Nelson Cox

Nelson Cox inquired about the sources of additional operating leverage to achieve the 10% adjusted EBITDA margin target for 2026, specifically asking if sales and marketing spend as a percentage of revenue could decrease further from 39% in 2025, and if the mid-60% gross margin is a sustainable baseline.

Answer

CEO Michael McGarrity stated that the company expects to hold OpEx relatively fixed in 2026, despite the headcount increase from the ExoDx acquisition. He noted that gross margins have historically ranged in the low 60s due to product and payer mix, and while aspirational for higher margins, the current range is expected to be maintained through 2026 to achieve the EBITDA target.

Nelson Cox followed up on the adjusted EBITDA margin target of 10% by the end of 2026, asking where additional operating leverage would come from, given that OpEx was held virtually flat through 2025 with 20% top-line growth. He specifically questioned how much lower sales and marketing as a percentage of revenue (39% in 2025) could go and if a mid-60% gross margin remains the correct baseline.

Answer

CEO Michael McGarrity stated that MDxHealth is confident in holding OpEx relatively fixed for the current year, noting that the Q4 increase was largely due to headcount from the ExoDx acquisition across sales, revenue cycle management, client services, and clinical/scientific affairs. Regarding gross margin, Mr. McGarrity indicated that it is expected to continue ranging in the low 60s, influenced by the expanded menu and payer mix. He mentioned aspirations for higher gross margins in the high 60s or 70s, with a focus on operating efficiency (COGS) and driving price.

Nelson Cox asked about the percentage of revenue generated from large urology practices and how penetration within these key accounts has trended as familiarity with the portfolio deepens.

Answer

An executive, likely CEO Michael McGarrity, did not quantify the revenue percentage but stated that penetration is broad. He explained that the strategy involves creating clear differentiation for their tests based on service, data, and pathology influence. This approach makes adoption 'stickier' and more sustainable. Once established, the sales team focuses on driving deeper penetration within these large practices, which is an optimal use of time and a key driver of growth without needing to expand the sales force.

Nelson with Lake Street Capital Markets inquired about any measurable acceleration in Value Analysis Committee (VAC) approvals or shortening of the IRB-to-first-case timeframe for AMDS following the October 1st implementation of DRG code 209. He also asked for timing and strategy regarding a formal marketing program for cardiologists for On-X.

Answer

Pat Mackin, CEO, and Lance Berry, COO and CFO, indicated that while DRG 209 is a tailwind and makes conversations easier, it hasn't significantly accelerated hospital bureaucracy or VAC processes. Pat Mackin described the On-X cardiologist marketing as a multi-year program, emphasizing positive market research and the potential for cardiologists to refer On-X valves by name, with execution being key to understanding its impact in 2026 and beyond.

Nelson inquired about any measurable acceleration in Value Analysis Committee (VAC) approvals or shortening of IRB to first case timeframes following the October 1st implementation of DRG code 209 for AMDS, and asked about the timing and potential impact of a formal marketing program for On-X to cardiologists.

Answer

CEO Pat Mackin stated that while DRG 209 is a tailwind, economics were not a barrier before, and it hasn't significantly accelerated hospital bureaucracy or VAC approvals. COO and CFO Lance Berry added that while new reimbursement is helpful, hospital processes move at their own pace. Regarding On-X marketing to cardiologists, Pat Mackin indicated it's a multi-year program, with aggressive efforts planned for 2026 to educate referring cardiologists on the new clinical data and low INR, expecting to gain a better grip on its impact as the year progresses.

Nelson Cox of Lake Street Capital, on behalf of Frank Tuchinen, asked about potential plans for expanding the commercial team to support the AMDS launch and requested details on the next steps for the Arecibo LSA pivotal trial.

Answer

CEO J. Patrick Mackin indicated that while the current 50+ person sales team is effective for the top 600 centers, the company is evaluating a potential second-phase expansion to target the remaining 400 lower-volume centers. Regarding the Arecibo trial, he stated that with IDE approval secured, the next steps involve finalizing hospital contracts and IRBs, with the first patient enrollment anticipated before the end of the year.

Nelson Cox, on behalf of Frank Takkinen, asked about the expected launch trajectory for AMDS post-approval and questioned the potential for further price increases in the preservation business, particularly for SynerGraft.

Answer

CEO James Mackin described the initial AMDS launch, anticipated after a Q4 2025 approval, as a 'soft launch' due to the need for surgeon training and hospital value analysis committee approvals. An executive added a recommendation to model zero AMDS revenue for 2025. Regarding pricing, Mackin indicated that after a significant price increase last year, there is not much room for another large increase on SynerGraft soon, though other tissue products may see price adjustments.

Nelson Cox of Lake Street Capital Markets inquired about the market reception and financial contribution of the new HCPCS mapping code for TriNav, and also asked for an outlook on operating expenses to understand the path to profitability.

