Earnings Call Transcript - MDXH Q4 2024

Operator, Operator

Good day. And welcome to the MDxHealth Fourth Quarter and Full Year 2024 Earnings Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to John Fraunces with LifeSci Advisors. Please go ahead.

John Fraunces, LifeSci Advisors

Before we begin, I’d 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 factor section of the company’s filings with the Securities and Exchange Commission, specifically in the company’s annual report on Form 20-F. I’ll now turn the call over to Michael McGarrity, Chief Executive Officer of MDxHealth.

Michael McGarrity, CEO

Thanks, John, and thank you all for joining us for our fourth quarter and full year 2024 earnings conference call for MDxHealth. With me today is Ron Kalfus, Chief Financial Officer. 2024 was a transformational year for MDxHealth. Each of our achievements individually and all of them collectively are rooted in and reflect our unwavering focus on operating discipline and commercial execution. As we look at our progress, I would point to a number of defining milestones that reflect the talent, commitment, and success of the team across our organization. We achieved Q4 and full-year revenue growth of 28%. Importantly, our revenue growth has been achieved without the expansion of our commercial sales organization, demonstrating increased rep productivity and pathway adoption by our customers. None of these achievements can be realized without all of our operating group's dedication to our vision of being the most consistent growth company in the urology diagnostic space. True excellence is measured by performance over time, and we believe our consistent and strong performance quarter-after-quarter reflects that commitment to excellence. Before I hand it over to Ron for a review of our financial and operating results, a few comments on the focus and execution of our best-in-class commercial team. Q4 total billable volume was approximately 24,000 tests, representing total test unit growth of 26%. Test volumes for our tissue-based tests, which include Confirm mdx and GPS, came in at almost 12,000 for the quarter, an increase of 50% over the prior year period. Tissue-based tests grew 31% for the full year. For our liquid-based tests, which include Select mdx, Resolve mdx, and Germline, test volumes exceeded 12,000, an increase of 10% over the prior year period. Liquid-based tests grew 28% for the full year. The growth acceleration in our tissue-based tests reflects our unique positioning in the urology market. MDxHealth is the only company that can provide a clinically actionable result after an initial biopsy, whether positive or negative. Upon a negative initial biopsy, our Confirm test can determine the patient’s cancer risk with an optimal negative predictive value, guiding the decision for a repeat biopsy or the potential to monitor with annual screening. Of equal importance and clinical significance, it bears noting that our Confirm test independently analyzes each core of the biopsy to address the estimated 30% false negative rate of the initial biopsy. Upon a positive initial biopsy, our Genomic Prostate Score or GPS test, which is supported by 20-year follow-up data for both adverse pathology and prostate-specific mortality, provides a critical risk assessment that informs whether the patient should be considered for intervention or an active surveillance protocol. Importantly, the GPS test requires materially less tissue than competing tests, offering compelling value to our pathology partners who work closely with our urology customers to preserve biopsy tissue. This powerful and compelling combination is driving MDxHealth test adoption, which we believe is leading to significant improvements in how prostate cancer is diagnosed and ultimately managed. Based on our unique positioning in the market, we remain confident that our growth will continue to accelerate sustainably and that our goal of delivering 20% revenue growth is quite achievable. Our focus on execution is the key to our continued success. The quality and strength of our commercial team, which is comprised of highly experienced molecular diagnostic sales reps and strategic account managers, with support from our medical science liaisons, is providing greater access to our tests and increased adoption among key opinion leaders and large urology group practices. It remains challenging for patients to navigate the pathway of diagnosis and potential intervention and/or surveillance. MDxHealth addresses this challenge by providing patients with the most expansive menu of clinically actionable diagnostics in the urology space. We are also confident that our urology and pathology customer base is increasingly recognizing the unique clinical value of our tests, which bring clarity to what can often be a confounding diagnostic journey for patients. The diagnostic value of our tests brings the potential to avoid unnecessary interventions while also accelerating treatment when appropriate. To summarize, I believe no other company is better positioned to help improve the patient journey through prostate cancer diagnosis and treatment. Our results continue to reflect our success in bringing value to this patient population. Based on these dynamics, we are confirming our previously announced revenue guidance of $108 million to $110 million for 2025. We expect to meet or exceed our 20% revenue growth goal while also crossing the adjusted EBITDA threshold in the first half of this year. 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 Q4. Ron?

