the account level? What are you sort of seeing in terms of compliance towards the overall menu? And I guess, how do you sort of think about furthering that along in the back half of this year and into twenty-five? Thanks.

[Michael McGarrity, CEO at MDxHealth]

Well, thanks, Andrew. Yeah, you know, I think we feel two things. One, our urology customer base, you know, we've really advanced the pathway, right? It was previously in a number of years ago, it was a lot of docs trying tests and reps having to follow up. We've really driven compliance, to the term you use, to our pathway, where it really becomes a if this, then. And but probably a more material change I would note is our embracing our engagement with and network of pathology, right? Because what we are seeing and what's showing up in our numbers that we believe is sustainable is, I would say that our relationships, access, influence, and our pathology customers is becoming as strong as our urology.

[Michael McGarrity, CEO at MDxHealth]

And some of these pathology groups serve multiple urology group practices, so we're generating real leverage there. And I think the understanding by pathology of the value of Confirm, that it's not a missed read by the pathologist, right? It's the limitations of finite sampling of tissue from a biopsy, which, you know, samples less than 1% of the prostate.

[Michael McGarrity, CEO at MDxHealth]

And I think that understanding and engagement between urology and pathology has made all the difference, candidly. And we're really confident that both ways, both Confirm and GPS, and GPS, you know, I pointed to some of the features, but that tissue requirement is a big deal for pathologists, right? Preserving the limited tissue that they have from the biopsy is a very important characteristics of the GPS assay. So it all kind of holds together, and our sales team has got a strong...Building a strong hold, with both urology and pathology. When you have it coming from both ways, we're seeing that be a really compelling driver to why we see this growth rate continuing.

[Andrew Brackmann, Partner and Senior Equity Research Analyst at William Blair]

Perfect. And then maybe just on the pricing side of things, you obviously called out market access and your efforts there, but can you maybe just give us a little bit more color around how much room you think is left to move ASPs higher for the portfolio, be that from further market access and coverage decisions or even just improved revenue cycle management? Thanks.

[Michael McGarrity, CEO at MDxHealth]

Yeah, Andrew, it's both, right? So we-- And we've seen both, right? Our we have room, right? So our Medicare rates for Confirm and GPS, and then our ASP associated with broader commercial private payer coverage, as well as our revenue cycle management's ability to drive compliance to the contracts we have, even if they're out of network, has made a big difference. And we have a lot of room to go there with coverage. And in fact, you know, often we'll get a coverage decision, but not medical policy.

[Michael McGarrity, CEO at MDxHealth]

So there can be a two-step process to coverage by certain payers, and that shows up in the acceleration of the ASP, even by payer. So a contract payer, we may get a rate, and then when we get a policy, that rate becomes more favorable. So we believe we have room there, and we're seeing it across each of our tests. So when I speak to the value of the sales team, but also our managed care team, all the levers are working.

[Andrew Brackmann, Partner and Senior Equity Research Analyst at William Blair]

... Great. Thanks, guys.

[Michael McGarrity, CEO at MDxHealth]

Thanks, Andrew.

[Operator]

Thank you. Our next question is from Mark Massaro with BTIG. Please proceed with your question.

[Vivian Cervantes, Director and Equity Research Analyst at BTIG]

Hey, guys. This is Vivian on for Mark. Thanks for taking the question. So I guess the volume breakouts were just a little bit different than the buckets we had. Can you just give us any qualitative color on relative areas of strength in the quarter? I understand that resolve volumes in particular have been beating us for a while. So just curious if you had anything to call out there. Thanks.

[Michael McGarrity, CEO at MDxHealth]

Yeah, Vivian, so we've clearly moved from unit revenue by test for which we've discussed probably more for competitive market reasons. But we feel like this is a you know really good way to provide better visibility to our menu builds, and it's driven by a couple things. One is when you look at the pricing of the tissue-based versus the liquid-based test, it's materially different, right? So we think that gives you better visibility. As far as our unit growth rate, again, I would point to the comp of Q2 over Q2 last year. So we think these growth rates and acceleration of revenue are very, very sustainable across our menu. So from a tissue perspective, the Medicare rates for GPS and Confirm, and correspondingly, our ASPs are significantly higher than Select and Resolve.

[Michael McGarrity, CEO at MDxHealth]

So we are seeing continued growth across our menu, for the most part in Resolve, and we have a lot of room in each of those markets. So we're confident that this gives better visibility for comparison purposes as we go forward, in better detail on how the menu as we've expanded it, which I think is somewhat uncommon, contributes and builds up to our reported revenue and just as importantly, our view forward from a guidance perspective.

[Vivian Cervantes, Director and Equity Research Analyst at BTIG]

Okay, perfect. Understood. Thanks for the color and just to follow up, this one is a little bit nitpicky, but you know, it was a bigger quarter revenue-wise, but it didn't seem to drop down the gross margins as well as it has historically. I assume that would just be driven by the test mix, but just any other variables to call out on the gross margin? Thanks.

[Michael McGarrity, CEO at MDxHealth]

No other variables. It's strictly a timing mix, and it's a mix of not only as our menu again, as our menu is expanded, the mix becomes more, you know, more relevant as far as the quarter-by-quarter gross margin, but also the payer mix that comes across. So it's a permutation of expanded menu and payer mix by quarter, but no material change there.

[Vivian Cervantes, Director and Equity Research Analyst at BTIG]

Great. Thanks for taking the question.

[Michael McGarrity, CEO at MDxHealth]

Thanks, Vivian.

[Operator]

Thank you. Our next question is from Thomas Branken with KBC Securities. Please proceed with your question.

