MDxHealth SA (MDXH) 2024 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the MDxHealth first-quarter 2024 earnings call. (Operator Instructions) This call is being recorded on Wednesday, May 1, 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.

Thanks, Constantine, and thank you all for joining us for our first-quarter 2024 earnings conference call for MDxHealth. With me today is Ron Kalfus, Chief Financial Officer.

I am pleased to report that our business continued to generate strong top-line performance in the first quarter of 2024, with revenue growth of 35% compared to the first quarter of 2023. Our results reflect our continued focus on commercial execution and operating discipline, which we believe will drive sustainable growth through 2024 and beyond.

On our last call, I noted our strategy of creating multiple sources of growth. That proved to be the case for the first quarter of 2024. And in a moment, I'll provide greater detail on some of the key factors that helped drive our strong performance. But first, I would like to comment on the steps we have taken to further strengthen our balance sheet and support the execution of our growth strategy.

Today, we announced a $100 million financing agreement with OrbiMed, of which $55 million has been drawn and which enables us to refinance our former debt facility and significantly extends our cash runway well through our projected turn to adjusted EBITDA profitability in the first half of 2025. We are obviously quite pleased to have the financial support and considerable commitment from OrbiMed, a leading healthcare dedicated fund, which we believe reflects the significant growth opportunity for our company, and the underlying positive dynamics in our target markets, and Ron will provide details of this financing later in the call.

Now a few brief highlights from our results that support our view that our growth trajectory is sustainable. We reported first-quarter revenue of $19.8 million, an increase of 35% over the prior-year period. Of note, and as I have consistently stated, we have two levers of revenue growth, with our sales team driving unit adoption from our urology customer base; and our market access managed care team driving coverage, which shows up in our average sell price.

In Q1, we clearly delivered on both levers with billed prostate volumes rising to over 12,000 billed tests, which represents a unit growth of 16% year over year, with pricing and Resolve growth covering the rest. We believe this is an uncommon mix of strength and execution from our commercial team and are confident it is quite sustainable. These two important metrics clearly underscore the growth opportunity ahead for us as we continue to expand our offering and build our market-leading position in precision neurology diagnostics.

We recently communicated our menu edition of our hereditary germline test that will augment our comprehensive menu of diagnostics in the pathway of prostate cancer. We received our first clinical samples at the end of Q1, ahead of our expectations, and now expect revenue contributions from the test in Q2 versus our previous view of second half of 2024.

As an important fact to note, this offering supports clinically actionable decisions for both the patient and clinician at multiple points in the often-confounding diagnostic journey for patients. Hereditary germline testing, as with all of our prostate cancer diagnostics, is both covered by Medicare and included in the NCCN guidelines.

As with any growth opportunities we consider, we undertake a very rigorous and disciplined diligence process to ensure that new product will fit seamlessly into our commercial focus and bring value to our customer base. In evaluating such opportunities, it is of note, as was the case with the success of our Resolve test, that these drivers of growth most often come from our customer base as urologists increasingly turn to MDxHealth for solutions based on our reputation and influence among our urology customers.

Our growing reputation, we believe, reflects our commitment to best-in-class laboratory service, customer experience support, and patient advocacy. These developments, both individually and collectively, serve as the basis for increasing our 2024 revenue guidance to $83 million to $85 million from the previous $79 million to $81 million, which represents 20% year-over-year top-line growth, which we view as a long-term sustainable goal.

These dynamics underscore our confidence in turning adjusted EBITDA positive in the first half of 2025. We have clear visibility to our use of cash declining over the coming quarters, coupled with our revenue growth and operating discipline. And we're excited to deliver that metric in a few quarters.

In a moment, I'll provide some closing comments on the considerable progress we have made as well as our view of the future. But first, let me turn the call over to Ron for a brief review of our financial and operating results for Q1. Ron?

Thank you, Mike. As Mike mentioned, today MDxHealth closed and funded $55 million under a new loan and security agreement with OrbiMed Advisors, which replaces the company's existing $35 million outstanding under our current debt facility.

Furthermore, at our option, an additional $45 million can be drawn from OrbiMed, consisting of a $25 million Tranche B and a $20 million Tranche C. The B and C tranches can be drawn in 2025 and in 2026, respectively, at our discretion subject to certain conditions.

