EXACT SCIENCES CORP Q4 FY2023 earnings call

• 2023 Highlights: Tested a record 4.1 million patients for cancer and rare diseases, core revenue grew 24% to $2.5 billion, adjusted EBITDA improved $362 million YOY, turned free cash flow positive, submitted next-generation Cologuard for FDA approval, launched Oncotype DX in Japan, accelerated molecular residual disease program, launched OncoExTra and OncoLiquid.
• 2024 Focus: Further embed Cologuard as standard-of-care, increase Oncotype DX adoption internationally, advance key pipeline programs, deepen relationships with health systems, and deliver experiences patients and providers love.
• Financials: Fourth quarter revenue was $647 million, growing 17%. GAAP gross margin was 70%, non-GAAP gross margin (excluding amortization of acquired intangibles) was 73%. Net loss was $50 million, adjusted EBITDA was $50 million, and free cash flow was $35 million.

Screening: Fourth quarter revenue was $487 million, increasing 21%. Core revenue grew 24% to $2.5 billion. For 2024, first quarter screening revenue is expected to be between $460 million and $470 million, with annual screening revenue between $2.155 billion and $2.175 billion, representing 16% growth. Precision Oncology: Fourth quarter revenue was $160 million, growing 12%. Annual Precision Oncology revenue is expected to be between $655 million and $675 million, with 6% growth. International growth for Oncotype DX was 48% in the fourth quarter.

• Total revenue expected $2.81 billion to $2.85 billion in 2024, with Q1 revenue between $615 million and $630 million.
• Screening revenue expected $2.155 billion to $2.175 billion in 2024 (16% growth), Precision Oncology revenue $655 million to $675 million (6% growth).
• Adjusted EBITDA expected $325 million to $350 million in 2024. CapEx expected around $150 million.
• $20 million headwind in Precision Oncology in 2024 due to labs transitioning work in-house.

• Labs transitioning work in-house impacting Precision Oncology revenue by $20 million annually.
• Seasonal trends causing Q1 screening revenue to be down sequentially due to holidays affecting primary care utilization.
• Competition from blood-based tests and their performance characteristics potentially impacting market adoption.

Q: Unpack the $20 million headwind in the Precision Oncology business referenced?

A: Exact Sciences acts as a reference lab for others in the space, and some contracts are rolling off as those labs take the work in-house, creating a $20 million annual headwind.

Q: What's the phasing for screening revenue in 2024?

A: First quarter screening revenue is expected to be down sequentially due to typical seasonal trends with fewer office visits around holidays, but steady growth expected later in the year.

Q: What's the bar for competition blood tests?

A: The final arbiter is the USPSTF modeling, which nets out on life years gained (83% from precancer detection) and unnecessary colonoscopies generated per 1,000 people screened.