Exact Sciences Corporation (NASDAQ:EXAS) Q1 2024 Earnings Call Transcript May 8, 2024

Exact Sciences Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. My name is Danica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Exact Sciences First Quarter 2024 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to Erik Holznecht, Manager, Investor Relations. Please go ahead.

Erik Holznecht: Thank Danica, thank you for joining us for Exact Sciences' first quarter 2024 conference call. On the call today are Kevin Conroy, the company's Chairman and CEO; Jeff Elliott, our Chief Financial Officer; and Aaron Bloomer, Executive Vice President of Finance, who we recently announced as our next Chief Financial Officer; Everett Cunningham, our Chief Commercial Officer, will also be available for questions. Exact Sciences issued a news release earlier this afternoon detailing our first quarter financial results. This news release and today's presentation are available on our website at exactsciences.com. During today's call, we will make forward-looking statements based on current expectations. Our actual results may be materially different from such statements.

Discussions of non-GAAP figures and reconciliations to GAAP figures are available in our earnings press release and descriptions of - the risks and uncertainties associated with Exact Sciences are included in our SEC filings. Both can be accessed through our website. I'll now turn the call over to Kevin.

Kevin Conroy: Thanks, Erik. The Exact Sciences team is off to a strong start to the year. During the first quarter, we advanced our purpose of helping to eradicate cancer by further embedding Cologuard as standard of care, increasing adoption of Oncotype DX internationally and deepening our relationships with health systems, payers and patients. Highlights from the first quarter include testing more than 1 million people globally for cancer and rare diseases. Being recognized as a Gallup Exceptional Workplace, a prestigious award given to only 60 companies worldwide, increasing Cologuard adoption in large health systems, organized screening programs among payers and in federally qualified health clinics. Expanding the number of Oncotype DX international ordering providers by more than 20% year-over-year, making progress towards moving our precision oncology portfolio onto Exact Nexus, our proprietary IT plan.

Launching our hereditary cancer test risk guard to our oncology channel. Announcing the New England Journal of Medicine published results of our pivotal BLUE-C study, which will support FDA approval of Cologuard Plus and generating evidence to support future including OncoDetect, our molecular residual disease test. These achievements reflect our commitment to solving the needs of patients and health care providers, and we're well positioned to achieve our goals for the year. Jeff will now review our financial results for the quarter.

Jeff Elliott: Thanks, Kevin. First quarter revenue of $638 million grew 6% on a reported and core revenue basis. Screening revenue of $475 million increased 7%. Recall, screening revenue in the first quarter of last year was very strong and benefited from enhancements to our billing and patient compliance systems and a weak flu season. Growth was 24% on a two-year compounded basis. We expect year-over-year growth to be faster than Q1 for the rest of the year. Precision Oncology revenue grew 5% to $163 million, or 4% on a core basis, excluding FX and M&A. Group was led by Oncotype DX, which expanded 7% globally. Reference Lab agreements were a headwind of $3 million or 2 points of Precision Oncology growth, as we discussed on our last call.

First quarter GAAP gross margin was 70%. Non-GAAP gross margin, excluding amortization of acquired intangibles, was 73%. Margins were slightly lower year-over-year. The added fixed cost of automation brought online temporarily weight in Q1. We expect gross margins will improve over time as we realize the benefits from lab automation, leverage investments in a lab infrastructure and see an increased mix of rescreened patients. Net loss was $110 million. Adjusted EBITDA was $39 million. Of note, G&A included $4 million of unique onetime items related to facilities consolidation and a $6 million of noncash expense related to acquisition earnouts. In the first quarter last year, G&A was reduced by $9 million from a noncash gain related to earn-outs.

We continue to expect leverage across the P&L this year, especially within G&A. We are taking further steps to optimize costs and increase operational efficiency, enabling us to reinvest in our core business and prepare for new product launches. Free cash flow was negative $120 million during the first quarter, consistent with our expectations and typical seasonal trends. We expect robust cash flow generation for the rest of the year. We ended the quarter with cash and securities of $652 million. In April, we announced our primarily negotiated refinancing. Our primary goal was to smooth and extend existing debt maturities. We accomplished this by issuing $621 million in 2031 notes at attractive financing rates. In return, we have reduced our 2028 notes by $360 million and received $260 million in cash net of fees, bringing first quarter pro forma cash to $912 million.

Our capital allocation priorities remain unchanged. Our number one priority continues to be growing Cologuard and Oncotype DX. Second, we're focused on high-return pipeline opportunities with large patient impacts. Turning to guidance. After a good start to the year, we're well positioned to achieve our annual revenue guidance of between $2.81 billion and $2.85 billion and adjusted EBITDA guidance of between $325 million and $350 million. Our recent investments in sales and marketing have already started to pay off in the second quarter. We expect to see a bigger impact in the second half of the year, but we also faced easier comparisons in the second half. In addition, we're seeing greater demand for Cologuard and Care Gap programs run by payers and health systems, which typically accelerate during Q3 and Q4.

