EXAS - NASDAQ

Hello. At this time, I would like to welcome everyone to the Exact Sciences Third Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Erik Holznecht, Director of Investor Relations. You may begin.

Thanks, Operator. Thank you for joining us for Exact Sciences third quarter 2024 conference call. On the call today are Kevin Conroy, the company’s Chairman and CEO; and Aaron Bloomer, our Chief Financial Officer. Exact Sciences issued a news release earlier this afternoon detailing our third 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. During the third quarter the Exact Sciences team made several advancements for patients while strengthening our platform and growing our business efficiently. Highlights include delivering test results to 1.2 million patients, including a record number with Cologuard and Oncotype DX, growing total revenue 13% year-over-year, while holding operating expenses flat, expanding adjusted EBITDA by 75% year-over-year to $99 million, generating record free cash flow of $113 million and improvement of the same amount year-over-year, increasing Cologuard customer satisfaction and brand awareness to all-time highs, receiving FDA approval for Cologuard Plus, our next-generation Cologuard test, showcasing data at the ESMO Congress for our liquid biopsy colon cancer screening test and also our multi-cancer screening test, and securing acceptance from a peer-reviewed journal for the first publication of Oncodetect, our molecular residual disease or MRD test. While we’ve made progress, our execution during the third quarter and updated outlook for the full year don’t reflect our full potential. Though we’re disappointed with the growth in Cologuard testing frequency among our expanding provider base, we remain excited about our ability to continue enhancing value through our impactful industry-leading tests and our powerful ExactNexus platform. First, we have a large core of nearly 250,000 healthcare providers who rely on Cologuard as an important screening tool. This number continues to grow every day. We are improving the guidance and tools we give to our motivated field force, helping them educate providers with the greatest potential to screen large numbers of their patients with Cologuard. Cologuard Plus will give us even greater access to and more time with our customer base as we explain the heightened benefits of our new test. Access is key, especially given how busy primary care providers are today. Second, Cologuard Plus will launch in the second quarter of 2025 and it sets a new performance standard with 95% cancer sensitivity and 94% specificity. This will help convince more primary care providers to consider Cologuard Plus as at least a co-equal standard-of-care as colonoscopy and even as a first choice due to strong patient preference. Pricing for Cologuard Plus will initially apply to Medicare patients, followed by commercial patients. This price increase will likely provide a topline growth tailwind for 2025 and beyond as access grows. Third, the opportunity to rescreen patients continues to increase. This year, 1.6 million people become due for their next Cologuard test. In 2025, that number grows to 2 million, and in 2026, 2.6 million. This year, we expect to screen about 1 million people in this rescreen setting with Cologuard, and next year, we would expect that number to grow to at least 1.3 million. Our rescreen success rate continues to steadily improve because of our ExactNexus technology and service platform. Over time, our unique dataset, customer relationships and digital outreach capabilities will fuel even greater growth. We expect rescreens will go from about 25% of Cologuard volumes today to well over 50% in the future. Fourth, our ExactNexus platform will continue fueling growth in care gap screening programs, a key growth driver for Cologuard. Large payers and health systems are increasingly turning to Cologuard to solve the challenges faced by declining wellness visits and quality measures. This year, we have run nearly 50 programs to help screen a large number of people with Cologuard. We are becoming more adept at driving adherence with our ExactNexus digital tools and tailored customer experiences. This will help double the adherence rate from slightly more than one in five today in care gap programs. When a test is ordered directly by a patient’s healthcare provider, approximately two in three complete Cologuard. Growth from care gap volume and adherence improvements will provide significant tailwinds over many years. Next, our rich pipelines of new products, including Oncodetect, our blood-based CRC screening test and our multi-cancer screening test will help drive new sources of growth and impact over the long term. Finally, the other important leg of the ExactNexus value creation story is leverage. Topline growth will be coupled with steady improvement in profitability. The third quarter demonstrates the power of our platform to deliver growth while holding the line on expenses. Over time, we expect to continue to see leverage across the P&L, particularly G&A, giving us great flexibility. I’ll now turn the call over to Aaron to discuss third quarter results and updated guidance in more detail.

