MDxHealth SA (MDXH) Q3 2024 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary indicates strong financial performance with a 32% revenue growth and raised guidance. Despite a decline in gross margins and increased operating loss, the company has a solid cash position post-equity financing. The Q&A highlighted management's confidence in meeting guidance and sustainable growth through urology adoption and test expansion. Analysts' questions reflected interest in growth levers and market dynamics, with no major concerns raised. The overall sentiment is positive, with potential stock price increase driven by raised guidance and sustainable growth outlook.

Key Financial Performance

Revenue $23.3 million, an increase of 21% year-over-year from $19.3 million. This growth was organic and achieved without expanding the sales organization.

Gross Profit $14.3 million, an increase of 14% from $12.6 million year-over-year. Gross margins were 61.2%, down from 64.9% due to the backlog of Select Medicare cases recognized in the prior year.

Operating Loss $6.1 million, compared to $4.6 million in the prior year, driven by timing of clinical study expenses, GPS laboratory transition, backlog of Select revenue, and sales incentive compensation.

Cash and Cash Equivalents $49.3 million as of September 30, 2024, including approximately $37.8 million in net proceeds from equity financing. Pro-forma cash balance after additional share purchase is $53.5 million.

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Operating Highlights

Test Volumes: Total billable volume was 22,795 tests, representing total unit growth of 30%. Tissue-based tests exceeded 10,000, a 36% increase; liquid-based tests exceeded 12,000, a 24% increase.

Revenue Growth: Third quarter revenue was $23.3 million, a 21% increase year-over-year.

Revenue Guidance: Raised 2024 revenue guidance from $85-$87 million to $87-$89 million, indicating over 25% year-over-year growth.

Market Positioning: MDxHealth is positioned as a leader in precision diagnostics within the high growth urology market.

Market Expansion: The company is focused on expanding its market penetration in the $5 billion U.S. addressable market.

Operational Efficiency: Achieved revenue growth without expanding the sales organization, indicating effective leverage from existing sales channels.

Cash Position: Raised $40 million in gross proceeds, with a pro-forma cash balance of $53.5 million, supporting future obligations.

Strategic Focus: Emphasis on execution and driving shareholder value through enhanced access to tests and adoption among key opinion leaders.

Clinical Value: Focus on providing clinically actionable results from prostate biopsies, improving patient follow-up and intervention.

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Risk or Challenges

Regulatory Issues: The company acknowledges inherent risks and uncertainties related to forward-looking statements, which are detailed in their filings with the SEC.

Competitive Pressures: MDxHealth operates in a competitive market for precision diagnostics, particularly in urology, where they face challenges from other diagnostic companies.

Supply Chain Challenges: The company may encounter supply chain challenges that could impact the availability and delivery of their diagnostic tests.

Economic Factors: The rising incidence of prostate cancer, influenced by the pandemic and an aging population, presents both a challenge and an opportunity for the company.

Financial Performance Risks: The operating loss increased to $6.1 million, indicating potential financial performance risks, particularly related to clinical study expenses and sales incentive compensation.

Market Penetration Risks: While the company has achieved organic growth, there is a risk associated with market penetration and the ability to maintain growth without expanding the sales organization.

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Guidance & Outlook

Revenue Growth: MDxHealth anticipates strong and sustainable revenue growth of at least 20% for the full-year 2025.

Capital Raise: In September, MDxHealth raised $40 million in gross proceeds to support future obligations and growth.

Market Position: MDxHealth aims to maintain its leadership position in urology precision diagnostics.

Test Volume Growth: Total billable volume increased by 30%, with tissue-based tests growing by 36% and liquid-based tests by 24%.

Clinical Value: MDxHealth emphasizes the importance of molecular details from prostate biopsies to inform patient follow-up and intervention.

2024 Revenue Guidance: MDxHealth raised its 2024 revenue guidance from $85-$87 million to $87-$89 million, reflecting over 25% year-over-year growth.

Adjusted EBITDA: MDxHealth anticipates reaching adjusted EBITDA positivity in the first half of next year.