[Thomas Branken, Senior Equity Research Analyst at KBC Securities]

Hi, thanks for taking my question, and congrats on the nice growth rates again. Maybe two questions from my side. The first one is whether you could give us a bit more insight in exactly where you stand with the integration of that germline testing. What are the steps that are needed or that still need to be taken to reach that revenue contribution as of H2? And then secondly, I also wanted to pick back up on a comment that you made a couple of months ago with regards to potentially adding or looking at additional opportunities to expand the testing menu. Given the fact that the test has been added, what is now your current outlook into, let's say, the rest of the year and maybe next year with regards to evaluating additional opportunities? Thank you.

[Michael McGarrity, CEO at MDxHealth]

Thanks, Thomas. Yeah, as far as the germline, you know, we communicated, which is the way we take these new opportunities, where we engage in a limited launch, and that's really twofold. One, to confirm our diligence and to get some experience with our sales organization and a limited launch to be able to roll out. So we're in that phase now in Q3. We have received samples. We also like to get, as you know, Thomas, about a quarter of history of payer mix coverage and historical get some history of payments. Even with Medicare, we did the same thing with Select last year.

[Michael McGarrity, CEO at MDxHealth]

So we, again, feel like we'll begin to report revenue contribution in the second half of this year, and probably then be able to give you a better visibility as to how it contributes to our overall view forward. But, we like the fit for sure with our menu offering. And again, I would point to the fact that concept, not unlike Resolve, came to us from our customers, right? All the good ideas come from the people in the field, whether it be our reps or customers, and that's a good example of that. As far as the second part of your question, our growth opportunities, you know, I'm careful there, but we have them, right? So I'll provide the detail, right, as I've... I think I've commented before. I mean, we run a growth strategy process here.

[Michael McGarrity, CEO at MDxHealth]

We have over the last two years, and we're always looking out as to what's out there that we think is interesting. It's also, candidly, an unintended consequence exercise to make sure we don't miss something, both from our current menu offering competitively and where the direction of the market goes, but for new opportunities. The strength of our channel and our customer base, and our access and influence has flipped that from us always looking outbound to inbound. But we're very careful and focused in our diligence process for these opportunities. But if you made the assumption, I've communicated that we have a dashboard of opportunities that we evaluate.

[Michael McGarrity, CEO at MDxHealth]

But we have an even more rigorous process before we take anything to market or engage in any sort of partnership for distribution or strategic partnership. I'll make one more comment that I think you'd be okay with. But you know, you saw the recent addition to our board of Sandy Siegel. And you know, I would say that already having someone like that on our side, on our team, and supporting our marketing group, our relationship started with John Bellano and Ken Comey, and the credibility they built with our key opinion leaders.

[Michael McGarrity, CEO at MDxHealth]

And having not only an accomplished practitioner and clinician, but somebody who clearly can see beyond where the market used to be, where it is today, and where it's headed. So we like our setup there. And if you made the assumption that our menu will look different two years from now, as it does very different two years prior, where we had one test generating revenue, I think that's a reasonable assumption. Hopefully, that answered your question, Thomas.

[Thomas Branken, Senior Equity Research Analyst at KBC Securities]

Yes, very clear. Thank you very much, Mike. Much appreciated.

[Michael McGarrity, CEO at MDxHealth]

Thanks, Thomas.

[Operator]

Thank you. Our next question is from Jason Bednar with Piper Sandler. Please proceed with your question.

[Jason Bednar, Managing Director and Senior Research Analyst at Piper Sandler]

Hey, guys, can you hear me okay?

[Michael McGarrity, CEO at MDxHealth]

Yes, Jason.

[Jason Bednar, Managing Director and Senior Research Analyst at Piper Sandler]

All right, great, so I just wanted to ask two questions. I'll ask you both up front here, and sorry for any background noise, but just wanna ask on, you know, pace of volume activity during the quarter, just in how that informs your view of the second half of the year. Obviously, doing very well here in the first half, so just kind of wanted to see if there was any strengthening or weakening, or things were pretty stable across the quarter, and just remind us, if you could, of where we're at with respect to getting back to normal testing volumes across the industry.

[Jason Bednar, Managing Director and Senior Research Analyst at Piper Sandler]

And then the second question, separate question, just now that we've fully consolidated the GPS operations, are there efficiency benefits that we can expect to see in the second half of the year? Thank you.

[Michael McGarrity, CEO at MDxHealth]

Thanks, Jason. Yeah, and I'll comment on the second part first. So we modeled the GPS, obviously, Exact Sciences was running the test for us, so there were some economics associated with that. We believe that it's They solve for each other as we staffed our laboratory to go live with the GPS test. So we don't see any material favorable or unfavorable impact to the P&L. And as far as the view for the second half of the year, yeah, we view it as very sustainable. Q3 is always a little bit of a wild card. I'm usually a little cautious with how Q3 with even post-pandemic more, I guess I would say, seasonality with regard to patient flow, staffing, vacations.

[Michael McGarrity, CEO at MDxHealth]

But I would not expect any material downturn or change in our trajectory from a growth perspective, probably even with absent any material change in Q3 from a seasonality perspective. So that's the message we're delivering. I think it's reflected in our guidance and our view that, you know, I made the comment that internally we believe that we can drive 20% or greater revenue growth in a very, very sustainable way.

[Jason Bednar, Managing Director and Senior Research Analyst at Piper Sandler]

Yeah. Thank you.

[Michael McGarrity, CEO at MDxHealth]

Thanks, Jason.

[Operator]

Thank you. There are no further questions at this time. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Ron Kalfus, CFO
• Michael McGarrity, CEO

Analysts

• Andrew Brackmann, Partner and Senior Equity Research Analyst at William Blair
• Jason Bednar, Managing Director and Senior Research Analyst at Piper Sandler
• Vivian Cervantes, Director and Equity Research Analyst at BTIG
• Thomas Branken, Senior Equity Research Analyst at KBC Securities