Ron Kalfus, CFO

Thank you, Mike. To follow on Mike’s remarks, we are very pleased to report strong performance in the fourth quarter and full year of 2024. Revenues for the fourth quarter ended December 31, 2024, increased by 28% to $24.7 million versus $19.4 million for the fourth quarter of 2023. Like the prior quarter, all of this growth was organic and delivered without the expansion of our sales organization, which reflects the leverage we continue to generate from our sales channel and the greater market penetration of our full line of tests. Moving below the revenue line, our gross profit for the fourth quarter of 2024 was $15.5 million, an increase of 22%, as compared to $12.7 million for the fourth quarter of 2023. Gross margins were 62.7% for Q4 2024, as compared to 65.3% for Q4 2023. The decline in gross margins of 2.6 percentage points is primarily attributed to our test mix and the timing of payments. Our operating loss for the fourth quarter declined 27% to $4.6 million, compared to $6.3 million for the fourth quarter of 2023, primarily driven by a growth in sales and gross profit, partially offset by a growth of 6% in operating expenses, which were primarily related to an increase in clinical studies. Our net loss decreased 36% to $6.8 million, compared to $10.7 million for the prior year period, driven by our $2.8 million increase in gross profit, as well as a decrease of $2.2 million in net financial expenses. Finally, our fourth quarter adjusted EBITDA was negative $1.4 million, a 68% improvement over Q4 2023 adjusted EBITDA of negative $4.4 million. We believe that we are on track to achieve our goal of positive adjusted EBITDA in the first half of this year. Note that a reconciliation of IFRS to non-IFRS financial measures has been provided in the tables included in this press release. Cash and cash equivalents as of December 31, 2024 were $46.8 million. With a pending draw of the second tranche under our OrbiMed debt facility, our balance sheet will be significantly strengthened to meet our 2025 earn-out obligation to Exact Sciences, as well as support the execution of our 2025 business plan. This concludes my overview of the results and I will now turn the call back to Mike.

Michael McGarrity, CEO

Thanks, Ron. I would like to take a step back and reference the goals we set as a company when I joined MDxHealth in 2019 and that was to build the highest quality growth vertical in urology diagnostics. Along the way, we have taken advantage of growth opportunities through our acquisition of the Oncotype GPS test from Exact Sciences, the launch of our Resolve test, and the introduction of our hereditary Germline testing, all conceived of and fueled by rigor in our diligence process, the strength of our channel and relationships, as well as the access and trust that we have garnered from our urology customer base. That trust is only earned through a combination of not only the highest quality sales representatives, but also the world-class customer support across our organization, all believing in quality first, customers always. The evidence for our view is supported by the fact that our five-year revenue compound annual growth rate or CAGR has exceeded 50%. Whether in the sales force, laboratory operations, revenue cycle management, client services, patient advocacy, quality, and regulatory, our entire MDxHealth team operates under the mission that there is a patient and family on the other side of every sample we receive. That is what drives our customer base to trust MDxHealth as their laboratory partner with these critical diagnostic tests that inform patient pathways. Additionally, as we came into 2024, we set the goal of exiting the year on a $100 million revenue run rate with clear visibility to operating profitability, and we were confident we would achieve this goal without adding additional sales representatives. Moreover, we met or exceeded these goals while controlling our operating expense, which increased at a fraction of our revenue growth rate. We have delivered on our 2024 goals and are confident that our long-term mission set in 2019 has taken shape and put us in a position to become the clear leading growth company focused solely on our target urology market. As a final comment, this urology vertical market that I referenced is expected to grow at an annual rate of 5% to 10% over the coming years based on multiple factors, including the increasing rate of prostate cancer, the aging population, and the lingering effects of the pandemic, where prostate cancer screenings were estimated to be down 50% over a two- to three-year period. I believe it is also fair to say that prostate cancer is where breast cancer was 25 years ago, in that the awareness of men’s health and the screening of men beginning at an earlier age has made the face of prostate cancer more public as the leading cancer risk for men. From the start, we have emphasized two key elements of our operating approach, focus and execution. We are certain that we have built a culture where focus and execution are creating a unique and trusted brand in the urology market. Our reputation is built upon providing exceptional service, and the quality and mission of our people have cemented a foundation of trust that we strive to earn every day in the urology community. As always, we carry a great deal of responsibility to provide value for all of our stakeholders, including patients, customers, payers, and shareholders. Thank you for your interest in and support of MDxHealth, and I’ll turn the call back over to the Operator for questions.

