EXACT-SCIENCES Earningcall Transcript Of Q2 of 2024

Aaron Bloomer -- Chief Financial Officer

Thanks,  Kevin,  and  good  afternoon,  everyone.  Second  quarter  results  highlight  strong  operational

execution, and we're pleased with the progress we made. Second quarter revenue of $699 million

grew 12% year over year or 13% on a core basis excluding COVID testing, FX, and M&A. Growth

was  led  by  momentum  and  increased  penetration  of  Cologuard,  along  with  accelerated  Oncotype

DX growth internationally.

Adjusted  EBITDA  margin  expanded  500  basis  points  to  a  record  15.7%,  and  we  generated  $71

million  in  free  cash  flow.  Screening  revenue  increased  15%  to  $532  million.  We  continue  to  see

Cologuard  orders  consistently  grow  as  health  systems,  healthcare  professionals  and  payers

increasingly embed the test into their practices. We're proud of our sales and marketing teams and

the work they are doing to drive adoption, especially within rescreens and care GAP programs.

Care  GAP  programs  generated  more  revenue  in  the  first  half  of  2024  than  all  of  2023.  Precision

oncology revenue grew 7% to $168 million or 6% on a core basis. Growth was led by Oncotype DX,

which  expanded  31%  internationally.  Our  team  has  done  significant  work  driving  leverage  and

operational execution across the P&L.

We generated $110 million in adjusted EBITDA, an increase of $43 million year over year or 65%

growth.  Adjusted  EBITDA  margin  expansion  was  driven  by  volume  growth,  productivity,  and

expense  controls  especially  within  G&A,  and  we  are  pleased  with  this  progress.  This  more  than

offset  a  decline  in  non-GAAP  gross  margin  of  about  190  basis  points.  Recall,  gross  margin  in  the

second  quarter  of  2023  benefited  from  better  cash  collections  due  to  improvements  made  to  our

billing systems that allowed us to correct claims from prior periods.

To  simplify  modeling  and  increased  clarity,  we  introduced  a  new  reconciliation  within  our  press

release  that  presents  operating  income  or  loss  on  a  GAAP  and  adjusted  basis.  Using  both

methodologies, total operating expenses declined slightly year over year during the second quarter.

We continue to see opportunities to optimize costs and increase operational efficiency creating the

capacity to reinvest back into growth areas while still expanding margins. For example, during the

second quarter, we reinvested some of our cost savings back into high-growth initiatives, including

within sales and marketing.

Free  cash  flow  was  $71  million,  an  increase  of  $5  million  year  over  year  and  up  $191  million

sequentially.  We  ended  the  quarter  with  cash  and  securities  of  $947  million.  Our  strong  balance

sheet  and  positive  free  cash  flow  outlook  allowed  us  to  repay  the  full  $50  million  outstanding

balance  of  our  AR  securitization  facility  and  secure  an  exclusive  license  with  TwinStrand

Biosciences. Turning to guidance.

We're  maintaining  our  full  year  revenue  guidance  and  raising  our  adjusted  EBITDA  guidance.  We

continue  to  expect  full  year  revenue  between  $2.81  billion  and  $2.85  billion,  and  now  expect

adjusted EBITDA between $335 million and $355 million or 12.2% margin rate at midpoint. During

the third quarter, we expect total revenue between $705 million and $725 million or year-over-year

growth of 14% at midpoint. This assumes screening revenue between $545 million and $555 million

or growth of 17% at midpoint and precision oncology revenue between $160 million and $170 million

or growth of 6% at midpoint.

Guidance  implies  17%  revenue  growth  year  over  year  at  midpoint  in  the  second  half  of  2024  with

21%  growth  in  screening  and  6%  growth  in  precision  oncology.  We  expect  second  half  Screening

revenue  to  be  about  54%  of  full  year  revenue,  consistent  with  the  historical  average.  Several  key

factors  give  us  confidence  in  achieving  guidance.  First,  the  number  of  people  eligible  for  the  next

Cologuard test grows by more than 10% sequentially, and our rescreen success rate continues to

improve.

We're  making  progress  by  sending  patients  digital  reminders  and  educating  providers  about  the

option  to  order  Cologuard  in  advance  of  a  patient's  three-year  Cologuard  anniversary.  Once  a

rescreen  test  is  ordered  more  than  80%  of  second-time  Cologuard  users  and  90%  of  third  time

users  go  on  to  complete  the  test  again,  demonstrating  a  high  level  of  patient  preference  and

satisfaction; second, we have more than 100 opportunities with payers and health systems to close

care  GAPs  with  Cologuard  through  large  organized  screening  programs.  We  also  expect  recent

sales  and  marketing  investments  will  support  growth  in  the  second  half  of  the  year  with  a  greater

impact expected in the fourth quarter and the coming years. Back to you, Kevin. 

Kevin T. Conroy -- Chairman and Chief Executive Officer

Thanks,  Aaron.  Over  the  past  decade,  Cologuard  has  revolutionized  colon  cancer  screening  and

momentum continues to build. According to the CDC, Cologuard is the primary reason colon cancer

screening  rates  have  increased  13  percentage  points.  We've  delivered  more  than  16  million

Cologuard test results to patients and we're just getting started.

For example, we've screened more than 1.5 million people ages 45 to 49 since the screening age

was  lowered  three  years  ago.  Keeping  these  people  screened  until  they're  85  provides  up  to  20

million  Cologuard  testing  opportunities.  Cologuard  has  become  an  embedded  standard  of  care

among  patients'  healthcare  providers,  health  systems  and  payers.  We're  using  our  unparalleled

commercial capabilities and powerful Exact Nexus platform to engage patients through personalized

experiences.

