MDxHealth SA

Good day and welcome to the MDX Health fourth quarter and full year 2024 earnings call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to John Fronses with Life SAI Advisors. Please go ahead.

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 factor section of the company's filings with the Securities and Exchange Commission, specifically in the company's annual report on Form 20F. I'll now turn the call over to Michael McGarrity, Chief Executive Officer of MDX Health.

Thanks John. And thank you all for joining us for our fourth quarter and full year 2024 earnings conference call for MDX Health. With me today is Ron Kalfus, Chief Financial Officer. 2024 was a transformational year for MDX Health. 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%. And 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. Of course, none of these achievements can be realized without all of our operating groups 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. And 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. And 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. MDX Health is the only company that is able to provide a clinically actionable result after 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 initial biopsy. Upon 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 MDX Health 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 in a sustainable way 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 in large urology group practices. To be clear, it remains challenging for patients to navigate the pathway of diagnosis and potential intervention and or surveillance. MDX Health 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. And 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 to $110 million for 2025, meeting or exceeding 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? 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 and the December 31st, 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 expansion of our sales organization, which reflects the leverage we continue to generate from our sales channel and the greater market penetration over a 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 .7% for Q4-24 as compared to .3% for Q4-23. The decline in gross margins of 2.6 percentage points are merely attributed to our test mix and 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 upset by 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 fourth quarter 2023 adjusted EBITDA of negative $4.4 million. We believe that we are on track to achieving 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. Cashing cash equivalents as of December 31, 2024, or $46.8 million. And with a pending draw of the second tranche under our Orbit Med 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.

Thanks, Ron. I would like to take a step back and reference the goals we set as a company when I joined MDX Health in 2019. And that was to build the highest quality growth vertical in neurology diagnostics. Along the way, we have taken advantage of growth opportunities through our acquisition of the archetype 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 quality first, customers always. I would suggest that the evidence for our view is supported by the fact that our five-year revenue compound annual growth rate, or CEGR, has exceeded 50%. Whether in the sales force, laboratory operations, revenue cycle management, client services, patient advocacy, quality, and regulatory, our entire MDX Health 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 MDX Health as their laboratory partner for 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 into our target urology market. As a final comment, this urology vertical market that I reference 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 an exceptional level of service, and the quality and mission of our people has cemented a foundation of trust that we strive to earn every day in the urology community. And 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 MDX Health,

and

I'll turn the

call back over to the operator for questions.

We

will now begin

the question and answer session. To ask a question, you may press star and one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Thomas Platton with Lake Street. Please go ahead.

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

Hey, Thomas. You know, 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, you know, we're very conservative with initial introductions, revenue recognition, payer experience. 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 expect to update that quarter by quarter. I would just say that, you know, our guidance is not contingent on significant contributions from our Germline, but we're very confident, same diligence and rigor. I noted that we apply to any growth opportunities. It was applied here and we're confident that it fits very, very well with our prostate cancer menu and the way my comment about breast cancer, the way the market is paying attention to not only the diagnostics but the hereditary risk.

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?

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 be in the, to start with a sixth and be somewhere around in the mid-60s for the next few

quarters. Got it. Appreciate taking the questions. Thank you.

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

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 maybe just sort of 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 chasm to adjusted EBITDA positivity. Does that change any of your sort of views on how you sort of think about investments or sort of maybe being more aggressive on the spend after you cross that milestone? Thanks.

Yeah, I'll take that Andrew. So I think 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 positives. So we're very confident that the D&L and you're seeing what we anticipated, right? The decline in adjusted EBITDA. We've been, we reported it for Q4 to give a basis for A, progress we've made and the path that we have to flip here. As far as the second part of your question, you know, will that catalyze additional investments? I think that our growth strategy remains the same as it has over the last number of years, right? We are becoming more obvious as a potential partner for growth opportunities in the space based on the strength of our channel and our access, you know, and influence over our urology and pathology group customer base, but we're going to be very, I'll go back to the term rigorous in evaluating these and I think we have a really good model for how we look at opportunities and how we execute on them. I think unlikely to be transformative M&A, but if you look at the way we've put together our menu, we have visibility to opportunities and we'll look at them as we go, but you know, no material change to our strategy. I think the business begins to fund itself as we cross operating profitability and that really ensures that we, you know, we're very confident in our ability to operate, execute, deliver results and be funded as a company to drive that growth and meet all our obligations.

