Q3 2024 Exagen Inc Earnings Call
Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
Speaker Change: Ladies and gentlemen, good morning and welcome to the exurgent third quarter 2024 earnings conference call.
As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host, Ryan Douglas, in Vessel Relations. Please go ahead.
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
Good morning and thank you for joining us.
Speaker Change: Earlier today, Exogen Inc. released financial results for the quarter ended September 30, 2024.
Speaker Change: As today's call includes four looking statements, we encourage you to review the statements contained in today's press release and the risk and uncertainties described in our SEC filings.
Speaker Change: which identifies certain factors that may cause the company's actual events, performance, and results to differ materially from those contained in the forward-looking statements made on today's call. In addition, we'll discuss non-GAAP financial measures on this call.
Speaker Change: Descriptions of these non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. I will now turn the call over to John Aballi, President and CEO of Exigen.
John Aballi: Good morning and thanks to everyone for joining the call today. We had an exciting quarter at Exigen where we've continued to make substantial progress in executing our strategic plan.
John Aballi: Today I'll provide detail relating to our near-term goals and cover a few financial highlights for the quarter. But first, I want to officially welcome Jeff Black to the team as our new Chief Financial Officer.
John Aballi: Jeff joined us on September 1st and has done a fantastic job jumping in and adding value and has quickly become a key member of the team. Welcome again, Jeff.
John Aballi: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
John Aballi: Our performance in the third quarter came in line with our expectations as we continue to execute our strategic plan of delivering profitable growth. We have set ourselves up well to achieve overall cash flow positivity, which we now believe will occur by the end of next year.
John Aballi: Our total revenue for the third quarter was $12.5 million, which includes the net negative impact of $1.2 million in one-time adjustments.
John Aballi: These adjustments slightly change our outlook for the year, but I continue to be very excited about the long-term potential of our business and the near-term inflection we anticipate.
Speaker Change: Jeff will provide additional detail on our financial performance and the one-time adjustments later in the call.
John Aballi: In looking at the advised business, testing volume was in line with internal expectations, down slightly quarter over quarter due to seasonal factors, including an uptick in out-of-office time for physicians and weather-related events towards the end of the quarter impacting our Southeast Territories.
John Aballi: Our adjusted EBITDA loss was approximately $4 million for the quarter, and we are well on track to deliver a 30% improvement for the full year.
John Aballi: Comparing our financial results for the first nine months of 2024 to the same period in 2022.
John Aballi: We have grown revenue by nearly 30%, expanded ASP by 45%.
Improved gross margins by over 1,300 basis points.
John Aballi: Reduced OpEx by almost 20% and improved adjusted EBITDA loss by over 70%.
John Aballi: At the same time, we've nearly doubled our Salesforce productivity and brought an intense focus to our R&D investments, resulting in a nearly 50% reduction in related expenses and prioritization of near-term pipeline opportunities.
John Aballi: Most notably, we are now in the final innings of our new biomarker launches.
John Aballi: Our first new product offering in almost five years, which we expect will accelerate gains in ASP and margin expansion, and increase demand while positioning us for profitability.
I'm extremely excited about the pace of progress we're making.
John Aballi: One of the key developments this quarter relates to our efforts to bring new proprietary markers to the rheumatologist through our advised CTD platform.
John Aballi: Our teams have worked extremely hard and been heavily focused on completing our validation studies while expanding the capacity of the lab and the anticipated demand increase.
John Aballi: We've successfully built and optimized these tests to deliver valuable insights to clinicians at our high quality standards.
John Aballi: We are eager and excited given that we've submitted to the New York State Department of Health and now await final approval.
John Aballi: I'm especially proud of our team, and we can't wait to launch these offerings commercially.
John Aballi: Additionally, we had five abstracts accepted for the annual American College of Rheumatology or ACR societal meeting being held in Washington DC this month.
John Aballi: Three of these abstracts detail the benefits and performance of our new markers.
John Aballi: We plan to leverage the ACR meeting and the presentation of these abstracts as the ideal time and place to kick off our commercial launch and educational campaigns.
John Aballi: We expect the assays to be available commercially by year end and we will start marketing the enhancements later this week as our team attends ACR.
John Aballi: While our laboratory and clinical teams have been working to ensure our assay is robust, validated, and approved, our commercial team has been preparing to educate the rheumatology community on the value these new markers can bring to their clinic.
