Ladies and gentlemen, thank you for standing by, and welcome to the MDxHealth Full Year 2019 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session.

[Operator Instructions] I must advise you that this conference is being recorded today on Wednesday, February 26, 2020. This presentation contains forward-looking statements and estimates with respect to the anticipated future performance of MDxHealth and the markets in which it operates.

Such statements and estimates are based on assumptions and assessments of known and unknown risks, uncertainties and other factors, which were deemed reasonable but may not prove to be correct. Actual events are difficult to predict, may depend upon factors that are beyond the company’s control, and may turn out to be materially different.

MDxHealth expressly disclaims any obligation to update any such forward-looking statements in this presentation to reflect any change in its expectations with regards thereto or any change in events, conditions or circumstances in which any such statements is based unless required by law or regulation.

This presentation does not constitute an offer or invitation for the sale or purchase of securities or assets of MDxHealth in any jurisdiction. No securities of MDxHealth may be offered or sold within the United States without registration under the U.S.

Securities Act of 1933, as amended, or in compliance with an exemption therefrom, and in accordance with any applicable U.S. securities laws. I’ll now like to hand the conference over to your speaker today, Michael McGarrity, Chief Executive Officer. Please go ahead, sir..

first, we have driven a culture of focus and execution into every operating area of the company; second, we have strengthened our management team within the operating areas that are key drivers of our results, in sales, revenue cycle management and financial operations; third, we have capitalized the company to provide the financial capacity to demonstrate our execution and commitment to delivering sustainable growth; lastly, we have positioned the company to be the leader in the detection of prostate cancer, with our menu of Select and Confirm tests with broad payer coverage on Confirm and confidence in our coverage visibility for Select in 2020.

In addition, as part of management’s assessment of the business, which included analysis of historical performance, as well as future projections, we have made important updates to our estimates related to revenues, collections and receivables.

As Ron will soon discuss our analysis has led to our decision to change our accounts receivable carry-time from 24 months to 12 months. The effect of which is a onetime reduction to our 2019 revenue from pro forma of $21.9 million to $11.8 million.

It should be noted that this onetime adjustment better aligns us with industry standards related to carry time of receivables, and better reflects our latest collections experience. It should also be noted that this is an accounting change and does not and will not affect actual units, cash or underlying reimbursement levels.

And we look forward [to with] [ph] confidence to guide to our 2020 performance. More importantly and indicative of the improved operating performance are the strong results for Q4 2019. Our Confirm units grew 22% in Q4, compared to Q4 2018. And this also represents a 20% sequential unit growth in Q3 2019.

At the same time, use of cash in Q4 decreased to $3.9 million, reflecting our improved operating discipline and improved cash collections. In addition, for the fiscal year 2019, Select units grew 61% over 2018.

And while our focus in the back half of 2019 was largely positioning Confirm for growth, we expect Select to accelerate with the issuance of our final LCD expected in the coming months. And finally, cash operating expenses were down $12.3 million for the fiscal year 2019, representing a 27% improvement over 2018.

We view this performance is sustainable, because it is based on fundamental changes to our commercial and operating execution led by the addition of John Bellano as Chief Commercial Officer; and Ron Kalfus, as Chief Financial Officer.

With their contributions we have led a transformation of our talents and culture of focus, execution, performance and accountability.

Specifically, with regard to our commercial organization, we have rebuilt our management and sales team focused on talent and experience in the complex process of changing clinicians’ diagnostics approaches, specifically on prostate cancer.

We now have a clear methodology of customer targeting and qualification, leveraging the established Confirm customer base, and using data and analytics with regard to adoption and reimbursement coverage. And we’re now seeing the early results of this focus leading to what we believe will be consistent and sustainable growth.

This focus will also allow for uptake of Select into this base in a proven pathway for clinicians to provide clinically actionable results to diagnosis and treatment. Our confidence is based on this pathway that demonstrates the value of Select and Confirm, which we have referred to as a point of emphasis.

We have invested in our sales team and existing customer base to build a stronger focus on and understanding of the value of our menu, of the diagnosis and treatment of any patient that is screened for prostate cancer.

