Exact Sciences Corporation (NASDAQ:EXAS) Q2 2023 Earnings Call Transcript

Exact Sciences Corporation (NASDAQ:EXAS) Q2 2023 Earnings Call Transcript August 1, 2023

Exact Sciences Corporation beats earnings expectations. Reported EPS is $-0.45, expectations were $-0.51.

Operator: Good day and welcome to the Exact Sciences Second Quarter 2023 Earnings Call. Today’s call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Megan Jones, Vice President of Investor Relations. Please go-ahead.

Megan Jones: Thanks, Lisa. Thank you for joining us for Exact Sciences second quarter 2023 conference call. On the call today are Kevin Conroy, the company’s Chairman and CEO, and Jeff Elliott, our 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 second 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: Exact Sciences’ world-class team is the driving force behind the most innovative growth engine in cancer diagnostics. Our scientists are using advanced technologies to harness the power of DNA, RNA and proteins. They are intensely focused on enhancing our current tests and developing new tests that can help transform cancer care. The scale of Exact Sciences labs, IT infrastructure, commercial teams and our depth of payer relationships will help those tests impact millions of patients while providing profitable growth for years to come. We made significant progress toward our mission to eradicate cancer during the second quarter, including being Great Place to Work certified for the fifth consecutive year, delivering more than one million test results to patients, generating core revenue of $617 million, an improvement of $119 million year-over-year, with an 18% decline in sales and marketing expense, producing $66 million of free-cash flow, a $190 million improvement, announcing positive top-line results from our BLUE-C study in which our next-generation Cologuard test exceeded our expectations for improved sensitivity and specificity, securing reimbursement for the Oncotype DX test in Japan, and initiating collaborations with the Broad Institute to support our molecular residual disease test platform and Baylor Scott & White to support our multi-cancer early detection program.

As a result of the outstanding results in the second-quarter, we’re raising our full year guidance for revenue by $54 million and adjusted EBITDA by $63 million. The second-quarter results show our team’s commitment to developing and enhancing tests that impact decision-making and supporting them with the highest quality evidence. Surrounded by a 2000 person commercial and customer care organization, we will provide the best customer experience for patients and their healthcare providers globally. This creates a flywheel that will power a unique combination of long-term double-digit growth and significant profitability. Jeff will now review our second-quarter results.

Jeff Elliott: Thanks, Kevin. Second-quarter revenue grew 19% to $622 million. Core revenue of $617 million grew 24% excluding COVID testing, the sale of our prostate business, and foreign exchange. Screening revenue of $463 million, increased 31%. We continue to see broad-based momentum in Cologuard adoption and traction within health systems. Since the beginning of the year, we’ve implemented about 40 new electronic connections with large US health systems, bringing the total to nearly 300. These connections will help healthcare professionals to order and view results seamlessly while giving patients access to results in Epic MyChart. They also enable electronic billing and reimbursement, and in the future, automated prior authorizations, improving the efficiency of our teams and systems for Cologuard and our whole suite of tests.

Photo by National Cancer Institute on Unsplash

More than 9,000 new healthcare professionals ordered Cologuard during the quarter and more than 321,000 have ordered since launch. About 75% of all US primary care physicians have ordered Cologuard. So we don’t plan to provide the number of new physicians each quarter starting next year. Precision Oncology revenue grew 2% to $157 million. Growth was 7% excluding the prostate business sale and foreign-exchange. COVID testing revenue decreased 84% to $2 million. Second quarter GAAP gross margin was 71%. Non-GAAP gross margin, excluding the amortization of acquired intangibles, was 75%. Gross margin benefited from better cash collections due to improvements made to our billing systems. GAAP net loss was $81 million. Adjusted EBITDA was $67 million, an improvement of $113 million, driven by better-than-expected revenue, gross margin and operating expense discipline.

Cash provided by operating activities was $100 million. Free cash flow was $66 million, an improvement of $190 million. We ended the quarter with cash and securities of $776 million. Turning to guidance, we expect total revenue between $605 million and $620 million during the third quarter and $2.441 million and $2.466 billion for the year. This assumes screening revenue between $455 million and $465 million for the third-quarter and between $1.820 billion and $1.835 billion for the year. Precision Oncology revenue between $150 million and $155 million for the third-quarter and between $615 million and $625 million for the year and COVID revenue of $6 million for the year. Note that we discontinued COVID testing in July. For the year, guidance implies 22% core revenue growth with 28% growth in screening and 6% growth in precision oncology.

We’re increasing our adjusted EBITDA guidance for the year to between $170 million and $180 million, up $163 million from the start of the year. The Exact Sciences platform was built to drive double digit revenue growth and margin improvement for years. Second quarter shows this engine’s earning potential. Back to you, Kevin.

Kevin Conroy: Thanks, Jeff. Cologuard is helping to screen more Americans and reduce the suffering from colon cancer. Next-generation Cologuard will raise the performance bar in non-invasive screening and accelerate its positive impact. Next-generation Cologuard achieved a 30% improvement in specificity, a measure of the false positive rate, while improving sensitivity for the cancer and pre-cancer detection rates. This is a result of advanced technology, deep scientific insights and more than a decade of collaboration between our R&D team and Mayo Clinic. We are proud of our teams for their efforts to bring next-generation Cologuard to patients. We’re finalizing the FDA submission and we’re working to get it in patients’ hands in early 2025.