John Aballi: With their input, we've created a completely new test report to improve the clinician experience and streamline workflow for their practices.
John Aballi: We are highly confident that we've done the work required to ensure these new markers are understood and presented in a way which enhances rheumatologic care.
John Aballi: Our ASP continues to climb, and will accelerate with the launch of these new assays. Our commercial team is working hard, and the makeup of the team has evolved since I've come on board to one that I feel better personifies that of a true consultant to the clinician.
John Aballi: I believe this will pay dividends for us with our new product launch later this year and look forward to closing the year out strong and the exciting 2025 we have ahead of us.
Speaker Change: With that, I'll turn it over to Jeff to detail our financial performance this past quarter.
Jeff Black: Thank you, John, and good morning, everybody. I'll get into the results in just a minute, but wanted to start off by saying thank you to the xEngine team for the warm welcome.
Jeff Black: I already know several of Exigen's partners in the investor community and I'm looking forward to bringing my experience and working with all of you as we continue to expand on the solid foundation John and team have built.
Jeff Black: The strategy John put into place two years ago has exceeded probably even his expectations in terms of how quickly the results have materialized.
Jeff Black: As we close in on bringing the business to profitability, I look forward to working with John on the next phase of growth and building exogen for long-term success and shareholder value.
Speaker Change: Starting with revenue, as John mentioned, third quarter revenue was $12.5 million, down 7% compared to the third quarter of 2023. This decrease was primarily due to one-time adjustments recognized in the third quarter, which I will expand on shortly.
Speaker Change: Excluding these adjustments, revenue in the quarter was $13.7 million, up about 2% over 2023. And year-to-date, revenue was $42 million, up 8% over 2023. This increase in 2024 was driven primarily by our ASP expansion.
Now some more color around the adjustments.
Speaker Change: During this review, we identified approximately 900,000 additional at-risk accounts receivable we judge to be outside our standard revenue recognition policy.
Speaker Change: As a result, we took a full reserve of this $900,000 in the third quarter with an associated adjustment to revenue.
Speaker Change: Well these adjustments dampen a third quarter otherwise in line with expectations. The good news is we continue to expand our ASP.
Speaker Change: The matter is giving rise to these adjustments are not systemic and we're confident in the accuracy of our reporting going forward.
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
Speaker Change: Moving on to our operating performance, our gross margin was 55.8% in the third quarter compared to 57.4% in 2023. Notably, the one-time adjustments had approximately 400 basis points impact on gross margin in the third quarter. Excluding these adjustments, our gross margin was 59.7% in the third quarter of 24.
Speaker Change: Year-to-date gross margin was 58.7% compared to 54.9% in 2023 and the increase in gross margin is primarily due to the increases we're seeing in ASP.
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
Speaker Change: These operating expenses in the first nine months were 83% of revenue compared to 101% in 2023. And this is a testament to our commitment to prudently manage costs and grow revenue with an eye toward profitability.
Speaker Change: At the same time, we've maintained focus investments in our commercial organization and our R&D pipeline to support sustained, long-term revenue growth. And we'll continue to manage this balance thoughtfully.
Speaker Change: As a result of our ASP expansion and expense management we've continued to narrow losses and this remains a critical objective for us.
Speaker Change: Net loss for the third quarter was $5 million and $11.4 million for the first nine months of 2024, an improvement of nearly 40% over the same period in 2023.
[inaudible]
Speaker Change: Our adjusted EBITDA loss, inclusive of the $1.2 million one-time adjustments, was $4 million for the third quarter of 2024, compared to $3.6 million in 2023. And year-to-date, our adjusted EBITDA loss in 2024 was $7.6 million, compared to a $13.2 million loss in 2023, an over 40% improvement.
Speaker Change: Please refer to our earnings release issued earlier today for a complete reconciliation of adjusted EBITDA to net loss.
Speaker Change: And that brings me to cash flow and the balance sheet. We ended the quarter, third quarter of 2024 with cash and cash equivalents of $22 million, representing a net cash burn for the quarter of 2.5 million. Our accounts receivable balance at the end of the third quarter was 9.4 million, down from 11.7 million at the end of the second quarter.
Speaker Change: We continue to enhance and optimize our billing practices to drive efficiency in our collections and appeals processes.
Speaker Change: We remain responsible stewards of our assets and are committed to creating and preserving long-term value for shareholders.