Thanks, Kevin, and good afternoon, everyone. Total revenue grew 13% year-over-year to $709 million. Growth was led by broad-based momentum in Cologuard adoption, along with international expansion of Oncotype DX. Adjusted EBITDA margin expanded 500 basis points to 14%, highlighting another strong quarter of operational execution from the team. We generated a record $113 million in free cash flow, up nearly 60% sequentially, and ended the quarter with cash and securities of more than $1 billion. Screening revenue grew 15% to $545 million, driven by Cologuard volume. Precision Oncology revenue grew 5% to $164 million. Growth was led by Oncotype DX, which expanded 28% internationally. We generated $99 million in adjusted EBITDA, an increase of $42 million year-over-year. Adjusted EBITDA margin expansion was driven by volume and expense controls. As a percentage of revenue, adjusted G&A improved about 550 basis points year-over-year. This more than offset a decline in non-GAAP gross margin of about 85 basis points. We are making strong progress expanding profitability and generating free cash flow, allowing us to reinvest in growth and innovation. Turning to guidance, we now expect full year revenue between $2.73 billion and $2.75 billion, including full year screening revenue between $2.08 billion and $2.095 billion, and Precision Oncology revenue between $650 million and $655 million. Recall, on our earnings call in July, we outlined four key reasons for accelerated Cologuard growth in the second half of 2024. Typical seasonality, care gap programs, rescreens and recent sales and marketing investments. Although we are pleased with progress on rescreens and care gap programs, which are powered by our ExactNexus platform and capabilities, we fell short of driving demand at a faster rate within primary care offices. Excluding care gap programs, since August, Cologuard orders have grown below the historical rate, which our prior guidance assumed. This impacted third-quarter screening revenue and will have a bigger impact on fourth quarter revenue due to the normal 30-day timing between a Cologuard order and a completed test. Second, disruption from Hurricane Helene and Milton negatively impacted Cologuard orders and results in September and October. Historically, about 18% of Cologuard tests are from patients who live in affected areas. Our thoughts are with those who suffered from these devastating storms. We continue to monitor these situations closely with expected impacts incorporated into our updated guidance. Third, we are seeing positive contributions from the new cohort of reps who joined Exact Sciences beginning in May. This progress has been more gradual than our prior guidance assumed and we expect the return on those investments will increase in the near- and long-term. Lastly, at the beginning of the third quarter, we moved our Precision Oncology portfolio onto ExactNexus. We faced transitional challenges that we expect will have a one-time negative impact on Precision Oncology revenue in the second half of 2024. These challenges impacted our ability to collect on some of the tests we performed. Over time, we expect this upgrade will enhance the efficiency of our teams and systems, and the challenges we faced have been resolved. As a result of our updated revenue outlook, we’re revising adjusted EBITDA guidance to be between $310 million and $320 million. This implies our full year adjusted EBITDA margin at midpoint expands 270 basis points year-over-year to 11.5%. Although we’re facing near-term challenges, we expect growth will accelerate in 2025 and margins will continue to expand. We are well on our way to achieving our 2027 financial target of 15% compounded revenue growth and greater than 20% adjusted EBITDA margin. Back to you, Kevin.

Thanks, Aaron. Cologuard is an open-ended growth story because it’s become synonymous with colon cancer screening. Our sophisticated ExactNexus platform allows us to connect electronically with nearly a 0.25 million providers who’ve ordered Cologuard so far this year, 24 million patients, more than 370 U.S. health systems and over 800 payers. Over time, the power of our ExactNexus platform continues to increase both Cologuard order and adherence rates in the primary care and care gap settings. Our platform will help us address the 60 million people who are not up-to-date with screenings by sharing data and insights with key stakeholders. It also allows us to build lifelong relationships with patients who are new to screening and those who have previously completed Cologuard. We expect this will drive Cologuard growth for years to come and expect similar benefits in Precision Oncology. Our Precision Oncology team guides treatment decisions for more than 600 cancer patients every day. Oncotype DX helps early-stage breast cancer patients determine whether they will benefit from chemotherapy and assess their risk of recurrence. It’s globally recognized as standard-of-care with 90% of U.S. oncologists ordering and adoption expanding internationally. Through this same channel, Oncodetect can aid in the early detection of residual or recurring cancer and better inform therapy decisions. We’re excited to share clinical validation data this January in a peer-reviewed journal highlighting Oncodetect’s accuracy in detecting residual disease in colon cancer patients. We’re on track to launch Oncodetect with reimbursement in colon cancer next year. We’re also conducting clinical studies to expand into multiple other solid tumor types including breast cancer. Results from these studies will be shared at regular intervals over the next few years supporting our goal to cement this technology as standard-of-care. We achieved another major pipeline milestone by receiving FDA approval for Cologuard Plus, our next-generation Cologuard test. Cologuard Plus sets a new performance standard in colorectal cancer screening. Cologuard Plus detects 95% of cancers with 94% specificity. Relative to Cologuard, this represents approximately a 40% improvement in both the false negative and false positive rates. Per the modeling assumptions that inform USPSTF guidelines, only Cologuard Plus and colonoscopy will be on the efficient frontier which defines the best colon cancer screening strategies. Next, we plan to establish a higher price through an available Medicare pathway before launching the test with Medicare coverage and guideline inclusion. Our blood-based colon cancer screening data presented at ESMO in September demonstrated meaningful progress towards another option to screen 60 million Americans who remain unscreened. Results of a large well-designed study showed our tests achieved 88% overall cancer sensitivity and 31% sensitivity for advanced precancerous lesions at 90% specificity. These data reinforce the power of our unique scientific approach which delivers an unrivaled cost profile and extends beyond colon cancer. We expect to have the best stool and blood-based screening options available with the technology and commercial platforms necessary to engage patients. We see a clear path to accelerating growth and expanding profitability in 2025. The progress we’re making with commercial execution, our ExactNexus platform, rescreens, care gap programs and new product launches reinforces our positive outlook. This positions us to continue making a positive impact on the lives of millions of patients around the world with our portfolio of innovative cancer diagnostics. We’re now happy to take your questions.

