I'm Jason Bednar. I cover med tech here at Piper. Next Fireside Chat is with MDxHealth. Very happy to have with us today MDxHealth CEO Michael McGarrity. Excuse me. Thanks a lot for making the trip across the country, Mike. Always happy to have you here. Jason, thanks for having me. I appreciate it. Yeah. So let's just get right into Q&A, and Mike, I always like to start high level. You know, we're talking about the overall end market. A few years ago, we were talking about volumes across the market that were running well below pre-pandemic levels. Diagnostic tests just weren't being done like they had been before. But you fast forward to today, it sure seems like the end market you play in has gotten much better over the past few years. Is that a good characterization? Yeah. I mean, I think the effect of the pandemic is still coming through, right? So PSA screenings were estimated to be down 50% over really a three-year period. So that, for lack of a better term, backlog of patients has to come back through a fixed capacity system. And what we're seeing is that's happening. We anticipated that would take a number of quarters, if not a couple of years. But that's all working. And then coupled with prostate cancer rates are expected to grow 5% or more, unfortunately, based on the aging population coupled with the effect of the pandemic. So those are factors that we're seeing in the broader macro market as far as our unit opportunity. And I think it's coming through with our penetration and growth. Yeah. OK. So when we look at your business, it's hard to isolate specific factors influencing your own performance, which has been fantastic. But I guess from your seat, you rank order it all, the order of importance for what's led to your business being a 20% plus grower organically. You got general market volumes and improvement in testing. You got menu expansion that you've been able to accomplish. And then there's your own commercial efforts that you have with your sales force being increasingly effective and impactful. So you've got three different buckets. Is there any way where you'd rank order one, two, three out of those three? Yeah. So as our menu has expanded, we kind of, as we report now, we break it out tissue and liquid. And that's kind of based on a couple of factors, right? The pricing profiles of the tests are different. With tissue, our Medicare rates are $2,000 and $3,850 respectively for ConfirmMDx and GPS. In the liquid, our rates are more in the range of Select MDx and Resolve MDx. And now our Germline, which we expect to contribute as we go into next year. We drive the behavior we want from our sales organization and clearly post the GPS acquisition. Our focus has been on solidifying that position on the other side of the initial biopsy with both Confirm MDx and GPS, which we have a very proprietary position there. And I think that's showing up in our numbers. So as our unit volume grows, the weighting clearly moves toward the tissue. But we like both the reported growth rates for tissue and liquid that we're delivering. So, ranking, no. But clearly the focus, since the acquisition at the end of 2022 of the GPS, we've directed the sales team to really cement our base there, which we've done, we believe. And we believe that the combination of the market opportunity as well as driving acceptance of our pathway for our full menu is taking it. Putting more commercial emphasis behind tissue is not that you have a favorite child, but that's where the bigger bank comes in. That's kind of a function of our incentive comp program, right? We want to drive the behavior we're looking for on an annual basis. So we'll reset that this year. But we think that the growth on both sides is very sustainable. OK. And maybe even pre-answering the next question I have, but you're calling for a continuation of 20%+ growth. Kind of the question was going to be like, how did you get there? It seems like more of the same. But is there anything else you'd layer on in addition to what you're already doing that's giving you the momentum that you have? Yeah. So I think we have growth opportunities. But our view forward of 20% or greater growth is based on our current organic menu that you referred to. And we've got a lot of room there from a market opportunity perspective. And we're seeing both levers work on both the sales team driving unit adoption and our market access managed care team driving coverage, which shows up in price. Both those levers are working really well. So we're very confident that the market allows us to continue that growth in a very sustainable way. And our penetration and adoption profiles, which we have a good view of, is very sticky. OK. Maybe let's look on the other side. And not to talk negatively, but you're never going to bat 1,000. So when you have accounts that turn you away, why is it that they turn you away or they go with something else or a different offering? Well, so if I look at Confirm and GPS, for example, it's kind of two different dynamics. Confirm, I've commented that over the last probably 18 months, we've really driven somewhat of a pivot in our strategy to really embrace and involve pathology. That has made a significant difference in our adoption. So what we count on, urology does the biopsy, sends the tissue to pathology. And it used to be that the view was with Confirm, we're going to prove their pathology read was wrong. That's not the case. And when you look