Q2 2023 MDxHealth SA Earnings Call
[music].
Greetings and welcome to U M. D X helps 2023, Q2 and mid year earnings call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Before we begin I would like to remind everyone that we will make forward looking statements during todays 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.
It is now my pleasure to introduce Michael Mcgarrity, Chief Executive Officer. Thank you you may begin.
Thanks, Doug.
And thank you all for joining us for our 2023 Q2 and mid year earnings conference call for Mdx help.
With me today is Ryan <unk>, Chief Financial Officer.
Yes.
Following our strong first quarter results, our second quarter results further reflect our commitment to all stakeholders to delivering strong and sustainable growth.
Our results and commitment as always are rooted in a consistent and unwavering focus on operating discipline and commercial execution.
Our efforts to drive growth are reflected in our expanded menu that now consists of three test for prostate cancer.
At the three key decision points in the diagnostic pathway for urologist and patients.
All of which are now covered by Medicare and included in the NCC guidelines.
In addition, we are seeing increasing demand for our resolve mdx test for urinary tract infections, which was launched in 2022.
As we anticipated.
Resolve mdx is providing another source of consistent growth and expanding adoption based on its clinically actionable diagnostic results.
And the strength of our sales channel and to urology.
We believe our results also reflect a unique balance of menu and excellence in laboratory service.
As well as significant leverage in our P&L to take the company to operating profitability and value creation for again all of our stakeholders.
Evidence of our belief is based on the following.
Our Q2 2023 revenue grew by 143% over Q2 2022.
And when excluding the acquisition of GPS our revenue increased 29%.
We continue to execute on our integration of the GPS business, specifically, we have completed the restructuring and integration of our sales team and are confident that this acquisition will make a significant contribution to our revenue growth gross margin accretion.
Path to profitability.
Which is consistent with our original thesis on the test fit within our business.
Yeah.
Finally, our focus on operating discipline is evident in our anticipated progress and accelerated our gross margin.
From approximately 42% in Q2 last year to almost 60% in this quarter.
As I have noted.
We expect this trend in gross margin to continue and drive a corresponding linear decline and our cash burn as.
As reflected in our reported 48% or $8 million decline in total cash burn from second half 2022 to first half 2023.
With our operating fundamentals in place and our menu at sales team poised to deliver sustainable growth.
We now believe that we will turn adjusted EBITDA positive in the first half of 2025.
We are confident in our ability to execute on this view based on our topline growth.
Proving margins and breadth of our menu.
All of which have positioned mdx house as an uncommon company profile within the precision diagnostics space.
I will provide a further update on view forward for 2003, but first let me turn the call over to Ron for a review of our financial and operating results for Q2, Brian .
Thank you Mike.
As Mike mentioned, we're pleased to report our positive results for the first half of 2023.
Revenues for the first half and the June 30, 2023 increased by 142% to $31 $4 million versus $13 million for the first half of 2022.
Excluding G. P. S first half 'twenty three revenues increased by 34% versus last year.
Our first half revenues of $31 $4 million were comprised of $14 million from G. P. S T.
$12.4 million from confirm $3 7 million from resolved with the remaining revenues from select into other.
In the second quarter, our revenues were $16 $7 million, representing an increase of 143% over second quarter 'twenty two.
Excluding G P S.
Q2, 'twenty three revenues increased 29% over Q2 2022.
Second quarter 23 revenues of $16 $7 million were comprised of $7 $8 million from G. P. S. It.
$6 $7 million from confirm.
1.6 billion from resolved with the remaining revenues from select into other.
Moving below the revenue line, our gross profit for the first half of 2023 was $18 $7 million as compared to $5 8 million for the first half of 2022.
Our gross margins were 59, 5% for the first half of 'twenty three as compared to 44, 4%, but at the same period last year, representing a gross margin improvement of 510 basis points, primarily related to our product mix and the addition of GPS to our product menu.
Operating loss for the first half of 2023 was $16 $5 million a decrease of 3% over the same period last year helped.
Helped by our increased revenues and improved gross margin.