Thank you. [Operator Instructions] Our first question comes from the line of Brandon Couillard from Wells Fargo. Please go ahead.

Hey. Thanks. Good afternoon. Kevin or Aaron do you just kind of walk through what changed in the second half outlook relative to where you stood 90 days ago? It’d be helpful if you could maybe unpack some of the moving parts and contribution be it between care gap, the hurricane disruptions, slower ramp from new reps and have you seen any bouncing orders following the hurricane in those effective areas? Thank you.

Sure. Why don’t I take this at a high level and then hand it over to Aaron? First of all, I’d say that, long-term trends for Cologuard remain intact. With that said, I take accountability. Our management team takes accountability for the lesson performance and guidance for Q3 and Q4, respectively. We can do better. And we have our arms around these execution issues and we have clear plans in place to address them. We’ll talk more about that on the call. Let me say that Cologuard is and remains promotionally responsive. It’s responsive the most in the newer healthcare providers that have begun ordering Cologuard since the pandemic. We are calling on those -- that cohort of physicians the least and that is an opportunity for us to execute much better as we have in the past. We’re disappointed but at the same time we see a very clear path to improvement. The size of the opportunity remains unchanged. There are 60 million Americans who are not up to date with screening. We are seeing a change in the way that patients are consuming healthcare with a decrease over time in face-to-face office visits in a primary care setting. That has changed and has changed most significantly since COVID. That provides on one hand a challenge and another a real opportunity because of the ExactNexus platform and our ability to reach people as we are with care gap programs initiated by our customers for our health systems and payers. We’ll talk about that more. And then I just want to keep -- everybody to keep in mind that 2025 tailwinds and why we believe that growth in 2025 and beyond will continue starting with rescreens which continues to grow. We’ll unpack that a little bit and we believe over time that will grow from 25% to 50%. The care gap programs which are becoming a larger part of our overall Cologuard volumes. Cologuard Plus the introduction of it and the price increase that we will seek in 2025. And then finally stronger commercial execution than you saw in Q3 and we expect to see in Q4. Aaron?

Yeah. Hey, Brandon. So as we laid out on the last call, there were really four key reasons for why we expected growth to accelerate into the back half of the year. Typical seasonality, rescreens, care gaps and then the recent sales and marketing investments that we’ve made. Really proud of what’s going on in the team execution around rescreens and care gap driving significant growth for us in the back half of the year. If you look at kind of what’s driving the shortfall, first, as we laid out, we typically see the highest volume of Cologuard order growth really from that kind of early August through late October. That’s the steepest part of our growth curve. And while we have seen increases over this period of time, it’s not been at the levels that we expect or that we’ve seen historically. The second key reason would be we’ve seen a positive signal on recent sales and marketing investments that we’ve made, but that signal is a bit more gradual than the prior guidance assumed. The third key driver really comes down to hurricanes, and as outlined on the call, those that live in the affected areas of the two hurricanes that hit, that represents roughly 18% of Cologuard volumes historically, and that has had an impact on orders and results in September and October. And obviously, given the 30-day time lag between when we see an order and a result, this has a bigger impact on the fourth quarter.

Our next question comes from the line of Tycho Peterson from Jefferies. Please go ahead.

Hey. Thanks. I’m going to pick up right there. So, are you not willing to quantify each of the impacts, and then how long do you expect care gap and the rep productivity issues to linger? And then fourth quarter guidance, you’re down sequentially. I’m just curious, as to why that would be the case. And then lastly, anything you’re willing to say about 2025 at this point? Thanks.

Hey, Tyco. Yeah. So, as we look at in the fourth quarter, it is down sequentially. We’re not going to size each one of the kind of four key, three key reasons that we outlined. The single biggest reason for why revenue would be down sequentially from Q3 to Q4 is the hurricanes. Again, as we look at patients who live in affected areas and we closely monitor on a week-to-week basis, what’s been happening, both with orders and results, we know that this is going to have an outsized impact on Q4 relative to Q3. Again, those that live in affected areas make up roughly 18% of Cologuard volumes. As it relates to care gaps, care gap continues to be a strong growth driver for us into the back half of the year. The pacing between Q3 and Q4, we actually saw some of the payer programs pulled forward from Q4 into Q3, and some of the care gap programs we had contemplated in Q4 are happening a little bit later in the quarter. So, some of that revenue will be recognized in 2025 as we resolve those orders. Turning to 2025, just to reiterate what Kevin said before, we’ve got four key reasons to be excited about growth heading into next year. First is rescreens. Second is care gap programs. Third is the launch of Cologuard Plus and the pricing increase that we expect to see. And then fourth would be commercial execution.

Yeah. And adding on to that new products with our launch of MRD occurring next year too in the first half.

