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DermTech, Inc. (DMTK)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 2023 showed sequential and year-over-year improvement in pricing and revenue, with total revenue at $3.9M (+10% YoY) and EPS at -$0.57 (improved from -$0.99 in Q2 and -$0.96 in Q3’22); test gross margin improved to 1% from -10% in Q2 and -6% in Q3’22 .
  • Management emphasized monetizing reimbursed demand: ASP rose 24% YoY, Medicare billable share reached 27% (record) over the last two quarters, and operating expenses declined materially, reducing annualized net cash burn run rate to ~$65M from ~$100M in 2022 .
  • Directional guidance maintained: revenue expected to grow YoY in 2023; volumes guided to flat-to-modestly down as tactics prioritize reimbursement; specific numeric guidance withheld pending sustained payer trends; cash runway extended into Q1 2025 .
  • Stock reaction catalysts: improving unit economics (ASP, margin), payer access tailwinds (biomarker bill momentum, Medicare share), upcoming TRUST 2 real-world data (expected top-line by year-end 2023), and visible opex/cash-burn improvements, balanced by lower volumes and facility-related cost pressure .

What Went Well and What Went Wrong

What Went Well

  • ASP increased 24% YoY; test revenue +8% YoY and +4% sequentially, reflecting success in monetizing reimbursed demand .
  • Payer mix improved: Medicare proportion of billable samples reached 27% and management highlighted progress in covered lives earlier in the year (to 133M in Q2) .
  • Operating discipline: material opex reductions; annualized net cash burn run-rate improved to ~$65M vs ~$100M in 2022; cash runway extended into Q1 2025 .
    • Quote: “We significantly improved many of our key performance indicators... We grew ASP and test revenue... increased our proportion of tests that are reimbursed.” – Bret Christensen, CEO .

What Went Wrong

  • Volumes declined: billable sample volume fell 13% YoY to ~15,710 as commercial tactics prioritized reimbursement over volume .
  • Infrastructure-related cost pressure: cost of test revenue rose slightly YoY due to new facility costs; test gross margin remains near breakeven despite improvement .
  • Specific numeric guidance remains difficult; management cited uncertainty in payer reimbursement behaviors and the need to see sustained trends before providing detailed targets .

Financial Results

MetricQ3 2022Q1 2023Q2 2023Q3 2023
Total Revenue ($USD Millions)$3.573 $3.477 $3.980 $3.915
Test Revenue ($USD Millions)$3.433 $3.425 $3.565 $3.692
Net Loss per Share ($USD)$(0.96) $(1.02) $(0.99) $(0.57)
Test Gross Margin (%)-6% -11% -10% 1%
Operating Expenses ($USD Millions)Q3 2022Q1 2023Q2 2023Q3 2023
Sales & Marketing$14.632 $15.417 $13.033 $8.123
Research & Development$5.702 $4.409 $3.887 $3.595
General & Administrative$8.806 $11.875 $15.220 $8.264
Net Loss ($USD Millions)$(28.772) $(31.270) $(31.363) $(19.164)

Segment breakdown and KPIs

MetricQ3 2022Q1 2023Q2 2023Q3 2023
Contract Revenue ($USD Millions)$0.140 $0.052 $0.415 $0.223
Billable Samples (#)n/a~17,800 ~17,450 ~15,710
ASP YoY Change (%)n/an/an/a+24%
Medicare % of Billable Samplesn/an/a27% 27%
Covered Lives (Millions)n/a126 133 n/a
Cash, Cash Equiv., Restricted Cash & ST Marketable Securities ($USD Millions)n/a$108.4 $89.7 $71.7
Cash Runway (Mgmt)n/aThrough Q3 2024 Into Q1 2025 Into Q1 2025

