Thank you for your patience. My name is Danica, and I will be your conference operator today. I would like to welcome everyone to the Exact Sciences First Quarter 2024 Earnings Call. I will now turn the call over to Erik Holznecht, Manager of Investor Relations. Please proceed.

Thanks, Danica. Thank you for joining us for Exact Sciences' First Quarter 2024 Conference Call. On the call today are Kevin Conroy, the company's Chairman and CEO; Jeff Elliott, our Chief Financial Officer; and Aaron Bloomer, Executive Vice President of Finance, who we recently announced as our next Chief Financial Officer. Everett Cunningham, our Chief Commercial Officer, will also be available for questions. Exact Sciences issued a news release earlier this afternoon detailing our first 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.

Thanks, Erik. The Exact Sciences team is off to a strong start to the year. During the first quarter, we advanced our mission of helping to eradicate cancer by further embedding Cologuard as standard of care, increasing adoption of Oncotype DX internationally and deepening our relationships with health systems, payers, and patients. Highlights from the first quarter include testing more than 1 million people globally for cancer and rare diseases. We were recognized as a Gallup Exceptional Workplace, a prestigious award given to only 60 companies worldwide. We increased Cologuard adoption in large health systems and organized screening programs among payers and in federally qualified health clinics. We expanded the number of Oncotype DX international ordering providers by more than 20% year-over-year, made progress towards moving our Precision Oncology portfolio onto our proprietary IT platform, Exact Nexus, and launched our hereditary cancer test risk guard through our oncology channel. We announced the New England Journal of Medicine published results of our pivotal BLUE-C study, which will support FDA approval of Cologuard Plus and generating evidence to support future initiatives including Oncodetect, our molecular residual disease test. These achievements reflect our commitment to solving the needs of patients and healthcare providers, and we're well positioned to achieve our goals for the year. Jeff will now review our financial results for the quarter.

Thanks, Kevin. First quarter revenue of $638 million grew 6% on a reported and core revenue basis. Screening revenue of $475 million increased 7%. Recall Screening revenue in the first quarter of last year was very strong and benefited from enhancements to our billing and patient compliance systems along with a weak flu season. Growth was 24% on a 2-year compounded basis. We expect year-over-year growth to be faster than Q1 for the rest of the year. Precision Oncology revenue grew 5% to $163 million, or 4% on a core basis, excluding foreign exchange and mergers and acquisitions. The group was led by Oncotype DX, which expanded 7% globally. Reference Lab agreements were a headwind of $3 million or 2 points of Precision Oncology growth, as we discussed on our last call. First quarter GAAP gross margin was 70%. Non-GAAP gross margin, excluding amortization of acquired intangibles, was 73%. Margins were slightly lower year-over-year. The added fixed cost of automation brought online temporarily weighed on Q1. We expect gross margins will improve over time as we realize the benefits from lab automation, leverage investments in lab infrastructure, and see an increased mix of rescreened patients. Net loss was $110 million. Adjusted EBITDA was $39 million. Of note, G&A included $4 million of unique onetime items related to facilities consolidation and a $6 million noncash expense related to acquisition earnouts. In the first quarter last year, G&A was reduced by $9 million from a noncash gain related to earn-outs. We continue to expect leverage across the P&L this year, especially within G&A. We are taking further steps to optimize costs and increase operational efficiency, enabling us to reinvest in our core business and prepare for new product launches. Free cash flow was negative $120 million during the first quarter, consistent with our expectations and typical seasonal trends. We expect robust cash flow generation for the rest of the year. We ended the quarter with cash and securities of $652 million. In April, we announced our primarily negotiated refinancing. Our primary goal was to smooth and extend existing debt maturities. We accomplished this by issuing $621 million in 2031 notes at attractive financing rates. In return, we have reduced our 2028 notes by $360 million and received $260 million in cash net of fees, bringing first quarter pro forma cash to $912 million. Our capital allocation priorities remain unchanged. Our number one priority continues to be growing Cologuard and AcatepDx. Second, we're focused on high-return pipeline opportunities with large patient impacts. Turning to guidance. After a good start to the year, we're well positioned to achieve our annual revenue guidance of between $2.81 billion and $2.85 billion and adjusted EBITDA guidance of between $325 million and $350 million. Our recent investments in sales and marketing have already started to pay off in the second quarter. We expect to see a bigger impact in the second half of the year, but we also faced easier comparisons in the second half. In addition, we're seeing greater demand for Cologuard and care gap programs run by payers and health systems, which typically accelerate during Q3 and Q4. During the second quarter, we expect total revenue of between $677 million and $697 million. This assumes screening revenue between $522 million and $532 million and Precision oncology revenue between $155 million and $165 million. This is my last Exact Sciences earnings call. It's been an honor to be part of the team over the past 8 years. I'm extremely proud of what we have accomplished. Together, we've helped build Exact Sciences into a differentiated growth story with strong recurring revenue, healthy margins, and a robust balance sheet. Most importantly, we've delivered over 17 million cancer tests. I also want to thank the many investors and analysts that follow Exact Sciences. I've always appreciated your support and enjoyed interactions. The future of Exact Sciences is extremely bright. I'll now turn the call over to Aaron.