Our next question comes from Andrew Brackman from William Blair. Please go ahead.

Hi, guys. Good afternoon. Thanks for taking the question. I think one of the things folks are going to want some comfort around is just your ability to forecast the business, especially in the context of how things sort of played out this quarter. So, can you maybe just sort of talk about the signs that you saw in your quarter that this was sort of playing out against your favor? And I guess specifically how those changed or evolved over the last couple of years. And I guess bigger picture here, the number of variables in the model. How are those sort of moving in and out of your control as we look forward? Thanks.

Hey, Andrew. Yeah. The biggest thing that I would say from an intra-quarter perspective is just obviously again reiterating that growth that we expect to see and have seen over time from August through October, and that’s been a very reliable period of growth in the past. We did see growth in orders during that time period, just not at the levels as we have historically. And to reiterate some of the points Kevin made, this comes down to commercial execution and we’re taking actions to address that heading into 2025. The second thing that we saw play out intra-quarter was obviously the two large hurricanes, which kind of hit back-to-back. And we monitor those effective areas very, very closely and are able to predict what’s happening both in terms of orders, as well as results heading into the fourth quarter.

Our next question comes from Doug Schenkel from Wolfe Research. Please go ahead.

Hey. Good afternoon. So question on the guidance and then just thinking ahead from here for the next couple of years. So, Aaron, if doing some quick math, if we assume 18% of your revenue went to zero for one month, I think that would equate to $35 million to $40 million in revenue. You cut guidance for the year by more than half that. So just want to make sure I’m in the right neighborhood. I want to be crystal clear that even if it were not for the hurricanes, you would be cutting guidance here because of your lack of visibility and just not executing to plan. So that’s my first question. My second is, your guidance implies that Cologuard fourth quarter volume growth is going to moderate, I think, to around 10%. And this is in a period where you talked about, again, material care gap benefits coming in, the reps you hired that were completed in May, but were hired earlier than that in some cases, starting to become more efficient as they’re supposed to be and then the opportunity to convert reorders from three years ago. As we look at the second half of this year, that’s as big as ever. So if that’s what’s going on with Cologuard, your other major product line, Oncotype, great product, but it’s mature. That’s a mid-single-digit growth franchise. Pulling those things together and acknowledging the tailwinds that you talked about in your prepared remarks. Let’s just cut to it, recognizing a key part of the buy thesis for Exact is your ability to grow revenue double digits. Can you do that over the next one year to two years, unless you get the ASP increases or get help from other products like MRD or Cologuard Plus? Thank you.

Doug, thanks for that. Let me take the first part and then hand it over to Aaron. When you zero in on the biggest impact in terms of the fourth quarter, it is on the responsiveness to in our core customer base, the customers who are seeing patients. And there is a change that is ongoing in the way that Americans are consuming healthcare with a decrease in primary care visits. That’s a fact. There is also a transition going on in the way that Cologuard is being delivered through these care gap programs. But let’s come back to our ability to grow our customer base. The reason that we’re confident that we’ll continue to grow at that in the primary care setting is because we have seen tremendous growth in new users and new healthcare providers, and we haven’t called on them very frequently. We’re calling on the cohorts of new ordering physicians from 2020 and beyond at half the rate that we’re calling on the more tenured. So there’s an opportunity for us to execute. And one thing that we see, and we can see this from our data, is when you call on those healthcare providers, you see a response in terms of how frequently they order Cologuard. And so refocusing our efforts there, we have done the math and we know that we have confidence that that will lead to growth. But there are other growth drivers that provide kind of a minimum floor of double-digit growth next year. Maybe, Aaron, you can touch upon those.

Yeah. So the floor, it really comes down to rescreen those care gap programs and then Cologuard Plus pricing sets a solid base for double-digit plus growth in our screening business. And as we turn around on the commercial execution side, that obviously provides upside to that. Coming back to kind of the fourth quarter deceleration, Doug, you had decent math on the hurricanes. We’d still be cutting the guide, right? The larger impact for us is ultimately on not accelerating growth during that critical time period from August through October. There is a smaller but maybe less of an impact on the recent sales and marketing investments. We have seen a positive signal from those and look forward to a greater contribution impact from those heading into 2025. On the Q3 to Q4 sequential, the biggest impact there, Doug, is the hurricane. Absent the hurricane, you would see sequential growth from Q3 to Q4. And as I called out earlier, to a lesser extent, you just look at care gap. From a year-over-year perspective, we saw higher growth year-over-year in Q3 than we would in Q4.

Our next question comes from Dan Brennan from Cowen. Please go ahead, Dan.

Great. Thanks. Since there’s been a lot of questions on the quarter end care gap, maybe I can focus on 2.0. Kevin, you talked about the upside driver a couple of times for 2025. Can you just kind of remind us of the pricing strategy for 2.0? Sounds like ADLT will be the focus given the clinical FD schedule. I think the interim update didn’t go your way. So can you -- let us know kind of what price you look to seek with ADLT status. You talked about it will apply to Medicare. Just remind us what percent of volumes it will apply to. And then how do you deal with the commercial payers? Any kind of thoughts about what commercial payers will sign up for it and won’t? And then if that’s the case, then how do you deal with maybe running two tests in terms of the margin profile on that? Thank you.