Speaker Change: Our current outlook would deliver revenue growth of about 5% over 2023 and more than 20% over 2022 and adjusted EBITDA improvement of nearly 30% over 23 and 70% over 2022.
Speaker Change: And in closing, now that I've had a chance to dig in, it's exciting to see the potential the company has in such an underserved market. John has done an incredible job with the operational turnaround of Exogen, streamlining the company, leveraging our core assets and competencies.
Speaker Change: and well positioned to take advantage of the opportunities in front of us.
We will now open the call up for questions.
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
Thank you.
Speaker Change: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star and two if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Ladies and gentlemen, we will wait for a moment while we poll for questions.
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
Speaker Change: The first question comes from the line of Mark Massaro from BTIG. Please go ahead.
and Unknown Attendee.
Speaker Change: Hey guys, thank you for taking the questions. And Jeff, nice to work with you again.
Speaker Change: Maybe the first one, we'll go to Jeff, maybe just walk me through.
Unknown Attendee, John Aballi, Unknown Attendee, John Aballi,
Speaker Change: It sounds like you did a review of all of your AR, of your reserves.
Speaker Change: Just checking to gauge your confidence that you don't think this is likely to happen again, perhaps. And then I also wanted to ask what the impact was due to the storms in Q3.
Speaker Change: Sure. Mark, great to reconnect with you again. Great to be on board. Sure. I'll take the adjustment question. I can let John comment on some of the seasonality impacts.
Speaker Change: So I think thinking about the the 1.2 million in adjustments really breaks down as I said in two pieces I think the more the more simplistic one is we did have an historical coding discrepancy on our advised vasculitis
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
Speaker Change: talk about really is more one-time risk related to the carrying value of certain AR balances. Really it's a cumulative effect that justified a write-down in the third quarter.
Speaker Change: I think importantly, no material changes to peer rates, so we're not seeing this have an impact on on ASP. This is really more about carrying value of AR that we adjusted for. In fact, as John said, we continue to see an expansion in our ASP.
Speaker Change: and John Aballi. For more information on the U.S. Department of State, please visit www.fema.gov. For more information on the U.S. Department of State, please visit www.fema.gov.
Speaker Change: Okay, great. And then one for you, John. It sounds like you are making good progress on the new biomarker launch. You talked about hoping to get an ASP increase. I know you talked about that in the prior quarter, but maybe can you just shed a little bit of light about how much of an impact you think might benefit the company in 2025?
Speaker Change: Hey Mark, certainly. Good morning and thanks for the opportunity to expand here. I'll also hit on the storm question you referenced a second ago as well.
Speaker Change: So first and foremost, we are excited and on track to launch our new marker enhancements.
by the end of the year. We've completed our
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
Speaker Change: under the new FDA rules. So very exciting time for us, and we expect that here again by year end. But this is our first time going through it post FDA rules. The impact to the business we anticipate to be substantial.
Speaker Change: My approach here on this in terms of quantifying specifically ASP or volume impact is a little bit of a wait and see approach. We have a good model internally, but until cash.
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
Speaker Change: From our standpoint, you know, I think the color I can provide is that these are established CPT codes, so it'll be part of our CPT code stack as opposed to a proprietary code. So we don't anticipate
Huge hurdles on the coverage standpoint. Pricings on the CLFS.
Speaker Change: They're established methodologies within our lab, both flow cytometry as well as ELISA-based assays.
Speaker Change: And so from that standpoint, we do anticipate the impact to be sizable. And now, given that we've already submitted to New York State, foresee ourselves being cash flow positive organization by the end of 2025. So huge impact for us organizationally.
As it relates
Speaker Change: So happy to follow up with other questions there, Mark. But as it relates to the hurricane, you know, at the end of the third quarter, we certainly saw an impact from hurricanes which continued into the start of Q4.
For our advised testing, I think it's important.
to recall that our sample types blood
Speaker Change: If you have that context or keeping that context in mind, when clinic visits are disrupted or delays in shipping occur, we're sensitive to that. Our business model certainly is.
First and foremost, our thoughts are with...
Speaker Change: the people in Florida, especially those recovering, and our team members came out of the storm in relatively good shape, by the way, as well.
Speaker Change: But it's pretty challenging to anticipate the size and extent of an impact. These were very powerful storms, as I'm sure you're aware. In our case, to give you a little bit of color here, we lost approximately 50% of our testing volume out of Florida for two and a half weeks at the end of Q3 and end of Q4.