Great, that's perfect color. And then Mike, as my follow up here, there's been a lot of chatter around the NCCN guidelines that were published in December for GPS. Maybe just a 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 sort of thinking about the potential for you to generate level one evidence there? Thanks.

Yeah, I'll take the back part first. So, you know, 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 you noted appropriately that I think it created more confusion than directed behavior. I think our results with our tissue-based tests reflect that. I think, you know, as you look at Q4, our growth is actually accelerating through that period. And I'll be careful here, but I think a lot of positions have been overplayed with regard to that communication and the immediate response. What we're very, very confident in is our channel checks, our relationships with the way clinicians, our customer base, as well as our target customer base, absorb that information and makes clinical decisions about which tests to use for which patient population I think speaks to our error results. And so we're very confident that we are very confident in our position with regard to the guidelines. And I think maybe more importantly, our understanding of the way these tests are adopted. And if you look at GPS in particular, we would put our data and positioning in the patient population that we serve most is not only compelling, but best in class. So we continue to be confident that the results that we're presenting today reflect that position and obviously inform our view forward for 2025 for in our ability to continue to drive and deliver this.

Great. Thanks guys.

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

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 test menu at this point in time? Should we potentially anticipate any new test additions for 2025?

Well, I'll hit it again. Thomas may be referring to the way I addressed the first time. I think it's important to note that our current menu in the market opportunity associated with that would allow us to meet our growth objectives for the foreseeable future. I think our growth rates are speaking to the fact that we are driving growth through both market conversion and market share. Particularly when you look at our tissue-based test, our growth rate has accelerated through Q4 and I think that can only happen when those two factors are working. But the most important point is absent any additional growth opportunities that we would take advantage of, our view on our growth being very sustainable is clear. So we would look at it the same way I've commented before that we'll be opportunistic. I'll refer back to my comment that in my view of the last five years, we had to do two things with our business. We had to de-risk the business and we had to become more obvious. I think that we have done the former. I think the latter is taking shape. We're confident that I'll reserve any comments on the current market evaluation other than to say we are very confident that we focus and execute and deliver results quarter after quarter. The business begins to fund itself. We like our balance sheet position going forward that that will all solve for itself and that's what everybody here on the team is. We would update on additional growth opportunities as they present themselves to us and we execute on them but our guidance does not contemplate any additional growth opportunities through 2025 for

sure. Okay thanks and I also wanted to quickly check in with regards to select. It's been a couple of quarters now since Medicare reimbursement has been put in place. Do you see any impact or any consequences on that on the commercial coverage side as well? Do you see that picking up or what's the sentiment there or what are the trends there?

Yeah I think across our menu if you look at our unit revenue growth as they complement each other we've clearly seen the unit growth across our menu for the year in both liquid and tissue and our pricing is holding or accelerating across our menu. We don't obviously report that test by test but our market access managed care team has done a really nice job of continuing to drive expansion of coverage across our menu with commercial and private payers and we expect that to continue. So our revenue growth as you can see the unit growth drives the day but we are seeing really solid footing on the pricing side and we would expect that to continue. Again no heroics required on the pricing side to drive our 2025 revenue view but we're confident that

we'll

operate and execute

on both those fronts. Okay that's clear thank you very much. Thank you Thomas.

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

Hey 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 you know within the -22% revenue growth. I think it sounds like the phase 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 first half but I guess is there anything you'd call out you know sequentially as we think throughout the year and model revenue again one Q through four Q. Again just anything you would call out to make sure our models are all in the right spot here getting going in 25.

Yeah Jason I think you know I don't think I would call out anything specific as we go through the year and history would inform you know Q1 and Q3 can always be a little bit of wild cards with regard to pay or mix and seasonality but I would say that you feel really good about where we are in the uptake and sustainable adoption. I think that's one of the main the progress we've made over the last two to three years where I think quarter by quarter was a little bit more getting solidified with our customer base. I think what we're seeing today and hopefully our results reflect it as well as our view forward is that I don't want to refer to it as compliance to our pathway but we really the programs we've put in place with our customer base allow for really sticky sustainable adoption of our menu and you think about our geology group practices you know the reason I think we've been able to drive the growth without expanding our sales organization that only happens if the adoption is sustainable within a practice and some of these larger oligarchic practices that have 5, 10, 15, 20, 25 urologists in the practice that begins to really drive growth as a function of driving adoption within that practice so I don't think there's anything we don't measure metric or analyze in our sales organization and our adoption profiles of our customer customer base I should say and so we like that the way that looks as 2025 unfolds and we will look forward to reporting our Q1 results along that way. I think your assumption on germline is a fair one. That's the point I made on our guidance isn't counting on significant contribution but we do expect it. I think back half the year is a reasonable.