Once next-generation Cologuard is FDA approved, it will be supported by the best commercial team in diagnostics and the most dedicated frontline team members. This team has worked tirelessly to build relationships with healthcare professionals, connections to hospitals and a strong brand. This is a big opportunity to have an impact on this disease, because 60 million people are not up-to-date with colon cancer screening in the US. With our team’s commitment to getting more people screened and a more accurate test, Cologuard will help improve colon cancer outcomes and continue to fuel our growth. Our Precision Oncology team secured reimbursement for the Oncotype DX Breast test in Japan where 90,000 women are diagnosed with breast cancer every year.

About half of them are eligible for Oncotype DX, making Japan the biggest opportunity outside the US. With reimbursement now in place, Oncotype DX, can provide important answers to women who aren’t currently being tested. Our team in Japan will work to educate doctors, hospitals and communities about the value of genomic testing with Oncotype DX, so more women and their physicians can make better, personalized treatment decisions. A special thanks to the international team who is bringing this important innovation to patients in Japan. Our pipeline teams are focused on two of the biggest opportunities in cancer diagnostics, molecular residual disease and multi-cancer early detection. We’re working with the Broad Institute to enhance and extend our molecular residual disease platform called Oncodetect, with an exclusive license to technology developed at the Broad, will move from whole exome to whole genome sequencing and from looking at 50 to 100 mutations in a patient’s blood to hundreds, if not thousands of mutations.

This will provide best-in-class performance at a very reasonable cost point, allowing us to reach cancer patients at scale. Our multi-cancer early detection team is working to complete the ASCEND 2 trial, which will validate our multi-marker class approach in a large case control study including 21 cancer types. We expect to have partial results from the ASCEND 2 study this fall with a full readout early next year. We’re generating additional data to support discussions with regulatory agencies, guideline bodies and payers, helping secure access to this life-changing innovation for all patients. Our focus on eradicating cancer fuels the Exact Sciences team and is driving our financial results. We will continue to invest in our people, reaching more patients with our current tests and developing new cancer diagnostic tests.

Our scale platform will accelerate adoption of our tests, while sustaining double-digit revenue growth, improving operating leverage and meaningful cash flow for years. This is a rare opportunity to reduce the suffering cancer causes while delivering value to our shareholders. We’re just getting started. We’re now happy to answer your questions.

See also 16 Most Popular Breakfast Foods in America and 16 High-Paying Jobs for Retired Law Enforcement Officers.

Q&A Session

Operator: [Operator Instructions] We’ll take our first question from Derik de Bruin with Bank of America.

Derik de Bruin: Hi, good afternoon. And thanks for letting me get the first question. Appreciate it. So I’m going to do two. One financial question. Jeff, how should we think about OpEx trending in the back half of the year? And the other one. Just how do you think Cologuard 2.0 will be a tailwind? How much of a tailwind do you think it’ll be once FDA approved? I mean, are there docs now that were more likely to use 2.0 that were not using 1.0? Just sort of your thoughts on how that rolls off and how that impacts the business. Thank you.

Jeff Elliott: Derik, this is Jeff. I’ll take the first one on OpEx. Look, for the year, no change to the assumptions there, which is an overall increase in the mid-single digit range. The way you get there is really continued good management by Everett and team. We expect a sales and marketing decline for the year in total. R&D, probably in the mid-single digit range. G&A, as you remember, back in the start of the year, we talked there, there were some kind of moving pieces here related to primarily the Thrive earn-out, that is driving a big part of the growth this year. If you strip out that, which is non-cash now, obviously the payout would be several years into the future. If you strip out that and some other kind of unique one-time items, the growth there is also in the mid-single digits.

So, what that implies here for the back half is a bit of an increase in the second half versus the first half. As you recall last call — last quarter, we talked about accelerating some investments in MRD, given how quickly that market is moving forward and given our confidence in our technology and our approach there. Also with the growth that we’ve had, hiring is going to pick-up in the back half of the year, would help support that continued growth. I think there’s two questions there. I’ll turn it over to Everett for the second one.

Everett Cunningham: Yeah. Thanks, Jeff. And you talked about the strategy of Cologuard 2.0. Our first focus will be continuing to grow Cologuard until Cologuard 2.0 gets FDA approved. The great thing about our field force is we are driven by data and analytics and we use that daily in which we make our sales calls and we take notes on our sales calls. So we know which physicians that are out there that had the objection of, hey, the false positive rate is an objection. So once we do launch Cologuard 2.0, we will focus on going to those physicians first, and that’s just the power of our commercial organization, the data and analytics that we used to go to the right targets with the right message and the commercial team is excited to get Cologuard 2.0 in the bay.

Operator: We’ll take our next question from Catherine Schulte with Baird.

Catherine Schulte: Hey guys, thanks for the question. I guess maybe, Everett, another one for you. Jeff mentioned that about 75% of primary care doctors in the US have ordered Cologuard. So I guess, just how does your strategy change now that the primary focus will be on really deepening the penetration within accounts rather than adding new orders and would love any examples you can give there?

Everett Cunningham: Yeah. Thanks for that question. We’re not complacent at all with that number. We have 10% penetration with Cologuard. So we know that along with the 60 million Americans that have average risk that right now are not up-to-date to screening. So our commercial organization goes out every day knowing that there’s opportunities that are out there to continue to grow Cologuard. That’s our focus. And like I said before, we use data and analytics to not just concentrate on the reach of the physician, but we need to concentrate on the frequency and making sure that we get the message out there consistently because we know that there is more work to do to get our customers out there to write more Cologuard and get more people screened.