Good afternoon, everyone. I'd like to thank Jeff for his support during my transition. It is an honor to be Exact Sciences' next CFO, and I look forward to leading our talented finance team. During my career, I've had the privilege of working for Baxter International and 3M where I emphasized growth and operational excellence. I also focused on margin expansion and free cash generation and played a key role in portfolio management and business development. Exact Sciences is in a prime position to be a global force in the fight against cancer for years to come, and I'm excited about the opportunities in front of us. Together, we'll continue delivering differentiated financial results, all in support of our purpose to help eradicate cancer.

Thanks, Jeff, and thanks, Aaron. Our commercial engine is fueling Cologuard growth through millions of targeted engagements with patients and healthcare providers. We continue to bring the power of the Cologuard brand to life through new marketing experiences, offering a consistent flow of compelling content to patients aged 45 and older. Marketing investments like these lifted Cologuard brand awareness and customer satisfaction to an all-time high in the first quarter. Since the start of last year, 50,000 healthcare providers chose Cologuard and became new customers of Exact Sciences. Our data show that the more time we spend educating these healthcare providers about the benefits of Cologuard, the more tests they order for their patients. Our productivity per customer visit reached a record in the first quarter, and we have initiatives underway to drive that even higher. To meet demand among our growing base of ordering providers, we will continue investing in high-impact sales and marketing opportunities. The number of patients due for their next Cologuard test continues to increase, and our growing sales team can help improve the rescreen success rates in this patient population. Health systems and payers are highly motivated to improve screening rates through financial incentives built into quality measure programs. Screening backlogs and colonoscopy wait times continue to increase. In addition, the new quality measure reporting standards evaluate colon cancer screening metrics at the population level rather than through random sampling, increasing the burden for payers on data reporting. Cologuard is an ideal solution and is emerging as a preferred choice within large organized screening programs run by health systems and payers seeking to close their gaps in care. They're turning to Cologuard because it's in USPSTF guidelines and HEDIS and STARs quality metrics. Cologuard is a highly accurate at-home test that offers three times more quality credit than the FIT test, which has historically been used within these programs. Our patient compliance engine and the Exact Nexus platform simplify data reporting required in the quality measures to help payers and health systems earn financial incentives. We're also helping health systems and payers unlock efficiencies by leveraging artificial intelligence and their electronic health record systems to automate workflows to determine patient screening history, streamline patient communications, and track patient outcomes. This gives healthcare providers more time to solve real patient needs. Our Precision Oncology team delivered outstanding results during the first quarter by testing a record number of people globally with Oncotype DX. We're making great progress towards increasing Oncotype DX adoption internationally with the number of ordering providers expanding by over 20% during the first quarter. There is still a huge unmet need to provide life-changing answers to women who aren't currently being tested, especially in markets like Japan, Italy, and Germany. Dedicated efforts are ongoing to broaden our reach and deepen relationships with providers around the world. Building our international presence and team also provides future growth opportunities across our broad portfolio of tests. Over the next 18 months, we're set to launch a range of new tests that will change how cancer is diagnosed, monitored, and treated while also helping accelerate Exact Sciences' growth. This includes Oncodetect, a bespoke MRD test to detect evidence of residual disease earlier than advanced imaging systems can, as well as OncoLiquid, a blood-based therapy selection test to complement our tissue-based OncoExtra offering. It also includes Cologuard Plus, which will be the most efficient noninvasive way to screen for colon cancer. The New England Journal of Medicine publication of our pivotal BLUE-C study shows Cologuard Plus raises the performance bar in colon cancer screening. The test achieved 94% overall cancer sensitivity, 43% sensitivity for advanced cancer cases, including SSLs, 91% specificity when including patients with small polyps and other incidental findings and 93% specificity with no findings on colonoscopy. No other noninvasive approach comes close. We plan to share data from BLUE-C later this year for our blood-based colon cancer screening test, which will be supported by Exact Nexus, our unique technology platform with our proprietary PCR technology and the commercial infrastructure supporting Cologuard. Exact Sciences has deep relationships with over 350,000 healthcare providers and a powerful colon cancer screening database. These unique advantages give us the opportunity to identify patients who refuse standard of care screening and offer our blood test as a second-line option at a very reasonable cost. We have built an unrivaled foundation to engage patients and healthcare providers, and we are set to gain momentum with each new test added to this platform. We're using this platform to help eradicate cancer by preventing, detecting it earlier, and guiding personalized treatment. Cologuard, Oncotype DX, and our pipeline of life-changing diagnostics will power years of double-digit growth and continued profitability, helping us achieve our purpose. Before we turn to Q&A, I'd like to thank Jeff for his many contributions to Exact Sciences over the last 8 years. He's been an invaluable business partner and leader. We'll miss him once he departs. We wish him all the best as he enjoys well-deserved time off with his family. We're now happy to take questions.