This  is  resulting  in  more  patients  completing  Cologuard  every  three  years,  helping  us  achieve  our

goal  of  making  screening  routine.  It's  also  playing  a  key  role  in  our  new  approach  to  closing  the

screening gap. Let me give you an example. One of our customers, a major payer asked us to help

screen  90,000  of  their  members  with  a  goal  of  providing  better  care  and  improving  their  quality

measure scores.

Exact  Sciences'  state-of-the-art  patient  engagement  tools  in  Exact  Nexus  guided  and  supported

patients throughout the screening process, promoting adherence. Our customer was thrilled with the

outcome,  and  we're  already  in  discussions  with  them  and  many  others  about  future  care  GAP

programs.  Our  precision  oncology  team  is  doing  an  outstanding  job  expanding  the  impact  of

Oncotype  DX  internationally.  We  still  have  a  major  opportunity  to  provide  important  answers  to

eligible patients outside the U.S.

because  about  70%  aren't  currently  being  tested.  Healthcare  professionals,  hospitals,  and  health

systems trust Oncotype DX because it's supported by unmatched evidence. Oncotype DX is globally

recognized  as  a  standard  of  care  and  included  in  all  major  guidelines.  Thanks  to  our  team's

commitment, we've increased Oncotype DX adoption internationally by about 10 percentage points

over the past year.

We're  making  strong  progress  internationally,  and  our  goal  is  to  make  sure  all  people  eligible  for

Oncotype  DX  have  access  around  the  world.Expanding  our  presence  globally  also  provides

opportunities across our portfolio, which we're working toward. The second quarter was a hallmark

period  for  our  pipeline  as  we  advanced  our  most  impactful  programs,  colon  cancer  screening,

molecular residual disease testing, and multi-cancer screening. We plan to share performance data

from  each  of  these  programs  by  the  end  of  the  year.  Cologuard  Plus  will  be  the  most  efficient,

noninvasive way to screen for colon cancer and we anticipate FDA approval in the coming months.

Cologuard  Plus  sets  a  new  performance  standard  with  94%  overall  cancer  sensitivity.  43%

sensitivity  for  advanced  precancerous  lesions,  91%  specificity  when  including  patients  with  small

polyps,  and  other  incidental  findings  and  93%  specificity  with  no  findings  on  colonoscopy.  This

means  the  test  achieved  a  30%  lower  false  positive  rate  relative  to  current  Cologuard  with  cancer

and  precancerous  lesion  detection  improving  as  well.  Cologuard  Plus  could  save  the  healthcare

system  billions  of  dollars  for  two  reasons:  one,  Cologuard  Plus  presents  an  opportunity  to  further

reduce  colon  cancer  incidence  and  mortality,  moving  us  one  step  closer  toward  helping  eradicate

this disease.

Two,  fewer  patients  will  be  sent  to  unnecessary  follow-up  colonoscopies.  We  recently  ran  our

blood-based colon cancer screening test on more than 3,000 samples. The study consisted of 2,900

prospectively  collected  samples  from  healthy  individuals,  90  advanced  adenomas,  the  majority  of

which  were  collected  prospectively  and  60  retrospectively  collected  cancer  samples.  The  results

give  us  confidence  our  test  will  be  at  least  comparable  to  others  and  will  meet  the  Medicare

requirements.

We plan on presenting these data before sharing top line results from our pivotal BLUE-C study in

the fourth quarter of 2024. Our blood-based colon cancer screening test will have an unrivaled cost

profile.  Once  available,  it  will  be  supported  by  our  commercial  infrastructure,  patient  navigation

engine,  and  Exact  Nexus  technology  platform,  making  ordering  and  resulting  seamless  for  more

than  350  health  systems  and  available  to  our  broad  and  deep  customer  base  of  healthcare

providers. Oncodetect, our molecular residual disease test will significantly impact decision-making,

and we're supporting it with high-quality clinical evidence.

Our team recently generated impressive study results, demonstrating Oncodetect is highly accurate

at detecting residual disease in colon cancer patients. These findings will be published in a scientific

journal later this year, and we're on track to launch Oncodetect with reimbursement next year 2025.

We also strengthened our patent portfolio by signing an exclusive license to TwinStrand's cell free

nucleic  acid  sequencing  technologies.  This  license  provides  near-  and  long-term  opportunities

across multiple areas of cancer diagnostics while complementing our existing IP, including Thrives,

SaferSeqS technologies.

Our multi-cancer screening test was recently authorized by the FDA to be used within a real-world

evidence study providing an opportunity to test 25,000 people over the next three years. Generating

real-world evidence in a clinical setting will help optimize clinical workflows and support discussions

with regulatory agencies, payers, and guideline groups. Our data presentation at the AACR meeting

in April showed our multi-cancer screening test detected 51% of cancers at 98.5% specificity across

21  types  of  cancer  in  a  large,  well-designed  study.  16  of  those  cancer  types  have  no  standard  of

care screening option available today.

Next,  we  plan  to  present  improved  performance  data  at  a  scientific  conference  later  this  year,

highlighting the benefits of combining this approach with Thrives' technology. Our focus on helping

eradicate  cancer  powers  the  Exact  Sciences'  team,  creating  momentum  within  our  business  and

allowing us to extend our platform. Continued execution our growing portfolio of tests, and a leading

presence  in  cancer  screening  and  precision  oncology  put  us  in  a  prime  position  to  achieve  our

purpose. We're now happy to take your questions. 

Operator

Questions & Answers: