Q3 2024 MDxHealth SA Earnings Call
Good day and welcome to MDX Health 3rd quarter 2024 earnings call. Our participants' vence will be in the Sonami mode.
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Speaker Change: Before we begin, I would like to remind everyone that the company will make four of the heat statements during today's call. Whether in prepare remarks or during the Q&A session, these four of the heat statements are subject to inherent risk-thens or in-days.
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 20-F.
Speaker Change: I now would like to turn the conference over to Michael McGarrity, Chief Executive Officer. Please go ahead.
Michael McGarrity: Thanks Keith and thank you all for joining us for our third quarter 2024 earnings conference call for MDXHealth.
Michael McGarrity: With me today is Ron Kalfus, Chief Financial Officer.
Or when adjusted for select revenue backlog in the third quarter of last year following our Medicare coverage
Speaker Change: an effective year-over-year revenue growth rate of 27%.
Speaker Change: Based on consistent commercial execution and operating discipline, we believe that our growing leadership position in Urology Precision Diagnostics will position us to generate strong and sustainable revenue growth of at least 20%.
Speaker Change: And we are confident we will meet or exceed that growth rate for the full year 2025.
Speaker Change: Before I hand it over to Ron for a review of our financial and operating results, a few comments on our focus and execution.
We reported third quarter revenue of $23.3 million, an increase of 21% over the prior year period.
Speaker Change: Once again, we are seeing consistently strong performance across our two main levers of revenue growth.
Speaker Change: with our sales team driving unit adoption and our market access team continuing to drive coverage which shows up in our ASP.
Speaker Change: Both levers are working.
for a sales team execution.
For the quarter, our total billable volume was 22,795 tests.
Speaker Change: representing total unit growth of 30%.
Speaker Change: Test volumes for our tissue-based tests, which include Confirm MDX and GPS, came in over 10,000 for the quarter, an increase of 36% over the prior year period.
Speaker Change: For a liquid-based test, which includes Select MDX, Resolve MDX, and Germline,
Speaker Change: Test volumes exceeded 12,000 tests.
Speaker Change: an increase of 24% over the prior year period.
Speaker Change: We are confident that our growth will continue to accelerate in a sustainable way.
Speaker Change: supported by strong institutional investor demand.
Speaker Change: including the proceeds from the subsequent over allotment, our performant end-of-quarter cash stands at $53.5 million.
Speaker Change: Importantly, this meaningful increase to our cash position provides us with one way to meet all of our future obligations as we anticipate reaching adjusted EBITDA positivity in the first half of next year.
Speaker Change: The added capital resources will also allow our company to remain entirely focused on execution and growth.
Speaker Change: As I mentioned earlier, we have an extraordinary opportunity ahead of us as a leader in persistent diagnostics focused on the high-growth urology market.
Speaker Change: In completing this financing, we'll ensure that we can remain 100% focused on driving shareholder value as we execute and provide value to our patients and stakeholders.
Speaker Change: Our focus on execution is the key to our continued success.
Speaker Change: The quality and strength of our commercial team, which is comprised of highly experienced molecular diagnostic sales reps and strategic account managers
Speaker Change: with support from our medical science liaisons.
Speaker Change: is providing greater access to our test and increased adoption amongst key opinion leaders and larger algebra practices.
Speaker Change: and that that focus will drive continued execution rooted in our clinical value for both clinicians and patients.
Speaker Change: based on the following dynamics.
Speaker Change: It is becoming more obvious to both urologists and pathologists that drawing additional molecular details from a prostate biopsy is critical to informing patient follow-up and intervention.
Speaker Change: The typical prostate biopsy samples less than 1% of the prostate.
Speaker Change: making it essential for urology and
Speaker Change: A negative initial biopsy is prone to 30% false negative rates, not due to inaccurate read by pathology, but due to the finite sampling of tissue.
Speaker Change: Our confirmed test with its unique methylation features provides clear actionable follow-up with a 96% negative predictive value.
Speaker Change: potentially obviating the need for repeat biopsy or in some cases detecting potentially aggressive cancer missed by the biopsy.
Speaker Change: Pathologists' understanding of this has led to increased sustainable adoption, driven by simply connecting these two stakeholders on the confident disposition of patient intervention.
Speaker Change: A positive biopsy requires risk stratification of that patient for innervation or potential active surveillance.
Speaker Change: for the majority of patients with low or intermediate risk.
Speaker Change: The GPS test is the only test that has 20-year follow-up data for both adverse pathology and prostate-specific mortality.