Your first question comes from Catherine Schulte with Baird.

Congrats to Jeff. You will certainly be missed. Starting with Cologuard, Screening revenue grew 7% in the first quarter. Guidance implies more like 16% for the full year, kind of mid-teens in the second quarter and over 20% in the back half. So can you just talk through what gives you confidence in that growth outlook and excites you about the Cologuard growth story from here? And if I could just squeeze one in on profitability. And you saw adjusted EBITDA decline year-over-year in the first quarter. So if you could just talk through the drivers there, that would be great.

Sure. I'll take the first part and then let Jeff chime in. We're very excited about this year because the opportunity is still huge. In the U.S., 16 million people are not current with their colon cancer screenings. Over the last year, our customer relationships have significantly expanded and deepened. Currently, more than 330 health systems depend on our electronic ordering and advanced consulting services related to IT for patients. There are over 2 million people who need to be rescreened, with 400,000 new patients expected in the second quarter alone. Payers' gap closure programs will be crucial for generating revenue, with the biggest effects anticipated in the fourth quarter, while the third quarter will also begin to experience this impact.

Yes. Just to add to the earlier remarks on the comparison. As I said in my remarks, we did have a really hard comparison. If you look at the 2-year stacked comp, Q1 was up 24%. When you think back to last year, part of why the first half was so strong was due to significant upgrades to both our billing systems and our patient compliance systems that led to high-margin revenue. Obviously, that's not going to keep repeating. So we do face a really difficult comparison in the first half. A couple of things we discussed. In the second half, comparisons do become much easier, and we do expect 20% growth plus in that period. The reason I bring that up is also from a profitability standpoint; that comparison helps revenue and profits because that revenue came in at a very high margin level.

Our next question comes from Vijay Kumar with Evercore ISI.

Jeff, I wish you all the best. Kevin, I have a question regarding the comparisons you didn’t mention. Should we be looking at this from a CAGR perspective compared to pre-pandemic levels? It seems that if we calculate the CAGR, the figures are relatively consistent. Additionally, there has been some activity in the competitive landscape; I noticed one of the stool-based companies received FDA approval. I would like to hear your thoughts on this competitive landscape.

Sure. Let me go back to Cologuard and Cologuard Plus. Both tests offer performance that is superior to the FIT test, and the performance of the studies that we ran were large studies with a significant number of cancer patients across a broad age range. Cologuard Plus advances the standard of care over Cologuard. Our specialized teams ensure that healthcare providers are aware of the broad studies that support Cologuard. However, bringing a new screening test to market is complex and requires long processes to be recognized in quality measures. We think a new test, excluding Cologuard Plus, will face significant hurdles in penetrating the market, whereas we have already secured our position with Cologuard being included in quality measures. As you know, we have ongoing legal matters to protect our intellectual property, which we will defend aggressively.

Sure, Vijay, on the 2-year stack. I think it's informative to look at the 2-year growth rates in this case because of the unusual growth we had last year. It is informative. And to add some more color on this, if you look at some of the major growth drivers, both rescreens and the 45 to 49 younger age group both grew over 40% on a 2-year stack in the first quarter, and the 50-plus age group grew consistently over 10%. So that gives us confidence that what we're seeing here is primarily a comparison issue. And again, when you look at the back half, the comps do get easier. The investments that we're making will help accelerate growth after last year left some growth on the table through underspending.

Our next question comes from Doug Schenkel with Wolfe Research.

