Exagen Inc. (NASDAQ:XGN) Q4 2023 Earnings Call Transcript
Exagen Inc. (NASDAQ:XGN) Q4 2023 Earnings Call Transcript March 18, 2024
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Operator: Greetings. Welcome to Exagen Inc.’s Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] At this time, I’ll hand the conference over to Ryan Douglas with Investor Relations. Mr. Douglas, you may now begin your presentation.
Ryan Douglas: Good morning, and thank you for joining us. Earlier today, Exagen Inc. released financial results for the quarter and full-year ended December 31, 2023. The release is currently available on the company's website at www.exagen.com. John Aballi, President and Chief Executive Officer, and Kamal Adawi, Chief Financial Officer, will host this morning's call. Before we get started, I'd like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements.
All forward-looking statements, including, without limitation, statements regarding our business strategy and future financial and operating performance, including guidance for the quarter, potential profitability, or current and future product offerings and reimbursement and coverage, are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and all description of the risks and uncertainties associated with our business, please see the filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2023, and any subsequent filings.
In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in the United States or GAAP. These non-GAAP items should be used in addition to and not substituted for any GAAP results. We believe these metrics provide useful supplemental information in assessing our revenue and operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the Investor Relations page of the company's website. The information provided in this conference call speaks only to the live broadcast today, March 18, 2024.
Exagen disclaims any intention or obligation, except as required by law, to update or revise any information, financial projections, or other forward-looking statements, whether because of new information, future events, or otherwise. I'll now turn the call over to John Aballi, President and CEO of Exagen.
John Aballi: Thanks, Ryan, and thank you to everyone joining the call. Today, I'll review our fourth quarter and full-year 2023 results, progress on our strategy to achieve profitability, and touch on how 2024 is starting out. I'll then hand it over to Kamal, our CFO, for further details regarding our financial performance. 2023 was the year where we implemented significant change across the organization in executing on our strategy, and it's exciting, and to be honest, a lot of fun to see the results we were able to generate in a relatively short period of time by focusing on our core product, AVISE CTD. I have to start by genuinely thanking all the team members at Exagen for putting in the hard work and effort this past year to really change the trajectory of our company.
We've continued to serve patients in the rheumatology space with the best testing available, but are now doing so with a healthier organization, which is much closer to operating profitably. Throughout the year, my confidence has grown, knowing that many of the strategic shifts we've needed to make are behind us, and that as we continue to execute, our goals are truly within reach. Looking at our performance this past year, we are extremely proud that our full-year revenue was a record $52.5 million, with $13.8 million coming in the fourth quarter. Full-year revenue increased 15% over 2022, while simultaneously reducing the cash needed to run the business. This resulted in a $22 million or 57% improvement in adjusted EBITDA year-over-year. We also improved our gross margin to 56% for the full year 2023, and to over 59% in the fourth quarter.
This is fantastic progress over our 2022 performance, and we are steadily moving towards our cashflow-positive target of 60% gross margins. In achieving our 2023 performance, one of the key areas we focused on was improving the average selling price of AVISE CTD. In many respects, we've laid the groundwork for continued progress this past year, but also shown that we can simultaneously generate momentum in improving the realized price of our core testing. At the end of 2022, our trailing 12-month ASP was $285 for AVISE CTD testing, and by the end of 2023, we were able to increase this 18% to $336. The increase in ASP relative to 2022 becomes even more impressive when factoring in the CMS repricing of our PLA code as we transition to the clinical laboratory fee schedule at the start of the year.
We are very proud to deliver a change of that magnitude without sacrificing progress in growing the business. For 2023, we delivered a record 137,000 AVISE CTD tests, of which approximately 30,000 were completed in the fourth quarter. From inception to date, we have now delivered over 900,000 AVISE CTD tests, and we look forward to surpassing the 1 million test mark later this year. In 2023, we worked hard to focus on AVISE CTD and specifically to improve the ASP of our offering. As we implemented changes to accomplish this goal, as expected, we did experience a decline in AVISE CTD testing in the second half of the year. As we've progressed into the first quarter, we are seeing encouraging progress in building back our business from a volume standpoint, and continue to expect growth in 2024 to be driven by improvements in ASP and increasing test volumes.
When I joined Exagen in late 2022, I worked to drive focus on AVISE CTD testing, and subsequently looked for ways to improve every aspect of how we offer our tests. One area we've recognized as an opportunity is in leveraging some of the unique biomarkers we already had license to in order to enhance the sensitivity of AVISE CTD. On this note, we anticipate launching new proprietary T cell markers within the AVISE CTD platform in the fourth quarter of this year. We expect these novel markers will improve the sensitivity of our test in identifying patients with lupus. Ultimately, we anticipate being able to identify up to 50% of SLE patients who would test negative by standard of care testing or alternatives. In November of 2023, we presented an abstract at the American College of Rheumatology annual meeting highlighting the gain in diagnostic sensitivity T cell markers provide, and we are working to have them clinically available to better aid clinicians and patients in identifying disease.