Speaker Change: In addition, it requires the least amount of tissue, five times lower than competing tests.
Speaker Change: which is quite compelling as pathologists appropriately are focused on tissue preservation of the limited sample derived from biopsy.
Speaker Change: Our strategic emphasis on addressing this challenge now has urologists and pathologists working in concert.
Speaker Change: to provide the optimal post-biopsy patient pathway.
Speaker Change: As we are the only company that stands on the other side of initial biopsy with a clinically actionable result, whether positive or negative.
Speaker Change: It should also not be lost that we are convinced that our pathway is best for patients, navigating the confounding aspects of intervention and or surveillance.
Speaker Change: providing clear and clinically actionable information.
Speaker Change: both treating physicians as well as patients.
Speaker Change: Avoiding unnecessary interventions while also accelerating treatment when appropriate.
Speaker Change: Based on these dynamics, we are once again raising our 2024 Revenue Guidance from $85 to $87 million to now $87 to $89 million.
Speaker Change: This marks the third consecutive quarter in which we have raised our 2024 revenue guidance.
Speaker Change: which reflects the confidence in the diagnostic value of our comprehensive menu in neurology and the increasing utilization from healthcare providers.
Speaker Change: This new guidance represents greater than 25% year-over-year top-line growth.
Michael McGarrity: I will follow up with closing comments and view forward, but first let me turn the call over to Ron for a review of our financial and operating results for Q3.
Speaker Change: Bye.
Speaker Change: Similar to the five-footer, all of this growth was organic and delivered without expansion of our sales organization.
Speaker Change: which reflects the leverage we continue to generate from our sales channel and the greater market penetration of our full line of tests into the five billion dollar US addressable market.
Speaker Change: Moving below the revenue line, our gross profit for the third quarter of 2024 was $14.3 million, an increase of 14% as compared to $12.6 million for the third quarter of 2023.
Speaker Change: Gross margins were 61.2% for Q3-24 as compared to 64.9% for Q3-23.
Speaker Change: The declining gross margins is primarily due to the backlog of select Medicare cases that were recognized in the third quarter of last year
Speaker Change: Operating loss for the third quarter was $6.1 million.
Speaker Change: compared to 4.6 million dollars for the third quarter of 2023.
Speaker Change: driven by timing of clinical study expenses, GPS laboratory transition, backlog of select revenue of approximately 1 million dollars in Q3 of last year, as well as sales incentive compensation associated with the unit and revenue growth.
Speaker Change: Cash and cash equivalents as of September 30, 2024, were $49.3 million, which, as Mike noted, includes approximately $37.8 million in net proceeds from the recently announced equity financing.
Speaker Change: In addition, on October 28, the underwriters of our September offering exercised their over-allotment option to purchase an additional 2.2 million shares, providing MDX Health with an additional $4.2 million in net proceeds.
Speaker Change: This brings Proforma's September 30, 2024 cash balance to $53.5 million.
Speaker Change: This concludes my overview of the results and I will turn the call back to Mike.
Michael McGarrity: Thanks, Ron.
Mike: MDX Health represents a unique and, in my view, underappreciated value for our patients and customers.
Speaker Change: and ultimately shareholders seeking high growth opportunities within the medtech sector.
Speaker Change: We are a company generating robust and sustainable top-line growth well above our sector's growth rate and our objective is to generate at least 20% year-over-year growth over the next several years.
Speaker Change: Our sales team has clearly demonstrated their ability to drive productivity, as we have generated consistently greater than 20% growth without expansion.
Speaker Change: which can only happen when our customers adopt our diagnostic if-then pathway.
Speaker Change: We possess the single most comprehensive and advanced menu of precision diagnostics for prostate cancer, and we also enjoy excellent reimbursement coverage for our products.
Speaker Change: We focus on product opportunities in the high-growth urology market, where a growing number of physicians are utilizing molecular-based diagnostics to assess and stratify a patient's individual risk for prostate cancer.
Speaker Change: And when coupled with the aging population, the rate of prostate cancer is expected to rise 5% annually on a compound rate going forward.
Speaker Change: And while we do not celebrate this, we are confident that each and every one of these patients
Speaker Change: is best served when placed on our pathway of precision diagnostics.
Speaker Change: And to be clear, the changes we are observing in neurology diagnostics are not pleasing trends, but rather sustainable, science-driven shifts in medical practice.
Speaker Change: which are being driven by a more advanced understanding of prostate cancer.
Speaker Change: leading to improved treatment options for cancer patients earlier in their journey.
