MDxHealth SA
NASDAQ:MDXH
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Good afternoon, ladies and gentlemen, and welcome to the MDxHealth Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] This call is being recorded on Wednesday, March 6, 2024. Before we begin, I would like to remind everyone that the company will make forward-looking statements during today's call. Whether in prepared remarks or during the Q&A session, these forward-looking statements are subject to inherent risks and uncertainties.
These risks and uncertainties are detailed in the Risk Factors section of the company's filings with the Securities and Exchange Commission, specifically in the company's annual report on Form 20-F.
I would now like to turn the conference over to Michael McGarrity, Chief Executive Officer. Please go ahead.
Thanks, Ludy. And thank you all for joining us for our fourth quarter and year-end 2023 earnings conference call for MDxHealth. With me today is Ron Kalfus, Chief Financial Officer.
Commercial execution and operating discipline are the 2 foundational drivers of our business and performance. And our fourth quarter and full year results for 2023, demonstrate the continued success of this strategy. It is also becoming clear that our strategy is creating multiple sources of growth for our company, including test-menu augmentation, cross-selling of complementary diagnostic solutions and expanding payer coverage.
With these growth drivers in place, we believe MDxHealth remains well positioned to continue to deliver sustainable growth that will lead to adjusted EBITDA profitability in the first half of 2025. I would now like to review a few of the financial and operating highlights from our fourth quarter and full year 2023 results that clearly demonstrate this execution.
Fourth quarter revenue was $19.4 million, an increase of 50% over the prior year period. For the full year, revenue increased to $70.2 million an increase of 89% year-over-year. Excluding the impact from GPS, total revenues in 2023 grew 42% year-over-year. In the fourth quarter, gross margin improved to 65.3% versus 56% in the prior year period, which represents a year-over-year improvement of 9.3 percentage points.
And for the full year, gross margins were 62.6% compared to 51.9% for the prior year, an improvement of 10.7 percentage points, which reflects continued focus on operating discipline, cost management and expanded payer coverage for our full menu of precision diagnostics. So what these financial metrics speak to is that we are delivering on our mission to become a premier growth company in precision diagnostics focused in the urology.
In fact, when we step back and look at the progress from only a few years ago, our growth trajectory has been, I believe, quite compelling. In 2019, MDxHealth reported annual revenue of $11 million. Today, we are now projecting 2024 revenues of $79 million to $81 million, which represents a 5-year CAGR or compound annual growth rate of over 50%. Importantly, we have also maintained our operating discipline over this period of extraordinary top line growth.
Gross margins have dramatically improved from essentially no gross profit generated by the business in 2019 to over 62% for the full year 2023. And our focus on sales force productivity, is allowing us to manage and maintain our operating expenses as we go forward. This dynamic is providing clear leverage in our P&L and reinforces our confidence in reaching adjusted EBITDA profitability.
Of course, our world-class technology, outstanding clinical lab operations and improved reimbursement for our tests, are all major factors in our success. But without question, one of the ultimate drivers for sustained execution is the strong and we believe enduring relationships we have built in our urology customer base and key opinion leader community.
In my experience, these initiatives and resulting effect on our business underpins the strength of our business model. To that end, we remain relentlessly focused on the customer experience in order to maintain and advance our best-in-class reputation. Before my closing comments, I will turn the call over to Ron for a review of our financial and operating results. Ron?
Thank you, Mike. As Mike mentioned, we are pleased to report our positive results for the fourth quarter and year-end 2023, with strong reported growth in revenues and solid improvements in gross margins. Revenues for the fourth quarter ended December 31, 2023, increased by 50% to $19.4 million versus $12.9 million for the fourth quarter 2022.
Fourth quarter revenues of $19.4 million were comprised of $8.8 million from GPS, $5.9 million from Confirm, $3.2 million from Resolve and $1.3 million from Select. For the year 2023, our revenues were $70.2 million, representing an increase of 89% over the same period last year. Excluding GPS, full year 2023 revenue increased 42% over the same period last year.