at prostate biopsy sampling, less than 1% of the prostate, pathologists are very protective of the tissue. And the GPS test requires 5 to 10 times less tissue than the two competitors in the space. Coupled with the fact that pathology accepts the fact that the biopsy doesn't capture enough, it's a blind sampling of tissue. We're seeing the push from pathology to report negative, recommend confirm, positive, recommend GPS for the reasons that I noted. And we believe that's sustainable. If you look at the market opportunity as well, with GPS, that market is probably 35%-40% penetrated. There's a lot of adoption still to come from clinicians that aren't currently using biomarkers. And we're starting to see our growth can only come from. Clearly, we're advancing adoption in that space as well as we believe taking it. OK. There's not like a singular reason you'd call out as why people may, doctors may, physicians may choose something else competitive option? It's just the way they've done it. OK. It's just behavioral change. Our biggest competition is the standard. It's the way we've always done it. OK. And part of this next question, you've almost, I don't want to say you've brought on yourself, but you introduced the idea of portfolio evolution over time. Like as the business is going to grow, it's going to evolve. What areas make the most sense? It's a broad question, but make the most sense for MDxHealth to pivot into from here? Yeah. I think without guiding to growth opportunities that we look at, I've discussed with you and I think publicly that we run a growth strategy process where we're looking at opportunities. We were always looking out. There's more that are coming to us based on the strength of our channel and the difficulty, candidly, in raising capital, putting together the channel that we have. And there are opportunities in bladder cancer, kidney cancer that we have clear visibility to. But the environment's difficult. And I think what we have is a really good discipline of rigor around how to de-risk those when they're ready. The company had done work in bladder cancer before I joined. So we look at the prostate cancer market as a lot of opportunities still to come with the expansion of our menu. But there are adjacent opportunities in the urology space that we find compelling. OK, but that last piece, still staying within urology, but maybe going adjacent into something that isn't necessarily prostate cancer. Urology is our target. And that's really channel driven. But yes, outside of prostate cancer, we see opportunity there, for sure. Yeah. OK. Our channel is urology practice focused, so everything that they're dealing with, and that's bladder cancer, kidney cancer, prostate cancer, we see as viable opportunities. Would there need to be any additional capability? Again, I know this is hypothetical, but would you have to add any internal capabilities if you brought on something, say, as a test to address bladder cancer or kidney cancer? There would not. OK. So our laboratory operation, I mean, right now we run urine tissue of two different types. We have good flexibility. We've completed the integration of the GPS laboratory operation into our Irvine facility. So we're complete. And we have a lot of experience in both the liquid and the tissue, which both of those would be conducive. Forgive me a little bit. You may be naive on these specific categories. Bladder and kidney, since you brought both of those up, is coverage well established there? Or is that not a prerequisite for you to move into? It is a prerequisite. OK, so it's prerequisite. And it is part of our diligence that we like those to be more clear. Particularly, we view some of the additional regulatory focus with FDA, New York State, and candidly, Medicare coverage to be a higher hurdle. And we're kind of smart because of things that we've gotten wrong, candidly, in the past as far as the time it may take to move through those. We view them generally as positive from a barriers to entry perspective. But yeah, that's a de-risking idea. Yeah. OK. I kind of figured as much, but. There's a lot of work that's been done, opportunities that have been pursued in bladder cancer, for example, that it's dynamic. So we're confident that if and when we access those, it will be at the right time. When you maybe zoom in back in on your current menu as it stands today, are there opportunities that are greater within one of your testing categories to improve coverage as it stands today? I know coverage is pretty broad, but is there an area where your policy teams are working on right now? Yeah. I mean, we've seen growth in our price mix across our menu. And it's kind of a process, right? So we'll get coverage. We'll get a contract coverage policy. But we won't have medical policy. Sometimes it's a two or three-step program. So we have coverage where we'll get paid out of network. And yet we see within a particular payer where we can advance pricing with that payer based on additional data or hurdles that we have and can provide. OK. All right. There's room there. But units clearly drive our view of growth. We're not counting on a lot of price, but we've seen it. OK. Going back, you said something earlier on Confirm MDx and GPS. These have been extremely impressive on the growth side, better than we would have thought internally here with the way we model things. Can you speak to what you've changed with your commercial incentive