Exact Sciences (EXAS) Q1 2024 Earnings Call Transcript

Exact Sciences (EXAS -3.14%)
Q1 2024 Earnings Call
May 08, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by. My name is Danica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Exact Sciences first quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question-and-answer session. [Operator instructions] Again, note we will only have time for one question per person. Thank you. I would now like to turn the call over to Erik Holznecht, manager, investor relations.

Please go ahead.

Erik Holznecht — Manager, Investor Relations

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.

Kevin Conroy — Chairman and Chief Executive Officer

Thanks, Erik. The Exact Sciences team is off to a strong start to the year. During the first quarter, we advanced our purpose 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.

Being recognized as a Gallup Exceptional Workplace, a prestigious award given to only 60 companies worldwide, increasing Cologuard adoption in large health systems, organized screening programs among payers, and in federally qualified health clinics. Expanding the number of Oncotype DX international ordering providers by more than 20% year over year, making progress toward moving our precision oncology portfolio onto Exact Nexus, our proprietary IT plan. Launching our hereditary cancer test risk guard to our oncology channel. Announcing 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 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.

Jeff Elliott — Chief Financial Officer

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 and a weak flu season.

Growth was 24% on a two-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 FX and M&A. Group was led by Oncotype DX, which expanded 7% globally.

Reference Lab agreements were a headwind of $3 million or two 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 weight in Q1. We expect gross margins will improve over time as we realize the benefits from lab automation, leverage investments in a 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 one-time items related to facilities consolidation and a $6 million of 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 Oncotype DX. 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 eight 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.

Aaron Bloomer — Vice President, Finance

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 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.

Kevin Conroy — Chairman and Chief Executive Officer

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 ages 45 and older. Marketing investments like these listed 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 to Exact Sciences. Our data show the more time we spend educating these healthcare providers about the benefits of Cologuard, the more test they order for their patients. Our productivity per customer visits had 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 opportunity.

The number of patients do 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 it’s 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 leads. 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 toward 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 fragments 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 precancerous lesions, 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 powered by Exact Nexus, our unique technology platform by 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 eight 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.

Questions & Answers:

Operator

Great. [Operator instructions] We will only have time for one question per person. Your first question comes from Catherine Schulte with Baird. Please go ahead.

Catherine Schulte — Robert W. Baird and Company — Analyst

Hey, guys, thanks for the questions, and 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 excite 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. Thank you.

Kevin Conroy — Chairman and Chief Executive Officer

Sure. Why don’t I take the first part and hand it over to Jeff afterwards? Here’s why we’re excited about this year. The size of the opportunity remains enormous. Sixteen million people in the U.S.

are not up to date with colon cancer screening. And our customer relationships have broadened and deepened immeasurably over the last year. There are over 330 health systems today that rely on electronic ordering and advanced tools that we provide — really, our consulting services that we provide around IT patients. There are over 2 million people today who are due for rescreen.

There will be 400,000 new patients due in Q2 alone. Payers, their gap closure programs will get into them, but that is a new and significant growth area. The biggest impact will be in Q4. And then Q3, we’ll start to see that impact.

The power of the commercial team, Everett will get into talking about that the Exact Nexus platform, our customer service, customer experience, and IT has been a differentiator for us with health systems and payers and clearly making an impact with patients. And then the power of our brand, it hit an all-time high in Q1 in terms of brand awareness, the positive reaction to the creative digital and in-line television commercials, and social media engagement we’ve had. So, all of these things are drivers. Yes, we had a tough comp relative to Q1.

We also — we turned down our sales and marketing investments, as you know, over the last year and really over the last couple of years, while we saw about approaching $1 billion of growth. And the truth is we probably turned that down a little bit too much. We recognized that at the back end of last year. And starting in Q1, we increased our marketing investments.