Moving below the revenue line. Our gross profit for the fourth quarter was $12.7 million, an increase of 75% as compared to $7.2 million for the third quarter of 2022. Gross margins were 65.3% for Q4 '23 as compared to 56% for Q4 '22, an improvement of 9.3 percentage points. For the full year 2023, gross profit was $43.9 million, an increase of 129% as compared to $19.2 million for the full year 2022. Gross margins were 62.6% for the full year 2023 as compared to 51.9% in the prior year, an improvement of 10.7 percentage points.
Operating loss for the fourth quarter was $6.3 million compared to $8.9 million for the fourth quarter of 2022, representing a reduction of 30%, driven by top line growth and improved gross margin. Full year 2023, operating loss was $27.3 million compared to $37.9 million for the same period last year, a reduction of 28%. Cash and cash equivalents as of December 31, 2023, were $22.4 million. Our total use of cash for the fourth quarter was $10.3 million. The increase in cash used in the fourth quarter was driven by nonoperating nonrecurring cash payments of $2.3 million, primarily attributed to the transition to a sole listing on NASDAQ.
This concludes my brief overview of the results, and I will now turn the call back to Mike.
Thanks, Ron. As I have consistently communicated, MDxHealth is a growth company. Everything we do is based on and in a commitment to growth. Growth of our revenue, margins and profitability, growth in our shareholder base, attracting a high-quality institutional investors who understand our business, and who have set high expectations for consistent execution and results.
Simply put, we strive to say what we're going to do and then execute and deliver, which we believe will lead to recognition, appreciation and differentiation of this consistency and associated long-term sustainable growth potential of our business. Growth of our offering is reflected in our progression over the last 18 months from 1 to 4 revenue-generating tests with all of our prostate cancer tests covered by Medicare, and included in the NCCN guidelines.
And finally, growth stemming from our proven best-in-class channel, which has catalyzed multiple inbound opportunities, for partnership, M&A and distribution. In our evaluation of any of these opportunities, we will apply the same diligence and rigor as we have with the GPS acquisition and resolve channel opportunity. And we have found ourselves with the luxury of being very selective with our opportunities and partners.
As a final note, I often convey to people in any venue that we pass the friends and family test. This concept implies in my belief that if you have a friend or family member navigating the complex confounding and anxiety-inducing diagnostic pathway of prostate cancer, you would want the clinician and patient to have access to the MDxHealth menu. No other company offers a precision test at the multiple points along this pathway.
We have a clinically actionable diagnostic from elevated PSA to initial biopsy, whether the result is negative or positive, we're ruling out unnecessary intervention and for risk stratification of patients that may need intervention. And we continue our efforts to advance into optimal monitoring of the approximately 1.5 million patients in active surveillance annually with our monitor project.
So it was particularly powerful at our recent national sales meeting to focus on the patients and the clinicians that we serve and believe we are doing just that and doing it the right way with the right people. To me personally, and all of us connected with the MDxHealth, that was quite compelling.
So in closing, we at MDxHealth will remain committed to driving sustainable growth, which will service the foundation for value creation for all of our stakeholders, including patients, customers and shareholders. So thank you for your interest in and support of MDxHealth, and I'll turn the call back over to Ludy for questions.
[Operator Instructions] Your first question comes from the line of Andrew Brackmann from William Blair.
Maybe just starting on guidance, can you maybe peel back the onion for us a little bit in terms of how you're thinking about this from a buildup of a test level? I guess any color that you can share in which sort of -- which areas of the portfolio might grow faster than others? And how you're thinking about price here as well?
Yes, Andrew, we feel good about the balance of our menu, I think. As we've discussed and as I've communicated, we're very confident that our sales force is selling not a test or going in with one of our tests, but selling our pathway. And that each of them has over the past number of quarters, including GPS, demonstrated consistent growth as we go forward. We expect that to continue. And our resolve, obviously, at some point, the growth rate on that will normalize, but again, that was really important to validate our thesis that we can take advantage of channel opportunities that fit with our menu offering and into our customer base.