Speaker Change: We've stayed in steady contact obviously with our clinics and some of them saw extended periods without power, upwards of five, six days. Some of them certainly had damage to their clinics.
Speaker Change: It's really difficult for some of the people in this area, but as people continue to recover, we'll find ways to be helpful, and we are seeing that recovery in our Florida business now. So, just to give you a feel.
Great, that's helpful. I will hop back in the queue.
Speaker Change: Thank you. The next question is from the line of Dan Brennan from TD Carbon. Please go ahead.
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
Speaker Change: Okay, thank you. Thanks for taking the questions, Jeff. Nice to be working with you again as well. Maybe just one more on the 1.2 million. I know like the last, I think, five or six quarters you've had on average, call it a million and a half of positive development. This quarter, I don't think you reported any. So is the 1.2 million and the scrutiny now on the AR balances, and you've cleaned that up, does that mean that no more prior period positive developments going forward? Just trying to reconcile both of those.
Speaker Change: Yeah, Dan, it's a great question. And again, great, great to great to be working with you again.
Speaker Change: It's a great question. I think we can separate those two in terms of the 1.2 was a very specific set of adjustments that really had nothing to do with prior period collections.
Speaker Change: but you do raise a great point and that is we are seeing as expected our prior period collections start to taper right and I think
Speaker Change: Very focused efforts were put on those and they definitely bore fruit and we saw a bullet of those collections come in 2023
So you've had great success.
Speaker Change: And as we develop more history with our payer population, we also become better at estimating expected payments and adjusting our rate accruals. So the differential between expected payments and actual payments will continue to narrow, and that'll reduce the size of our prior period collections.
Speaker Change: But, just to point out with all that said, even as the greater than 12 month collections or prior collections have tapered, we're continuing to see expansion in our ASP, so we feel really good about that.
Okay.
Speaker Change: And maybe, you know, I guess for John, with the five abstracts you have out.
Speaker Change: what's most exciting. I know you talked in the prepared remarks.
Speaker Change: in terms of not only an impact on price but also I think a, you know, notable impact you expect on volume given the improved utility. So maybe just walk us through a little bit about like, you know, what's in, what really stands out to you from the abstracts? You've done all these meetings with doctors.
Absolutely. Good morning, Dan. Thanks for the question.
Most excited.
Speaker Change: If you were to ask clinicians, based on some of the feedback, where are they most excited? You know, it was actually a surprising.
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee, Unknown Attendee, Unknown
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE®, a Fidelity Investments company. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com. Call today to learn more.
Speaker Change: We have two phases of this product enhancement. The first one launches by year-end. The next one will be sometime here in 2025. Our abstract includes the clinical validation of both sets of markers. So by the time we've revamped our seronegative RA profile,
Speaker Change: It'll be best-in-class in terms of the ability to diagnose and identify patients with RA. So right now if you were to use conventional testing at other labs
Speaker Change: generally you'd find about 70% of RA patients. That other just shy of a third would be identified clinically. So there's no biomarker in their serum, in their blood, which denotes the diagnosis, but through a clinical evaluation of their joints and whatnot, they're diagnosed as having RA and they start treatment. The trouble with those folks is, as they progress,
Speaker Change: through their treatment regimen, either they become refractory, as roughly half of all patients do, then they
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE & SIPC, a Fidelity Investments company. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com, or can be ordered at www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, SIFMA.
Speaker Change: have told us firsthand that this is a very difficult patient population to manage because of that dynamic. Also, prior authorizations for many of these drugs become more difficult as you don't have biomarker evidence to support the diagnosis. So, working these patients through the clinic really is a tough...
Speaker Change: for a rheumatologist, which is why we went after this in the first place. That's part of the market research we did when we first came here is we recognized this as a top clinical need. So these markers...
Speaker Change: that we're going to launch here are identify roughly half of all seronegative patients.
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
Speaker Change: to what that profile is going to be able to do. And that additional 15% that we don't capture yet, we're looking at ways to continue to narrow that gap. But also, there's some level of misdiagnosis in there.
Speaker Change: From our standpoint, if you run our profile as part of the diagnostic workup of your patient and you still diagnose a patient that's shown negative RA, after some time you really, especially if they're refractory treatment, really are going to have to question if the diagnosis is truly correct because we'll have the most extensive profile out there for it.