As of now, we have a complement of new primary care sales reps, who are hitting the ground now. We’ve already seen the impact from the marketing investment in terms of accelerating growth. So, that typically takes three to six months. And we’re seeing that, plus we are adding a significant contingent of new reps around the country, and we expect to see additional growth from those reps.

Our overall spend will still be less in sales and marketing in ’24 than it was in ’22. We know this added firepower will have a positive impact. And one thing that we always look at is the promotional response to Colo. The number of test orders that result from calling on deciles of physicians.

And it’s clear the more time, the more frequently our reps call on an office in a position or a nurse or physician assistant, you see a straight-line increase with no flattening from zero to six calls per quarter. That gives us confidence that by adding reps, we will see it. If not, you will see an increase in the total number of test orders. So, I’ll pause there.

We’ll be able to get into a lot of these areas when Everett is here. And Jeff, why don’t you take the profitability?

Jeff Elliott — Chief Financial Officer

Yeah. And just to add to these remarks on the comparison, as I said in my remarks, we did have a really hard compare. If you look at the two-year stacked comp, Q1 was up 24%. When you think back to last year, part of why the whole first half was so strong is because late in ’22, we made some pretty significant upgrades to both our billing systems and our patient compliance systems.

That led to a bolus of high-margin revenue, really consider this really out-of-period revenue that helped out the first half of last year. Obviously, that’s not going to keep repeating. So, we do face a really difficult compare in the first half. Catherine, you walked through some of the comparisons.

In the second half, conversions do get much easier, and we do expect 20% growth plus in the second half. The reason I bring that up is also, from a profitability standpoint, that comparison help revenue and profits because when that revenue came in, it came in at a very high margin. So, when you look at Q1, we expect Q1 — in a normal year, Q1 profitability will be the lowest of the year. We expect the latest revenue growth and the highest opex as a percent of revenue throughout the year.

I expect faster growth and lower opex as a percent of revenue. Again, the comparison is a bit easier. When you look at gross margin in Q1, they were a bit lighter in part because of the automation we brought on. We had a huge step forward in automation.

The team did a nice job bringing that online. That will help margins improve over time. In the short term, that added some fixed cost that weighed our margins a bit. We also have this care gap initiative that we’ve talked about bring the source of revenue.

It is adding significant EBITDA dollars, but it does come at a slightly lower gross margin that we’ll work our way through, but that did weigh in Q1 a bit as well.

Catherine Schulte — Robert W. Baird and Company — Analyst

Great. Thank you.

Operator

All right. Our next question comes from Vijay Kumar with Evercore ISI. Please go ahead.

Vijay Kumar — Evercore ISI — Analyst

Hi, guys. Thanks for taking my question. And Jeff, wishing you all the best. My one question here, Kevin, perhaps on what is the — this comp that — you didn’t mention that there are different ways of looking at it.

Is the right way to look at this is on a CAGR basis versus pre-pandemic level? It seems like it’s pretty consistent when we do the CAGR math. And related to that, there’s been some noise on the competitive landscape. I think one of the stool-based companies got an approval, an FDA approval. I’m curious on your thoughts on the competitive landscape.

Thank you.

Kevin Conroy — Chairman and Chief Executive Officer

Sure. Let me go back to Cologuard and Cologuard Plus. Both tests offer performance that is unequal to — that is superior to the FIT test. And the performance of the studies that we ran were large studies with a significant number of cancers, cancer patients across a broad age range.

And Cologuard Plus advanced the standard of care over Cologuard. Our specialized teams make sure that healthcare providers are aware of the broad studies that support Cologuard. And we have the ability to deliver that in a very clear way, plus the strength of our platforms and all of that. But now, you’ve got to go to — remember, anybody who brings a new screening test to market, one of the key things that they need to do to have that test be relevant is to get into the quality.

The path to getting into the quality measures is a very long one. We think a new test — and this excludes Cologuard Plus because Cologuard Plus, like Cologuard, is already in the quality measures. We’ve already — all that work has been done. New tests coming online need multiple studies — needs broad studies.