Onto our first-quarter results. We're pleased to report strong top-line growth in the first quarter of 2024. Revenues for the first quarter ended March 31, 2024, increased by 35% to $19.8 million versus $14.7 million for the first quarter of 2023. All of this growth is organic and reflects greater market penetration of our full line of tests into the large addressable market through outstanding execution of our sales and marketing team. Revenue from our prostate cancer tests made up approximately 85% of our Q1 2024 revenue.

Moving below the revenue line, our gross profit for the first quarter of 2024 was $12.1 million, an increase of 38% as compared to $8.7 million for the first quarter of 2023. Gross margins were 60.8% for Q1 2024 as compared to 59.3% for Q1 '23.

Operating loss for the first quarter was $6.6 million compared to $8.7 million for the first quarter of 2023, representing a reduction of 24% driven by top-line growth, improved gross margins, and continued operating discipline. Also of note is that we were able to drive a 35% growth in revenue with only a 7% growth in operating expenses, which was largely driven by sales commissions on that growth. This is a testament to the operating leverage we are now generating and believe our sustainable.

Cash and cash equivalents as of March 31, 2024, were $14.5 million.

This concludes my brief overview of the results, and I will now turn the call back to Mike.

Thanks, Ron. Over the past few years, MDxHealth has evolved to become a premier growth story in precision diagnostics. Quarter after quarter, we are driving revenue growth and operating metrics toward profitability that far exceeds the secular growth rate within the clinical diagnostics sector. This progress is rooted in both the positive underlying demand we are seeing in our end markets and our team's solid execution.

This process has been catalyzed by expansion of our menu from just a single test generating revenue at the beginning of 2022 to now four prostate cancer diagnostics, all of which are covered by Medicare and included in the NCCN guidelines. This menu expansion, carefully and thoughtfully conceived of with our marketing and KOL partners, coupled with the strength of our sales channel, all together provide access to a nearly $5 billion US addressable market. It is important to note that our adoption and penetration has validated this TAM as accessible and viable serving to drive considerable growth in the near and long term.

Our view of growth is also supported by empirical evidence in the market. The increasing diagnosis of prostate cancer, particularly at an earlier stage of disease, coupled with greater appreciation by clinicians and patients of the clinical value of our advanced precision diagnostics at each point of the pathway, all drive acceptance by both patients and clinicians to guide optimal diagnostic and treatment options.

In fact, I think it's reasonable to say that men's health in the urology segment, and prostate cancer in particular, is where women's health and breast cancer were maybe 25 years ago, from both the public and clinical perspective. In our view, the earlier diagnosis of prostate cancer, along with the use of more precise diagnostics, are two trends that will only accelerate over time. And MDxHealth is exceptionally well positioned to benefit from these market dynamics.

Finally, I would also like to note our relationships continue to improve and expand within the medical community. Our partnership with urology customers has always been best in class. However, over the past couple of years, we have also recognized and embraced pathology as a key partner in driving further adoption of our menu. This evolution is actively supported by our sales and marketing teams who have cemented a KOL network and pathology that complements the positioning of our menu and our overall growth strategy.

In summary, our company is positioned in the right end markets and leveraging best-in-class technology and customer service to position MDxHealth as one of the most widely recognized high-growth companies in precision diagnostics. And with the capital now in place to support our long-term growth, I believe our future is brighter now than at any point in our company's history. As always, we carry a great deal of responsibility to provide value to all of our stakeholders, including patients, customers, payers, and shareholders.

So thank you for your interest in and support of MDxHealth. And now I'll turn the call back over to Constantine for questions.

(Operator Instructions) Andrew Brackmann, William Blair.

(inaudible) and all the color on this update. Maybe just to start here on the increased guidance for the year. Obviously, I think a lot's going well for you guys on the underlying basis. But can you maybe just parse out for us the drivers of that increase? How much of that relates to the hereditary testing launch and versus just the overall better trends that you're seeing in the quarter here? Thanks.

Yeah, Andrew. We have seen, and we expect to continue to see, balanced growth across our menu. So while we're very encouraged by the germline initial acceptance, the basis for taking the guidance up is the fundamental menu and adoption of our pathway to the points that I commented on. And we think we'll continue to see that through the quarter.

I mean, our Q1 revenue growth was 35%, very balanced across our menu. Without germline, we expect that growth to continue. And at the midpoint of our new guidance, we're at 20% growth. So we view that as reflecting our key and core prostate cancer menu.