Thanks, Dan. So first, I’ll start with Cologuard Plus. It’s a major advancement. We got the final safety and effectiveness data and the final label for Cologuard Plus. And this sensitivity ended up at 95% and 94% specificity when you adjust to the census by age, which the agency allowed us to do and look at what’s called Category 6 specificity, the true normals, those patients without any polyps in their colon. And so that 95% sensitivity, 94% specificity is unmatched by any non-invasive approach. In terms of how we intend to price that, we are still before Medicare with a clinical FD schedule process that plays out before the end of the year. And we remain -- we continue to engage with CMS on getting a clinical, the CDLT process to seek a price increase. But if not, then we will go the ADLT path. And the ADLT path is just a slightly longer path. We get, there’s a benefit that you probably start with a higher price than the CDLT path. The process then takes a couple of years to transition from Cologuard to Cologuard Plus. The patients who have access to Cologuard Plus will get Cologuard Plus. And over time, we will start with the Medicare patients and then move into the commercial and then Medicaid patients. That process probably takes 12 months to 24 months to play out. Obviously, there are a lot of benefits for payers and their members to have access to Cologuard Plus, including the performance. And also the price, the cost makeup of Cologuard Plus is lower and it will take some time, but we’re confident about what that process will look like. We will create value and increase price because of the innovation that we’re delivering.

Our next question comes from Matt Sykes from Goldman Sachs. Please go ahead.

Yeah. Thanks for taking my questions. Maybe just to dig a little bit deeper on the commercial side. Kevin, you talked about the response you see from those newer doctors and systems that you brought on post-COVID, but clearly the calls weren’t going into them. And you’ve been dealing with sort of the lack of in-office visits for some time now. So could you maybe just talk a little bit about sort of what the breakdown was? I know you’ve had some turnover in sales management. Was it a sales management issue? Was it turnover of reps? Was it just new reps ramping up? Just -- it seems like something that you had focused on previously where the focus was lost. So I’m just wondering kind of what the breakdown was there? Thanks.

Yeah. I don’t want to look backwards. I want to look forwards, because there are just -- there is a whole list of things that we can do to execute better. We have an incredible sales team. They’re trained, they’re hungry, they’re motivated, they have integrity and we are giving them better tools to be able to be more successful in what they do. Remember, there are 2 -- almost 200,000 healthcare providers that order Cologuard during the quarter, and we know they are responsive to visits by our field force, but that our base of customer continues to grow. So you have a dilution effect in terms of our ability to focus. We are going to provide, we are providing tools to our field force to allow them to really focus on the physicians and nurses and PAs that are most responsive to their calls. We owe that to them. We can deliver that. We take accountability here at headquarters to help them achieve that success. And remember, there’s a significant stickiness to the providers that order Cologuard. I’ll give you one example for a reason that we believe that we will continue to grow in this core part of our business. If you take a look at providers who ordered for the first time, let’s say before 2020 and compare them to healthcare providers who ordered 2020 or beyond, their -- in their initial couple of quarters of ordering, these newer providers are ordering at a 50% rate, more than 50% higher rate when they first start ordering. So they want to use Cologuard. They know about Cologuard. Patients are asking for Cologuard. We can do a better job of giving them the tools that they need to be successful so that they’re even more sticky than older cohorts. So this is about execution and this starts with me and it extends to the whole team and everybody is confident about our ability to address this.

Our next question comes from the line of Vijay Kumar from Evercore ISI. Please go ahead.

Hey, guys. Thanks for taking my question. Kevin, maybe back off those comments you made. When you look at how third quarter played out and you look at the guidance for Q4, is the change here between the 45 age to 49 age group versus the above 50 age, first time screening patients, was there any regional variance? I guess, what were the learnings? And when you say commercial execution will improve, what is going to change here that resolves, I guess, or fixes the execution issues? Thank you.

Yeah. We’re not going to go into all the details about what we’re doing from a commercial execution standpoint. I’ll just keep going back to the ability for us to access offices and to drive re-screens, care gaps. Cologuard Plus is significant. Let me zero in on Cologuard Plus for an example. Cologuard Plus is such a step up in terms of performance. As we have done research and focus groups on Cologuard Plus, there’s a clear excitement among our customers to be able to have access to the data and they need -- and we need to get out there and do that with our field force. The new data will provide us greater access and time with the healthcare providers. And that is something that will, we believe, will help us help drive greater volumes with both Cologuard and Cologuard Plus. But there are a whole range of areas where we can improve. Not going to, again, not going to go into them now. We know that this is disappointing to you, to investors. We’re confident in our ability to grow and achieve or exceed our long-range plan as we’ve laid out.

