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DermTech, Inc. (DMTK)·Q2 2023 Earnings Summary

Executive Summary

  • Q2 2023 total revenue was $4.0M, down 6% y/y; test revenue was $3.6M, down 14% y/y, as changes in prior-period collection estimates and lower billable samples offset sequential ASP/test revenue improvements . Net loss was $31.4M (−$0.99 EPS) vs. −$29.6M (−$0.99 EPS) y/y .
  • Management emphasized a strategic pivot: prioritizing reimbursed billable samples and revenue over volume, adjusting sales incentives, and focusing spend on sales enablement; covered lives expanded ~45% YTD to 133M by Q2 .
  • Cash runway extended into Q1 2025 from prior guidance of Q3 2024, aided by restructuring and ~$4.5M ATM proceeds; cash, equivalents, restricted cash, and short-term marketable securities totaled $89.7M at quarter-end .
  • Earnings call highlighted the shift to monetizing demand (revenue focus), aligning incentives, and building clinician adoption; ongoing payer onboarding and friction remain watch items .
  • Near-term stock narrative catalysts: payer coverage growth to 133M, sustained ASP improvement, execution on reimbursed mix, and runway extension into 2025 .

What Went Well and What Went Wrong

What Went Well

  • Expanded covered lives to 133M, now working with seven of the top ten Blues and two large governmental payers, supporting ASP and revenue monetization focus .
  • Sequential improvement in ASP and test revenue; management realigned sales incentives to prioritize revenue over volume and consolidated territories to focus where coverage is strongest .
  • Cash runway extended into Q1 2025 post restructuring and ATM proceeds; quarter-end cash, equivalents, restricted cash, and short-term marketable securities of $89.7M provide funding visibility .

Management quotes:

  • “We’ve modified incentive compensation for our sales team to prioritize revenue over volume and dissolved or merged certain sales territories to focus on geographies where we have broad insurance coverage.”
  • “We plan for revenue to grow in 2023, and as result of our recent restructuring actions, anticipate that our cash runway will now take us into the first quarter of 2025.”

What Went Wrong

  • Test revenue declined 14% y/y to $3.6M; billable sample volume fell 5% y/y to ~17,450 as mix and collection estimate changes weighed on reported revenue .
  • Test gross margin turned to −10% (vs. +22% y/y), with higher infrastructure costs tied to the new facility and higher materials expense; cost of test revenue rose 21% y/y .
  • Operating expense mix elevated by G&A (+71% y/y) due to non-cash stock comp, former CEO severance, restructuring costs, and facility-related infrastructure costs; net loss widened to −$31.4M .

Financial Results

MetricQ4 2022Q1 2023Q2 2023
Total Revenue ($USD Millions)$3.0 $3.5 $4.0
Test/Assay Revenue ($USD Millions)$2.7 $3.4 $3.6
Contract Revenue ($USD Millions)$0.30 $0.05 $0.42
Net Loss ($USD Millions)−$28.2 −$31.3 −$31.4
Diluted EPS ($USD)−$0.93 −$1.02 −$0.99
Test Gross Margin (%)−22% −11% −10%
Sales & Marketing ($USD Millions)$13.6 $15.4 $13.0
Research & Development ($USD Millions)$5.1 $4.4 $3.9
General & Administrative ($USD Millions)$9.8 $11.9 $15.2

Segment/KPI detail:

KPI / SegmentQ4 2022Q1 2023Q2 2023
Billable Sample Volume (Units)~17,460 ~17,800 ~17,450
Covered Lives (Millions)124 126 133
Cost of Test Revenue ($USD Millions)$3.3 $3.8 $3.9
Gross Profit/Loss ($USD Thousands)−$356 −$344 $8
Cash, Equivalents, Restricted Cash & ST Securities ($USD Millions)$129.8 $108.4 $89.7

Notes:

  • Q2 total revenue includes $0.415M contract revenue per statements .
  • Q2 gross profit reflects total revenues vs. total cost of revenues .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Cash RunwayCorporateThrough Q3 2024 Into Q1 2025 Raised
FY 2023 Revenue OutlookFY 2023Focus on monetizing demand; DMT volume roughly flat Plan for revenue to grow in 2023 Raised (qualitative)
Commercial FocusCorporateDrive volume to demonstrate demand; early lifecycle focus Prioritize reimbursed billable samples; align incentives to revenue Strategic shift