Thanks. And then on the financing, it appears -- and I think you said this, it takes you to cash flow positivity, but can you maybe just also talk about the flexibility it provides with respect to the contingent payments to Exact Sciences? And maybe just refresh us on how you're currently thinking about those obligations and pathways that you have available to you. Thanks.

Yeah, Andrew. We're very confident, and obviously, appreciate the support and view from OrbiMed on the fundamentals of our business. Your comment about our earn out with Exact, so I've commented before that it's really a partnership there and there's a component of the earnout whereby we, at our discretion, can push cash or equity to Exact Sciences up to 7.5% of the company. So we'll be opportunistic as we go forward.

And we do have, as you noted, a significant now in place flexibility to operate and to accelerate our growth going forward. And we believe that everything is in place at this point to take the company really all the way through. And we're excited to continue to deliver results. That's the focus of our operating team.

Perfect. Maybe if I could just sneak in one more here just on LDT regulation. Obviously, I think I read positive for you all when that came out a couple of days ago, but just sort of thinking about future test launches or product modifications. Can you maybe just talk about how that final rule may change things from a regulatory or cost dynamic for you guys moving forward?

Yeah, Andrew. I don't want to say that we were obviously encouraged by what came out. It's candidly what we anticipated just based on the body of evidence that we have in place with our menu from our data, clinical, and scientific benefit, Medicare coverage, NCCN guidelines. And I've always emphasized New York State approval as maybe the highest bar there is, and clearly, they lean on that as well. So we believe that all the criteria we have in place has been met. So that does give us relief as we go forward.

To the second part of your question, I think it does two things that we also view very positively, is one, it creates a significant barrier to entry for competition in our target markets and in our expanded menu offering.

And to the other part of your question, we always look at and base on company experience and the challenges with coverage and guidelines and approvals that we look at that at every opportunity we consider going forward that those have been derisked. So it doesn't change our strategy of execution, our view of growth, and it really, we believe, insulates us from a competitive perspective in the market for the foreseeable future.

Okay. Thanks, guys.

Thanks, Andrew.

Jason Bednar, Piper Sandler.

Hey, good morning, guys. Congrats on all the updates here. I wanted to pick up on maybe some of the same topics Andrew is referencing. I'll maybe focus on the EBITDA profitability timeline. That first half '25 profitability seems even more likely now. But I also would think maybe there's a chance it comes sooner than what you previously thought in light of that revenue strength that you're seeing here.

And also, Ron, you referenced that the operating expense structure just continues to grow at a pretty modest rate. So maybe help us out, why not adjust that target alongside the bump in revenue guidance this year? Or are there other investment decisions that you're not contemplating in light of that revenue strength?

Yeah, Jason. I think our view has always been if we put something out there, our expectation is that it will be met or exceeded. I think that's the way we view our turn to EBITDA profitability in Q1 or Q2 of 2025 is what we've communicated. We're very confident in that. I think I would leave it there right now.

But our inside expectations are, as you know, higher than maybe what's on the street. And so, we focus on the execution. But this clearly, I think, cements our view that our business is a few quarters from really looking, I think, uncommon in our sector. The revenue rate, at the growth rate, at our ability to hold our OpEx, and be profitable from a P&L perspective, we like where we're going and we think we'll look very strong as we look at the market opportunity.

Yeah, absolutely. Couldn't agree more, Mike. Yeah, and Andrew was asking too about germline, and maybe with that contribution within your guide, it doesn't sound like you really want to break out maybe the components of the $4 million bump to the midpoint revenue guidance this year. But maybe ask a different way on germline, how should we think about the revenue exit rate of that test from exiting '24, really just as we start thinking about building this contribution in for 2025?

Yeah, Jason. I think I want to make sure that the move on guidance wasn't based on our germline. We were very encouraged that we received our initial clinical samples. I think for me, candidly, it validates the diligence that we did and do on these types of opportunities.

And it really is based in our customer base, right? We don't make these decisions inside, right? It's all done in consultation with our customers and our key opinion leaders. So that, we feel very positive about, but the basis for the guidance is our fundamental menu and sales execution.

So as we look out, I don't want to guide to a specific product, but are we confident that we can drive sustainable adoption into our customer base? It really follows -- I'm not going to forecast similarly to the Resolve, but it really follows the same operating process, where we spent time and diligence validating everything that we think is important as we go forward and once we put something into our sales channel and we're confident that it can drive revenue growth.

