Exact Sciences Corporation (NASDAQ:EXAS) Q3 2023 Earnings Call Transcript

Exact Sciences Corporation (NASDAQ:EXAS) Q3 2023 Earnings Call Transcript November 1, 2023

Operator: Good afternoon, ladies and gentlemen, and welcome to the Exact Sciences Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speakers prepared remarks, there will be a question-and-answer session. [Operator Instructions]. And now at this time, I would like to turn the call over to Mr. Erik Holznecht, Manager of Investor Relations. Please go ahead, sir.

Erik Holznecht: Thanks, Beau. Thank you for joining us for Exact Sciences third 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 third 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: Thank you, Erik. Our third quarter results reflect our commitment to help eradicate cancer with tests that prevent it, detect it earlier, and guide its treatment. Cologuard and Oncotype DX fuel are growing $2.5 billion business and the next wave of breakthrough cancer diagnostic innovations. Our focus on solving the needs of patients and healthcare providers powered outstanding third quarter results, allowing us to raise our 2023 guidance, for both revenue and adjusted EBITDA. Highlights from the third quarter include delivering more than 1 million total tests, including a record number of Cologuard and Oncotype DX results. Growing core revenue of 23% to $625 million, also a record, generating $56 million of adjusted EBITDA, a $69 million improvement.

Exceeding 1 million people screened with Cologuard between ages 45 and 49 in the 2.5 years since the recommended start age was moved from 50 to 45. Expanding the impact of Oncotype DX by launching in Japan on a reimbursed basis, beginning to integrate resolution biosciences and our new liquid therapy selection test into our portfolio. Presenting pivotal BLUE-C study results at the American College of Gastroenterology Conference, demonstrating next generation Cologuard met all endpoints. And showcasing the breadth and depth of our research with five abstracts, with our precision oncology and multi-cancer tests at the European Society of Medical Oncology Conference. The investments we’ve made in our core business are returning sustainable revenue growth and margin expansion.

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Q&A Session

This allows us to strengthen our world-class team and develop new life-changing solutions for our patients. Jeff will now review our third quarter results.

Jeff Elliott : Thanks, Kevin. Third quarter revenue of $628 million grew 20% or 23% out of core basis, excluding COVID testing, M&A and FX. Screening revenue of $472 million increased 31%, driven by broad-based momentum in Cologuard adoption. This momentum was fueled by commercial productivity in our deep relationships with payers and providers. More than 10,000 new healthcare professionals ordered Cologuard during the quarter. More than 331,000 have ordered since launch. As we said last quarter, about 75% of primary care physicians have ordered Cologuard. So we don’t plan to provide the number of new physicians starting next year. Precision oncology revenue grew 3% to $156 million or 5% on a core basis. Growth was led by Oncotype DX, which expanded 14% globally.

Third quarter GAAP gross margin was 70%. Non-GAAP gross margin, excluding amortization of acquired intangibles was 73%. GAAP net income was $1 million, including a gain of $72 million related to the Prostate business sale. Adjusted EBITDA was $56 million, an improvement of $69 million driven by better than expected revenue and continued operating expense discipline. Cash provided by operating activities was $24 million. Free cash flow was a loss of less than $1 million, an improvement of $85 million. Third quarter included a one-time payment of $33 million for a previously disclosed and reserved matter. We ended the quarter with cash and securities of $734 million. Turning to guidance. We are raising total revenue to between $2.476 billion and $2.486 billion for the year.

This assumes screening revenue between $1.848 billion and $1.853 billion. Precision oncology revenue between $622 million and $627 million and COVID revenue of $6 million. We discontinued COVID testing in July. For the year, guidance implies 23% core revenue growth with 30% growth in screening and 7% core growth and precision oncology. We’re raising adjusted EBITDA guidance to between $195 million and $205 million. This implies an adjusted EBITDA margin of 8%, giving us confidence in reaching at least 20% by 2027. The Exact Sciences platform was built to drive sustainable double-digit revenue growth and steady margin improvement. The progress we’ve made this year puts us in a great position to reach our long-term financial targets. Back to you, Kevin.