Okay perfect

and just as a follow up maybe combine a couple here but you know since we're basically on the cusp of seeing you guys turn eva.profitable or adjusted eva.profitable what's the next KPI or mile marker you want the OPEC spend? I heard the comment on not needing any sales or any additional sales investments to hit the targets last year. Are you willing to make the same comment for 2025 if you did? Sorry if I missed it. Just kind of trying to figure out where what functional areas are consuming incremental OPEC spend here this year. Thanks.

Yeah Jason I think your assumption is correct. You know we feel like our sales channel will actually all be together here next week. It's probably my favorite few days of the year but we feel very good about our sales organization individually and collectively and they will be the group to take us through 25 so we're very confident we can deliver that. As far as broadly on the P&L outbacks investment you know we haven't cut our way here and we don't anticipate cutting our way going forward but what I would say is that when you look at our business based on what we've put in place and the productivity across our organization but particularly with the sales channel it really begins to provide a leverage really our you know our OPEC's expansion is largely scaled through our laboratory and RCM group so we would expect you know our P&L just to continue to prove for the business to begin to fund itself and yet we'll be very prudent with growth opportunities but again our mark our current market opportunity we're very confident that we can build continue to build a high growth vertical into

the around. All right anything on the KPIs you want to stab in mind Mike or you want to you know hold off on on that until you get past this you get to keep it up profitability.

I think I will look to follow up with you over the coming quarters you know I think the only thing I would say is what we feel get the question often is there some something coming some value creating milestone that we can look to and we view positively that we don't have a binary event coming that we're counting on to drive you know our view of our ability to continue to accelerate from a growth perspective and build value as an asset for the company

I think that's that's the way we view it. All right perfect thank you Jason thank you.

And the next question comes from Mark Mocero with BTIG please go ahead.

Hey guys this is Vivian on for Mark thanks for taking the questions. So just one on 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 defile looking at 2025 or do you think those growth levels should be sustained?

Well I think when we look at the market opportunity for GPS you know when I made a comment that we're seeing growth two ways market conversion and market share and when I speak to market conversion you know when you look at the the market for GPS type testing in the diagnostic pathway of prostate cancer it's probably plus or minus 40 percent penetrated and so when I speak to the two levers of growth it's market penetration and market share the market penetration is driving that market penetration up for those tests which we which we're seeing particularly with GPS and low very low low intermediate risk patient population that we serve and but also you know I think our growth rate would suggest that we're also driving growth on the on the on the share side so we we actually view significant continued opportunity for growth in GPS and do not view it as mature or decelerating as we go forward I don't think we could provide a view of 20 percent or greater growth not only for this year but our goal is to have that be very sustainable without both those

opportunities in front of us to drive a market conversion share.

Perfect that's super helpful color and

then just one on the adjusted eva-gov positivity any reason we shouldn't think about that being pulled into Q1 25 rather than Q2 can you just remind us about any other assumptions that are embedded into that target?

Thanks. Yeah there's nothing between us and flipping adjust the eva-gov positive over here in the first half which is clearly Q1 or Q2 and we don't need to make any changes to the way we're operating investing it's it's continued execution which hope

you're getting the sense we have high confidence

in. Okay great thanks for giving the question.

Thanks Vivian.

And the next question comes from Dan Brennan with PD Cowan please go ahead.

Hi thank you. My first question is as far as exact sciences what is baked 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?

Yes so sorry is this Dan or Kyle? I'm sorry. Dan? Yeah the

the exact earn out is 25 26 27 that payment will likely fall in Q2 each year so we'll continue to update that but we're confident that our setup you know allows for a meeting between our debt facility the business the operating cash flow of the business which commences here this year as we go forward so that obligation and earn out is incorporated into our full view forward as a company for

our growth and full P&L. Thank you.

This

concludes our question and answer session

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