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EXACT SCIENCES CORP (EXAS)·Q1 2017 Earnings Summary

Executive Summary

  • Q1 2017 delivered strong top-line and volume: revenue of $48.4M, 100,000 completed Cologuard tests, and gross margin expanded to 65%; management raised full-year revenue guidance to $195–$205M and test volume to at least 470,000 .
  • One-time shift to accrual accounting for additional payers added ~$4.3M revenue and ~300 bps to gross margin; ASP rose to $485 ($442 ex-accrual) while cost/test held at $170 .
  • Coverage expanded to ~197M lives (~78% of the addressable market), 10,000 new providers ordered in the quarter, total ordering providers reached ~70,000; compliance rate held ~67% .
  • Catalysts: material guidance raise, accelerating volume, margin trajectory toward at least 70% LT, and IP acquisition (NDRG4) that should aid margins; near-term watch items include OpEx intensity and payer mix pressure on ASP .

What Went Well and What Went Wrong

What Went Well

  • Volume and revenue inflection: 100,000 completed tests (+22% q/q) and $48.4M revenue (+37% q/q); “first quarter results exceeded our expectations” (CFO) .
  • Margin progression with stable unit costs: gross margin to 65% (up ~400 bps q/q) on ASP improvement and accrual shift; cost/test held at $170 .
  • Coverage and provider adoption: coverage reached ~197M lives (78% of indicated population); 10,000 new ordering providers in Q1; “We’ve never been more confident in the long-term growth of Cologuard” (CEO) .

What Went Wrong

  • OpEx elevated: operating expenses rose to $66.9M (+$7.8M q/q) driven by TV advertising, headcount, and national sales meeting; cash utilization rose to $36.4M .
  • ASP headwinds from payer mix: growing commercial mix can pressure ASP (management continues to expect variability); compliance may drift lower temporarily with mix .
  • Electronic ordering still lags: majority of orders still via fax; progress underway but requires health-system IT investments, making it a multi-quarter effort .

Financial Results

Year-over-Year Comparison (Q1 2016 → Q1 2017)

MetricQ1 2016Q1 2017
Revenue ($USD Millions)$14.835 $48.363
Net Loss per Share (Basic & Diluted) ($USD)($0.49) ($0.32)
Gross Margin (%)39% 65%
Operating Expenses ($USD Millions)$53.661 $66.873

Sequential Comparison (Q4 2016 → Q1 2017)

MetricQ4 2016Q1 2017
Revenue ($USD Millions)$35.2 $48.4
Completed Tests (#)82,000 100,000
ASP ($USD per test)$432 $485 (ex-accrual: $442)
Cost per Test ($USD)$170 $170
Gross Margin (%)61% 65%

Segment/Revenue Line

Revenue LineQ1 2017
Laboratory service revenue ($USD Millions)$48.363

Key Operating KPIs (Q3 2016 → Q4 2016 → Q1 2017)

KPIQ3 2016Q4 2016Q1 2017
Completed Tests (#)~68,000 82,000 ~100,000
ASP ($USD per test)$412 $432 $485 (ex-accrual: $442)
Cost per Test ($USD)$178 $170 $170
Gross Margin (%)57% 61% 65%
Total Ordering Providers (cumulative)~50,000 ~60,000+ ~70,000
Coverage Lives (Millions)~144 ~171 ~197
Coverage of Addressable Market (%)~66% (two of three) ~72% ~78%
Compliance Rate (%)~67% ~67% ~67%
Cash, Equivalents & Marketable Securities ($USD Millions)$337.8 (end Q3) $311.1 (end FY16) $274.7 (end Q1)
Cash Utilization ($USD Millions)$30.5 $26.7 $36.4

Notes:

  • Accrual-basis shift added ~$4.3M to Q1 revenue and ~300 bps to GM; ASP ex-accrual was ~$442 .
  • Average recognized revenue per test in Q1 was $485; average cost per test was $170 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY 2017$170–$180 $195–$205 Raised
Completed Tests (#)FY 2017≥415,000 ≥470,000 Raised
Completed Tests (#)Q2 2017N/A≥115,000 New
Annual ASP ($USD per test)FY 2017~$410–$433 (implied) ~$415–$435 (implied) Raised (midpoint)
Cost per Test ($USD)Q2 2017N/AExpected ~$5/test improvement vs Q1 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 & Q4 2016)Current Period (Q1 2017)Trend
Insurance coverage & contractsCoverage ~144M (two of three covered); HEDIS inclusion discussed . Coverage ~171M; ~72% addressable market covered; CMS proposed Star Ratings inclusion; contracts take 9–12 months post positive coverage .Coverage ~197M; ~78% addressable market covered; focus on converting coverage to contracts with ~1–2 year educational cycle .Improving
Electronic orderingEMR (e.g., Athena) doubles order rate; push for e-ordering .Majority of orders via fax; uptick in e-orders; requires health-system HL7/IT; major 2017 priority .Gradual improvement
ASP & payer mixASP $412 with variability; growing commercial mix; compliance slight decline .ASP $432; 2017 implied $410–$433 .ASP $485 (ex-accrual $442); accrual shift reduces variability; commercial mix pressures ASP; full-year benefit $10–$12/test .
Gross margin trajectory57%; COGS trend low $190s targeted .61%; cost/test $170 .65% GM (62% excluding accrual effect); LT target ≥70%; path to $125 cost/test .
Compliance rate~67%; lower commercial compliance vs Medicare .~67% rolling; mix may pull to low 60s near-term .~67%; mix may drift lower temporarily .
Sales/marketing TV effectiveness~700 new providers/week; DTC campaign raising reorder rates .Continued TV through 2017 .Refresh campaign; sustained effect; monitor wear-out .
Capacity expansionInvestments planned .Expand lab/manufacturing capacity to 2M tests/year in near term .Scaling
PipelinePlan lung cancer blood study at AACR .Mayo collaboration: biomarkers show sensitivity 91–96% at specificity 90–94%; potential lung nodule test .Advancing
IP/royalties—Acquired NDRG4 marker IP from MDxHealth for $15M; expected positive GM impact .Margin tailwind
Regulatory/pricingPAMA final rules; Medicare rate stable through 2020 .CMS MA Star Ratings inclusion; MA plans now receive quality credit for Cologuard .Favorable backdrop

Management Commentary

  • “Exact Sciences had a strong first quarter with 100,000 completed Cologuard tests, $48.4 million in revenue and 10,000 new ordering providers.” — Kevin Conroy, CEO .
  • “First quarter improvement in ASP and stable cost per test lifted gross margin to 65%, up 400 basis points sequentially… The accrual shift contributed 300 basis points of this lift.” — Jeff Elliott, CFO .
  • “We’ve never been more confident in the long-term growth of Cologuard and Exact Sciences.” — Kevin Conroy, CEO .
  • “We believe we can capture at least 30% market share over time… path to 8 million or more Cologuard tests per year.” — Kevin Conroy, CEO .
  • “We recently acquired from MDxHealth the intellectual property rights around the NDRG4 marker used in Cologuard… $15 million… expect the investment will have a positive impact on our gross margin going forward.” — Jeff Elliott, CFO .

Q&A Highlights

  • Order rates and momentum: Management refrained from disclosing precise order-per-physician metrics; emphasis on “total office” sales strategy and TV-driven reorder rate improvements; no signal of losing momentum into Q2 .
  • Electronic ordering: Majority still via fax; increasing electronic orders require health system investments; 2017 priority to accelerate HL7 integrations .
  • Margin outlook and MDx IP: Expect ~$5/test cost improvement in Q2 from MDx, leverage, and controls; long-term GM at least 70% with cost/test path to ~$125 .
  • Payer contracting and ASP: Full accrual-basis now across payer classes; ASP guided $415–$435 for 2017 with $10–$12/test full-year accrual benefit; commercial mix a near-term headwind .
  • Capacity and spend: Capacity to 2M tests/year in the near term; Q2 OpEx expected up $5–$6M vs Q1, driven mainly by R&D timing and pipeline investments .

Estimates Context

  • Wall Street consensus via S&P Global (EPS, revenue, EBITDA) was unavailable at time of retrieval due to data access limits. As a result, explicit beat/miss vs consensus cannot be stated. Values relative to consensus could not be retrieved from S&P Global at this time.

Key Takeaways for Investors

  • Guidance materially raised; monitor execution toward ≥470k tests and $195–$205M revenue in 2017—this resets expectations higher and supports multiple expansion if sustained .
  • Margin trajectory is favorable: ASP improvements (ex-accrual) and stable cost/test combined with MDx IP acquisition should support a path toward ≥70% gross margins over time .
  • Coverage expansion to 78% and MA Star Ratings inclusion are multi-year catalysts; contract conversion and provider education cycles imply durable growth tailwinds rather than one-time spikes .
  • Watch near-term ASP/compliance headwinds from commercial mix and elevated OpEx from TV refresh and scaling; these are investment-phase dynamics, not structural issues .
  • Execution priorities: accelerate electronic ordering integrations, maintain reorder rate momentum, and scale capacity to 2M tests/year to meet demand without margin slippage .
  • Pipeline optionality emerging (lung cancer biomarkers); not near-term revenue, but adds medium-term optionality and strengthens LT story .
  • For trading: near-term catalysts include Q2 volume ≥115k tests and any updates on contract conversions or electronic ordering partnerships; monitor margin progress and ASP stability ex one-time accrual effects .