And Vijay, just maybe a little bit of additional color on the breakdown, both in Q3 and expectations for Q4. We did see growth, obviously, across care gaps, as well as rescreens and new ordering providers. The biggest contribution in growth coming from care gaps and rescreen. Double-clicking on rescreen, this is a really great source of revenue for us. It’s obviously highly predictable, recurring, high-margin revenue. Last year, we disclosed that represented roughly 20% of screening revenue in 2023. We’re at 25% now here in the back half of the year. And thinking about new providers, new users, this is an area, as Kevin alluded to, this is an area we know we can grow faster, particularly amongst the 45 age to 49 age cohort, which remains a very large, unpenetrated cohort, many of whom are still unaware of CRC screening. One of the things that we’ve been seeing is with the care gap program is it represents an opportunity to get at this 45 age to 49 age cohort.

Our next question comes from the line of Dan Arias from Stifel. Please go ahead.

Hi, guys. Thanks for the question. Kevin or Aaron, I’m sure you don’t want to give exact numbers on total number of reps in the field, but I’m hoping you can sort of provide us with a 4Q snapshot, if you will, on commercial, just when it comes to how many more reps you’ll have in the field come mid 4Q when everybody should sort of be up and running versus 4Q of last year. It would just be helpful to try and understand the productivity difference year-over-year as you’re finishing the year this year versus finishing the year last year?

Yeah. We’re not going to get into the number of reps that we have in the field. It won’t be appreciably different in Q4 than it was in Q3. It’s -- as you know, we talked in on our Q1 call about our step up in that field force where we added about 100 reps. That group of reps has shown the ability to have an impact on the physicians, healthcare providers that they call on. Maybe not quite at the rate that we expected, but we see that positive impact. It continues to grow month-over-month and that clearly is going to be, have been a good investment to make. That’s where we are in terms of the sizing of the field force. Aaron?

Yeah. Just -- and if you look at -- Dan, if you look at productivity, we saw leverage again, not only in Q2, but also in Q3 on the sales and marketing line. So, we got operating leverage on sales and marketing expenses, and obviously, we’ll continue to expect that moving forward.

Our next question comes from the line of Jack Meehan from Nephron Research. Please go ahead.

Thank you. Good evening. I wanted to ask more about care gap. Kevin, just more directly, has the recent Medicare star situation led to increased engagement of large payers? Is it possible to talk about your hit rate and then use of Cologuard relative to fit? And for Aaron, not sure if I heard this wrong, but just wanted to be clear, are the care gap sales expected to be lower in 4Q sequentially? If you could just talk about why some programs were pulled forward versus pushed out, that would be great?

Yeah. Let me first give background on care gap programs. Care gap programs are initiated by payers and health systems, probably three parts payers, one-part health systems, but I think over time that changes. Driven by quality measures, both payers and health systems care about their quality measures, and historically have used the fit test to reach those patients who are under screened or who’ve never been screened. And typically the fit test seats about, they ship out 10 fit tests for every one they get back at 10% compliance rate. Now note that last year with our care gap programs, we saw about a 18% compliance rate that has grown to about 22% this year, but 24% in the third quarter. So we keep getting better at that compliance rate. And just imagine as that doubles. So today the care gap program, I think is bigger than people appreciate, and over time, we think this is going to be a major avenue for how people get screened for colon cancer and probably other services too that we’re able to provide over time. But the doubling, let’s assume that we go from 22% to 44%, which is still 22% less than we’re at with our core base of customers and their compliance rate. So, else, if we were to double that, we wouldn’t be talking about the challenge in the quarter today. It would be a -- it would be just another leg of large growth. And we know that the tools that we provide through the ExactNexus platform, our service capabilities will drive that improvement and they kept return rate over time.

Yeah. And so just speaking Q3 to Q4, we would expect roughly similar revenue sizes, Q4 versus Q3, maybe up slightly. Jack, I think the other thing, just to reinforce what Kevin was talking about, this being larger than I think most people appreciate or think. We’ve talked a lot about how significant of a growth driver for us this is in 2024. But maybe just to size this a little bit, historically, there’s been about 3 million fit tests completed through care gap programs run by Med Advantage plans each year. And if you zoom out beyond Med Advantage plans, we would estimate that the addressable opportunity is between 4 million and 5 million completed fit tests per year. And keep in mind, those are at about roughly a 10%-ish compliance rate. As Kevin just talked about, we’ve already demonstrated the ability to double that compliance rate and we’d obviously look to double from the roughly 22% we’re at today. And so if you kind of get this even to the 40% to 50% level Kevin talked about, you adjust for interval and apply our Cologuard average sale price, this is a multi-billion-dollar opportunity for us over time and we’re really, really excited to go after it.

Our next question comes from the line of Patrick Donnelly from Citi. Please go ahead.