So we think the adoption is sustainable. And then we have 2 drivers on the revenue side. It's important to note that both, I think, are working in parallel, definitely over the last few quarters. So our sales team drives unit adoption into our customer base and then our market access managed care team drives coverage, which shows up in our ASP, and we're confident that we can continue to drive the menu, but growth within each test from both the unit and revenue perspective.
So we feel like it's pretty balanced, and we believe that's sustainable.
That's great. And then as you move throughout 2023, you showed some nice leverage on the P&L. From here, can you maybe just sort of talk about the levers that you have there? Is it mainly revenue growth at this point? Or is there any more room, I guess, on the cost side to also drive some further reductions in net adjusted EBITDA loss and burn year?
Thanks, Andrew. Yes. I think revenue growth obviously is key. Our gross margin has gotten to a point where it can drive the P&L below that line. And then I really think the strength of our business as we go forward is that we feel very confident that we can hold our OpEx pretty straight away through our inside model period, but definitely through 2024 and beyond, we think we're very confident that our sales channel is rightsized.
So we have 70 total people in the field, 50 direct reps and the way we're driving adoption in a sustainable way through our pathway allows for what I commented how much is -- will drive rep productivity. It's the Stryker model that I'm familiar with. And so we think the leverage is really in holding our OpEx. We've driven it to the point through significant discipline on cost and head count and operating discipline across our organization.
So really, when we look at our P&L revenue growth, the gross margin where it is and leverage in our OpEx, where really the expansion there is largely based on scale, the volume into our lab in our RCM group.
And your next question comes from the line of Thomas Vranken from KBC Securities.
This is Thomas. Congratulations on the nice margin improvements. Two questions from my side. The first one is with regards to the multiple high-growth opportunities that you mentioned that are under evaluation. Can you give a little bit more granularity there? Should we understand this more like in-house type of R&D projects? Or are you really considering business development here?
Thomas, as always, thank you for staying up late. And I likely cannot give you a whole lot of granularity there, but only to point to what we've done so far, right? So we run a growth strategy process here. We have for the last 2 years. To give you detail, we meet every other Thursday and we've always been focused a group of us on what's out there, right? What's important in the space that we need to focus on, pay attention to, make sure we don't miss anything, and we were always looking outbound.
I would tell you over the last 2 years in that process, it's really flipped to inbound as we've, I think, become more obvious. I've commented my view is we had to do 2 things with MDxHealth. We had to derisk the business, which I think we are largely achieving and we had to become more obvious, and that's showing up in inbound opportunities based on how challenging it is in the market dynamics today to a, build a channel and b, have access to driving adoption of diagnostic, but we're going to be. Resolve is a good model for that. That was really important.
All of our diligence, which was very rigorous, as I noted, has played out in our ability to drive adoption, sustainable, sticky adoption into our customer base without diluting our focus. Those are all part of the criteria that we look at with opportunities that are coming our way. And I think we have good examples, as I noted, with both in M&A with a successful integration and driving growth into a product and secondly, with the channel opportunity. So we'll take a balanced look at opportunities that make sense for us. There's a lot of room in our space into urology, and we're confident that the way I would characterize it, I think, Thomas, is that if you looked at our menu 18 months ago, it looks very different today.
And if you made the assumption that it might look different 18 months from now, I think that's a reasonable assumption.
Okay. And maybe as a second question, I wanted to zoom in a little bit more on the revenue guidance for 2024. And I noticed that the window is rather narrow on EBITDA, $2 million variation. Can you comment on what drives this increased precision versus previous guidances from previous years?
Yes. I got that question a number of times as we went through our process to put our guidance. And I think as we've -- it's been difficult over the last few years. I mean, the combination of the pandemic as well as launching additional tests into our menu per my previous comment.
I feel like we now have history, right, which is informs how you predict and project your business more accurately. So we believe that, that's indeed a tight band, but we're confident that we can meet or exceed the expectations that we've put out to the street for 2024 for sure.
Your next question comes from the line of Dan Brennan from TD Cowen.
This is [ Kyle ] on for Dan. I just wanted to ask on the quarter, if there's any granularity you can provide on maybe the volume from Confirm in Select/Resolve to? Is there anything you can share there?