Net loss for the first half of 2023 of $22 $3 million increased by $4 2 million versus $18 1 million for the prior period.
Similarly from a from an increase in financial expenses of which $3 $9 million was a noncash fair value adjustment to the G. P. S contingent consideration.
And the remainder was primarily related to an increase in interest expense from our debt facility.
Cash and cash equivalents as of June 30, 'twenty, 'twenty, three with $39 $5 million.
Our total cash burn for the first half of 2023 was $16 $5 million down 48% sequentially from $24 $5 million in the second half of 2022.
We expect continued declines in operating burn in the second half of this year.
This concludes my brief overview of the results and I will now turn the call back to Mike.
Thanks, Brian .
Since joining mdx called four years ago I have consistently maintained that our primary strategic objective is to create a world class precision diagnostics company capable of delivering strong sustainable growth with a clear path to profitability.
With this objective in mind I would like to note three particular examples of our progress and commitment to meet our stated objective.
First.
We believe that Mdx health will reach and report positive adjusted EBITDA in the first half of 2025.
By driving strong top line growth and continued operating discipline.
We have in place the most comprehensive menu of personal diagnostic solutions in prostate cancer.
Favorable reimbursement for our tests.
And our sales and marketing team to drive growth.
And expanded payer coverage.
These dynamics, along with our linear acceleration of gross margin and <unk>.
Corresponding reduction in cash burn serve as the basis for our outlook.
Second we strive to be a growth company focused into urology.
There are multiple factors that are driving this growth, including our increasing scale through our comprehensive menu and commercial execution.
Our customer support to drive the customer experience in our end markets.
And the potential upside from successfully identifying outbound and inbound growth opportunities.
Pilot pipeline.
I'd also like to note, our access to and relationships with a very strong key opinion leader network.
Which plays a critical role to help drive awareness and quality of the Mdx health brand.
Based on these factors, we believe Mdx health is fast becoming the company to partner with for our target customer base.
And finally as detailed in our release, we have reached an agreement with exact sciences to amend our GPS purchase agreement with regard to the earn out.
By deferring the commencement of the three year earn out payment.
Payment period by one year.
As a result, the first earn out payment will not be made until 2025.
With the final earn out payment due in 2027.
We believe this amended agreement reflects exact sciences belief in our business trajectory and commitment to sustainable growth.
We also view each of the specific terms of the agreement noted in our release and filings provide a clear straightforward path to and plan for value creation, driven by disciplined focus and execution.
We have valued our relationship and partnership with exact sciences from the day of closing through integration and laboratory service, which will transfer to Mdx health in 2024.
We believe this agreement reflects all of the fundamental assumptions associated with the two way diligence process acquisition structure and mutual cooperation and support between exact sciences and MTX health.
In summary.
Well the last four years have been complicated by the pandemic, we have navigated and persevere through this difficult period with an unwavering commitment to achieve our primary strategic objective.
Looking forward, our focus on execution and growth will continue to drive progress across all of our operating disciplines.
And we will indeed serve as the basis for our belief that <unk> is fulfilling its mission.
From a leading high growth precision diagnostics company with a clear path to profitability.
By successfully executing on this strategy. We also expect to attract a growing number of prospective investors and partners, who will increasingly recognize mdx house leadership position.
And the significant growth opportunities that lie ahead for our company.
To reiterate.
We have built a culture driven by these principles of execution and growth modeled after my experience with the strike a growth culture and dedication to three simple and straightforward driving principles.
First.
Patients and quality first.
Second.
Customers always and.
And third take care of the sales force.
Their frontline and our reputation for excellence that we are building and they are supported by every operating function within the business.
So as we look forward <unk> is committed to driving sustainable growth, which will serve as the foundation for value creation for all of our stakeholders, including patients customers and shareholders.
<unk>.
Thank you for your interest in and support of Mdx Health and now I'll turn the call back to Doug for questions.
Thank you, ladies and gentlemen at this time it will be conducting a question and answer session.
You'd like to ask your question you May press Star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star Kate.
