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

Kevin Conroy: Just to add on to that, the long wait times for colonoscopy has become a nationwide issue. And that’s driven by, part one, is that 18 months ago, a little more than that now, the USPSTF guideline group lowered the screening age to age 45. As you know, that added 15 million to 20 million Americans into the screening population, all starting to need to be screened at once and that permanently increased the number of people who needed to be screened while that capacity, as Everett mentioned, is fixed. The other part of it is that capacity just isn’t growing. In fact, in some markets, it’s shrinking because we’re not seeing — we’re seeing retirements outpace the number of new physicians that are becoming GIs and entering the markets. And so there is that dynamic that Cologuard is just going to help address the sheer number of people that need to be screened for decades to come, we believe.

Operator: We’ll take our next question from Kyle Mikson with Canaccord Genuity.

Kyle Mikson: Yeah. Thanks guys. I want to go back to the financials and the model really. Jeff, can you kind of walk through market implications of this $50 million COVID headwind to rescreen revenue in the second half? I guess like for context, you’re guiding to a mid-single digit adjusted EBITDA margin in the second half. That makes sense given the rescreening revenue is higher margin. When that headwind lifts in the first half of next year, do you would think that margins would bounce back? But that’s kind of in line with how you talked about pushing margins higher over time. But you have other studies coming up in ’24 and beyond. So I guess just wrapping this up, how do we kind of think about the margin profile going forward in the context of all these moving pieces?

Jeff Elliott: Yeah. Thanks for the question. Well, just about a month ago, we gave long-term margin guidance of at least 20% in 2027. That’s adjusted EBITDA margins. We feel very good about our ability to get there based on the momentum we have today. But look, we’ve got work to do. There’s huge markets out there. You talked about COVID rescreen, the headwind there. Again, it’s over $50 million this year. A big part of that is in Q3. Yeah, I think it’s important to look at the guidance for Q3. What we’re guiding to is still for screening, 30% growth and over $100 million of incremental revenue, which — that’s almost exactly what it was in Q2. So there’s very strong growth here, and we’re going to make sure we make the right investments in this business to keep scaling. So I feel good about it. I do — as we scale, we’ll talk more about next year on a future call. But as we scale, I do expect margins and cash flow to improve for years to come.

Operator: We’ll take our next question from Liza Garcia with UBS.

Liza Garcia: Afternoon, guys. Thanks for squeezing me in. I guess just thinking. And I know kind of as we’re moving internationally into Japan, it’s a little bit different because it’s Oncotype and is the first mover. But you’ve spent so many years kind of honing the operational model with Cologuard. You’ve obviously had a lot of learnings. But kind of as you’re thinking about internationally and kind of the best way to tackle, kind of, what have your learnings been to kind of just given kind of obviously, the revisions that you’ve done in the operational leverage you’ve been like how you’re thinking about tackling internationally to be as effective as possible and kind of the margin profile to kind of get I guess, kind of what learnings you think you can leverage from your US experience into the international market kind of where I’m getting at.