Hey, guys. Thanks for the questions. Kevin, maybe the first one, just in terms of the headwind, I’d be curious how they developed as the quarter went. I mean, was this something you guys picked up steadily as the quarter progressed? Was it a little later? Obviously, the hurricanes, we know when those happen, but just curious in terms of when you guys realized the shortfall was going to happen and the headwinds were there? And then secondly, just on the EBITDA guide down, how you guys are thinking about the cost structure going forward? It sounds like you reiterated the confidence in that EBITDA target a few years out, but just how to think about the trajectory near-term here and launching off into 2025 on the EBITDA piece would be helpful. Thank you, guys.

Right. So, the number that we look at most intently is that daily and weekly number of orders. And what we saw in the first half of the year was the typical seasonal growth that you see in the spring, where you see typically week-over-week improvement or increase in the number of orders driven by that -- by office visits and by our -- what we would call our point-of-care delivery. And over starting in August and going into October, we saw an increase. We just didn’t see the increase, as Aaron mentioned, that we typically would see at that time of year. So, when did we know that there was going to be a challenge? Really, starting in September and into October, we realized that there was a greater challenge there than we had seen in past falls during that time period of the year, which we have described as typically the steepest increase.

Yeah. And Patrick, just turning to EBITDA, right? So, we’re very confident in our ability to achieve our 20% plus adjusted EBITDA guide. We’ve made meaningful progress on profitability ahead of expectation. If you turn to the full year, it’s up at midpoint, roughly 270 basis points. Unpacking that, it starts with growth. Obviously, double-digit revenue growth is an important part of our value creation story and drives a lot of meaningful leverage and we’re seeing that play out here in 2024. As Kevin alluded to, we have reasons to be confident that that’s going to accelerate even more as we head into 2025, really driven by, again, rescreens, care gap, new product launches, as well as pricing. But if you look at it, we’re driving leverage across the P&L right now. So, whether that’s sales and marketing efficiency on the investments that we’re making, we’ve seen a slight decline in gross margins in the near-term, largely driven by some of the one-time ASP benefits we’ve talked about, as well as a temporary headwind from care gap due to the lower adherence. That should flip to a tailwind for us in 2025, with the launch of Cologuard Plus, which will give us added ASP, as well as a lower cost of goods. And then, looking at G&A, just so proud of the efforts from the team. Thus far this year, we saw more than 500 basis points of operating leverage on G&A. But there’s a lot more that we can and will do to address G&A. It’s come down on an adjusted basis from roughly 35% to roughly 30% where we were in the quarter. And we know and will take plans to make sure that we address that to continue to bring that down moving forward.

Our next question comes from Dan Leonard from UBS. Please go ahead.

Thank you. Just a couple of questions on the Cologuard Plus mechanics. I think, Kevin, you mentioned the launch would be in Q2. For some reason, I thought it might be Q1. So, could you educate me on why Q2? And then, secondly, on the ADLT pricing mechanics, I’d just like to better understand the way that mechanism works. If you went the ADLT route, you get paid list price by nine months -- for nine months by Medicare. But your list price for Cologuard is actually quite a bit higher than your ASP. So, are you going to get an increase from that list price and then get paid at a far, far higher rate from Medicare for a period of time? I’d just like to understand that better. Thank you.

Yeah. So, first, the launch timing is kind of the end of Q1, beginning of Q2 is what we’re shooting for. Is that going to adjust one way or the other by a little bit? It could. But that’s what we’re shooting for. In terms of the mechanics, yeah, you have that essentially right that you have a list price, you pick that list price, you get paid by Medicare for that list price. And then at the end of a period, it reverts to the median of the commercial rate if there’s commercial rates that are where there are claims that have been processed and you can dig into how the mechanics of the ADLT process works. That’s the essence of it. And then you get that price for two years and then it readjusts and every year after that. So, you do have the ability to control that price and you get paid on the Medicare claims. Initially, it’d be the Medicare fee-for-service claims over time as you get commercial contracts or your commercial contracts that exist cover Cologuard Plus. You would start to have those patients access Cologuard Plus and then with the commercial deals and that just takes time to work through all of that.

Our next question comes from Puneet Souda from Leerink Partners. Please go ahead.

Yeah. Hi. Thanks, Kevin. Thanks for taking the question. So, just a clarification. Is there any air pocket that you saw from switching due to the Nexus or due to the care gap switching of the patients? And just a quick follow up on, there was a launch of a product in early August in blood. Just wondering if you’re seeing that in any of the accounts. I’ll just leave it at that. Thank you.

Yeah. In terms of, I think you referenced an air bubble. We saw an impact as we moved Oncotype DX onto the ExactNexus platform because some of the claims, the tests that we processed, we believe we will not get paid for. I won’t go into all of those details, but that was a component of the really what’s going on in the fourth quarter. In terms of an impact in the quarter by blood-based colon cancer screening tests, no, we’ve stayed close to that. And we anecdotally and also based on research, we have seen no impact on our business based on that competitive dynamic.

Our next question comes from Subbu Nambi from Guggenheim. Please go ahead.

