MDxHealth SA (NASDAQ:MDXH) Q4 2023 Earnings Call Transcript

MDxHealth SA (NASDAQ:MDXH) Q4 2023 Earnings Call Transcript March 6, 2024

MDxHealth SA misses on earnings expectations. Reported EPS is $-0.39 EPS, expectations were $-0.28. MDXH isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, ladies and gentlemen and welcome to the MDxHealth Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Wednesday, March 6, 2024. Before we begin, I would like to remind everyone that the company will make forward-looking statements during today’s call. 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 the company’s filings with the Securities and Exchange Commission, specifically in the company’s annual report on Form 20-F. I would now like to turn the conference over to Michael McGarrity, Chief Executive Officer. Please go ahead.

Michael McGarrity: Thanks Ludie and thank you all for joining us for our fourth quarter and year-end 2023 earnings conference call for MDxHealth. With me today is Ron Kalfus, Chief Financial Officer. Commercial execution and operating discipline are the two foundational drivers of our business and performance and our fourth quarter and full year results for 2023, demonstrate the continued success of this strategy. It is also becoming clear that our strategy is creating multiple sources of growth for our company, including test-menu augmentation, cross-selling of complementary diagnostic solutions, and expanding payer coverage. With these growth drivers in place, we believe MDxHealth remains well-positioned to continue to deliver sustainable growth that will lead to adjusted EBITDA profitability in the first half of 2025.

I would now like to review a few of the financial and operating highlights from our fourth quarter and full year 2023 results that clearly demonstrate this execution. Fourth quarter revenue was $19.4 million, an increase of 50% over the prior year period. For the full year, revenue increased to $70.2 million an increase of 89% year-over-year. Excluding the impact from GPS, total revenues in 2023 grew 42% year-over-year. In the fourth quarter, gross margin improved to 65.3% versus 56% in the prior year period, which represents a year-over-year improvement of 9.3 percentage points. And for the full year, gross margins were 62.6% compared to 51.9% for the prior year, an improvement of 10.7 percentage points, which reflects continued focus on operating discipline, cost management, and expanded payer coverage for our full menu of precision diagnostics.

So, what these financial metrics speak to is that we are delivering on our mission to become a premier growth company in precision diagnostics focused in the urology. In fact, when we step back and look at the progress from only a few years ago, our growth trajectory has been, I believe, quite compelling. In 2019, MDxHealth reported annual revenue of $11 million. Today, we are now projecting 2024 revenues of $79 million to $81 million, which represents a five-year CAGR or compound annual growth rate of over 50%. Importantly, we have also maintained our operating discipline over this period of extraordinary top line growth. Gross margins have dramatically improved from essentially no gross profit generated by the business in 2019 to over 62% for the full year 2023.

And our focus on sales force productivity, is allowing us to manage and maintain our operating expenses as we go forward. This dynamic is providing clear leverage in our P&L and reinforces our confidence in reaching adjusted EBITDA profitability. Of course, our world-class technology, outstanding clinical lab operations, and improved reimbursement for our tests, are all major factors in our success. But without question, one of the ultimate drivers for sustained execution is the strong and we believe enduring relationships we have built in our urology customer base and key opinion leader community. In my experience, these initiatives and resulting effect on our business underpins the strength of our business model. To that end, we remain relentlessly focused on the customer experience in order to maintain and advance our best-in-class reputation.

Before my closing comments, I will turn the call over to Ron for a review of our financial and operating results. Ron?

Ron Kalfus: Thank you, Mike. As Mike mentioned, we are pleased to report our positive results for the fourth quarter and year end 2023, with strong reported growth in revenues and solid improvements in gross margins. Revenues for the fourth quarter ended December 31st, 2023, increased by 50% to $19.4 million versus $12.9 million for the fourth quarter 2022. Fourth quarter revenues of $19.4 million were comprised of $8.8 million from GPS, $5.9 million from Confirm, $3.2 million from Resolve, and $1.3 million from Select. For the year 2023, our revenues were $70.2 million, representing an increase of 89% over the same period last year. Excluding GPS, full year 2023 revenue increased 42% over the same period last year. Moving below the revenue line.

Our gross profit for the fourth quarter was $12.7 million, an increase of 75% as compared to $7.2 million for the third quarter of 2022. Gross margins were 65.3% for Q4 2023 as compared to 56% for Q4 2022, an improvement of 9.3 percentage points. For the full year 2023, gross profit was $43.9 million, an increase of 129% as compared to $19.2 million for the full year 2022. Gross margins were 62.6% for the full year 2023 as compared to 51.9% in the prior year, an improvement of 10.7 percentage points. Operating loss for the fourth quarter was $6.3 million compared to $8.9 million for the fourth quarter of 2022, representing a reduction of 30%, driven by top line growth and improved gross margin. Full year 2023, operating loss was $27.3 million compared to $37.9 million for the same period last year, a reduction of 28%.

Cash and cash equivalents as of December 31st, 2023 were $22.4 million. Our total use of cash for the fourth quarter was $10.3 million. The increase in cash used in the fourth quarter was driven by non-operating non-recurring cash payments of $2.3 million, primarily attributed to the transition to our sole listing on NASDAQ. This concludes my brief overview of the results and I will now turn the call back to Mike.

Michael McGarrity: Thanks Ron. As I have consistently communicated, MDxHealth is a growth company. Everything we do is based on and in a commitment to growth; growth of our revenue, margins and profitability; growth in our shareholder base, attracting a high-quality institutional investors who understand our business, and who have set high expectations for consistent execution and results. Simply put, we strive to say what we’re going to do and then execute and deliver, which we believe will lead to recognition, appreciation, and differentiation of this consistency and associated long-term sustainable growth potential of our business. Growth of our offering is reflected in our progression over the last 18 months from one to four revenue-generating tests with all of our prostate cancer tests covered by Medicare, and included in the NCCN guidelines.