From our research, these markers are some of the most specific for SLE that have been discovered, and will therefore be a true value add for clinicians and patients. Additionally, and from a competitive advantage standpoint, we have patent protection in offering these markers through 2035, which reinforces our commitment to innovating in this space, and further highlights Exagen as a company that can continually bring novel biomarkers to the rheumatology community. The addition of these markers to AVISE CTD is also expected to be accretive to our financial performance by the end of this year. Finally, before I hand the call over to Kamal, the goal posts are as clear as ever, and I very much believe we will achieve cashflow breakeven, with gross margins around 60% and revenue of approximately $75 million with our current cash balance.
Execution of our strategy is demonstrating results, moving us closer to these goals, and I'm excited about the progress we expect this year. With that, I'll now turn the call over to Kamal to provide details on the fourth quarter and full-year 2023. Kamal?
Kamal Adawi: Thank you, John, and good morning, everyone. As John mentioned, total revenues for the full year 2023 were $52.5 million, an increase of 15.3% over 2022. Total revenues in Q4 were $13.8 million, which was an increase of 7.2% over fourth quarter 2022. Total revenues for the full year were driven by a combination of record volume from a strong first half of the year, and ASPs from our flagship product, AVISE CTD increasing 18% for the year. Testing volumes from AVISE CTD were 137,650 tests for the full year and 30,438 tests for the fourth quarter. We had 2,383 ordering healthcare providers in Q4 2023, compared with 2,419 for Q4 2022. The slight drop in healthcare providers is also a direct result of provider-facing changes we made that impacted volume.
Again, this decrease was expected and necessary as we look to build a profitable business. The breakout of $52.5 million in full-year total revenue is $46.3 million in a AVISE CTD revenue, with other testing revenue at $6.2 million. For the fourth quarter total revenue of $13.8 million, AVISE CTD testing revenue was $12.1 million and other testing revenue was $1.7 million. The changes made to the revenue cycle management department in the start of the year is continuing to yield results. In the fourth quarter, for tests that were older than 12 months and were not in accounts receivable, we collected and recognized $1.4 million, of which the majority came from a commercial payer. We continue to make improvements to the billing processes and strive to collect the maximum amount per test.
For the full year 2023, cost of revenue were $23.1 million, with a gross margin of 56.1%, compared to $24.2 million and gross margin of 46.9% for the full year 2022. The increase in gross margin was due to the increase in ASP we saw throughout the year. Cost of revenue were $5.6 million in Q4 2023, resulting in a gross margin of 59.2%, compared to 50.9% in Q4 2022. Again, the increase in gross margin percentage was driven by an increase in ASP. Operating expenses excluding COGS for the full year 2023 were $52.3 million, compared with $67.4 million in 2022. Year-over-year Decreases were primarily due to the decreases in employee-related expenses due to decreases in headcount and reduced R&D expenses. Operating expenses excluding COGS in Q4 2023 were $13.3 million, compared with $21 million in Q4 2022.
The $13.3 million included a $1.6 million write-off from leasehold improvements from a lease we were able to exit. We were very happy to exit this lease in a very difficult commercial real estate market, resulting in significant cash savings into 2027. As a reminder, operating expenses in the fourth quarter of 2022 include a one-time impairment in the amount of $5.5 million from goodwill associated with the purchase of medical diagnostics division of Cyprus Bioscience in 2010. The net loss in Q4 2023 was $5.6 million, compared with $14.4 million in Q4 2022. For the full year 2023, the net loss was $23.7 million, compared to $47.4 million in 2022. Adjusted EBITDA was negative $3.9 million for the fourth quarter 2023, compared to negative $13.4 million for Q4 2022.
For the full year, adjusted EBITDA was negative $17.1 million for 2023, compared to negative $39.8 million during the full year of 2022. As a reminder, our adjusted EBITDA excludes stock comp expense since it is a large non-cash expense for the organization. Please refer to our earnings release issued earlier today for a reconciliation of adjusted EBITDA to net loss. Looking to our balance sheet, I'm very happy with how we ended the year in regard to cash management. Cash and cash equivalents as of December 31, 2023, were approximately $36.5 million, up from $28.4 million at the end of September. Our accounts receivable balance at the end of 2023 was $6.5 million. As we continue to improve revenue cycle management, we plan to hold claims in the first half of the year, which will result in an increase in accounts receivable and an accelerated decrease in our cash, both returning to normal levels by year's end.
We anticipate a similar cadence in 2024, with our cash balance in AR as we did in 2023. I'm pleased with the continuing improvements made to the organization and the progress we have seen on our financial statements. As John stated, we continue to target cash flow breakeven at revenues of $75 million, and gross margins of 60%. As I previously shared, our gross margins were just shy of 60% this past quarter on the strength of improving ASPs. For full-year 2024 revenue, we're providing guidance of approximately $54 million. For first quarter 2024 revenue, we're providing a guidance range of $13 million to $13.5 million. For full-year 2024, we believe our adjusted EBITDA will be better than negative $20 million. Given our continued improved performance, we believe our existing cash and cash equivalents are adequate to meet our anticipated cash requirements into 2026.
We will now open the call for questions.
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