While the American Cancer Society estimates 190,000 new prostate cancer cases in 2020, it can also be the most confounding to screen for, detect, diagnose and definitively treat. We believe we are the only company in this space to provide clinically actionable diagnostic tests at multiple points in the pathway of these patients.

Not only do these aid clinicians to serve patients better by guiding appropriate treatment and intervention, but when adopted drive cost savings and efficiency to both providers and payors from a healthcare economics perspective.

We are the clear focus on qualifying our efforts to drive adoption in this key pathway with the neurology community, and we are seeing evidence of the understanding a value proposition into this urology market. And ultimately, we believe the primary care market as well.

Finally, we have taken this mission of operational focus and execution into our revenue cycle management operation to drive improved cash collections, fueled by the same cultural changes and fortified by expected issuance of coverage for our Select test in the first half of 2020.

It should be noted that our proven expertise and execution in the coverage of all categories of payors with Confirm is very predictive of the same execution as we take Select through the coverage process.

I will comment further on our view of 2020 initiatives going forward, but first, let me turn the call over the Ron to review financial results for 2019.

Ron?.

Thank you, Mike. I’ll begin with our change in collection estimates that have impacted our 2019 revenues.

As part of our assessment of the business and taking into account data that we have gathered and analyzed throughout the year, we have significantly revised our collection estimates for aged accounts receivable having a negative impact of $10.1 million on 2019 revenues.

We consider this significant revision to collection estimates as a onetime adjustment, primarily reflecting a reduction in the length of time the company carries accounts receivable from 24 months to 12 months.

This onetime adjustment brings the company’s revenue recognition in line with its updated collection experience, reflects the company’s prioritization of accounts receivable aged 12 months or less.

It’s important to note, that this change of estimate is an accounting measure in accordance with IFRS 16 and has no impact on our past or future units, cash or underlying reimbursement level. On to an overview of our results. Total revenue for 2019 was $11.8 million compared to total revenue of $28.4 million for 2018.

As mentioned, revenues for 2019 were impacted by onetime adjustment of $10.1 million following a significant revision to collection estimates.

Excluding this onetime adjustments, 2019 revenues on a pro-forma basis would have been $21.9 million, a reduction of 23% from last year, primarily due to the decline in units related to non-recurring volume on the first half of 2018. Revenue from ConfirmMDx represented over 90% of product revenue.

Gross profit on products and services for 2019 was $0, principally due to the onetime adjustment. Excluding this onetime adjustment, gross profit on products and services on a pro-forma basis would have been $10.1 million, a decline of $6.6 million from 2018. This decline was primarily the result of the decline in revenues.

Total operating expenses in 2019 were $43.2 million, an improvement of $5.6 million over 2018. Excluding non-cash expenses such as depreciation, amortization and stock-based compensation, operating expenses for 2019 were $32.6 million, an improvement of $12.3 million or 27% over 2018.

Operating loss for 2019 was $43.2 million, an increase of $11.1 million compared to an operating loss of $32.1 million for 2018.

Excluding the onetime adjustment, 2019 operating loss on a pro-forma basis would have been $33.1 million, an increase of $1 over 2018, primarily the result of the decline in revenues as well as an increase in non-cash expenses of amortization of intangible assets partially offset by the savings in operating expenditures.

Our cash balance at the end of 2019 was $22.1 million, following an equity capital increase of €9 million or approximately $10 million as well as the loan facility with Kreos Capital in the amount of €9 million or approximately $10 million. Operating burn for 2019 was reduced by almost $11 million to $22.2 million for the year.

This reflects our continued operating discipline and our improved cash collections. Based on our current cash position and our projected revenues and collections, management believes that we have sufficient cash through the fourth quarter of 2020.

Furthermore, the company is evaluating all financing options, including non-dilutive funding, to extend its cash runway. This concludes my overview of the results. I will now turn the call back to Mike.

Mike?.

top-line unit and revenue growth, through strategic and performance-based focus of our sales team; continued focus on broad based coverage for both Confirm and Select with our current and prospective payor base; continued focus on our cash collections and building a reimbursement operation to drive P&L optimization; and continued discipline in our operating expense management to drive efficiency and appropriate capital allocation.