Hey, Kyle. I'm not sure I understand the question. So we've seen as reflected in the revenue and the growth per test. We've seen consistent growth with each of those from a unit perspective. We have seen ASP accretion. That was the point I made as far as our revenue drivers are twofold, right, unit adoption and then our coverage, which shows up in our ASP.
And so we've seen -- we're confident that we have seen that with each of our tests individually and the menu collectively. We don't put out a press release on every coverage, positive coverage decision we get, but we have noted a couple of key ones in the past few quarters with United on GPS and Select with Cigna. So we're confident we can see consistent growth that's driving our guidance of mid-teens. We believe that's very sustainable.
Got it. And so on the volume side, though, in the fourth quarter, was there anything you've disclosed there across the different tests?
Just what we disclosed, Kyle.
Got it. Okay. And just one more on the adjusted EBITDA profitability in the first half of 2025 can you just remind us of your confidence there? You reiterated that you'll get there in the first half of '25. But if you found a target that was the right asset for the portfolio that might push this target out a bit. What are your thoughts on that?
Well, if I understand your question, you're asking would an additional opportunity that we're not currently offering be the catalyst for that? My answer is no. Yes. No, we're confident that we're not basing that on additional opportunities that will come in. So we're confident we can get there with our current menu very clearly.
Your next question comes from the line of Jason Bednar from Piper Sandler.
I'll pack a few in here just to start. Look at the performance in the quarter, Resolve was really the big upside driver in the quarter, at least for all the [ DART ] model. So really just a few questions here that come to mind. I mean, at first, how much more room for growth is there from this specific test? When do those trends start to normalize? I think Mike, you kind of alluded to that maybe happening at some point in '24, but any other clarity there would be helpful.
And then second, given its size, it's probably becoming increasingly relevant from a margin standpoint. So can you remind us where margins on Resolve fit versus your other tests? And then just maybe to come back to one of the questions earlier, but as you think about commercializing other tests, you've obviously validated your ability to commercialize something with Resolve. Are you exclusively looking in urology -- male urology? Is that where you're -- as you evaluate partnerships or M&A?
Jason, thank you. Yes, with Resolve, candidly, that's exceeded. We set our expectation internally but it's exceeded our expectations. And I think it's based on the diligence that we did. And one aspect of our diligence, I should note is that we -- which may not be customary, but we really involve our sales team in our smart reps who have access and understand how our customers adopt.
And so all of that, our thesis is held with that. Now the growth rate that we've had, clearly, that will normalize. But what I would say is that, that market to the second part of your question related to Resolve is -- of the 10 million cases that present annually with UTI in the U.S., 20% of them present to urology. So we have room to grow, yes, I would expect that to normalize as we go forward.
The second part of your question was related to margin. All our margins are criteria, which I've noted on any sort of channel opportunity, be it M&A or partnership license distribution. That's one of our key criteria, right, that it's accretive to our gross margin day 1, [ dollar one ], and that's proven to be true. So while we don't break out margin by product, I think the accretion in our gross margin has been material, but expected.
We saw that coming. We knew how it would build based on the way we were building our menu and our expectations on cost control and pricing. So that's how we would expect that to continue to hold. And then as far as our growth opportunities, yes, urology is our focus. So we are a growth company focused in the urology. And I would just say without speaking specifically, there's a number of opportunities for growth that we see.
And per my previous comment on the process we run, which is quite disciplined. We have a dashboard of opportunities that we see as viable. And that, coupled with to your question, from an R&D perspective or the previous question, our monitor project, we're very excited about the potential there. Now we're not guiding to that. We're not building that into any of our assumptions, but we think that, that can really change the landscape for the patients in active surveillance.
Okay. All right. Very helpful. Maybe if I can drill in on gross margins a bit, maybe it's related to my last question there. But pretty strong exit rate, putting up the 65% plus exiting '23. Was that strength due to testing mix with Resolve being stronger? And then maybe talk about the sustainability of that gross margin performance as we think through modeling future years, should we be anchored to the 65% or plus or minus that level here in '24 and '25?