Hey, guys. Thank you for taking my question. Regarding 2025 revenue growth, your comments suggest that you’re confident in the outlook for high single-digit or even double-digit screening revenue growth and continued low-to-mid single-digit Oncotype growth. Is that right? If so, are you confident you can do this while growing operating spend at mid-single-digit levels? And finally, is your 2027 20% EBITDA target still intact?

Yes, to the last question. To the first question, we expect next year to, we’re not giving guidance now for next year, but the 15% growth target over the next three years is intact. And again, the rescreens, care gaps, Cologuard Plus commercial execution can deliver mid-double-digit increase or greater. So we -- and we’ll spend more time talking through this, but there’s a floor and the floor is at a very attractive level.

Yeah. Just to reiterate, screening growth this year, while we’re disappointed is at 12% at midpoint. And as Kevin alluded to earlier, for those four key reasons, we actually expect growth will accelerate in screening in 2025. Turning to adjusted EBITDA, it is absolutely still intact. I want to reiterate we are very confident in our ability to get to 20% plus adjusted EBITDA by 2027. We will have expanded from just under 9% profitability last year to approaching 12% profitability in 2024. You could expect meaningful margin expansion again in 2025, both coming from a double-digit screening growth, but importantly also coming from addressing our cost base, particularly in G&A.

Our next question comes from Andrew Cooper from Raymond James. Please go ahead.

Hey, everybody. Thanks for the question. A lot already asked, so maybe just one more on sort of the comments that you’ve reiterated in response to a couple of questions on DOS being promotionally responsive, but at the same time saying it’s taking longer to ramp these new reps and kind of some of the comments there, like, can you help us adjudicate those two things? And what gives you the confidence that doctors are truly as responsive as they are receptive as they always have been versus potentially a change in their behavior, not as much directly tied to your execution as we think about 3Q and 4Q and beyond?

Yeah. So tying those together as we move into the fourth quarter in next year, we’re able to provide tools and deployment of our field force in a way that focuses their efforts on those HCPs who are the most responsive. And we have a plan to do that in terms of knowing that that responsiveness exists. We’re fortunate to have a ton of data and our data allows us to look at HCPs that we call on versus HCPs that we don’t and the frequency of calling on them and then what the responsiveness is. And based on that data, we’re confident that with a greater amount of analytics and focus, we will expect to see stronger growth in that core part of the Cologuard business.

Our next question comes from Mark Massaro from BTIG. Please go ahead.

Hey, guys. Thank you for taking the questions. The first one is, Kevin, did you make any changes in the field to people’s territories? And if you did, are those folks sort of in their new territories at this time? And then the second part is on the transition to Cologuard Plus next year. So I’m just curious, if a clinician orders a Cologuard for someone with a commercial health plan, let’s just call it in Q3, if there’s no contract there, what happens? Do they automatically default to Cologuard 1.0? I’m just really asking how you can prevent potential zeroes or no pays?

Yeah. Sure. So as you know, we have about 800 payers with contracts around Cologuard Plus or with Cologuard, and we see north of 96%. I don’t know, Erik, what is the latest?

96% to 98% recovery on every dollar billed.

So we’re proud of that. We’re also proud of the depth of our relationships with those payers. So when we start to make this transition to Cologuard Plus, we’ll be able to deliver the test, whether it’s Cologuard or Cologuard Plus, that the patient has access to and our system has the ability to look that up and deliver the right test to the patient. It’s very important that we do that in a thoughtful way and not deliver those what you call zeroes. We haven’t seen zeroes in many, many years, and we don’t plan to see zeroes as we look into 2025 and beyond, because it’s very important that people get screened. And remember, Cologuard is a great test with 92% sensitivity and 90% specificity. So patients will get one of those tests, whichever they have access for. We have the ability to deliver it. In terms of territory changes and that level of commercial execution, we have total confidence in our sales and marketing leadership. We’re excited about some of the changes we’re making. The team is fired up. I’ve been out and have talked to many of those teams and the energy is high. The engagement is very high. I want to make one other point as you look into 2025 and beyond, and I want to really drive home this point around rescreens, care gaps, Cologuard Plus, commercial execution and new products like Oncodetect. But let’s talk about rescreens for a minute. This year, there were 1.6 million people who are eligible to rescreen. Next year, it’s 2 million people. The year after that, it’s 2.6 million people. They get delivered the new orders for Cologuard throughout the ExactNexus platform, largely. And we get a ton of leverage because we built that ExactNexus platform and we know what the adherence rate is today, and we also know very discrete things that we’re doing, and there are dozens of them, to improve the adherence rate of that population. So we’re confident about the base level of growth that we expect to see next year, but I also want to come back to where we started. We as a management team are accountable for this. We’ve never been more focused in doing our job to make sure that this doesn’t happen in the future. There is a big transition that is occurring, and we are in a unique and competitively unique position to be able to deliver for these health systems and payers who are facing these same challenges of getting people screened. That’s through the care gap program. We’re excited about that and we’re truly excited about Cologuard Plus and the improved performance there, setting a new standard-of-care. We look forward to completing this year, heading into 2025 and talking with you in the near-term. Thank you.