And this particularly last comment I'll make here is that it really fits into our diagnostic pathway at multiple points. So when you look now, as a patient, is taken through elevated PSA all the way through to high-grade intervention, active surveillance, our menu really is a clinically actionable guide at each step in that process. And we think that the germline, and that was my comment on the understanding of risk for patients, really makes sense for us to add that to our offer.

All right. Excellent. Just one more for me, Ron, as you were running through some of the overview on the debt terms, I think you mentioned those two additional tranches. They have maybe some conditions or terms. I don't know if you're willing to go into any of those today or if they're even relevant, but are those revenue or EBITDA dependent? Or any other financial or operational bars that you need to clear in order to tap those additional term loans?

Go ahead, Ron.

There are certain conditions, Jason. And if you look at our filings with the SEC, the agreement's been disclosed. So if you look there, you'll see to the extent that we could disclose, the conditions are there.

Okay. Thanks so much, guys.

Thanks, Jason.

Mark Massaro, BTIG.

Hey, guys. Congrats on a strong quarter. I guess I wanted to ask, it's great to see the 35% growth in the quarter and the raise to the guidance. It sounds like the raise to the guidance is not on the germline. So is it safe to say that you're feeling good about the breadth of the portfolio throughout the course of the year? And then are you willing to provide any qualitative comments on some of the product lines, whether it's Confirm or Select? Just give us a sense for how the overall portfolio did in Q1.

Yeah, Mark. I get the question. We do feel good. The guidance move is not based on germline. So your assumption is correct there. And if you go back a number of quarters when we made the GPS acquisition, we clearly stated that our focus was on, well, two things. One, the integration, transformation of our sales organization.

And the complexity of that, candidly, I may have underestimated that. I thought it would take a quarter or two. It probably took two to three. But at the mid-year of last year, we really felt like we had that in place with the right team. And we had focused very strongly on that other side of the initial biopsy, right? Because we're the only company that has a answer whether that initial biopsy is negative or positive. And those are tissue-based tests that clearly carry the highest reimbursement and average sell price.

So it's critical that we really cemented that piece of our business and that position in our urology customer base. And we feel like that effort is coming through, and we're seeing that. So we're very confident in the trend in our GPS and Confirm business. We did take some focus off Select through that process, but we're now back to the full diagnostic pathway offering. And that's where my comment on pathology becomes so important because we really have a pretty good system and, I guess, recipe for driving sustainable adoption of our pathway into these practices, and it's critical that you have urology and pathology on board.

So that's a material development, I think, in our focus and our strategy. And we expect germline to fit into that. And clearly, our Resolve opportunity has been validated as far as that diligence process, as well as the strength of our channel. We're not knocking on doors to sell Resolve or germline. We bring that right into, and actually comes from, to my previous comment, our current customer base.

Yeah. And then probably not everyone on the call has gone through the terms of the OrbiMed deal. This is five years, interest-only, and this is debt. Are there any other terms you can call out in terms of the financing over time and why you chose that over other alternative forms of financing?

Well, couple things there. Number one, we don't think there's a higher-quality partner in our space than OrbiMed. And as you can imagine, their diligence was quite rigorous on our business and our view forward. We think the structure gives us flexibility and optionality as we go forward and also the time with that interest-only period.

So we think it's the ideal structure for where we are today and still allows us all the flexibility to continue to operate and execute with the business. So I think there was a number of criteria from our side, and clearly, we really value the commitment. We think that all of the different aspects of our business now give us that flexibility and really clear the path for our business all the way through.

Excellent. Last one for me. As we're updating our models later today, is it reasonable to think that revenue could grow -- it looks like revenue was up a little bit sequentially, but is there any reason to believe that -- as we think about any seasonality to the business, typically Q1 is, I think, lighter. Q2 is typically higher. Is it reasonable for us to put in a slight increase sequentially in revenue throughout the course of the year?

I think that is a reasonable assumption.

All right. Congrats, guys. That's it for me.

Thanks, Mark.

Daniel Brennan, TD Cowen.

Great, guys. Thanks. Thanks for the questions. Maybe the first one, I know you talked about adjusted EBITDA profitability in the first half '25. So can you remind us, is that consistent with free cash flow positivity then?

It is not. It's adjusted EBITDA. [Probably no].

And in terms of free cash flow positivity, Ron? Or Mike, excuse me. When would you guys feel you would --

We would be generating operating cash at that point. So it depends on how you define it, I guess, from a P&L perspective. We would still have, below the EBITDA line, our debt service and earn out to Exact, which we believe this facility solves for. And that's why we think, in combination, our operating leveraging coupled with the facility that we have in place now gives us that -- coupled with the Exact equity earn-out option sets us up very well for free cash flow.