You need to study the Medicare population in a broad way and may get all the way through USPSTF, which is the trigger for the quality measures. Well, USPSTF, our best guess is 2027 is the next update, and then it would be ’28 or ’29 for the quality measures. As you know, we have a patent infringement and false advertising suit against an aspiring new entrant into the market. We won’t be talking about that case.

We will, of course, defend our intellectual property aggressively. And Jeff, why don’t you take the CAGR question?

Jeff Elliott — Chief Financial Officer

Sure. Vijay, on the two-year stack, I do think it’s informative to look at the two-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 it, if you look at some of the major growth drivers, like we’ve talked a lot about rescreens in 45.

If you look at that two-year stack in the first quarter, both of rescreens in that 45 to 49 younger age group both grew over 40% on a two-year stack, and that 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. So, in addition to what Kevin talked about, the investments that we’re making will help accelerate growth after last year, leaving some growth on the table through underspending.

Operator

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

Doug Schenkel — Wolfe Research — Analyst

Hi. Good afternoon. 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.

And I think we recognize that the comparison was tough here. 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. And I think it’s fair to say that folks expected the Cologuard number to be a little bit better. 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? Is there still going to be a six- to nine-month lag? Or is there something different here that can give you a quicker return on investment? All of this is meant to just get to the question of — based on what you’re seeing in terms of trends, based on what we saw in the quarter. More importantly, as we look longer term and think about the opportunity, the progress you’re making with awareness, all of those good things, how do we get comfortable that Cologuard, for not just this year but for the foreseeable future, is a double-digit growth franchise? Thank you.

Kevin Conroy — Chairman and Chief Executive Officer

Yeah. Well, let me start by saying despite the items you raised, I’ve never been more excited or confident about Cologuard. And one thing that we learned from turning down the sales and marketing spend is that for six months, you’ll see continued progress. I mean — and we saw that last year.

You can’t go forever, though, with a brand as large and as impactful as Cologuard, with the size of the investment that we were making. And the good news is we have the data and analytics to back that up. We made the investments in the first quarter. And as we sit here today, with the addition of all of the salespeople in the first quarter, most of them are coming online right now.

We’ve already seen a return to the growth that we expected. So, we have confidence that we’re going to be able to deliver on this full year. And the other thing is this, and we’ll get into this in more depth. Health systems — there are dozens and dozens and dozens of health systems who have come to us to say, “Please help us improve our colon cancer screening rates.” With gap closure programs, with helping them optimize their EHR platforms, EPIC, etc., to use population health tools to get more people screened.

That is at a rate we have never seen. And then these payer programs are significant programs. Last year was the first year we really saw that demand being generated, and just kudos to the team who’s worked so hard to deliver there. And we already have strong insight into what is happening with those programs.

So, when we say we expect those programs to have an impact in Q3 and Q4, we have line of sight into that. That’s not guesswork. So, Jeff, do you want to add color?

Jeff Elliott — Chief Financial Officer

Sure. Doug, you asked initially on the reorder rate. I know you like to do the math on this. The pool of doctors or ordering providers has grown so large, over 350,000 now.

Looking at that entire base for reordering math, I think, is misleading. We internally often look at the different cohorts of doctors based on when they first ordered. Go back and look at the cohort that first ordered in 14, 15, you name it, by year. What I’ll say is that every cohort of providers based on when they first ordered continues to climb.

We have seen no slowing down. Kevin talked about that promotion response curve. It is up and to the right. The more time we spend educating a doctor, the more they order.

And overall market share is still — at this point, we’re about 12% now. That’s going to continue climbing for years. You get a little misleading when that — that pool of 350,000 providers, some of those have since retired. So, that puts a little downward pressure on the math you’re doing.

The underlying trends there are very strong. Your second point on transitory impact, yes, this year was a more normal flu year, a little bit more kind of flu into January, February. Last year, flu was almost nonexistent. It was really early.