Speaker Change: Considering all these factors, we believe our long-term revenue growth objectives of at least 20% per year reflect these positive dynamics.
Speaker Change: by just two priorities in turn.
Speaker Change: focus and execution.
Speaker Change: Every employee of MDX Health operates under the belief and understanding that there is a patient and family on the other side of every sample we receive.
Speaker Change: We know that if we serve that mission, our growth and operating performance will follow.
Speaker Change: And as always, we carry a great deal of responsibility to provide value to all of our stakeholders, including patients, customers, payers, and shareholders.
Speaker Change: Thank you for your interest in and support of MDX Health. And now I'll turn the call back over to Keith for questions.
Keith: Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw, please press star then 2.
Keith: At this time, we will pause momentarily to assemble the roster.
Speaker Change: And the first question comes from Thomas Flayton with Lake Street Capital Markets.
Speaker Change: Actually, just with your questions, I have questions from Dan Brennan with TD Cowan.
Speaker Change: Hey, good afternoon guys. This is Kyle on for Dan. Thanks for taking the questions here.
Speaker Change: I want to start with the guide, looking at the guide for the year you raised by about the amount of the beat. The midpoint of the guide implies sort of a Q over Q step down from three Q. Is that just conservatism in the guide or are there any specific factors that we should be thinking about in four Q?
Speaker Change: Yeah Kyle, I mean you know Q3 can be a wild card for seasonality. Clearly our business grew right through that.
Speaker Change: Q4, just based on holidays, we look at our trends on a business-per-day perspective, so with less days you can extrapolate, but we're very confident in meeting or exceeding our updated guidance.
Speaker Change: Got it, thank you. And maybe just another one on portfolio expansions. It's been about two years, just over two years, since you acquired the GPS business.
Speaker Change: And how should we think about going forward how, you know, M&A fits into your overall strategy? And are you focused still more on an introduction of in-house developed tests or maybe do you think you'll be more inquisitive, you know, going forward?
Speaker Change: Yeah, Kyle. So, you know, we think we have a good mix of how we put together a menu. You know, just over two years ago, we had one test generating revenue. We now have five, all covered by Medicare, all included in the guidelines.
Speaker Change: and it's a really a mix right the GPS was clearly a transformative M&A
Speaker Change: But if you look at Resolve, I'm sure it won some growth opportunities that we've taken advantage of.
Speaker Change: coupled with, you know, our monitor test and development internally.
Speaker Change: We feel like we've got a good growth trajectory, but you know I I've always said that I feel like we had to do two things with our business over the last few years we had to
Speaker Change: de-risked the business, and we had to become more obvious. And by more obvious, I mean, you know, as we continue to work with investors in the street, but also in the industry. And I think what we've put together
Speaker Change: reach access and influence over our customer base, you know, our growth strategy, which we run in a very disciplined fashion, we were always looking out. I think that's flipped over the last
Speaker Change: 18 to 24 months where it's coming inbound but you know I've always commented on our diligence and rigor with our process for resolve as an example our belief and thesis that we could drive growth into the GPS
Speaker Change: Test is part of our menu in relationships and access and influence over our urology customer base
Speaker Change: Those have read right on that rigor of diligence.
Speaker Change: We'll take that same focus in the opportunities that are in front of us or come to us today. There is significant growth in urology market opportunity that we're not currently taking advantage of and I think that's a function of
Speaker Change: They have pretty good visibility of how to de-risk these and make sure that
Speaker Change: that these are ready to go to market. Some of that's learned from our experience over difficulties with regard to coverage and making sure that these ideas are not only come from usually our customer base or really smart sales reps.
Speaker Change: I don't know you.
Speaker Change: But that they're they're really serving a clinical need that fits with our approach So we're optimistic that just like our menu looks very different than it did 18 to 24 months ago If you made the assumption it will look different 18 to 24 months from now That's probably a fair assumption, but you know likely not
Speaker Change: transformative M&A like the GPS more, what we would call channel growth opportunities that we can take advantage of based on our really de-risked channel and operating focus.
Speaker Change: Got it, thank you.
Speaker Change: Thank you, and the next question comes from Andrew Beckman with William Blair.
Speaker Change: Hi guys, this is Kate on for Andrew. Thanks so much for taking the questions.
Speaker Change: Maybe just to start here, it looks like you're operating in a nice spot and expect that to grow nicely in Q4. Recognizing it's still just November, can you maybe just talk high level about the revenue growth levers you see for 2025 and the variables at play there? Thanks.