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
DMT VolumesFY 2023“Roughly flat this year” (Q1) “Flat to modestly down” (Q3 call) Lowered
RevenueFY 2023“Plan for revenue to grow in 2023” (Q2) “Revenue should grow YoY in 2023” (Q3) Maintained
ASPFY 2023“Healthy signs for steadily improving ASP” (Q1) “ASP moving in right direction; should increase vs 2022” (Q3 call) Maintained upward trend
Cash RunwayCorporateThrough Q3 2024 (Q1) Into Q1 2025 (Q2/Q3) Raised
Specific Numeric GuidanceFY 2023Not providedNot provided; difficult until sustained payer trends (Q3 call) Maintained (no numeric)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2023)Current Period (Q3 2023)Trend
Payer Coverage / Covered Lives126M covered lives (Q1); expanded to 133M; 7 of top 10 Blues; 2 large government payers (Q2) Continued emphasis on reimbursed tests; Medicare share up to 27% Improving access and payer mix
Commercial TacticsFocus on monetizing reimbursed demand; expect flat volume (Q1). Sales incentives shifted to revenue, territories dissolved/merged, spend targeted to enablement (Q2) Volumes flat-to-modestly down as tactics prioritize reimbursement (Q3 call) Prioritizing quality of revenue over volume
Medicare / Reimbursement Mix—Medicare proportion at 27% over last two quarters; increased reimbursed proportion Rising Medicare contribution
ASP / Unit Economics“Healthy signs” for improving ASP (Q1); ASP grew sequentially (Q2) ASP +24% YoY; test revenue +8% YoY, +4% seq; test margin improved to 1% Improving pricing and margin trajectory
TRUST 2 Real-World Study—Top-line data expected before end of 2023; aims to support payer engagement Near-term clinical evidence catalyst
Legislative / Biomarker Bills—California biomarker coverage highlighted; >10 states passed bills; more in process (Q3 call) Structural tailwind for access
Opex / Cash BurnCost savings priority (Q1); restructuring actions (Q2) Opex “substantially declined”; cash burn run-rate to ~$65M; runway into Q1 2025 Improving operating leverage

Management Commentary

  • “We significantly improved many of our key performance indicators in the third quarter… we expanded our Medicare proportion… increased our proportion of tests that are reimbursed.” – Bret Christensen, CEO .
  • “Our operating expenses substantially declined… our net cash burn declined… to approximately $65 million annually based on the third quarter run rate – a 35 percent decrease.” – Bret Christensen, CEO .
  • “Test revenue was up 8% to $3.7 million and increased 4% sequentially, largely due to higher ASP… Net loss was $19.2 million…” – Kevin Sun, CFO (prepared remarks) .
  • “Providing specific guidance remains difficult until we see a good trend for several quarters in payer reimbursement behavior and the sustained effectiveness of our new commercial tactics.” – Kevin Sun, CFO .

Q&A Highlights

  • Guidance clarity: Management reiterated difficulty providing detailed numerical guidance until payer reimbursement trends are sustained, while affirming volumes are likely flat-to-modestly down and ASP/test revenue should increase vs 2022 .
  • Evidence generation: TRUST 2 top-line data expected before year-end 2023, intended to support payer reengagement; management cited importance of real-world outcomes .
  • Access tailwinds: California biomarker bill and similar legislation in >10 states highlighted as strengthening patient access; Medicare’s growing share seen as positive .
  • Operating discipline: Continued focus on opex reductions and cash burn improvements while growing revenue; runway into Q1 2025 reiterated .

Estimates Context

  • S&P Global/Capital IQ consensus estimates were unavailable via our tool at the time of analysis; therefore, comparisons to Wall Street consensus from S&P Global cannot be provided.
  • Third-party sources reported Q3 2023 EPS estimates between -$0.68 and -$0.76, vs actual EPS of -$0.57. We caution these are not S&P Global figures:
    • Reported expectation -$0.68 (actual -$0.57, beat) .
    • Reported expectation -$0.76 (actual -$0.57, beat) .
  • Revenue consensus was not found in S&P Global and not specified by third-party sources reviewed; actual total revenue was $3.915M .

Key Takeaways for Investors

  • Mix-driven improvement: ASP up 24% YoY and Medicare share at 27% underpin revenue quality; expect continued focus on reimbursed tests at the expense of volume growth .
  • Margin trajectory turning: test gross margin improved to 1% (from -10% in Q2 and -6% YoY), though facility costs remain a headwind; further reimbursement mix gains should support margin expansion .
  • Operating leverage: opex down materially; cash burn run-rate now ~$65M; cash runway into Q1 2025 provides time to execute against payer and clinician adoption initiatives .
  • Near-term catalyst: TRUST 2 top-line data by year-end 2023 may aid payer dialogue; monitor legislative biomarker momentum as a structural positive for access .
  • Risk balance: volumes declining (-13% YoY samples) reflect strategy shift; continued facility/infrastructure costs limit near-term gross margin expansion; uncertainty in payer reimbursement behaviors keeps management from issuing specific guidance .
  • Trading lens: positive narrative around improving unit economics and cash discipline vs. cautious top-line volume outlook and payer timing; stock likely reacts to evidence/readouts (TRUST 2) and tangible payer wins rather than volume metrics alone .
  • Prior quarters context: covered lives grew from 126M (Q1) to 133M (Q2); restructuring and revamped sales incentives (revenue over volume) set the groundwork for Q3’s ASP and margin improvements .

Additional relevant press releases and references:

  • DermTech Reports Third-Quarter 2023 Financial Results (BusinessWire) .
  • Release date announcement ahead of Q3 call .
  • Q3 2023 Earnings Call transcript excerpts (InsiderMonkey/Yahoo Finance; Seeking Alpha index) .