So, this year, it was more of a typical trend. When you look Q4 to Q1, Cologuard was down low single digits. That’s more of a typical quarter-to-quarter progression than we got last year. Again, last year, ’22, Q4 to Q1 of ’23, we were up.

That was unusual. You asked on — I think Kevin covered the question on rep impact. On rescreens, the pool of patients becoming eligible grows by a third this year. It goes from 1.2 million last year to 1.6 million this year.

So, it’s a significant growth driver for us. It’s maybe the biggest growth driver this year. And our success rate at getting patients to come back to Cologuard does continue to grow. When you look down on a quarter-by-quarter basis, the pool of patients becoming eligible in Q2 is significantly larger than Q1.

This is just the way it works when you look back at the pool from three years ago. So, rescreens will be a huge driver. It’s going to be a bigger driver in Q2 and beyond than it was in Q1.

Everett Cunningham — Chief Commercial Officer

If I could just add a little bit more color, Doug, this is Everett, to the rep impact and time line. Couple of things to that. First of all, we were very intentional to hire experienced reps that have deep relationships already existing in primary care. So, while they’re new to exact sciences, they are not new to primary care and selling in the space.

And then the second thing is, we were again intentional to ensure that they know the geography. They have deep relationships already. These new reps do. So, Kevin said they’re in training now.

They’ll be in the field next week. And I’m confident that they’ll hit the ground running. And because of our intentional nature, I think they’re going to have a quicker impact than six months. I think it’ll be more three to four months.

Operator

Great. Your next question comes from Patrick Donnelly with Citi. Please go ahead.

Patrick Donnelly — Citi — Analyst

Hey, guys. Thanks for taking the questions. Obviously, a lot on the kind of reps, rep add side, if I could just continue to add on that. Kevin, I guess how do you think about potential revenue upside flowing through? I mean, obviously, last year, when you guys were able to raise the revenue targets, EBITDA seemed to go up by more every single time.

Do you feel like now that you’ve added these reps and the cost base is set here, if you do see revenue upside, is the flow-through there going to be pretty attractive, or does additional costs come back? You’ve obviously mentioned a few times investing in these high-impact sales marketing opportunities. So, do you see more costs coming if there is revenue upside, or are we in a pretty good spot here? And then I don’t know if I missed it, but just the magnitude of the rep adds in terms of head count would be helpful if you could break that up. Thank you, guys.

Kevin Conroy — Chairman and Chief Executive Officer

Yeah. We are staying away from indicating the number of reps we are adding, but the math around this is pretty clear. You get a ton of leverage by adding these reps. So, if there is an — you have a fixed amount of costs that you’re adding, for example.

We’re not adding new area managers here. Our current area managers roughly end up with about one new rep per territory that they oversee. And the leverage is incredible. I mean, what we have seen is the productivity in terms of the number of Cologuard orders per call that our sales force makes continues to increase year over year, and for that matter, quarter over quarter.

So, the productivity here is going to be significant and we want to make sure that investors know we are doing this as we all — we took a pause for the first time in 10 years in terms of the total number of reps promoting Cologuard. And what we’re saying is, yes, we probably shouldn’t have taken that pause. We probably should have to keep adding because of the size of the opportunity. And so, the leverage that we will continue to get over time by thoughtfully adding reps, we expect more reps, more revenue.

Everett?

Everett Cunningham — Chief Commercial Officer

Yeah. And in addition to that, it was said earlier that there’s 50,000 new providers since the beginning of 2023. And we know based on what Kevin said, the more frequency that we have with not only our existing footprint but the 50,000 new providers, man, it’s going to be so much leverage that our reps can generate with getting access into those offices. So, we’re excited.

Our goal is, in commercial, simple. It’s to drive our existing footprint and to continue to create new providers, writing Cologuard first line.

Jeff Elliott — Chief Financial Officer

So, just to add a little more color, this is Jeff, we expect P&L leverage through every line in the P&L this year. It won’t be the same kind of leverage we had last year. They’d be on like 16 points of improvement. We are tracking ahead of where we expect to be for our long-term 2027 guidance there.