Our first question comes from the line of Mark Massaro with B T. I G. Please proceed with your question.
Okay.
On for Mike Thanks for taking the question.
And you briefly touched on the on boarding of exact skills.
I believe our commercial team now stands at around 70 all in.
And how should we think about progress made on the call.
And should we think about these maps I haven't reached full chronic.
Yeah.
Yeah, Vivien. So we have 70 total people in the field of which approximately 50 for our direct reps.
And as you know a number of them did come over with the G. P. S acquisition, Yeah. We're confident at this point as we make the turn at the midyear, which was our anticipated and stated goal that we have the team cross trained we've restructured all the territories incentive comp and yes, they're there.
Production mode, and we believe that the leverage we have of our menu will become evident as we go forward and actually in Q1 and Q2, we saw the early signs of that so yes, we're very confident we have the right team the right people the right culture and the right strategy to continue to drive growth.
Yeah.
Okay perfect.
Hum coverage with Cigna.
Remind us how many covered lives.
And then I think I found your press release that the coverage for select.
Okay.
For and as far as comp confirm and GPS coverage.
Should we think about.
Yeah.
So I'm I'm I don't want to make sure I understand your question. So cigna covered lives of approximately $15 million.
Your your could you repeat the second part of your question I didn't pick that up.
Yeah.
The press release.
Cigna coverage for select should go lives.
Why this year, but where it does.
Yes. They are there they are currently already covered by Cigna okay.
Okay got it.
Okay, perfect and then.
I can just squeeze in one last one.
But I do know that it appears to be a little bit back half weighted.
I think you previously mentioned you lost that it excludes the United win.
So maybe just could you refresh us on some of the drivers in the back half.
That year.
Come on line.
Very strong in these last two points.
Yeah Baby and we like our trend on the revenue and we're reaffirming our guidance of $65 million to $70 million. So that's clear then that will include a pick up here as we go forward, we're not attributing any of that.
To the United coverage, we didn't anticipate the United coverage at the beginning of the year and so we view that in coverage in and of itself doesn't drive adoption Robin necessarily that would more likely show up in our E. S. P.
So we think we're driving all the topline aspects and are confident again in that guidance of $65 million to $70 million.
Okay awesome, thanks for taking the question.
Thanks, David.
Our next question comes from the line of Dan Brennan with Cowen. Please proceed with your question.
Great. Thanks for thanks for taking the question guys congrats on the quarter maybe.
Maybe just on the first one on the guide for 25 for the adjusted EBITDA positivity in the first half just.
What do we think about the levers to get there from both a gross margin basis on an opex basis.
Yeah Dan.
We think opex as I've commented I think we can hold opex pretty straight away right. We like the size of our obviously the majority of that spend is driven by commercial execution. We like the size of our sales force. We think it's our field sales organization I should say and we think it's right sized to take us through the next.
A few years of growth definitely through that period of 2025.
And the rest of our Opex is really paced really strictly by scale. So just volume into our laboratory as we grow the business. So we're we're we're confident that our opex does not need to our sales team doesn't need to double our opex doesn't need to materially accelerate and that's.
Part of the leverage we have in the P&L and then the second part of your question as far as the gross margin you know we've stated our goal.
And the very clear we have clear visibility to you know 100 million dollar business at a 65% gross margin and unprofitable and we're we're we're continuing to believe that and putting a timeline around that.
Okay.
On the exact agreement. So obviously you get yourself another year.
The earn out now went up by around $12 million, if I read it correctly quickly and you kind of issue.
I'm a little talk on those warrants just kind of how did you think about the costs from the additional earn out versus buying yourself, an additional year, just kind of walk through the mechanics of kind of how the agreement works for Mdx.
Yeah, Dan So we think I won't speak for exact sciences, but we're confident and we believe it's very favorable to where they are our partners. That's clear I think and we think that we both came away with.
With an agreement that we think is good for the business in and for all the stakeholders. So moving the earn out period.
Back a year, obviously is very helpful for us right as we as we drive revenue.