structure that's helping support some of that growth and drive further penetration? Not related to the incentive, but the pathology embrace has been really critical. If I had to point to one thing that's driven our stickiness and really the pathway adoption, we want it to be an if this, then that. If elevated PSA should go to select, negative biopsy to confirm positive GPS. But from an incentive perspective, it's really about our ability to predict and project the business, right? We've gotten better. What you're seeing in our results is, which is understandable. Every sales team I've ever worked with, it takes a while to get good at forecasting. To be able to dial in a business forecast in an individual rep quota, it is a challenge, but is attainable and feasible. That's what we're seeing. I've probably overplayed, but I think we've kind of incentivized our sales team where there's no cap on their compensation. What we're seeing is excellence across a broader swath of our sales organ. We think that's very sustainable. Ultimately, we have IP, trade secrets, and know-how. I think the most valuable asset in our company today is our sales team. OK. Do those annual quotas reset every year? Certainly do. Because our sales team, as I've shared with you and communicated, we think we can hold our OpEx pretty fixed. That has to be based on rep productivity improvement, right? So I'm not saying that we can hit 20% growth, but we have to add five to 10 reps next year. If you look at our math, it would suggest that we have 50 direct reps that two years ago was running about $1 million per rep. Now that's getting to $2 million per rep. That's when you're driving sustainable sticky adoption where these customers are on a pathway, and the rep doesn't have to be in there every day, as well as driving adoption within a large urology group practice where they may have 20 urologists. Do you have an interest or need in adding more reps? I think the way we think about it is they would pay for themselves, right? If our demand starts to outstrip coverage, we have some associate sales reps that ultimately have turned into reps. We have Medical Science Liaisons. We get a lot of leverage from a small group of Medical Science Liaisons, so if we were to expand there, maybe in that area where they're really good at driving the clinical adoption of our menu beyond what the sales rep is able to drive. OK. Peer-to-peer selling has really been a key part of our initiatives over the last number of quarters with events and webcasts where we have clinicians speaking to clinicians about the value of adopting our menu. OK. You can get some probing here around a few different items on the sales rep piece, but what's the critical mass? I mean, that critical mass is the right word, but at what level does that sales rep hit that threshold where it's like they physically can't do more? Is it like $2.5 million a rep? Is it $3 million a rep? Or do you think there is a cap? Maybe there isn't. Yeah. I mean, I guess I would say we'll see. OK. You mentioned. I don't want to be a polemic on that answer because in some respects, that's my comment about it kind of solves for itself. If we see that, then it somewhat pays for itself. What we're not saying is we need to have five to 10 more reps next year to drive revenue growth. It would be more to service our base. Yeah. Got it. That's clear. You talked about getting or becoming more predictable. And I think you absolutely have, especially looking back the last, I don't know, five or six quarters. I think you and the team have established a pattern. It's a good pattern in terms of guidance and execution. So I might already know the answer to this question. But guidance for the fourth quarter, it does imply a modest step down from 3Q to 4Q. Was there conservatism in this outlook? Or is there something you're observing in the underlying business where you said, you know what, we need to make sure we're accounting for this or that factor to lead to a quarter-to-quarter decel in revenue? So part of the forecast accuracy function, in my experience, is on your orders per day, units per day calculation. And I don't like leaning on seasonality or holidays. But Q4 with Thanksgiving and Christmas falling on a Wednesday, we kind of run a function of the business days that we have in the quarter. And it's probably a trade of about five or six, depending on how you look at the way things fall. So you can look at conservatism based on that. But we expect Q4 to be solid based on our visibility, based on what we've been reporting. And if you take it down to a business day's productivity and revenue per day, that's where it would shake up. OK. Why don't we talk about Germline? Because we haven't unpacked that yet. I don't think you have much in your guidance for Germline this year. I don't think you've specifically addressed what it's adding. Or maybe it's not even all that incremental. But what about next year? How critical is the success of Germline to delivering against that 20% growth objective that you have? We're not counting on that, so definitely for this year in Q4, two comments I would make. One, we're very conservative, as you know, Jason, on our revenue cycle management. We don't adjust revenue quarter by quarter, which I think it would be reasonable to say that some companies have AR adjustments where they've carried AR. Our revenue is based on assumptions and modeling of how we're going to recognize