Operator, Operator

Our first question comes from Thomas Flaten with Lake Street. Please go ahead.

Thomas Flaten, Analyst

Hey. Good afternoon. Thanks, Mike and Ron, for taking the questions. I’m just curious if you could give us some qualitative or ideally quantitative thoughts on how you would expect Germline to contribute to the 2025 growth rate that you’ve laid out with your guidance?

Michael McGarrity, CEO

Yeah. Thomas, we’re confident that our Germline offering will begin to contribute in 2025, as we’ve noted. I would say two things. As we’ve discussed, we’re very conservative with initial introductions, revenue recognition, payer experience. The same way we took Resolve to market is the path we’re following with Germline. We do expect it to contribute in 2025, and we’ll be providing updates quarter-by-quarter. I would just say that our guidance is not contingent on significant contributions from our Germline, but we’re very confident. The same diligence and rigor I noted that we apply to any growth opportunities was applied here, and we’re confident that it fits very, very well with our prostate cancer menu. In the way I referred to my comment about breast cancer, the way the market is paying attention to not only the diagnostics but also the hereditary risks.

Thomas Flaten, Analyst

Thank you. And then one more and I’ll hop back in the queue. Ron, how should we be thinking about gross margins moving forward, particularly in light of Mike’s comments that Germline might not be a significant contributor this year?

Ron Kalfus, CFO

Well, we don’t give guidance on gross margins specifically, but I think we’ve said in the past that we expect gross margins to start in the mid-60s for the next few quarters.

Thomas Flaten, Analyst

Got it. I appreciate you taking the questions. Thank you.

Operator, Operator

And the next question comes from Andrew Brackmann with William Blair. Please go ahead.

Andrew Brackmann, Analyst

Hi, guys. Good afternoon. Thanks for taking the questions. Maybe to pick up where you just left off on the outlook for adjusted EBITDA. Can you remind us how we should be thinking about OpEx here over the next handful of quarters? And then I guess bigger picture, as you cross the adjusted EBITDA positivity threshold, does that change any of your views on how you think about investments or being more aggressive on the spend after you cross that milestone? Thanks.

Ron Kalfus, CFO

Yeah. I’ll take that, Andrew. The important point on the gross margin is that it’s where we expected it to be, and it’s where our target was to flip EBITDA positive. We’re very confident that the P&L is showing the progress we anticipated, right, the decline in adjusted EBITDA. We reported it for Q4 to give a baseline for the progress we've made and the path that we have to achieve here. Regarding your second part, will that catalyze additional investments? I think our growth strategy remains the same as it has over the last number of years. We are becoming more recognized as a potential partner for growth opportunities in the space based on the strength of our channel and our access and influence over our urology and pathology group customer base. We are going to be very rigorous in evaluating these, and I think we have a very good model for how we look at opportunities and how we execute on them. I think it's unlikely to be transformative M&A, but if you look at how we’ve compiled our menu, we have visibility to opportunities, and we’ll evaluate them as we go. But no material change to our strategy. I think the business begins to fund itself as we cross operating profitability. This really ensures that we’re well-positioned to operate, execute, deliver results, and be funded as a company to drive that growth and meet all of our obligations.

Andrew Brackmann, Analyst

Great. That’s perfect color. And then, Mike, as my follow up, there’s been a lot of chatter around some of the NCCN guidelines that were published in December for GPS. Maybe just big picture, how has this impacted the business, if at all, over the last two months since that came out? And then separately, how should we be thinking about the potential for you to generate level one evidence there? Thanks.