Gross margin in terms of operating profitable you know our expectation based on what our comments today. Our view forward is that that will all happen prior to the initial pay them out payment in 2025 of an accent acquisition completed in 2022, and we think the combination.
One of the considerations from our view is a reasonable from a from the total earn out increasing to a cap of 82 and a half and then a belief that there you know.
I believe that that the equity component of it hopefully speaks for itself.
Got it and then.
On the full year guide Great you know reiteration on the topline just I don't think there's an explicit guide to the burn off.
You have the long term kind of outlook, but can you just walk us through a little bit how we should think about the burn progression in the back half of the year.
Yeah, Dan So we expect as you saw we're very we think what we saw in the back half of 2022 in the first half of 2023 is.
Pretty much what we expected and communicated that we expected to see we will expect that burn to continue to decline.
Obviously, driven by the revenue growth and in the gross margin acceleration.
So we expect we're not guiding to cash burn.
But if you if you put together our view that that continues to decline and we flipped positive in AR at the beginning of 2025, I think that that would.
Suggest and we believe that we can continue to drive our cash use down by quarter as we go forward.
Got it and then maybe final one just.
The components of the revenue contribution for the year I don't think he give explicit guidance, but just any way to think about like G. P. S is a little better than our than when we were looking for this quarter.
I always get a little bit light like any any color how do we think about the back half of year byproduct implicit within your revenue guidance. Thank you.
Yeah.
Thanks, Dan Yeah, you know our our expectation from our sales team is that they're driving growth in each product of our offering obviously confirm in select we saw good sequential growth in G. P. S. In Q2.
And resolve we're very confident that the growth trends there well, we'll continue so that's our expectation of a sales team that's what they've delivered in Q1 and Q2.
Obviously, we expect some seasonality in Q3, but each of those menu items.
We expect to drive growth and take us to that $65 million to $70 million in revenue confidently in 2023.
Great. Thanks, Mike Thank you.
Thank you.
Our next question comes from the line of Andrew Bruckner with William Blair. Please proceed with your question.
Hey, guys, good afternoon, and great update here.
Maybe just kind of confirm and GPS can you maybe just peel back the onion, there a little bit around the drivers anything you can maybe tell us around sort of same account sales are sort of deeper utilization within your current accounts versus sort of the new account win now that you're having that broader portfolio. Thanks.
Yeah Andrew.
That's exactly what we're focused on when you think about our sales organization. So the real.
A lot of the rationale and the strategic rationale for the G. P. S was that we had confirm on the other side of initial biopsy for negative initial biopsies by bringing the G. P. S. N. We now stand as the only company that can be positioned post initial biopsy and offer a.
Clinically actionable diagnostic for both positive and negative initial biopsy, we took all of our new reps from exact sciences. They were obviously very had a lot of experience in G. P. S. R. MTX health reps had a lot of experience and confirm so the task was to cross train and drive leverage of that.
That combination and we think that Q1 and Q2 showed initial progress there we would expect that to continue and kind of your embedded question that is right also that you know, we'll probably get a couple more quarters.
And then begin to speak to.
Specifics around multiple tests utilization within our customer base, but everything we've seen Oh, it's I would say validates our diligence and our thesis on how this would fit with our menu and we're really confident in our our sales team is hopefully is evident.
And we expect them to continue to deliver growth with each product line or with each menu offering.
That's great and then maybe just on the competitive frontier, specifically around sort of the GPS Uh huh.
Anything that you can maybe tell us around sort of changing dynamics with that competitive dynamic competitive environment. It seems like most of the players here are are experiencing a pretty solid backdrop, but anything you might be able to tell.
Yeah. So we have a clear view of the competitive landscape with the G. P. S. So we have two main competitors. Obviously I'll go ahead and name them decide for a myriad of.
What we feel are GPS test is very strong and we think best in class positioned for the majority of the patients which are not high grade post radical prostatectomy patient population. So I think the evidence we can point to as the United coverage decision, which are kind of unclear.
Commonly called out the G. P S test.
To be cupboard, and actually named the other two tests not covered so we're really confident in the strength of our value proposition, where the majority of patients.
