DermTech, Inc. (DMTK)·Q4 2023 Earnings Summary

Executive Summary

• Q4 2023 showed material top-line and margin improvement: test revenue rose 38% YoY to $3.70M, total revenue increased 31% YoY to $3.92M, and test gross margin turned positive to 7% (vs. -22% YoY) on ASP strength (+55% YoY), despite volume declines .
• Operating discipline continued: Sales & Marketing (-38% YoY), R&D (-34% YoY), and G&A (-14% YoY) drove improved loss metrics; net loss was $19.1M and EPS was -$0.56 (vs. -$0.93 YoY) .
• Liquidity runway into Q1 2025, with cash, cash equivalents, restricted cash and short-term marketable securities of $59.3M at year-end; management targets ~$40M annualized OpEx reductions vs. 2022 from restructuring actions .
• Versus external Street indications, revenue missed Zacks’ consensus by ~3.1% and EPS slightly missed (-$0.56 actual vs. -$0.54 est.); S&P Global consensus estimates were unavailable for DMTK mapping at this time .

What Went Well and What Went Wrong

What Went Well

• ASP and pricing strategy delivered: “Average selling price (ASP) for the DermTech Melanoma Test (DMT) increased 55 percent year-over-year,” supporting 38% YoY test revenue growth .
• Gross margin inflection: Test gross margin improved to 7% in Q4 (from -22% YoY), reflecting ASP gains and mix despite facility-related cost headwinds .
• Cost discipline: Sales & Marketing (-38% YoY), R&D (-34% YoY), and G&A (-14% YoY) declined; CEO emphasized “approximately $40 million in annualized total operating expense reductions compared to 2022” from restructuring .

Selected quotes:

• “We reported sustained improvement in many of our key performance indicators during the second half of last year and will continue emphasizing average selling price (ASP) and revenue growth in 2024.” — CEO Bret Christensen .
• “We’ve aligned our commercial effort with the aim to maximize revenue by focusing on existing customers and reimbursed tests.” — CEO Bret Christensen .

What Went Wrong

• Volume headwind: Billable sample volume declined 11% YoY to ~15,580, reflecting the short-term prioritization of reimbursed tests over volume growth .
• Cost of test revenue rose 4% YoY to $3.4M due to higher infrastructure costs tied to the new facility, partially offsetting ASP gains .
• External consensus miss: Revenue and EPS modestly under external Zacks consensus (revenue miss ~3.1%; EPS -$0.56 vs. -$0.54), adding near-term pressure on investor expectations; S&P Global estimates unavailable for comparison at this time .

Financial Results

Core P&L, EPS, and Volume (oldest → newest)

Operating Expenses and Cash

Segment Breakdown (Q4 2023)

KPIs and Mix (Q4 2023)

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We’ve aligned our commercial effort with the aim to maximize revenue by focusing on existing customers and reimbursed tests. We expanded our Medicare proportion of billable samples from 23 percent to an all-time record high of 28 percent in the last three quarters.” — CEO Bret Christensen .
• “We now plan to achieve approximately $40 million in annualized total operating expense reductions compared to 2022, as a result of our restructuring actions during the last several months.” — CEO Bret Christensen .
• CFO commentary highlighted lowering net cash burn to $55–$60M annually and runway into Q1 2025 (not to exceed 12 months from the 10-K filing date) .

Q&A Highlights

• Priority on monetizing reimbursed demand: Management reiterated near-term focus on ASP/revenue over volume growth and described incentive alignment for the sales organization to target reimbursed tests .
• Payer updates: 2023 additions (≈42M covered lives) started paying some claims; continued efforts to integrate DMT into melanoma pathways to support reimbursement .
• Liquidity/OpEx trajectory: Clarified cash burn expectations and operational efficiencies following restructuring, reinforcing runway into Q1 2025 .

Estimates Context

• S&P Global Wall Street consensus estimates were unavailable for DMTK due to a missing mapping in our SPGI CIQ company map at the time of request.
• External third-party (Zacks via Nasdaq): Q4 EPS consensus -$0.54 vs. actual -$0.56 (surprise -3.7%); revenue $3.92M missed consensus by ~3.11% .

Note: S&P Global consensus unavailable; comparisons above reference Zacks/Nasdaq.

Key Takeaways for Investors

• Pricing-led strategy is working: ASP +55% YoY and positive test gross margin are key inflection points; continued focus on reimbursed tests should sustain revenue quality even if volume remains subdued near term .
• Operating discipline is tangible: Sharp OpEx reductions and lowered cash burn ($55–$60M run rate) extend liquidity runway into Q1 2025, reducing financing risk in the near term .
• Watch payer and Medicare mix: The rise to 28% Medicare proportion underscores improving reimbursement dynamics; incremental payer wins and claims payment consistency are catalysts for volume recovery .
• Near-term debate: Revenue and EPS slightly missed external consensus; investors will focus on execution against ASP/revenue targets and the path to sustainable gross margin expansion .
• 2H trajectory context: Q3 and Q4 improvements suggest a multi-quarter trend in ASP/test revenue and leaner OpEx; monitor whether facility cost headwinds abate against pricing and mix .
• Evidence-based payer engagement: Outcomes (e.g., TRUST2) and clinical integration into melanoma workflows are pivotal to unlocking broader coverage and accelerating volume recovery .
• Trading implications: ASP/margin momentum is supportive; however, consensus misses and volume declines temper near-term sentiment—stock likely sensitive to payer updates, Medicare mix, and subsequent quarters confirming the margin recovery narrative .

Additional relevant Q4 items:

• Earnings press release timing announcement (Feb 13, 2024) .
• Full Q4 2023 press release on Business Wire (Feb 29, 2024) .