Michael McGarrity, CEO

Yeah. I’ll take the back part first. We communicated publicly that we have a plan based on our partnership with Oxford to drive our data and access level one coverage. It’s important to note that I think with regard to the NCCN guidelines, I think it created more confusion than directed behavior. I believe our results with our tissue-based tests reflect that. As we look at Q4, our growth is actually accelerating through that period. I’ll be careful here, but I believe many positions have been overplayed with regard to that communication and the immediate response. What we’re confident in is our channel checks, our relationships, and how clinicians, our customer base, absorb that information to make clinical decisions regarding which test to use for which patient population. Our growth rate supports that, and we’re very confident in our position regarding the guidelines. More importantly, our understanding of the adoption of these tests is strong. For GPS in particular, we believe our data and positioning in the patient population we serve is not only compelling but best-in-class. We remain confident that our results today reflect that position and inform our view forward for 2025.

Andrew Brackmann, Analyst

Great. Thanks, guys.

Operator, Operator

And the next question comes from Thomas Vranken with KBC Securities. Please go ahead.

Thomas Vranken, Analyst

Hi. Thanks for taking my questions. Maybe to start off, I want to build on a previous question. Mike, how do you currently think about the breadth of the test menu at this point in time? Should we potentially anticipate any new test additions for 2025?

Michael McGarrity, CEO

Well, I’ll repeat, Thomas, our current menu and the market opportunity associated with that would allow us to meet our growth objectives for the foreseeable future. Our growth rates are speaking to the fact that we are driving growth through both market conversion and market share. Particularly in our tissue-based test, our growth rate has accelerated through Q4. That can only happen when those two factors are working together. The most important point is that absent any additional growth opportunities, we believe our growth is sustainable. We will be opportunistic about new opportunities as they arise, and I am confident based on the last five years that we needed to derisk the business and become more visible. We have accomplished the first, and the latter is taking shape. We are happy with our balance sheet position going forward, and that offers us the chance to pursue additional opportunities as they present themselves. However, our guidance does not include any additional growth opportunities for 2025.

Thomas Vranken, Analyst

Okay. Thanks. I also wanted to quickly check in regarding Select. It’s been a couple of quarters since Medicare reimbursement was put in place. Do you see any impact or consequences on the commercial coverage side? Do you see that picking up or what’s the sentiment or trends there?

Michael McGarrity, CEO

Yeah. I think across our menu, you’ll see our unit revenue growth complement each other. We have clearly seen the unit growth across our menu for the year in both liquid and tissue. Our pricing is holding or accelerating across our menu. We don’t, of course, report that test-by-test, but our market access managed care team has done a tremendous job of driving coverage expansion across our menu with commercial and private payers, and we expect that to continue. Our revenue growth is driven by unit growth, and I’m confident that we’ll continue to operate and execute on both sides.

Thomas Vranken, Analyst

Okay. That’s great. Thank you very much.

Michael McGarrity, CEO

Thank you, Thomas.

Operator, Operator

And the next question comes from Jason Bednar with Piper Sandler. Please go ahead.

Jason Bednar, Analyst

Thanks. Good afternoon, guys. I’m going to pull on some threads that have already been talked about here. But maybe as we think about the phasing of the performance throughout the year within the 20% to 22% revenue growth, it sounds like the phasing of the year is probably similar to how we’ve seen past years play out; no unique timing factors or anything. Maybe Germline helps a bit more in the second half versus the first half. But is there anything you’d call out sequentially as we think throughout the year and model revenue, again, for Q1 through Q4? Any specific items you’d want to highlight to ensure our models are accurate as we start 2025?

Michael McGarrity, CEO

Yeah. Jason, I don’t think I would call out anything specific as we go through the year, and history would suggest Q1 and Q3 can always be a little bit of wildcards regarding payer mix and seasonality. But I would say we feel very good about our sustainable adoption uptake. That’s one of the main focuses we have made over the last two to three years, where I think quarter-by-quarter we’re solidifying that with our customer base. What we are seeing today—and I hope our results reflect it—is the programs we’ve established with our customer base allow for very sticky, sustainable adoption of our menu. When you have large urology group practices with numerous urologists, that drives growth by facilitating adoption within that practice. Therefore, we monitor metrics or analyze our customer base’s adoption rates tightly, and we feel confident in how that looks as we progress through 2025. We will look forward to reporting our Q1 results along that line. Your assumption on Germline is reasonable; our guidance doesn’t significantly factor contribution from there, but we do expect it to play a role in the latter half of the year.