Perfect. Okay. And then on the guide, I know you didn't provide explicit guidance for 1Q previously. But I think you talked about revenues would decline quarter to quarter seasonally, and obviously they didn't. They grew 2%. So did 1Q come in better than you anticipated? And if so, what came in better?

Well, I would say that our inside expectations and model are coming along very much in line with our expectations. So we believe that from a market perspective and transparency perspective that we see upside to the original guidance we gave. And a lot of that is just based on seeing quarter after quarter continued execution, and then when we go deeper into that execution and look customer by customer at the sustainability, the adoption and the commitment to our pathway, that will continue to inform our view of our revenue growth.

So we're very confident, as you can imagine, in the $83 million to $85 million, and we'll just continue to update on a quarterly basis.

Got it. I know there's been a bunch of questions trying to tease out some of the contributions in the quarter, but any help on Resolve in the quarter since that's a little bit different than the prostate portfolio? Just wondering how is Resolve doing? Is that still being a material contributor?

It's still a material contributor. The growth rate is continuing to be sustained, and we see continued adoption from our urology customer base of that test. So we view our entire menu, that's why I'm careful here. Individually and collectively, we're seeing strength across the menu. And obviously, the Resolve fit within our customer base. It's been validated. So while we won't grow 100% quarter by quarter, sequentially, as that business is built, we do see sustainable growth with that offering.

Got it. And then, like, consensus was at $18 million. You obviously came in on $2 million above that. And the guidance raise at the midpoint is $4 million. So I'm just wondering, versus your prior view, have you raised what you guys expected Q2 to Q4 to be? Or you're just kind of booking the 1Q upside that you saw?

Yeah. I guess Dan, I'm not going to share our modeling exercise internally, but I would say that we as a team and our Board has a view of expectations that is probably higher than what's in the market. But we believe that our guidance reflects the confidence in our business and our clear visibility to our growth being sustainable. And that's why I point to 35% growth in Q1.

But I lean on the 20% growth. So I don't want to overplay my Stryker experience. But that's the way we think, is that if you have the right team and the right menu, the right focus and the right execution, the 20% top-line growth should be our goal forever. So at least that's our goal for the next few quarters.

And then maybe last, I know there's been several questions on the germline test, and I apologize if you answered this, Mike, but did you give a price point on that test? Is it reimbursed today? And just anything on like sizing the addressable opportunity for that new germline test. Thank you.

Yeah, Dan. So the addressable opportunity is, I think the data would suggest that 10% to 20% of patients have hereditary risk. And so we view it as a real tool. It's kind of driven, that's why I made the analogy to women's health and breast cancer.

As awareness becomes more clear and men become more aware of the risks and the importance of the diagnostic availability for prostate cancer, it's starting to look more like that. And we think that germline, whether it's driven by the patient or once they present, it's really meaningful information and it can be -- prior to elevated PSA, post-elevated PSA, post-initial biopsy. So we like the fit there, and that was part of the diligence that we went through. And as far as the pricing, the Medicare rate for that test is $1,800.

$1,800. Okay, great. Thank you.

Thanks, Dan.

Thomas Vranken, KBC.

Hi. Thanks for taking my question and congrats on another quarter with solid progress as well as the upgrade of the guidance. Two questions from my side. I think the first one is also on the germline testing. So I understood based on the news that that could start contributing to revenues as of Q2. Could you give an indication as to when you would expect the test to be accretive to margins as well? Is this going to be immediately or will this take some time?

Yeah, Thomas. So we don't break out margin by product, but we obviously -- I shouldn't say obviously, but part of our process before we introduce something is that we believe that it's accretive to our business from an operating and gross margin perspective, day one, dollar one. There's always a little bit of a ramp there, but it fits well into our P&L profile.

Okay, very clear. And as a second question, I also wanted to zoom in a little bit on the OrbiMed's financing agreement. Could you give any sentiment whatsoever as to how we should think about the interest rates perhaps as compared to -- and the prior loan that was in place with Innovatus?

Yeah, Thomas. I think to Ron's point, I think we would just refer you to all of our filings for the detail on the facility, but we think it is strong, both from a commitment and from a market perspective.

Okay. Thank you very much.

Thomas, thank you.

There are no further questions at this time. And ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.