Speaker Change: So, that's probably what I'm most excited about based on first-hand feedback in talking to our clinicians. It's an area of rheumatology that we have some penetration in, but very light.
Unknown Speaker 0
This RA is an order of magnitude.
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show.
For more information visit www.FEMA.gov
Speaker Change: Terrific. I mean that can just sneak in maybe another quick one or two. So I think your existing test maybe has, correct me if I'm wrong, is it 12 biomarkers on it and you're looking to add
Speaker Change: Another six codes, so it's a very simplistic way. I mean, I don't know how the price per code works out I know we'll get more color as you kind of get these pricing in place But it sounds like 18 divided by 12 might be like a third higher. I don't know if that's not a bad place
Speaker Change: to kind of start for us right now, and then B, I think you talked about being free cash flow positive by year-end 25. So, I think your prior guide was cash on the balance sheet was sufficient to get into 26. Like, how does that change now? I mean, do you think you're kind of...
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE, a Fidelity Investments company. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com.
Speaker Change: Yeah, great question. So on the coding front, we actually have the current advised CTD test has 23 markers, 10 of them are built out using our PLA code. So that's how you get back to that 12 number that you just referenced.
Speaker Change: because we have an index score associated with our lupus algorithm and so those 10 biomarkers are not
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
So this is adding five additional markers.
Speaker Change: three on the Flow side, two on the ELISA side. Again, we'll see how reimbursement shakes out here over the first couple months of launch, but hopefully that gives you some color. It's the PLA code, plus call it 17.
Speaker Change: Then on the capsule positivity, you hit it right on the head.
Speaker Change: Ample capital to get to a cash flow positive state, and that is what we are laser focused on. From a runway standpoint, we're transforming this organization.
Speaker Change: I believe that we're currently undervalued relative to where we're at in that transformation and the inflection we believe we're about to take with the launch of these new markers. We've been highly committed to shareholders and creating shareholder value, so at the current valuation,
Speaker Change: and that coupled with our ability to consistently push out our runway. We're not in a hurry here to
Unknown Attendee
Speaker Change: to do any sort of financing. From our standpoint, wanna see how the new product launch goes, wanna see how our financial progress, operational progress goes over the next 12 months. We will need to do something about our debt maturity at some point in the next year or so, call it year 15 months. But Jeff and I are strategizing now on that front and don't have anything to share specifically. But that's really how we're thinking about it.
Terrific, thank you.
Yep.
Speaker Change: Thank you. The next question comes from the line of Kyle Mixon from Kanakor, J&VT. Please go ahead.
Speaker Change: Hey guys, thanks for the questions, and hey Jeff, good to work with you again. So, just on the fourth quarter, kind of implied guide here, it looks like $15.5 million, that's like a $3 million increase from 3Q.
maybe like
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, John Aballi,
Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee,
Sure. So good morning, Kyle. Thanks for the question.
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host
Speaker Change: As expected, and as I relayed on the prior earnings call, we saw a small quarter-over-quarter decline in volume, but still had performance above Q4 of 23 and Q1 levels, where I had conveyed that we expected
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host
Speaker Change: some weather-related effects at the very end of the quarter. On the ASP side, we had less than prior period collections or collections greater than 12 months. This was actually the lowest quarter.
Speaker Change: Jeff referenced this as well, but the lowest quarter for this since I've been here. But we still improved our trailing 12-month ASP, which is the appropriate metric to be gauging in terms of how our strategy's working. What I didn't expect was to have the negative adjustment.
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show.
Speaker Change: We had a headwind event, but we're not facing robust headwinds impacting the viability of our strategy. So, happy to work through the Q4.
Speaker Change: Masked with you, our guide is on top line 55 to 56. We think that we have good visibility into that range here at year end. And then keeping the adjusted EBITDA performance at no worse than 12 million, which continues to be a dramatic improvement year over year.
Yeah, thanks for that.
John Aballi: John, appreciate that. And it's not, yeah, this, by the way, it's not as much of a step up as I was talking about, but it is like a little bit of a step up. But again, without those one timers in the third quarter, it's kind of like sequentially flat, which I guess makes some sense. But yeah, we can kind of talk about fourth quarter offline. On the kind of the path, the profitability and everything,
John Aballi: Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee, Unknown Attendee, Unknown
Unknown Attendee, John Aballi, Unknown Attendee, John Aballi,
Speaker Change: You have the ability to break even and all that, so if you could just comment on that, that would be great.
