Exact Sciences Corporation Q2 FY2025 earnings call

• Delivered a record 1.3 million test results to patients, accelerated core revenue growth to 16% year-over-year and generated an all-time high $138 million in adjusted EBITDA.
• Raised guidance at midpoint for revenue by $55 million and adjusted EBITDA by $25 million.
• Expanded agreement with 2 top 10 payers to make Cologuard Plus in network, entered exclusive license with Freenome for blood-based colorectal cancer screening test, gained Medicare coverage for Oncodetect and announced a multiyear productivity plan targeting $150 million in annual savings by 2026.
• Screening revenue increased 18% to $628 million, with Cologuard growth driven by rescreens, care gap programs and improved commercial execution.
• Precision oncology revenue increased 9% on a core basis, led by continued strength in Oncotype DX adoption internationally.
• Recognized $7.5 million in revenue from sublicensing TwinStrand's technology.
• Adjusted EBITDA margin expanded 130 basis points, driven by Cologuard Plus pricing and productivity gains across various functions.
• Ended the quarter with $858 million in cash and marketable securities.
• Announced launch of Cancerguard, a blood-based multi-cancer early detection test.
• Secured Medicare reimbursement for Oncodetect, a molecular residual disease test.

Second quarter revenue grew 16% on both a reported and core basis. Screening revenue increased 18% to $628 million, with Cologuard growth led by rescreens, care gap programs and improved commercial execution. Precision oncology revenue increased 9% to $179 million on a core basis. Additionally, $7.5 million in revenue was recognized from sublicensing TwinStrand's technology. Adjusted EBITDA increased 26% to a record $138 million.

• Raised total revenue guidance to between $3.13 billion and $3.17 billion for the year, an increase of $55 million at midpoint, with third quarter revenue between $800 million and $815 million.
• Raised full year adjusted EBITDA guidance by $25 million to between $455 million to $475 million for the full year.
• Introduced a multiyear productivity plan targeting $150 million in annual savings by 2026, with over $50 million of these savings included in 2025 guidance.
• Reaffirmed 2027 long-term target of 15% compounded revenue growth and more than 20% adjusted EBITDA margins.
• Anticipates approximately $105 million to $120 million in restructuring and transformation costs in total, with $90 million to $95 million to incur in 2025, inclusive of $40 million in actions already taken in the first half of the year.

• Concerns about ROI on R&D and M&A, including questions about the success of past acquisitions like Thrive.
• Potential issues with FTC review regarding the Freenome licensing agreement.
• Uncertainties around the timeline and performance of blood-based screening tests compared to guidelines and competitors.

Q: Andrew Brackmann with William Blair asked about the strategic fit of the Freenome agreement and how the product rounds out the portfolio.

A: Kevin Conroy responded that the agreement adds a blood-based option to the portfolio, with Freenome's technology having strong data and optionality, providing flexibility in leading the market.

Q: Brandon Couillard with Wells Fargo asked about the beat on the quarter and factors behind strong first half growth.

A: Kevin Conroy mentioned tailwinds like the launch of Cologuard Plus and the commercial team's work, with Aaron Bloomer adding details on strength across all parts of the business and commercial improvements contributing to the beat.

Q: Catherine Schulte with Baird asked about the blood data drivers, FDA timeline for Freenome's submission, and AdCom.

A: Kevin Conroy stated science isn't linear, testing continues, Freenome submitted the final module to the FDA, and they can't guesstimate the timeline but are excited about deploying the test for patients who refuse frontline tests.

Q: Doug Schenkel with Wolfe Research asked about resource allocation, operational spends, strategic prioritization, CRC testing interval flexibility, and view on blood as a threat to Cologuard.

A: Kevin Conroy disagreed with claims about R&D and M&A ROI, stated the commercial organization is strong, and discussed the niche market for blood-based testing for screening-resistant patients.

Q: Tycho Peterson with Jefferies asked about Freenome deal timelines, next-gen test performance, cost structure, and royalty structure.

A: Kevin Conroy discussed the deal structure's flexibility, typical PMA timeline, Freenome's intention to disclose AA data, and Aaron Bloomer commented on cost of goods sold and volume driving cost down.

Q: Jack Meehan with Nephron Research asked about CRC competition, real-world adoption of blood vs. Cologuard, and differentiation.

A: Kevin Conroy said promotional activity for blood testing isn't diminishing Cologuard orders, and primary care customers have goodwill and trust in Exact Sciences.

Q: Vijay Kumar with Evercore ISI asked about second quarter gross margin, moderation, and pricing assumptions.

A: Aaron Bloomer explained the slight sequential and year-over-year gross margin decrease was due to timing of care gap orders, with positive signals from new to Cologuard orders and commercial strength.

Q: Dan Brennan with Cowen asked about team's confidence in clinical study rigor, age adjustment of data, and FTC issues with the deal.

A: Kevin Conroy said the deal should pass HSR review, data is age-adjusted as per FDA and Freenome, and the new leadership at Freenome is a positive addition.

Q: Dan Arias with Stifel asked about R&D conclusions and thesis that didn't play out.

A: Kevin Conroy pointed to Cologuard Plus's success and the R&D team's work, stating science isn't linear and they're still optimistic about their programs.

Q: Puneet Souda with Leerink Partners asked about matching competition in blood testing, market share of blood-based testing, and timelines.

A: Kevin Conroy discussed the brand power of Cologuard, tipping point for Cologuard usage over colonoscopy, and Aaron Bloomer mentioned the blood test will be additive to revenue and growth.

Q: Patrick Donnelly with Citi asked about internal program investments and Freenome FDA submission timeline.

A: Kevin Conroy said the Freenome submission had high-quality work, and they're excited about deploying the licensed test and their internal program.

Q: Eve Burstein with Bernstein asked about giving up moat with Freenome's multi-cancer test and impact on sales.

A: Kevin Conroy said they're launching their own multi-cancer test and will compete vigorously, and data without patient characterization isn't as useful for product development.

Q: Subu Nambi with Guggenheim asked about additional biomarker inclusion, confidence in MCED, and PCR vs. NGS assays.

A: Kevin Conroy pointed to Cologuard Plus's success and the R&D team's confidence, stating learnings from the 3-marker approach will fuel future improvements.

Q: Luke Sergott with Barclays asked about Cologuard Plus ramp and progress.

A: Aaron Bloomer said progress is good, starting with Medicare fee-for-service, payer conversations are productive, and they're excited about the launch and operational team's work.

Q: Eve Burstein with Bernstein and other questions were addressed, and Kevin Conroy closed the call.