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2022, Q1 2023)Current Period (Q2 2023)Trend
Payer Coverage & ASPCoverage grew to 124M; improved NCCN recommendation; signs of ASP improvement . Q1: Covered lives 126M; healthy signs for improving ASP .Covered lives ~133M; seven top Blues and two governmental payers; focus on reimbursed tests and onboarding improvements .Strengthening coverage; ASP improving; execution on payer onboarding.
Go-to-Market FocusQ1: Monetize demand, revenue inflection, focus on reimbursed mix; expect flat volume .Incentives shifted to revenue; territories merged to coverage-dense geographies; sales enablement over broad marketing .Clear pivot from volume to reimbursed revenue.
Cost Structure & RunwayQ4/Q1: Revised operating plan; runway through Q3 2024 .Restructuring actions and ~$4.5M ATM proceeds; runway into Q1 2025 .Runway extended; cost discipline emphasized.
Clinician AdoptionQ4/Q1: Early lifecycle volume important to build comfort .Build ground-level DMT adoption; emphasize non-invasive melanoma rule-out value .Continued clinician adoption push.
Regulatory/GuidelinesQ4: NCCN recommendation improvement noted .Reinforcing clinical/health-economic benefits to payers .Supporting evidence narrative maintained.

Management Commentary

  • Strategy and focus: “We’ve made solid progress… expanded covered lives approximately 45 percent to 133 million… modified incentive compensation for our sales team to prioritize revenue over volume… dissolved or merged certain sales territories… targeting our spending more closely to sales team enablement rather than broad-based marketing efforts.”
  • Revenue outlook and runway: “We plan for revenue to grow in 2023… anticipate that our cash runway will now take us into the first quarter of 2025.”
  • Product value: DMT “is noninvasive, rules out melanoma with a 99% negative predictive value and provides clinicians with objective and actionable genomic data.”
  • Operational priorities: “Prioritizing reimbursed tests over total volume to grow revenue…”

Q&A Highlights

  • Incentive alignment: Management underscored a shift from volume to revenue, aligning sales incentives and organizational focus to monetization given expanded coverage; early lifecycle emphasis on volume is now replaced by revenue priority .
  • ASP and reimbursed mix: Continued focus on increasing reimbursed proportion and ASP to drive revenue inflection; onboarding processes with payers highlighted as execution area .
  • Cash runway: CFO commentary pointed to runway extension, with potential to extend further if ASP and revenue grow through 2024 .

Estimates Context

  • S&P Global consensus estimates for DMTK were unavailable via our SPGI mapping for Q2 2023, Q1 2023, and Q4 2022; as a result, explicit “vs. consensus” EPS and revenue comparisons cannot be provided at this time [SpgiEstimatesError].
  • Given the strategic pivot to monetization and reimbursed mix, we would expect analysts to recalibrate models toward ASP improvements and reimbursed volume contributions while incorporating higher infrastructure/G&A costs noted in Q2 .

Key Takeaways for Investors

  • The company is executing a strategic shift from driving volume to monetizing reimbursed demand; expect revenue/ASP to become the primary KPIs over raw volumes .
  • Coverage expanded to 133M lives with key Blues and governmental payers—a critical foundation for monetization and ASP improvement .
  • Gross margin pressure persists (−10% test GM), driven by facility-related infrastructure and materials; watch the cadence of operational efficiency gains vs. runway .
  • Operating expense mix shifted with G&A inflation from stock comp, severance, restructuring, and facility costs; management is targeting spend toward sales enablement .
  • Cash runway into Q1 2025 reduces near-term financing risk; additional extension is possible if ASP/revenue trends improve through 2024, per CFO commentary .
  • Near-term execution priorities: payer onboarding, clinician adoption, reimbursed mix expansion, and sustaining ASP improvements—these are the levers likely to move sentiment and the stock .
  • With consensus data unavailable, focus on company-reported revenue/ASP trajectory and qualitative guidance updates to gauge momentum.

Sources:

  • Q2 2023 8-K and press release: and BusinessWire press release .
  • Q1 2023 8-K and press release: .
  • Q4 2022 8-K and press release: .
  • Q2 2023 earnings call transcript: .
  • Estimates note: SPGI mapping error preventing consensus retrieval (tool error).