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
Speaker Change: So your math there, we are very much in alignment, Kyle. So from a run rate perspective, we expect by the end of next year to be in a cash flow positive state. That's somewhere in the...
Speaker Change: Low to mid 70s top line with 60 plus percent gross margin and holding our operating expenses relatively flat.
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
Speaker Change: All right, awesome. And then if I could ask a quick follow-up. The markers, a lot of talk about the markers in the fourth quarter being launched here. Can you just walk through the marketing and the reimbursement factors that are going to kind of ensure a successful launch next year, throughout the full year, and kind of going forward? Given the importance to the P&L and everything there, I just think that there's a lot of moving pieces. And it's the first launch of a new product for the company in years, so it would be good to kind of walk through at this point.
Speaker Change: Yeah, and this is where a lot of our excitement is. Obviously, almost all of our focus right now. So, marketing-wise, our marketing efforts have been ongoing. We've done quite a bit.
Speaker Change: This is not something to be overlooked, certainly. You can really mess this up or screw this up if you convey the wrong message, make too strong of claims, relay the results in a way in which clinicians are pigeonholed into certain decisions.
Speaker Change: It's really kind of a little bit of a dance to figure out how to end up with a product that is relatively universally liked and yet these are new markers so you have to educate on the utility. So you have to be fairly prescriptive in
Speaker Change: in your interpretation. So a lot's gone into that. As I said, you know, we've met with multiple clinicians one-on-one. We've done larger gatherings, 70 plus on that front. So hundreds of clinicians now we've met with to get this feedback and across the entire U.S. Our team's really done a great job there.
Additional Marketing Efforts that are Ongoing.
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE®, a Fidelity Investments company. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com, or can be ordered at www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, SIFMA.
Speaker Change: the Annual Societal Meeting for Rheumatology. This is when our original campaign starts. This is a venue where north of 10,000 clinicians in the rheumatology community.
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
Speaker Change: Marketing push here with individual meetings, collateral, education, it's this is really our marketing launch if you will although the test won't be available until we get New York State approval but
Speaker Change: Given that there's some flexibility and when that occurs, we thought that let's just anchor to an event here, a marquee event, and utilize this platform as a way.
Speaker Change: to convey the value and educate on it. So we have the plenary talk where we've got actual KOLs who have done research with us on this front, speaking to the utility of these markers.
Speaker Change: brought to a clinician's office, left in a clinician's office, even patient material. Our website's having some modifications as well. So it really, if you take a look at our organization, we're putting everything we can behind this given that we haven't done it in, you know, half a decade and it's incredibly important to our success. So very exciting from that standpoint. I also just want to mention, I think this is on the same vein as what you asked Kyle, but
and John Aballi. For more information, visit www.fema.gov
You know we've been changing
Speaker Change: the makeup of our commercial team, our field-based sales team, and we've added a few folks to that team, and I'm just really excited about the caliber of folks we've brought into the organization and the approach that we're taking there in really pushing a more consultative approach, one in which you're a trusted partner to the clinician and can really be an educator in that regard. So we'll see how all of this continues to transpire. Our training and everything has been revised and specific to this, but Q1 will be a big quarter for us to really see how this kicks off.
John Aballi: Okay, that was great. I look forward to ASARC Americans. Thanks, John.
Thanks.
Speaker Change: Thank you. The next question comes from the line of Ross Osborne from Canterfest General. Please go ahead.
Speaker Change: Good morning, guys. Thanks for taking our questions. Starting off, would you all queue your capacity expansion initiatives ahead of incremental demand next year?
Hey Ross, good morning.
Speaker Change: virtually double the current capacity of the lab. So you see us doing about a hundred and thirty thousand, 135,000 tests a year the last couple of years.
In essence, with our current instrumentation and existing capital footprint,
Speaker Change: We we would be able to virtually double now. We haven't geared up for that
Speaker Change: What we've been doing is we've added additional licensed personnel So that's actually currently baked into the cost structure of the organization here in Well, I guess it'll end up being the fourth quarter financials, but But it started in the third quarter
Speaker Change: and that's just really in preparation because licensed folks are really difficult to find and you need to find good ones and what have you.
Speaker Change: Train and provide career paths for non-licensed folks and get them into different aspects of the lab, but I think, you know, kind of a bottleneck there would be licensed personnel. I feel very comfortable with where we're at to kick off the year.
Speaker Change: from licensed personnel standpoint in the lab, the amount of instrumentation we have or need, and then the ability to add in an additional shift should we get to that point. I really hope we do, but should we get to that point. If you recall, we made about a million dollars in capital upgrades in Q3, started actually a little bit in Q2. This was to upgrade our flow cytometers so that we could handle the new T cell markers.
But all that's been done, been completed and expensed.
Speaker Change: Okay, sounds great. And then any update on the BioPharma contract you announced last quarter? How should we think about that opportunity in 2025?
Speaker Change: Great question. No material update to present aside from the message I wanted to convey last time, so just to reinforce here again, is just that it's an area of the business I don't think we had taken advantage of historically, at least in the way that I was looking at it.
Speaker Change: This year in 2024, we signed material contracts, especially relative to our prior CRO work.
Speaker Change: North of a million dollars this year, and we'll see how that Translates into future years, but we're establishing good relationships with these pharma partners. I just think it's an area We can grow over time. We haven't guided to it in 25 obviously at some point early next year. We'll be able to
Speaker Change: Have our guidance for 25 and be happy to go into that a little bit more.
Okay, sounds great. Thanks for taking our questions.
Thank you.
Speaker Change: The next question comes from the line of Andrew Brackman from William Blair. Please go ahead.
Speaker Change: Hi guys, good morning. Thanks for taking the questions. I'll just stick to one. John, you sort of talked about some of the specific feedback that you've gathered from physician groups ahead of launch here. Can you maybe just unpack that a little bit more? And related to that, you talked about a new test report and streamlining the workflow. Anything specific you can share there? Thanks.
Yeah, good morning, Andrew. Thanks for the question.
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE & SIPC, a Fidelity Investments company. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com.
Speaker Change: assay available for evaluation of folks with connective tissue disease, but specifically SLE, systemic lupus erythematosus. So we're enhancing that value proposition, but we already have the best product out there. So if you, you know, as I've understood it in talking to clinicians, you're making the best product out there better.
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Speaker Change: having the best product out there. And so for those folks that are already using the Advise platform, I think they're more interested in the ability to use this more broadly, specifically with some of their rheumatoid arthritis patients.
Speaker Change: Unknown Attendee, John Aballi, Unknown Attendee, John Aballi, Unknown Attendee, Unknown Attendee,
Speaker Change: and we believe that there's room to be gained there as well. And in essence, some of the performance we're seeing on the SLE side is, we're identifying 90.
Speaker Change: percent of patients or more. So it's it's really substantial and dramatic when
Speaker Change: Normally, this is a clinical diagnosis and you're able to have that level of biomarker sensitivity, certainly AIDS, and you're capturing basically twice what conventional markers are able to capture. So we are still excited on the T cell side, but just if you take a look at it, we're initially launching within our existing customer base.
Speaker Change: And so a big part of that is, well, where else?
Speaker Change: can this help me in my clinical practice? And that's certainly on the RA side. So that's what I meant by that. The report, you know, we've taken this opportunity as well to just revise other aspects of the report, not just the new markers that we're providing. And so clinicians are generally pretty happy with that.
Speaker Change: Advised lupus index, we've changed the visualization of this, we've added an interpretation which makes it a little more intuitive, you know, I'll be the first to admit, in
Speaker Change: The prior version likely took a few times of running the test to really understand what the index told you, how it's used, what the various values truly mean. Now we try to do that a little more explicitly, up front, more clearly. So those are some of the enhancements we've organized.
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Speaker Change: Everything we're doing is trying to study our customer. If I were to sum it up in kind of a high-level theme, it's study your customer, find a way to make their life easier, and just be relentless in continuing to do that. And so this is a great opportunity for that, and we'll see kind of how it goes.
The End
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Speaker Change: Andrew, do you have any further questions for the management? That's it for me. Thanks guys. Thank you.
Speaker Change: We believe 2025 will be a really exciting year for us. We anticipate making material progress in achieving cash flow positivity.
Speaker Change: and we have the processes and people in place to execute a highly efficient diagnostic business and are building momentum.
Speaker Change: I look forward to continuing to detail our progress as we close out a fantastic year at Exogen and our teams are highly focused on ensuring we have a successful product launch to kick off 2025. I just want to thank the Exogen team and look forward to continuing to provide updates. Thanks so much.
Speaker Change: Thank you. The conference of Exogen has now concluded. Thank you for your participation. You may now disconnect your lines.