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Exact Sciences' (EXAS) Q2 Earnings Beat, Margin Declines

Zacks Equity Research

Exact Sciences Corporation EXAS incurred loss per share of 58 cents for second-quarter 2020 compared with loss of 30 cents in the year-ago period. However, the reported loss was narrower than the Zacks Consensus Estimate of a loss of 62 cents per share.

Revenues in Detail

Following the completion of the Genomic Health business integration, second-quarter consolidated revenues were $268.9 million, up 34.5% year over year. The metric exceeded the Zacks Consensus Estimate by 17.1%.

Screening revenues were $131.3 million, reflecting a year-over-year decrease of 34%. Precision Oncology revenues were $103 million.

Margin

In the quarter under review, Exact Sciences’ gross profit (excluding the amortization of acquired intangibles) rose 28.4% to $190.9 million. However, gross margin contracted 338 basis points (bps) to 71% on a 52.3% surge in total cost.

Exact Sciences Corporation Price, Consensus and EPS Surprise

Exact Sciences Corporation Price, Consensus and EPS Surprise
Exact Sciences Corporation Price, Consensus and EPS Surprise

Exact Sciences Corporation price-consensus-eps-surprise-chart | Exact Sciences Corporation Quote

Research and development expenses rose 9% year over year to $32.7 million. Sales and marketing expenses rose 34.8% to $118.8 million. General and administrative expenses increased 67.4% to $106.7 million year over year.

Adjusted operating expenses were $258.2 million in the second quarter, up 41.9% year over year. Adjusted operating loss totaled $67.2 million compared with the year-ago operating loss of $33.1 million.

Financial Update

Exact Sciences exited the second quarter of 2020 with cash and cash equivalents of $703.9 million compared with $701.1 million at the end of 2019.

Outlook

Exact Sciences noted that therecent rise in COVID-19 infections has slowed the pace of recovery in its business. Hence, this time too, it has refrained from providing 2020 guidance.

Our Take

Following the acquisition of Genomic Health, Exact Sciences registered better-than-expected numbers. However, the quarterly loss per share was significantly wider than the year-ago figure

The company’s legacy Screening business saw a significant decline in revenues. The COVID-19 impact resulted in a decline in test orders and a temporary negative impact on patient compliance. However, after hitting its lowest point in April, Cologuard improved through June, outpacing colonoscopy growth during that time. The precision oncology business in the United States was strong through the end of April but started to decline in May. The international business performed well during the second quarter. The company’s rising expenses are however a concern.

Zacks Rank and Other Stocks to Consider

Exact Sciences currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. WST, Thermo Fisher Scientific Inc. TMO and Laboratory Corporation of America Holdings LH or LabCorp. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

West Pharmaceutical reported second-quarter 2020 adjusted EPS of $1.25 in contrast to the Zacks Consensus Estimate of a loss of 91 cents. Net revenues of $527.2 million outpaced the consensus estimate by 6.9%.

Thermo Fisher reported second-quarter 2020 adjusted EPS of $3.89, beating the Zacks Consensus Estimate by 45.7%. Revenues of $6.92 billion outpaced the consensus mark by 0.1%.

LabCorp reported second-quarter 2020 adjusted EPS of $2.57, surpassing the Zacks Consensus Estimate of 78 cents. Revenues of $2.77 billion outpaced the consensus mark by 14.3%.

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