Long-term Growth Objective: MDxHealth aims for at least 20% year-over-year growth over the next several years.

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Shareholder Return Plan

Equity Financing: In September, MDxHealth raised $40 million in gross proceeds from equity financing, supported by strong institutional investor demand.

Overallotment Option: On October 28, the underwriters of the September offering exercised their overallotment option to purchase an additional 2.2 million shares, providing MDxHealth with an additional $4.2 million in net proceeds.

Pro-forma Cash Position: Following these transactions, the pro-forma cash balance as of September 30, 2024, stands at $53.5 million.

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Key Q&A

Q:Looking at the guide for the year you raised, by about the amount of the beat, the midpoint of the guide implies sort of a Q-over-Q step down from 3Q. Is that just conservatism in the guide or are there any specific factors that we should be thinking about in 4Q?

A:Q3 can be a wildcard for seasonality. Clearly, our business grew right through that. Q4, just based on holidays, we look at our trends on a business per day perspective. So, with less days, you can extrapolate, but we’re very confident in meeting or exceeding our updated guidance.

Q:How should we think about going forward how M&A fits into your overall strategy? Are you focused still more on an introduction of in-house developed tests or maybe do you think you’ll be more acquisitive going forward?

A:We think we have a good mix of how we put together our menu. Just over two years ago, we had one test generating revenue. We now have five, all covered by Medicare. We feel like we’ve got a good growth trajectory. We’re optimistic that our menu will look different 18 months to 24 months from now, likely not transformative M&A but more channel growth opportunities.

Q:Can you maybe just talk high-level about the revenue growth levers you see for 2025 and the variable that play there?

A:It’s a combination of the adoption that we’re seeing of our menu in urology, and the growth in tissue-based tests, which carries the majority of the revenue growth. We feel confident that the combination of our menu and the way that it’s being adopted is sustainable.

Q:Could you maybe just talk to us about end market dynamics, as you sort of think about drivers of test volume, how much of that comes from market penetration, share win and utilization increases?

A:The adoption of our menu is different than it was a few years ago. When we get adoption from urology pathology clinical coordinators, it becomes sustainable. Our reps haven’t expanded our sales organization because customers are becoming self-sustained on our menu.

Q:What do you see as the key levers for ASP growth from here? And, in terms of adding commercial pay, are they looking for more evidence generation or just what has dialogue been like on that front?

A:We feel like in the lab business, we have opportunity. We’ve tightened our payer distribution curve. We have room for growth on the coverage side and we’re seeing that.

Q:Just any qualitative color to share on the early uptake of that test?

A:We do expect contribution here in the second half of this year, not material in Q3, but we’re still very optimistic about the opportunity.

Q:Can you share on what percentage of docs order multiple tests and anything along those lines to help us understand kind of what the growth opportunity is on a kind of individual doctor basis?

A:That’s a metric we definitely track internally. We don’t report it publicly, but we track utilization by customer to understand if they’re using the test occasionally or if it’s part of their practice.

Q:Anything you’ve heard anecdotally or anything you’ve seen in the data to support there being an impact to your business from hurricanes?

A:Fortunately, no other than keeping track of our people down there, but no I wouldn’t point to that as any sort of mitigation or challenge for us through the quarter.

Q:Can you talk about the makeup of that 20% plus revenue growth outlook for next year as you look across your legacy tissue and liquid-based tests and then that of Germline as well?

A:We really think pretty balanced. The tissue-based tests account for about 80% of our revenue. We like the balanced growth we’re seeing this quarter.

Q:Can you maybe talk about the gross margin assumptions underlying that outlook?

A:The flip to positive EBITDA is really a function of our confidence in our revenue growth and our operating discipline with regard to OpEx.

Q:Review of Unclear Management Responses

A:Management did not provide specific metrics on the percentage of doctors ordering multiple tests, stating that it is tracked internally but not reported publicly. Additionally, there was a lack of clarity on the early uptake of the Germline test, with management only stating they expect contribution but not providing specific data.

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Earnings Word Cloud

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