Kevin Conroy : Thanks, Jeff. We’ve delivered our 13 millionth Cologuard test result during the third quarter. Based on known prevalence data, we estimate Cologuard has helped find pre-cancerous polyps and early-stage cancer in nearly half a million people over the past 10 years. Cologuard is becoming deeply ingrained in clinical practice. For example, last quarter, 169,000 healthcare providers ordered Cologuard, a new record. Those providers are ordering Cologuard more frequently than last year. We received nearly 70% of Cologuard orders electronically, and Cologuard brand awareness with consumers reached 87%, an all-time high. There are 60 million Americans aged 45 to 85 not up to date with colon cancer screening. Cologuard is the ideal solution to get people screened accurately and conveniently.

Cologuard is included in all major guidelines, quality measures, and nearly universally covered by commercial insurance with no cost to the patient. We’ve demonstrated Cologuard can scale rapidly. Capacity for screening colonoscopies is relatively fixed at about 6 million procedures per year. Our sales and marketing teams are creating urgency around the importance of screening by one, partnering with health systems and payers to address their screening rates and related quality measures; two, educating providers about the benefits of Cologuard through more than 1 million face-to-face engagements each year; and three, using a multi-channel marketing approach to elevate colon cancer screening. These efforts are increasingly making Cologuard a first-line screening choice.

Oncotype DX is internationally recognized as standard of care, and it anchors our precision oncology portfolio. Oncotype DX helps early stage breast cancer patients determine whether they will benefit from chemotherapy and assesses their likelihood of recurrence. We’re using its global presence to enter new markets and accelerate the availability of future advanced cancer tests all around the world. For example, we launched Oncotype DX in Japan two months ago. Japan will soon become our largest market outside the U.S. Breast cancer is the most common cancer among Japanese women with about 45,000 new diagnosis of early stage HR positive HER2 negative breast cancer each year. To provide a more comprehensive understanding of each patient’s disease, we’re planning to introduce new genomic tools, including Oncodetect, our molecular residual disease test, and our recently acquired blood-based therapy selection test that complements our tissue-based OncoExTra offer.

Expanding our portfolio allows our oncology customers to work with one trusted advanced diagnostics partner. Combining information from our tests will help guide each of their patients to the most effective cancer treatment. The Exact Sciences team has made progress in our three most impactful pipeline programs, colon cancer screening, molecular residual disease, and multi-cancer screening. For Next Generation Cologuard, our data presentation at ACG in October demonstrated the pivotal head-to-head BLUE-C study is the new gold standard for evidence in colon cancer screening. The study was designed to validate our pre-specified algorithm. BLUE-C enrolled over 20,000 people, including 98 with cancer and more than 2,000 with precancerous polyps.

This provided excellent statistical power for analyzing our predefined primary and secondary risk. Next Generation Cologuard met all endpoints, achieving 94% cancer sensitivity, 93% sensitivity for curable stage cancer or Stages 1 to 3, and 91% specificity as calculated by FDA. Specificity excluding small adenomas in patients with no findings was 93%. The results also confirmed Next Generation Cologuard is superior to the FIT test in detecting cancer and precancerous polyps. Our team plans to finalize the FDA submission in December, and we’re working to make Next Generation Cologuard available to patients in early 2025. In molecular residual disease, we’re on track to make our tumor-informed test available for colon cancer patients by year end and for breast cancer patients next year.

At Exact Sciences, we will help eradicate cancer by preventing it, detecting it earlier, and guiding its treatment. We have an innovative patient-focused culture, a deep scientific understanding of cancer and the best portfolio in advanced diagnostics. The strength of our business allows us to invest in solving the most pressing challenges our customers face, while delivering sustainable double-digit revenue growth and expanding profit margins. We are in a leading position to help achieve our important mission. Before we take your questions, I’d like to congratulate Megan Jones on her new role as VP of Finance International. Through her six and a half year tenure leading our IR team, Megan has proven herself as a strategic thought leader and an outstanding business partner.

We have big plans for her going forward. We’re now happy to take your questions.