Speaker Change: We really look at our pipeline, our customer base, and you know we have a number of customers that we drive menu within a particular urology group practice.
Speaker Change: and we drive utilization through group practice. So if you have, it's not unlike any other
Speaker Change: significant to signify adoption, viability, and market opportunity, we have room for growth within each of our product segments.
Speaker Change: So I think that
Speaker Change: We really feel confident that the combination of our menu and the way that it's being adopted right now is very varied.
Speaker Change: I'll have to suspend it.
Speaker Change: Okay, great. Thanks. Just one more from me. Could you maybe just talk to us about end market dynamics as you sort of think about
Speaker Change: Drivers of test volume, how much of that comes from market penetration.
Speaker Change: Sherwin's utilization increases, and then maybe how do you see that evolving as awareness of the menu continues to grow. Thanks.
Speaker Change: Yeah, Kate, I think if I understand the question, you know, the adoption of our menu and the showing up in our sustainable growth is different than it was a few years ago where we had
Speaker Change: you know docs trying tests or Evaluating it, you know, we have a number of tools that we use that really drive
Speaker Change: I don't want to use the term compliance to our pathway, but some reflect when I use the comment, if then, that's what we're seeing is that when we get a.
Speaker Change: adoption from urology, pathology, clinical coordinator, it really becomes sustainable. In other words, our reps, and this is part of the leverage we have in our business, right, we haven't really expanded our sales organization.
Speaker Change: In order, we feel the need to do that in the near term because customers are becoming
Speaker Change: self-sustained on our menu and you know my other comment about pathology is some of these pathology groups that accept the value of confirm and GPS for the reasons I stated
Speaker Change: Either they're in-house with the urology group, which drives that really sustainable adoption.
Speaker Change: Or they serve multiple urology group practices, which is real leverage on the push.
Speaker Change: So I don't want to overplay that but it's made a big difference.
Speaker Change: in our strategy. I think it's showing up in our growth and it gives us the confidence to look forward through next year and believe and be very, very confident that it is sustainable for those reasons.
Speaker Change: That's great, thanks so much.
Speaker Change: Thanks, guys.
Speaker Change: Thank you. And the next question comes from Mark Massaro with BTIG.
Speaker Change: Hey guys, this is Vivian on for Mark. Thanks for taking the questions.
Speaker Change: So it seems like volume continues to tick along nicely here. Just given that confirm and select are already in MCCN guidelines and have Medicare coverage, just what do you see as the key levers for ASP growth from here? And in terms of adding commercial pay, are they looking for more evidence generation or just what has dialogue been like on that front? Thanks.
Speaker Change: Yeah, so I think I'd comment on that in the same way I did with the market opportunity, right? So we feel like, you know, in the lab business
Speaker Change: Everybody operates under a normal distribution curve if you can visualize a Medicare commercial private no pay.
Speaker Change: We've really tightened that up, I would say.
Speaker Change: You know, when I joined, that distribution curve was pretty wide and our goal has been to make it more vertical and tighter, if you can visualize, and that's what we're doing. But we have opportunity. I mean, oftentimes we'll get a payer contract.
Speaker Change: And then the next step is medical policy. We get paid sometimes out of network. But all those efforts, you know, our market access managed care team is part of our commercial organization. And I would say
Speaker Change: prior to our really putting our setup together, they were operating independently or a little bit siloed and really having them part of our commercial team communicating with each other and really working together
Speaker Change: with our understanding and our data and metrics and analytics around mix of patients within a practice.
Speaker Change: It really helps us with targeting and that's really providing our leverage so I would say well you know I think we look as strong as anybody in the space as far as our distribution of pay or mix.
Speaker Change: but there's still opportunity there. The market opportunity for our revenue growth is clearly driven by the broader market opportunity and our sales team driving adoption, but we have room there on the coverage side and we're seeing that.
Speaker Change: Perfect. Thanks for the color. And then just a quick one on the newer germline test. I think you were expecting modest revenue contribution here in the back half. Just any qualitative color to share on the early uptake of that test. Thanks.
Speaker Change: Our position still stands. We do expect contribution here in the second half of this year, not material in Q3. But we're still very optimistic and positive about the opportunity there. And it's really following our resolve introduction.
Speaker Change: where we did a limited launch. We also like to get time and experience from payers.
Speaker Change: We're very conservative on revenue recognition until we have enough data to assess and report revenue based on assumptions of coverage. So as we go through Q4 and into next year I think you'll see a visibility as to how that begins to ramp.