Kevin, thanks for all the comments on the market opportunity, which remains large and unpenetrated or underpenetrated. It's helpful to hear about your awareness-building efforts and the progress you're making. That said, I do think recognizing you're cutting things a smidge different or at least not giving us quite as much information as you told us to be prepared for. It does seem like orders per practice dropped relative to what we saw maybe in every quarter last year. So I just want to make sure that we understand a few things. Like one, was there any transitory impact? Was there something that you maybe saw that was worse than expected when it came to respiratory? Or anything else that might have been transitory? Two, was there anything different in terms of capturing reorder opportunities, maybe more of those lagged into the following quarter? And then I guess kind of building off of this, when would you expect reps to make an impact?

Yes. I want to express my excitement and confidence in Cologuard despite the concerns raised. One lesson we learned from reducing sales and marketing spending is that we can still make progress for six months, as we experienced last year. However, a brand as significant as Cologuard cannot thrive without sufficient investment. The positive aspect is that we have the data and analytics to support this. We made investments in the first quarter, and as we speak, even with the addition of new salespeople who are just coming on board, we have already observed a return to the anticipated growth. Many health systems have approached us for assistance in enhancing colon cancer screening rates, and we have valuable insights into these programs. We can also predict the effects for the third and fourth quarters based on this demand.

Yes. Doug, you asked initially on the reorder rate. I know you like to do the math on this. The pool of doctors and order providers has expanded to over 350,000 now. They're looking at that entire base for reordering which, as I've mentioned, could be misleading when the underlying trends remain very strong. Our success rate with patients also continues to grow. When you look at the pool of patients becoming eligible for rescreens, we expect significant growth going forward.

If I could just add a little more color, Doug, regarding the rep impact and timeline. First, we intentionally hired experienced reps with existing relationships in primary care. Therefore, while they are new to Exact Sciences, they are not new to the field and have familiarity with the geography. The aim is to have them in the field very soon, and I am confident we'll see results sooner rather than later, possibly within 3 to 4 months.

There's a lot to consider regarding the addition of representatives. Kevin, how do you view the potential for increased revenue? Last year, when your team raised revenue targets, your EBITDA consistently increased. Now that you've added these representatives and established your cost base, if revenue does increase, do you expect the flow-through to be appealing? Or will there be additional costs involved?

Yes. We are currently not indicating the number of reps we are adding, but the math is clear. Adding these reps provides significant leverage to our operations, and there’s a fixed amount of cost added overall. The productivity of our sales team continues to improve, and we expect growth as we expand. However, the productivity in terms of the number of Cologuard orders per call continues to increase year-over-year and quarter-over-quarter.

In addition to that, as of this year, 50,000 new providers have joined us since January. This creates immense leverage for our team in accessing new offices and expanding our footprint. Our focus is on driving existing business while creating new providers who will prioritize Cologuard.

We expect profit leverages across every line on the P&L this year. It won’t be similar to the improvements we saw last year, but we feel good about hitting our long-term goals. Adding new reps will also allow for revenue flow-through, ensuring a strong gross margin overall.

Kevin, just looking at the presentation that you guys had teed up for DDW, one of them relates to helping docs work through colonoscopy backlog, and then one relates to FIT. So two quick ones, if I can. Where do you think the collective backlog for colonoscopy is at this point? And then on FIT, do you have any data from the field on how you're doing converting FIT users? Is that success improving over time?

What we're seeing is that it varies around the country, but let's estimate the backlog at around 3 to 6 months, which has ticked up over the last 3 months. The fixed colonoscopy capacity in the U.S. remains limited. Cologuard is gaining traction as it mainly attracts those who are overdue for screening and those who have historically utilized FIT tests. However, the utilization of colonoscopy has been consistent, meaning a rise in backlogs for routine screenings.

I've been in the field and have seen that the colonoscopy backlog is a real issue. One health system in Florida reported an 8-month backlog for 800 patients of average risk. We have partnered with them to implement an alert system to prioritize Cologuard for patients due for screening, showing how we can help alleviate these backlogs.

Kevin, I think you mentioned the colon blood data from BLUE-C coming later this year. I was wondering if there’s any more precision you could provide around the timing there and just update us on the benchmark you're looking for in terms of what would mark success?

Sure. We initially planned to generate that data in the summer, but it is now more likely to be in the fall due to recent readouts we've encountered. We're taking additional time to ensure our test data is as robust as possible, involving several thousand prospectively collected samples. Our expectations are that our blood test will perform comparably or better than other readouts we’ve seen in the market.

Jeff, thanks, and enjoy the time away, best of luck. Aaron, welcome. You guys talked a couple of times about your progress with health systems, but can you maybe sort of talk about your line of sight to additional partnerships with these groups and just the nature of discussions now versus a couple of years ago?