Jason Bednar, Analyst

Okay. Perfect. And just as a follow-up, maybe combine a couple here. Since we’re on the cusp of seeing you guys turn adjusted EBITDA profitable, what’s the next KPI or mile marker you want the investment community to focus on? Regarding OpEx spending, I heard the comment on not needing any additional sales investments to hit your targets last year. Should we anticipate the same for 2025, or what functional areas are consuming incremental OpEx spend this year? Thanks.

Michael McGarrity, CEO

Yeah. I think your assumption is correct. We feel that the sales channel will be effective as we move into 2025. I am quite confident we can deliver that. Regarding the P&L and OpEx investment, we haven’t cut our way to this success, and we don’t plan to do so going forward. Our focus on productivity across our organization, particularly with our sales channel, provides leverage. Our OpEx expansion largely scales through our laboratory and RCM group. We expect our P&L to continue to improve as the business begins to fund itself, and we’ll be prudent with any growth opportunities. Our current market opportunity allows us to build a high-growth vertical in the U.S. As for the KPIs, I will follow up with you in the coming quarters. I often get the question if a significant value-creating milestone is expected, and I want to highlight positively that we don’t have a binary event coming that drives our outlook for accelerating growth or asset value creation for the company. That is how we view it.

Jason Bednar, Analyst

All right. Perfect. Thank you.

Michael McGarrity, CEO

Jason, thank you.

Operator, Operator

And the next question comes from Mark Massaro with BTIG. Please go ahead.

Vidyun Bais, Analyst

Hey, guys. This is Vidyun on for Mark. Thanks for taking the question. So just one on GPS. That test seems to be posting pretty healthy growth. From my understanding, it’s a bit more of a mature test. Just how should we think about current levels of penetration there, any potential detail looking at 2025, or do you think those growth levels should be sustained? Thanks.

Michael McGarrity, CEO

When we assess the market opportunity for GPS, our view is that we are seeing growth in two ways: market conversion and market share. When I refer to market conversion, the market for GPS-type testing within the prostate cancer diagnostic pathway is likely around 40% penetrated. Our growth reflects success in driving that market penetration and share. There is significant opportunity for continued growth in GPS, which we do not view as mature or decelerating as we move forward. We aim to achieve a growth rate of 20% or greater, with both market conversion and share driving our efforts.

Vidyun Bais, Analyst

Perfect. That's super helpful color. And then just one on the adjusted EBITDA positivity. Any reason we shouldn’t think about that being pulled into Q1 2025 rather than Q2? Can you just remind us of any other assumptions that are embedded into that target? Thanks.

Michael McGarrity, CEO

There’s no barrier between us and achieving positive adjusted EBITDA here in the first half, whether that’s Q1 or Q2. We don’t need to make modifications to how we operate or invest. Continued execution is key, and we have high confidence in this.

Vidyun Bais, Analyst

Okay. Great. Thanks for taking the question.

Michael McGarrity, CEO

Thanks, Vidyun.

Operator, Operator

And the next question comes from Dan Brennan with TD Cowen. Please go ahead.

Dan Brennan, Analyst

Hi. Thank you. My first question is regarding Exact Sciences. What is factored into your expectations this year regarding your earn-out to Exact Sciences? And can you provide any update on potential timing of when the first earn-out payment comes due this year?

Michael McGarrity, CEO

Yes. I’m sorry, is this Dan or Kyle? I apologize. Yes, the Exact earn-out is scheduled for 2025, 2026, 2027. That payment will likely fall in Q2 each year. We’ll continue to update that, but we’re confident that our setup allows for meeting our debt facility, the business, and the operating cash flow of the business, which commences this year as we move forward. That obligation and earn-out are incorporated into our full view for growth and the entire P&L.

Dan Brennan, Analyst

Thank you.

Operator, Operator

This concludes our question-and-answer session. The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.