Speaker Change: Great, thanks for taking the questions.
Speaker Change: Thanks for being here.
Speaker Change: Thank you and the next question comes from Thomas Flayton with Lake Street Capital Markets.
Thomas Flayton: Hey, I appreciate you taking the questions. Mike, just to follow up on some comments you've made throughout the call about docs becoming self-sustaining on your menu, etc. Can anything you can share on what percentage of docs order multiple tests and anything along those lines to help us understand kind of what the growth opportunity is on a kind of individual doctor basis or how much you've grown on an individual doctor basis across the menu?
Speaker Change: Yeah, Thomas, that's a metric we definitely track internally. We don't report it publicly, but it's the right metric to be thinking about, right? We have kind of two ways of looking at it. One, we track.
Speaker Change: Utilization by customer to understand are they using the test occasionally or is it really part of their practice on a pathway for lack of a better term.
Speaker Change: And we have a number of tools to do that. So that drives sustainable adoption within a practice. And then as far as utilization by DOC, yeah, we do track that, right? As far as if we can take...
Speaker Change: a urologist or urology group practice and see that they go from
Speaker Change: one-and-a-half to two-and-a-half tests per our menu of utilization, it really comes down to what we're seeing is our adoption is a lot stickier than it was a couple years ago.
Speaker Change: across our menu with very little exception including Resolve. So every one of our Resolve customers
Speaker Change: Virtually every one of our Resolve customers is a urology prostate cancer customer.
Speaker Change: That all goes together with our confidence that our adoption has become much more sticky. It clearly gives us the confidence to predict and project the business going forward and serves as kind of the basis for our confidence.
Speaker Change: Got it, super helpful. And then I don't remember hearing this on the call but we've heard from some other folks in the industries that there's been some impact from the storms that came through at the end of the third quarter, beginning of this quarter. Anything you've heard anecdotally or anything you've seen in the data to support there being an impact to your business from the hurricanes?
Speaker Change: you know fortunately no other than keeping track of our people down there but you know no I wouldn't point to that
Speaker Change: as a any sort of mitigation or challenge for us through the quarter thankfully so no I wouldn't point to any impact specifically to that
Speaker Change: Thanks, I appreciate you taking the questions and congrats on the quarter.
Speaker Change: Thank you, Thomas.
Speaker Change: Thank you. And the next question comes from Jason Bednar with Piper Sandler.
Jason Bednar: Hey, good afternoon guys. Nice quarter here. Just a couple from us. First, can you talk about how you're thinking about, you know, the makeup, if you will, of that 20% plus revenue growth outlook for next year as you look across your legacy tissue and liquid-based tests and then that of germline as well?
Speaker Change: Jason, thank you. You know, we think pretty balanced. If you look at the last few quarters, our growth and our guidance moves, as well as our view of that being sustainable, really has to come from a good mix. Obviously the tissue-based tests account for about 80% of our revenue.
Speaker Change: So they somewhat carry the day, but We like the balanced growth. We're seeing this quarter 36% for the tissue, 24 for the liquid base. We're very confident and the liquid base really has had no
Speaker Change: As I noted, material contribution from Gerrit Lennon, so as that comes up and as we're talking this time next year, we would expect that to be contributing to that as well.
Speaker Change: So we
Speaker Change: hopefully are signaling
Speaker Change: So pretty balanced, would be my view.
Speaker Change: Excellent. And then positive, if it does come in the first half of next year, that's great.
Speaker Change: Can you maybe talk about the gross margin assumptions underlying that outlook? And I only ask, because this has been the line where we've admittedly overmodeled your business here the past couple quarters, does the product mix?
Speaker Change: shift or should we be thinking about some other development that supports a move higher in gross margin that you might need to hit that positive EBITDA here in a couple quarters?
Speaker Change: Yeah, I would say that the flip to positive EBITDA is really a function of, I mean our gross margin we feel very confident in, we like the trajectory of that, that's somewhat quarterly dependent on, as our menus expanded on, not only product mix but payer mix within that, within those product offerings.
Speaker Change: But it's really about
Speaker Change: Our confidence in our revenue growth and our confidence in our operating discipline with with regard to FX.
Speaker Change: So, we are very confident that we can hold our OPEX pretty straight away here. And so I would point to those two levers as the most material to flipping, which we have good visibility to.
Speaker Change: significant margin accretion to meet that commitment.
Speaker Change: Okay, perfect. Thanks so much.
Speaker Change: Thanks, Chase.