Come out after initial work up and biopsy and Theres a lot of data out there and that higher risk radical prostatectomy category.
We're focused on them and the majority of the business. We also believe that we've got.
Studies and data coming that they can continue to advance our position.
As far as the.
The levels up.
A validation, but we like our position in the market and we're confident that getting started here with the first couple of quarters show our ability to grow within that competitive construct.
Okay I'll leave it there thanks guys.
Thanks, Andrew.
Yeah.
Our next question comes from the line of Jason Bednar with Piper Sandler. Please proceed with your question.
Hey, Thanks, Congrats on a nice quarter here, Mike and Ron.
Wanted to start and really pick up on some of the questions that were already asked but maybe to the drilling deeper and confirm mdx the volumes and volume growth were really strong definitely better than what we were thinking a.
Was there anything unique in the quarter, we should be thinking about as we look to model out in the second half of the year. Mike I think you mentioned, maybe taking into account some seasonality I don't know if that's confirmed comment or across the menu that you're referencing I think it's probably across the menu, but then.
And then the other piece there too we think we have.
<unk> theory that Doc visits and proactive screening is finally, starting to take a turn for the better.
Yeah.
Yeah, Jason to the first part of your question nothing specific to confirm are you know other than what I. What I commented on is that there's real value in having a the G. P. S. I don't like to refer to them as G. P. S. In mdx reps, but the previous G. P. S reps came over with.
Yes.
<unk> and our relationships and access and adoption.
From that test into their customer base and we had the same on the confirm side. So if we're able to execute on my previous comment of driving the leverage of those two tests.
We're confident that they'll both continue to grow confirmed obviously looked good in the second quarter I comment on Q3 is somewhat.
Just just based on experience and I think it's not unique to us that you're always just want to see how Q3 goes and if it can be driven by seasonality.
Seasonality and what we're seeing to your the second part of your question as far as patient flow.
You know you will.
A reminder, during the pandemic peer PSA screenings were estimated to be down 55 zero percent.
So that patient that patient population or excess capacity has to come back through the system and.
And it's coming back through to a fixed.
Capacity, which was which has declined based on staffing shortages through the pandemic. So we see those coming back everything you know.
Reversing, but it's not going to happen over a quarter or two which we don't necessarily view is negative.
So if we if we I've commented I think that we would expect that to occur over a number of quarters.
We still think that expectation is reasonable.
In Q3, just a little bit of pent up vacation to ban this is just anecdotal.
But we're confident that it won't it won't be anything material that we don't expect in the second half of the year clearly we're confident in our to get within our guidance.
Excellent thanks for that and then.
And maybe one other follow up on the adjusted EBITDA commentary being positive in the first half of 2025, it's great to have that line in the sand out there.
Wondering if you could give us a sense of your view on capital needs between now and Danny.
Just calibrate cash assumptions over the next 18 to 24 months.
Yeah. So I think our balance sheet is in good position right. We are finished.
With over 39 million, and obviously, where we're counting on and have visibility to what would that cash burn continuing to decline.
Hold with the gross margin acceleration and then our revenue growth. So we're we're confident in that view is based in our view that all three of those will continue to drive our sales team will execute on topline growth.
Yep.
Remember that we came into 2022 with one test generating revenue.
We came out of 2022 with four tests generating revenue in all covered by Medicare That's a lot of the growth leverage that we have and it runs right through the gross margin. So the gross margin accretion is based on.
Coverage for coming over select for Medicare confirm which carried a strong margin G. P S coming over which was accretive to our gross margin and our resolve tests. So all of those are pushing.
The mechanics of our of our view of of EBIT positive and are a part of the execution to get there.
Okay, I guess, maybe just to.
To follow up when they need it.
It sounds like you have a any plans or needs to secure additional capital between.
Between now and first half of 'twenty five or are you just kind of leading that kind of business.
As an opening question for now and we can revisit that down the road.
How about both.
Got it no.
We feel confident is.
Is that fair, we feel confident in our balance sheet and its ability to take us through that.