During the second quarter, we expect total revenue of between $677 million and $697 million. This assumes screening revenue between $522 million and $532 million and Precision Oncology revenue between $155 million and $165 million. This is my last Exact Sciences earnings call. It's been an honor to be part of the team over the past eight years. I'm extremely proud of what we have accomplished. Together, we've helped build Exact Sciences into a differentiated growth story with strong recurring revenue, healthy margins and a robust balance sheet. Most importantly, we've delivered over 17 million cancer tests. I also want to thank the many investors and analysts that follow Exact Sciences. I've always appreciated your support and enjoyed interactions.

The future of Exact Sciences is extremely bright. I'll now turn the call over to Aaron.

Aaron Bloomer: Good afternoon, everyone. I'd like to thank Jeff for his support during my transition. It is an honor to be Exact Sciences next CFO, and I look forward to leading our talented finance team. During my career, I've had the privilege of working for Baxter International and 3M, where I emphasized growth and operational excellence. I also focused on margin expansion and free generation and played a key role in portfolio management and business development. Exact Sciences is in a prime position to be a global force in the fight against cancer for years to come, and I'm excited about the opportunities in front of us. Together, we'll continue delivering differentiated financial results, all in support of our purpose to help eradicate cancer.

Kevin Conroy: Thanks, Jeff, and thanks, Aaron. Our commercial engine is fueling Cologuard growth through millions of targeted engagements with patients and healthcare providers. We continue to bring the power of the Cologuard brand to life through new marketing experiences, offering a consistent flow of compelling content to patients ages 45 and older. Marketing investments like these listed Cologuard brand awareness and customer satisfaction to an all-time high in the first quarter. Since the start of last year, 50,000 healthcare providers chose Cologuard and became new customers to Exact Sciences. Our data show the more time we spend educating these healthcare providers about the benefits of Cologuard, the more test they order for their patients.

Our productivity per customer visits had a record in the first quarter, and we have initiatives underway to drive that even higher. To meet demand among our growing base of ordering providers, we will continue investing in high-impact sales and marketing opportunity. The number of patients do for their next Cologuard test continues to increase, and our growing sales team can help improve the rescreen success rates in this patient population. Health systems and payers are highly motivated to improve screening rates through financial incentives built into quality measure programs. Screening backlogs and colonoscopy wait times continue to increase. In addition, the new quality measure reporting standards evaluate colon cancer screening metrics at the population level rather than through random sampling, increasing the burden for payers on [data reports].

Cologuard is an ideal solution, and it's emerging as a preferred choice within large organized screening programs run by health systems and payers seeking to close their gaps in care. They're turning to Cologuard because it's in USPSTF guidelines and HEDIS and STARs quality metrics. Cologuard is a highly accurate at-home test that offers three times more quality credit than the FIT test, which has historically been used within these programs. Our patient compliance engine and the Exact Nexus platform, simplify data reporting required in the quality measures to help payers and health systems earn financial incentives. We're also helping health systems and payers unlock efficiencies by leveraging artificial intelligence and their electronic health record systems to automate workflows to determine patient screening history, streamline patient communications and track patient outcomes.

This gives healthcare providers more time to solve real patient leads. Our Precision Oncology team delivered outstanding results during the first quarter by testing a record number of people globally with Oncotype DX. We're making great progress towards increasing Oncotype DX adoption internationally with the number of ordering providers expanding by over 20% during the first quarter. There is still a huge unmet need to provide life-changing answers to women who aren't currently being tested, especially in markets like Japan, Italy and Germany. Dedicated efforts are ongoing to broaden our reach and deepen relationships with providers around the world. Building our international presence and team also provides future growth opportunities across our broad portfolio of tests.

Over the next 18 months, we're set to launch a range of new tests that will change how cancer is diagnosed, monitored and treated while also helping accelerate Exact Sciences growth. This includes OncoDetect, a bespoke MRD test to detect fragments of residual disease earlier than advanced imaging systems can as well as OncoLiquid a blood-based therapy selection test to complement our tissue-based OncoExTra offering. It also includes Cologuard Plus which will be the most efficient noninvasive way to screen for colon cancer. The New England Journal of Medicine publication of our pivotal BLUE-C study shows Cologuard Plus raises the performance bar in colon cancer screening. The test achieved 94% overall cancer sensitivity. 43% sensitivity for advanced precancerous lesions, including SSLs. 91% specificity when including patients with small polyps and other incidental findings.

And 93% specificity with no findings on colonoscopy. No other noninvasive approach comes close. We plan to share data from BLUE-C later this year for our blood-based colon cancer screening test which will be powered by Exact Nexus, our unique technology platform by our proprietary PCR technology and the commercial infrastructure supporting Cologuard. Exact Sciences has deep relationships with over 350,000 healthcare providers and a powerful colon cancer screening database. These unique advantages give us the opportunity to identify patients who refuse standard of care screening and offer our blood test as a second-line option at a very reasonable cost. We have built an unrivaled foundation to engage patients and healthcare providers, and we are set to gain momentum with each new test added to this platform.

We're using this platform to help eradicate cancer by preventing, detecting it earlier and guiding personalized treatment. Cologuard, Oncotype DX and our pipeline of life-changing diagnostics will power years of double-digit growth and continued profitability, helping us achieve our purpose. Before we turn to Q&A, I'd like to thank Jeff for his many contributions to Exact Sciences over the last eight years. He's been an invaluable business partner and leader. We'll miss him once he departs. We wish him all the best as he enjoys well-deserved time off with his family. We're now happy to take questions.

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