I am very confident in our ability to execute on all of these goals, and believe we have the people in place to deliver on that promise to build value for all of our stakeholders, including patients, customers, employees and shareholders. Thank you for your interest in and support of MDxHealth. Now, I’ll turn call back over to Yola for questions..

Thank you. [Operator Instructions] Your first question comes from the line of Lenny Van Steenhuyse from KBC Securities. Please ask your question..

Hi, good morning and thanks for taking my question. Now in 2019, the focus was clearly on driving ConfirmMDx utilization from the existing client base, which starts to show nicely in the figures now, while on the other hand Select grew more organically.

I was wondering if that will still be the game-plan for 2020 or if you do anticipate a pivot in your strategy throughout the coming year? And then, as a short follow-up question, could you remind us what the current size of the sales-force is exactly? Thank you..

Sure, Lenny. We have approximately 30 direct sales reps in the U.S., which we believe will hold constant.

And to answer your first question, yeah, I communicated previously that the back-half of the year was really focused on, which was critical to the company, getting stability and growth back into our Confirm business as well as to defining very clearly our approach to driving leverage through our current customer base.

We have incredible value in that base to drive both Confirm and Select. And as you know with Select, we’ve clearly also demonstrated market adoption, clinical utility and understanding of the value of that test.

And as we move in to the period of time where we expect to get our LCD coverage, we now will be focusing throughout 2020, which is the basis for our guidance and driving both Select and Confirm into that pathway that I spoke to earlier.

And we have good visibility to uptake of that, and would expect to see the Select growth probably take – become more obvious in the back half of the year after the coverage, and expect to see as evidenced with our guidance. This 22% growth we have in Q4 is clearly sustainable..

Okay. Thank you and just a small follow-up on that. The growth margin, of course, took a dent in 2019. I was wondering as volumes grow again in 2020, if you anticipate gross margin improvement throughout the year or on the other hand if you expect that faster SelectMDx growth might continue to put some pressure on these gross margins..

Yeah, Ron, if you want to add the comment, but I will just say that the 61% in Select growth in 2019 is very positive and reflecting the market opportunity and our ability to capitalize on that. It’s clearly straight cost through our P&L on a gross profit basis.

And, yes, we would expect that to reverse as we get coverage in 2020, likely to become very clear on the back-half. The second driver of that, obviously, is our improved cash collections, as we feel very confident in our ability to drive.

Ron, any additional comment there?.

No, I think you hit it..

Okay. Thanks a lot for your comments..

Thank you, Lenny..

Thanks, Lenny..

Your next question comes from the line of Alex Cogut from Kempen. Please ask your question..

Hi, good morning and thanks for taking my questions, and congrats on the good Q4. I just have two. One on in terms of gross margin, what kind of improvement can we expect in full year 2020? I have a second question on SelectMDx, what kind of Medicare pricing or reimbursement are you assuming for your revenue guidance? Thanks..

So I guess the first part of the question is, we are not guiding the gross margin at this point. However, to my previous comments we have clear visibility and understanding that coverage for Select will drive – will be very accretive to our gross margin, because as I mentioned, all the volume right now is largely non-reimbursed.

However, it’s a necessary aspect of our confidence in our LCD. In other words, we clearly need to deliver evidence of market understanding, clinical validity and adoption, which we’ve done, but at a really no return on the gross margin line. That will reverse and improve as we get our coverage.

And so the second part of your question, we won’t be giving guidance on the pricing of the coverage, because that will be determined at issuance. However, I will just say that we’re confident that it will be accretive to our P&L, and allow us to drive growth and move the company toward profitability..

And if we think ahead in terms of SelectMDx adoption, when do you expect to be included in some of the most important guidelines like NCCN?.

Well, I guess, the way I would answer that is we are confident that we have visibility and path toward inclusion in the NCCN guidelines. But at this point, I would not guide to that timing. But we would expect that to be a positive development in the coming quarters..

Got it. All right. Thank you..

Thank you, Alex..

We have no further questions. That does conclude our conference for today. Thank you for participating. You may now disconnect..

Thank you. And thank you all for your support and we look forward to reporting continued positive results going forward..