Answer

CEO Mary Szela and Medical Director Dr. Richard Marshall explained that the new mapping code is boosting momentum by giving physicians confidence to use the same technology for both mapping and treatment. CFO David Patience detailed the OpEx outlook, noting nalotolimod R&D expenses will conclude in Q3, sales and marketing spend is stable, and G&A costs will be reduced, reaffirming the company's path to adjusted EBITDA positivity in early 2026.

Nelson Cox of Lake Street Capital Markets inquired about the capital required for the Anaphylm launch, potential Libervant revenue in Q2, and the earliest possible notification about an FDA Advisory Committee meeting.

Answer

CFO Ernie Toth explained that current cash provides runway through 2025 and into the initial launch, with levers like ex-U.S. partnerships and debt refinancing available to fund the full launch. He confirmed Libervant revenue in Q2 will be minimal and has been removed from guidance. Executive Carl Kraus stated that while the FDA can alert them at any time, they hope for notification about an Ad Comm by the Day 74 letter.

Nelson Cox of Lake Street Capital Markets inquired about the impact of Project CARE on referral volumes in established centers and the expected hiring cadence for the year.

Answer

Executive Joel Becker confirmed that Project CARE is positively impacting both referral volumes and implants, helping connect Level 3 and community centers with Level 4 centers. Regarding hiring, he stated that NeuroPace will continue its disciplined, incremental investment in the commercial organization throughout 2025 to support current growth and prepare for future indication expansions, which is factored into guidance.

Nelson Cox asked for clarification on the Q1 revenue softness, seeking to understand the relative impact of typical seasonality versus challenges from sales representative turnover. He also requested more detail on the tenure mix of the current sales force.

Answer

Executive Kevin Hykes attributed the vast majority of the Q1 softness to the disruption from a deeper-than-anticipated sales team realignment, noting it was more difficult than expected to maintain momentum in accounts, particularly relationship-dependent 'dabbler' accounts. Executive Jared Oasheim detailed the sales force tenure, stating that approximately 50% of current territory managers have been hired within the last 15 months, with the other 50% being more tenured.

Nelson Cox, on for Frank Takkinen, inquired about the potential impacts of NIH funding discussions on the business, the insulation of the current customer mix from such fluctuations, whether any one-time events affected the book-to-bill ratio, and requested more directional color on adjusted EBITDA expectations.

Answer

Executive Robert Leasure stated that Inotiv has not yet seen a dramatic impact from NIH funding discussions. Executive Beth Taylor added that government revenue was approximately 7% of total revenue in fiscal 2024 and actually increased quarter-over-quarter in Q2 on both the DSA and RMS sides. Leasure and Taylor confirmed that DSA cancellations were down 28% quarter-over-quarter with no large one-time events, while new orders were up 27%. Regarding EBITDA, Leasure highlighted improving DSA margins as a key focus area, which he expects to improve through better pricing, operational leverage, and cycling through higher-cost studies.

Nelson Cox, on behalf of Frank Takkinen from Lake Street, asked for an update on sales force expansion plans, the expected evolution of the sales backlog composition in 2025, and the potential annual replacement rate for the installed pump base starting in 2026 with the new 3870 model.

Answer

President and CEO Roger Susi reaffirmed the plan to expand the sales force from 28 territories towards 35, with some hiring to begin in 2025 ahead of the new pump launch. CFO John Glenn explained that the current strong backlog, which provides good visibility for the first half of the year, is currently weighted towards pumps but is expected to shift towards a greater mix of monitors as 2025 progresses. Susi detailed the replacement opportunity, estimating they will target replacing 800 to 1,000 older systems annually starting in 2026, which translates to 1,600 to 2,000 new pumps per year.

Nelson Cox asked if the SION goniotomy device could become a meaningful contributor in 2025 and inquired about the company's long-term glaucoma pipeline, including any plans for therapeutic delivery.

Answer

CFO Alison Bauerlein described SION as a smaller, complementary product to OMNI and not a significant future growth driver. CEO Paul Badawi addressed the pipeline, stating they are making good progress on new interventions, including sustained release and other MIGS approaches, and will share more details next year. He highlighted the recent hiring of an EVP of R&D to advance these projects.

Questioned the manufacturing scalability for the new GenesisX system, the potential for customers to delay purchases of the current Genesis system while waiting for GenesisX, and the impact of the macroeconomic environment on capital equipment sales.

Answer

GenesisX was designed for simpler manufacturing and installation, allowing the company to scale production by an order of magnitude in its current facility. While some customers may wait for GenesisX, there is a solid backlog and pipeline for the current Genesis system, particularly for existing customers upgrading their labs. The company feels its growth is more dependent on its own product ecosystem transformation than on macro trends, which have been challenging but manageable.