Yes. I think plus or minus, is probably right. And you're right in each of your assumptions of your question, right? So mix on any given quarter mix can move our margin a couple of points. But our goal -- if we go back to a year ago, our goal was to target 65% plus or minus. So as we look at the quarters coming up, I think anywhere in that range of 2 or 3 points below or 2, 3 points above is reasonable based on mix.
Ultimately could our margins start with the 7? It could, but we're not guiding or projecting to that right now. So we think we're building and it's really important. The 2 things we control are coverage, which drives our ASP in cost, which we are very focused on. And so there's -- as we scale our business, we're continually looking at ways to drive cost benefit that would affect margin. But also as we look at opportunities, that last criteria I noted was -- it's critical.
We won't -- we really won't look at anything that isn't accretive even if initially not unlike Resolve where it builds and we have visibility to how it lands on our targeted gross margin. That's the way we think about those things, and we're confident that, that margin is sustainable.
Okay. Great. And one last clarification question here. The $6.3 million operating loss in the period, I just want to confirm that included onetime costs from the sole listing transition, correct? I think that really figure would have been a $4.6 million operating loss, if not for those onetime costs. Do I have that right?
That's correct, Jason.
And your next question comes from the line of Mark Massaro from BTIG.
Congrats on a great 2023. Yes. So obviously, a lot of the questions have been asked, but -- okay. So if you're looking to either partner or acquire, I'd just be curious if you have a preference to either? And then Mike, you indicated that whatever you do would need to be accretive on day 1. So I have to assume that if you do look to bring in another clinical test, is it safe for us to assume that reimbursement would need to be in place already?
That's a good assumption, Mark. We had quite an odyssey, as you know, with the reimbursement landscape is challenging for everybody in the clear lab diagnostics sector. So yes, that is indeed a key criteria for sure. And to the front part of your question, when we think about -- it's clearly, the GPS acquisition was somewhat transformative for us, particularly at our stage when we made the acquisition from an M&A perspective, Resolve is a good example of -- and that's why I comment on, it was really important that we got that right.
So now we have a model for that for what I would refer to. I obviously referred to more as channel growth opportunities that don't require the capital investment that an M&A or GPS, but any M&A would have to look like the GPS, right, were bought immediate revenue and gross margin accretion to the business. But I think your assumption is correct that it would probably be more of the latter on our more near-term growth opportunities that we're looking at.
Okay. Great. And then as we're thinking about tuning up our models that the 2024 revenue guidance is looking for 12% to 15% top line. Is it fair for us to assume mostly volume growth for the year? Are there certain tests that you might see some ASP expansion? I know Select is pretty not quite achieve maturity yet. So how should we just think about that volume versus price dynamic?
Yes, I think you're right in your assumption. Volume drives the majority of our growth projection. We tend to lean on ASP as a -- I don't want to say upside but support for that growth. But we expect our sales team to drive the growth that you're referring to through straight adoption from our customer base. And their expectations individually and as a group read on that.
Okay. Great. And then if I'm looking at the numbers correctly, it looks like the OpEx came in at around $71 million for the year. I believe that's a 25% growth year-over-year. How should we be thinking about OpEx in 2024? And then maybe just sort of reconciling , I think you were at a $10 million use of cash. You've got $22 million on the balance sheet. Just help me think about cash utilization in '24.
Yes. So Ron can comment on your OpEx number. I think that's a little high with what we reported. But to your question, we're confident that we can hold the OpEx here, as I noted going forward -- sorry, Mark, the second part of your question was? Forgive me...
Yes. The cash utilization for the year, I know that you've talked about getting to adjusted EBITDA and profitability in the first half of the '25 but help us walk through to that?
Yes. So I think my comment there, Mark, would be, look, we want to be smart and prudent with our balance sheet. And I would just say that we have -- we believe we have optionality there to continue to fund the business and fund our growth as we go forward. And it's probably as specific as I'll get. I mean, we have access to additional debt, and we were confident that we'll keep the company in a strong position here as we go forward to drive continued growth.
Thank you. And we have reached the end of our Q&A session. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Thanks, Ludy.