revenue based on units and payer mix. We've got that very, very tight. But we'd like to see a couple of quarters of payer experience. We did that with Select last year. That's why we had that catch-up in Q3. We're doing the same, where we like to, even with Medicare, we like to see history of payment, so we expect Germline to contribute as we go into next year. It has not contributed to revenue for the reasons I've stated this year. But do we need that to get to our 20% revenue target growth rate? We do not. But we expect it to contribute. So it's a balance. And I'll provide guidance for next year. In the beginning of January, we'll flash 2024 revenue and first pass of guidance for 2025. And I'll have more commentary on that at that time. OK. Maybe I'll come back in a second. But you do plan to, I think typical of the similar practice, pre-announce in January, offer full 2025 guidance, no change from past behavior on what you've offered? Correct. The JP Morgan cadence. We don't talk about that. Pardon me? No, I'm joking. Yes. After we clear, once we get our flash, we'll put that out. Yeah. OK. Sorry about that. I'm joking. All right. So you and I have talked a lot about in the past around other P&L assumptions. We spent a lot of time on gross margin. You, Ron, and myself, I was probably a little over my skis. I thought this line would inflect a little bit higher. I know in talking to you and Ron, this has not been a disappointment where gross margins have finished for your business. But you haven't wavered on the point that you're going to reach EBITDA break-even in the first half of 2025. I've always looked at gross margin as being a little critical to getting there. You've counseled me that we're good. We're good. So remind me the directional path for gross margin from here over the next, call it several quarters. How leverageable is the gross margin line? So all your points are right on, right? So our gross margin, where currently is running today, gets us to EBITDA positive. That said, we believe there's incremental both on the price side but also on the COG side. So as volumes run through our lab, I'm not guiding to this, and I'll be careful here, but scale really helps, right? Whether it be efficiencies or automation that we can take. So as we look out beyond the next few quarters, if we look at the next couple of years, we think we have good gross margin accretion. But we're not counting on that in Q1 or Q2 to get us to EBITDA positive. OK. I know you're maybe a little handicapped here without a model or anything in front of you. But if business is running 20%+ the top line, we just talked about gross margin, what about the OpEx lines? I mean, is it right to hold R&D flat, grow SG&A, what, I don't know, mid-single digits? Am I in the right zip code on some of those assumptions? Yeah. The model's kind of stuck in my head. So R&D you can think of as flat. Yeah, SG&A is really a function of SG&A captures scale into our RCM group. And when we look at the broader OpEx, we're confident that with the exception of kind of incremental cost of living and adjustments, whatever you want to call that, 2%- 5%, to 7%, that we can hold that pretty steady. OK. So it's more or less the right. Sales and marketing is if we can keep that sales team headcount-wise where we think we can. It's the same way there. Yeah. OK. Can't have a discussion here today, this week, without talking about the potential impacts of the incoming administration. Still a lot we don't know, far more than we do know. But are there any proposals around policy changes or market responses that, I don't know, might somehow influence your business positively or negatively? Just how are you thinking about what you've seen so far? Yeah. There's some, you know, I can't really comment on that. I think it would be premature from a macro perspective. I mean, there are some initiatives that are potentially positive that could develop. But we're not counting on those either way. We don't have a binary item out there that we're concerned about. You know, when you break it down, pharma, biotech, devices, IVD, and laboratory setups, we don't see anything there that could change. OK. Maybe in the final minute or so here, I would just, if we're sitting here a year or two from now, how is MDx different? How is it the same? What could investors realistically expect over the next 12 to 24 months? Well, I mean, I think one thing I kind of dismiss sometimes when I go through our company presentation is that everybody's got a $5 billion TAM. You've got to have a $5 billion TAM. And yet when you look at ours from a menu breakdown, which is the way we view it, present it, and focus on it by test, the expansion of our menu has afforded us the opportunity to really look at each of those as unique. So Confirm is every negative biopsy GPS, every positive biopsy Select elevated PSA. Germline, 10%-20% of patients present with hereditary risk. And the UTI opportunity with Resolve is 20% of the 10 million patients that present annually. So for us, I think it's at least credible to move off the $5 billion and think of it as based on the expansion of our menu. But yes, we have a $5 billion TAM. And we're going to do, we'll be on a $100 million run rate. So we have room. OK. Perfect. Well, with that, we are out of time. Nice. Thanks so much for being here. Thanks. And thanks And thanks for having me. And everyone in the room, thanks also for joining us today. Thank you.