In addition to addressing colonoscopy backlogs, health systems want to partner with organizations that provide solutions beyond just products. They are looking for support with workflows, particularly with staff turnover, and that's where we fit very well. We now provide data and analytics, and that support allows us to enter into partnerships that have been growing drastically quarter-over-quarter.

Kevin, a bigger question for you. It appears that the relationship of Cologuard test to Cologuard reps and the leverage is similar to what you had a few years ago? I mean, simply put, more reps means more Cologuard orders. Is it safe to say that scaling has to continue and the investments into the business have to remain?

I think the answer to that is 'and'. We will increase investments and we will get more leverage. As we aim for larger revenue targets, we plan to continue making additional investments. It's crucial for not only the company’s growth but also in helping patients and our customers. We’ll remain committed to providing education to healthcare providers, ensuring they understand the benefits of our offerings.

This is about unlocking new opportunities in the field. We're taking strategic partnerships into account, particularly focusing on federally qualified health centers and new provider networks. As we expand into these segments, we'll require additional sales representatives and account executives who understand the nuances of these markets.

Apologies upfront, I'm going to ask another marketing leverage question, but mine's focused on the shift in mix towards larger health systems. Whether that creates more leverage, either from a centralized call point or the fact that some health systems, once adopted, do marketing for you within their system? Just how does the health systems play into that dynamic?

You're observing the leverage that exists. Over the past couple of years, we’ve seen approximately $80 million to $100 million growth with a smaller sales force and marketing spend. Our health system strategies have created this leverage and demonstrated that the payer segment represents a huge five to ten-year opportunity. This groundwork is crucial for our future growth across various platforms.

The leverage improves over time. While we are focused on Cologuard, new products will be introduced, providing further depth to our sales team and taking advantage of electronic ordering through the care teams. This foundations lead to greater leverage and improved financial returns.

Great, Jeff, obviously good luck. Kevin, I thought I heard you mention earlier to Doug's question, maybe something about the quarter off to a good start. Could you just help frame how we think about those payer programs in the back half of the year, it sounds like it could be notable?

What I stated was based on the marketing investment alone; we have seen accelerated growth in Q2. When accounting for the sales force additions, we have increased our confidence in the guidance we've provided for Q2. We anticipate payer programs being significantly more lucrative in the second half of the year compared to last year.

You asked about the 45 to 49 age group. There is still strong growth in this area. When looking at opportunities, we have approximately 20 million people in that age bracket. Approximately 4 million turn 45 every year, which keeps presenting a significant screening opportunity. The group is approaching 20% of our revenue stream and has shown double-digit growth in Q1, despite a challenging year-over-year comparison. There’s still plenty of room to grow.

Our next question comes from David Westenberg with Piper Sandler.

Congratulations, Jeff, and best wishes for your next chapter. I wanted to ask about some concerns from investors regarding the implications for growth in the latter half of the year. Can you provide any insights on hospital utilization trends in March?

We recognized the comps are challenging in the first half. We project that the second half will present an easier comparison, particularly as we have noted that early demand from payer programs is strong and we are confident in the growth back half of the year. The flow-through typically takes about 30 to 40 days from a doctor's order to revenue recognition.

Jeff, you'll be missed, and Aaron, welcome to Exact. So I'll ask two questions. One is for you, Kevin. You talked about USPSTF perhaps now in 2027. Can you just expand on why you think it will go into '27? And then for you, Jeff or Kevin, you mentioned a more substantial increase in salespeople. Kevin, you indicated that overall spending will still be down in '24 relative to '23. Can you clarify that?

What I said was that sales and marketing expense in '24 would still be less than it was in '22. We anticipate a modest increase from '23. We have ample resources in our budget to achieve our objectives for both top line and bottom line. There is confidence in our guidance and overall business trajectory. Regarding the USPSTF timing, the scheduled updates have been limited this year, and we expect revisions to extend out a year or two as they have limited resources. Cologuard's performance metrics have received positive feedback but will still require significant time to impact quality measures.

I'll actually ask a question not about Cologuard, but about Oncotype DX Breast and how the FDA LDT rule affects it? Our understanding is that your LDT test would be grandfathered in. You only need to pursue FDA approval if you decided to change the test, which seems pretty unlikely. Is that right?

You are correct. There is a grandfathering provision in the new guidance document, so Oncotype DX is in a strong position both in the U.S. and internationally. Furthermore, we also have New York state approval. We have ample data regarding Oncotype DX, including several publications and extensive patient results that put us on solid ground competitively. We are confident in continued growth in this area.

All right. Thank you, ladies and gentlemen. That concludes today's call. I appreciate you all for joining. You may now disconnect.