Exact Sciences Corporation (NASDAQ:EXAS) Q4 2023 Earnings Call Transcript
Exact Sciences Corporation (NASDAQ:EXAS) Q4 2023 Earnings Call Transcript February 21, 2024
Exact Sciences Corporation beats earnings expectations. Reported EPS is $-0.27, expectations were $-0.53. 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: Good afternoon, and welcome to the Exact Sciences Fourth Quarter 2023 Earnings Call. Please be advised that this call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Mr. Nate Harrill, Vice President of Investor Relations, you may begin your conference.
Nate Harrill: Thanks, Jeanne. Thank you for joining us for Exact Sciences fourth 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, and Brian Baranick, our General Manager of Precision Oncology will also be available for questions. Exact Sciences issued a news release earlier this afternoon detailing our fourth-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, Nate. 2023 was another record-breaking year for Exact Sciences and our fourth quarter results set the tone for an impactful year ahead. A special thanks to our team for testing a record number of people during the quarter with our established brands Cologuard, Oncotype DX, and PreventionGenetics. We've built an unrivaled platform that will allow us to achieve our purpose to help eradicate cancer. We're hosting today's call from our San Diego R&D Center. Our talented scientists are harnessing the power of DNA, RNA, and proteins. They are developing a range of new tests that will change how cancer is diagnosed and treated. We're set to gain momentum as we bring these new tests to physicians and patients at regular intervals over the next few years.
Highlights in 2023 include testing a record 4.1 million patients for cancer and rare diseases, growing core revenue by 24% to $2.5 billion, improving adjusted EBITDA $362 million year-over-year, turning free cash flow positive, submitting next-generation Cologuard for FDA approval, launching Oncotype DX in Japan on a reimbursed basis, accelerating our molecular residual disease or MRD program, launching OncoExTra, our solid tumor therapy selection test, and adding OncoLiquid, our liquid therapy selection test and advancing our multi-cancer early detection. The Exact Sciences team is laser-focused on five things this year. Further embedding Cologuard as standard-of-care, increasing Oncotype DX adoption internationally, advancing key pipeline programs, deepening relationships with health systems, and delivering experiences that patients and providers love.
Jeff will now focus on our financial results and our outlook for 2024.
Jeff Elliott: Thanks, Kevin. Fourth quarter revenue of $647 million grew 17% or 18% on a core basis excluding COVID testing, FX and M&A. Screening revenue of $487 million increased 21%. We continue to see broad-based momentum in Cologuard adoption by healthcare providers with an all-time high 172,000 ordering Cologuard during the quarter. This expanded base of [ordering providers] (ph) supports our long-term growth outlook. Precision Oncology revenue of $160 million grew 12% or 11% on a core basis. Growth was led by Oncotype DX, which expanded 48% internationally. Fourth quarter GAAP gross margin was 70%. Non-GAAP gross margin, excluding amortization of acquired intangibles, was 73%. Net loss was $50 million, and adjusted EBITDA was $50 million, an improvement of $45 million driven by better-than-expected revenue and continued operating expense discipline.
Free cash flow was $35 million, an improvement of $55 million. We ended the year with cash and securities of $778 million. Turning to guidance, we expect total revenue between $615 million and $630 million for the first quarter and between $2.81 billion and $2.85 billion for the year. This assumes screening revenue between $460 million and $470 million for the first quarter and between $2.155 billion and $2.175 billion for the year and Precision Oncology revenue between $155 million and $160 million for the first quarter and between $655 million and $675 million for the year. Annual guidance implies 13% core revenue growth, with 16% growth in screening and 6% growth in Precision Oncology. We expect to generate between $325 million and $350 million of adjusted EBITDA for the year.
We also expect CapEx to be around $150 million. We expect first quarter screening revenue to be down sequentially because of typical seasonal trends. Primary care utilization is lower in December and early January because of the holidays. This impacts screening revenue during the first quarter due to the normal timing between a Cologuard order and a completed test. We expect first quarter screening to be about 22% of full year revenue, consistent with the historical average. In Precision Oncology, we expect steady Oncotype DX growth in the US and strong double-digit growth internationally this year. Exact Sciences acts as a reference lab and process a test for other lab customers. Starting in the first quarter, we're assuming a $20 million headwind or 3 points of revenue growth for Precision Oncology as various agreements related to whole exome sequencing and prostate cancer testing are transitioned in-house by those ordering labs.
The team did a great job implementing automation within our state-of-the-art labs, which will drive gross margin expansion this year and beyond. We're also expecting continued OpEx leverage this year, especially within G&A. Sustainable double-digit revenue growth and industry-leading gross margins are powering adjusted EBITDA and free cash flow as we continue investing in growth and efficiencies. Priority areas of investment this year include reaching more people through new digital and TV averaging campaigns for Cologuard, further improving the patient and physician experience through our technology platform and advancing our MRD program. Back to you, Kevin.
Kevin Conroy: Thanks, Jeff. Brand awareness and loyalty are fueling Cologuard adoption and helping reach 60 million Americans who are not up to date with colon cancer screening. The number of healthcare providers ordering Cologuard and the number of Cologuard testing order have consistently grown. Cologuard is an essential part of their screening tool kit in part because patients prefer and ask for it. During the fourth quarter, Cologuard brand awareness reached 89%, an all-time high, and our market research showed people who have never been screened prefer Cologuard 2 to 1 over colonoscopy. We're building on this momentum by helping health systems achieve positive clinical and financial outcomes, designing innovative ways to get more patients rescreened and partnering with federally qualified health centers and healthcare providers that serve diverse communities.
Our Precision Oncology team has guided treatment decisions for more than 2 million cancer patients around the world including a record 230,000 last year. Oncotype DX recently celebrated its 20th anniversary. During those years, Oncotype DX has become the global standard of care for patients diagnosed with early-stage HR-positive HER2-negative breast cancer, the most common subtype. We've received Oncotype DX orders from more than 120 countries and 98% of US oncologists have ordered. Oncotype DX has helped spare over 1.3 million patients from unnecessary chemotherapy. Increased international adoption led by Japan will be a key growth driver in Precision Oncology this year. We also plan to move our Precision Oncology portfolio onto our proprietary IT platform, making prior authorizations, billing and reimbursement highly efficient.
This will also enable rapid scaling of future tests, including Oncodetect, our MRD test, and OncoLiquid, our blood-based therapy selection tests. We are using our deep scientific capabilities and regulatory expertise to advance impactful pipeline programs, including multiple colon cancer screening initiatives and MRD. In colon cancer screening, we shared data from the prospective BLUE-C study demonstrating next-generation Cologuard will raise the performance bar in noninvasive screening. We submitted our premarket approval application to the FDA in December and expect to make the test available to patients in 2025. Most BLUE-C study participants also provided a sample for evaluating our novel blood-based colon cancer screening test. This year, we plan to announce top line results from BLUE-C or our colon cancer blood test.
In MRD, we plan on sharing several sets of data this year, including evidence that will support reimbursement in colon cancer. We're excited about the performance of Onco Detect and look forward to integrating it into the powerful technology we licensed from the Broad Institute. Our mission is to help eradicate cancer by preventing it, detecting it earlier and guiding personalized treatment. Our unique platform, deeply embedded standard of care test and pipeline of life-changing diagnostics will power years of growth and continued profitability, helping us achieve our mission. We're now happy to take your questions.
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