And finally, growth stemming from our proven best-in-class channel, which has catalyzed multiple inbound opportunities, for partnership, M&A, and distribution. In our evaluation of any of these opportunities, we will apply the same diligence and rigor as we have with the GPS acquisition and resolve channel opportunity. And we have found ourselves with the luxury of being very selective with our opportunities and partners. As a final note, I often convey to people in any venue that we pass the friends and family test. This concept implies in my belief that if you have a friend or family member navigating the complex confounding and anxiety-inducing diagnostic pathway of prostate cancer, you would want the clinician and patient to have access to the MDxHealth menu.

No other company offers a precision test at the multiple points along this pathway. We have a clinically actionable diagnostic from elevated PSA to initial biopsy, whether the result is negative or positive, we’re ruling out unnecessary intervention and for risk stratification of patients that may need intervention. And we continue our efforts to advance into optimal monitoring of the approximately 1.5 million patients in active surveillance annually with our Monitor project. So, it was particularly powerful at our recent national sales meeting to focus on the patients and the clinicians that we serve and believe we are doing just that and doing it the right way with the right people. To me personally, and all of us connected with the MDxHealth, that was quite compelling.

So, in closing, we at MDxHealth will remain committed to driving sustainable growth, which will service the foundation for value creation for all of our stakeholders, including patients, customers, and shareholders. So, thank you for your interest in, and support of, MDxHealth, and I’ll turn the call back over to Ludie for questions.

See also 20 Best Warm Liberal Places to Retire and 16 Best Cities for Retirees in the Pacific Northwest.

Q&A Session

Operator: Thank you. And ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Andrew Brackmann from William Blair. Your line is open.

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

Michael McGarrity: Yes, Andrew, we feel good about the balance of our menu, I think. As we’ve discussed and as I’ve communicated, we’re very confident that our sales force is selling not a test or going in with one of our tests, but selling our pathway. And that each of them has over the past number of quarters, including GPS, demonstrated consistent growth as we go forward. We expect that to continue. And our Resolve, obviously, at some point, the growth rate on that will normalize, but again, that was really important to validate our thesis that we can take advantage of channel opportunities that fit with our menu offering and into our customer base. So, we think the adoption is sustainable. And then we have two drivers on the revenue side.

It’s important to note that both, I think, are working in parallel, definitely over the last few quarters. So, our sales team drives unit adoption into our customer base and then our Market Access Managed Care team drives coverage, which shows up in our ASP, and we’re confident that we can continue to drive the menu, but growth within each test from both the unit and revenue perspective. So, we feel like it’s pretty balanced and we believe that’s sustainable.

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

Michael McGarrity: Thanks Andrew. Yes, I think revenue growth obviously is key. Our gross margin has gotten to a point where it can drive the P&L below that line. And then I really think the strength of our business as we go forward is that we feel very confident that we can hold our OpEx pretty straight away through our inside model period, but definitely through 2024 and beyond. We think we’re very confident that our sales channel is rightsized. So, we have 70 total people in the field, 50 direct reps and the way we’re driving adoption in a sustainable way through our pathway allows for what I commented how much is — will drive rep productivity. It’s the Stryker model that I’m familiar with. And so we think the leverage is really in holding our OpEx. We’ve driven it to the point through significant discipline on cost and headcount and operating discipline across our organization.

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

Andrew Brackmann: I’ll leave it there. Thanks guys.

Michael McGarrity: Thanks Andrew.

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

Thomas Vranken: Hi, this is Thomas. Thanks for taking my questions and congratulations on the nice margin improvements. Two questions from my side. The first one is with regards to the multiple high-growth opportunities that you mentioned that are under evaluation. Can you give a little bit more granularity there? Should we understand this more like in-house type of R&D projects or are you really considering business development here?

Michael McGarrity: Thomas, as always, thank you for staying up late and I likely cannot give you a whole lot of granularity there, but only to point to what we’ve done so far, right? So, we run a growth strategy process here, we have for the last two years. To give you detail, we meet every other Thursday and we’ve always been focused a group of us on what’s out there, right? What’s important in the space that we need to focus on, pay attention to, make sure we don’t miss anything, and we were always looking outbound. I would tell you over the last two years in that process, it’s really flipped to inbound as we’ve, I think, become more obvious. I’ve commented my view is we had to do two things with MDxHealth. We had to derisk the business, which I think we are largely achieving and we had to become more obvious, and that’s showing up in inbound opportunities based on how challenging it is in the market dynamics today to; A, build a channel; and B, have access to driving adoption of diagnostic, but we’re going to be.

Resolve is a good model for that. That was really important. All of our diligence, which was very rigorous, as I noted, has played out in our ability to drive adoption, sustainable, sticky adoption into our customer base without diluting our focus. Those are all part of the criteria that we look at with opportunities that are coming our way and I think we have good examples, as I noted, with both in M&A with a successful integration and driving growth into a product, and secondly, with the channel opportunity. So, we’ll take a balanced look at opportunities that make sense for us. There’s a lot of room in our space into urology and we’re confident that the way I would characterize it, I think, Thomas, is that if you looked at our menu 18 months ago, it looks very different today.

And if you made the assumption that it might look different 18 months from now, I think that’s a reasonable assumption.

Thomas Vranken: Okay. Thanks. And maybe as a second question, I wanted to zoom in a little bit more on the revenue guidance for 2024. And I noticed that the window is rather narrow on EBITDA, $2 million variation. Can you comment on what drives this increased precision versus previous guidances from previous years?