Period, and candidly to refer back to Dan's question. This was a lot of the basis for and the rationale for pushing out the.
The sequence of the of the earn out period. So we think it all we believe its coming together to really support the business from a from a top line from a P&L and from a balance sheet perspective.
Got it very helpful. Thanks, so much.
Thanks, Jason.
Our next question comes from the line of Tom and its franking with KBC Securities. Please proceed with your question.
Hi, Thanks for taking my question and congratulations on the solid commercial results two questions from my side. So first wanted to dig in a little further or build a bit further on that.
The renegotiation of the earn out payments with exact because there was also a loan that the athletes interfaces to to findings that I. Just wanted to know your current thinking on that given the fact that I believe that's one less start to mature in 2027 as well.
Thomas Thanks for.
Mining we are so the the exact earn out and the antibodies that facility you're connecting them. Because obviously, we had access to an additional $35 million. So theyre in Nevada facility of $70 million. We drew 35 with the acquisition of a G. P. S. Just through just to remind <unk>.
$5 million of that went to the upfront cash payment. The other five of the $30 million payment was taken in shares of Mdx House by exact Sciences, and then the $10 million was to pay off a previous loan. We had so that was the 35 taken down. So there is 35 remaining.
We believe that gave us optionality.
As we were putting it together.
The acquisition, we we believe our balance sheet is in a strong position now strengthened by this amendment to the purchase agreement.
And as far as the the principal period of the Oh.
Of the loan that you have a debt facility that you referred to in 2027.
Well as we get closer to that.
Let's say we were confident that we have optionality there as well if you think about you know the potential restructure.
So we like our path forward and we think it's pretty clear.
Yeah.
Okay. Thank you, perhaps don't seem to get a little deeper into the select us. So I know that this one has obtained Medicare coverage ratio swell. It just wanted to get your view on where you stand.
With regards to private insurance coverage, how do you look at that today in what is a bit your outlook for the coming months and quarters here.
Yeah, Thomas we expect select a to your question to follow the same kind of.
Profile that our other tests have right, which is.
Our commercial private payer coverage, we have for select actually you've seen that over the last few quarters, we've had revenue and that's actually been accelerating with select with non Medicare commercial adoption R.
R R.
Our coverage team is clearly delivering on their mandate to drive coverage across our menu, which is as I noted, we see that likely being reflected in ASP accretion.
But Medicare is the catalyst right, so Medicare whether regardless of the test is usually and.
Traditionally the driver for commercial payer coverage, we expect select to follow that same profile. So as we go forward over the next few quarters.
We expect to see continued coverage and with select in particular for commercial payers to follow.
Yeah.
Okay. Thank you.
Thanks Thomas.
Our next question comes from the line of French Walbridge boards with Oppenheimer. Please proceed with your question.
Hi, just a few here on my end can you just maybe.
Talk about the the change and it broke up a little bit on my in the prepared remarks, but maybe the changes from expectations. They kind of led to this.
The delay in and.
Payout on the agreement there with exact and then just secondly can you just discuss a little bit about seasonality in your business and you know what to what are the main drivers of seasonality in the third quarter here. Thank you.
Yeah. So I'll take the second part first I mean, I'm not calling out anything specific to us with regard to seasonality I just think in the.
In the in the diagnostic space Q3 can see some seasonality, we're not projecting anything out of the ordinary as far as the basis for the amendment to the exact agreement I think it was really.
You know unfortunately.
We do view them as a partner and they've they've conducted themselves as we we believe we have a partnership.
And that's been evident and so this was part of that partnership I think that we viewed this as a favorable amendment for Mdx health based on our our path forward and.
We are confident that that's that's the outcome and the unproductive of this amendment.
Thank you.
Thank you.
There are no further questions in the queue I'd like to hand, the call back to Mr. Mcgarrity for closing remarks.
No additional remarks, Doug. Thank you very much and thanks to all of you for joining in for the questions. We really appreciate it and we'll look forward to a follow up.
Everybody have a good evening.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Yeah.