So, we feel very good about hitting those numbers. When you add new reps, though, again, leverage flows through very nicely. Think of gross margin, 80%-plus, and very strong throughout the P&L. So, we feel good about the pace of leverage improvement from here.

Patrick, you did mention the upside. I think you were tying that to the rep investment. I would just say that when we contemplated guidance to start the year, we did assume these investments being made. So, I wouldn’t assume any growth we get from the reps and market we’re adding.

That’s not above and beyond the guidance. That’s already big to the guidance.

Operator

All right. Your next question comes from Dan Arias with Stifel. Please go ahead.

Dan Arias — Stifel Financial Corp. — Analyst

Good afternoon, guys. Thanks for the questions. Kevin, just looking at the presentations that you guys have teed up for DUW, 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 just how you’re doing converting FIT users? Is that success improving over time?

Kevin Conroy — Chairman and Chief Executive Officer

Yeah. So, what we’re seeing is it varies around the country, but let’s say around three- to six-month backlog. And we have seen that tick up over the last three months, actually. It’s not a surprise.

We have a fixed colonoscopy capacity in the U.S. of about 5 million to 6 million screening colonoscopies a year and maybe about 6-plus million diagnostic colonoscopies. It’s not changing because, on average, you get about net a couple hundred new GIs every year in the U.S. And Cologuard is taking a share from FIT.

So, what you’re seeing is Cologuard is mainly getting people who’ve never been screened. They’re getting people who’ve been screened with Cologuard in the past, and they’re converting FIT. And colonoscopy utilization is staying the same. It’s just not going to increase.

And so, these colonoscopy backlogs aren’t going to screen. My wife is overdue for colon cancer screening. She has a family risk. She’s high risk because of family history.

And her backlog is nine to 12 months. Her wait time is nine to 12 months to get screened. She said high risk. So, we are seeing that all over the country.

There are some parts of the country, New York, where you can get in pretty quickly, but that’s not true in most parts of the country. Everett, do you want to provide any color?

Everett Cunningham — Chief Commercial Officer

Thanks, Kevin. I mean, through my travels, I’ve been in the field, and I’ve seen this colonoscopy backlog situation, and it is real. It’s not going away. I have one example.

We have hundreds of these examples, but one example is of a health system in Florida of where they had 800 patients of average risk with an eight-month backlog. And we met with their C-suite. They, along with us, implemented an alert that went to all their physicians, and it alerted their physicians, a patient that came in, they were due for screening, and that alert stated that for that patient, that they would get Cologuard first line. And that’s a good example of our partnership, making it easy, making it easy to be electronically ordered and have a partnership with that health system to get their patients screened and not have a six-month, eight-month, 12-month backlog.

And you’re seeing these all over the country.

Operator

All right. Your next question comes from Jack Meehan with Nephron Research. Please go ahead.

Jack Meehan — Nephron Research — Analyst

Thank you. Good afternoon. Kevin, I think you mentioned the colon blood data from Blue Sea coming later this year. I was wondering if there was 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.

Kevin Conroy — Chairman and Chief Executive Officer

Sure. We had planned to generate that data in the summer. That is now more likely to be in the fall given the readouts that we have recently seen. We have the luxury of time, and we’ve decided to take a little bit more time and run about 3,000 more samples, other samples with the test, and make sure that we collect more data on the specificity and the cutoff to make sure the test is as robust as possible.

So, we plan to test it with several thousand full spectrally collected samples in that extra time that we have. And we think that’s the right thing to do. But let’s position where we think our blood test is going to be. We think that our blood test is probably going to perform similar to, maybe better than, the other readouts that you have seen in the field.

We’ve done seven case control studies, and you see the greatest amount of variability around pre-cancer detection, not around specificity or cancer detection. So, that, to me, is the question mark. But at the end of the day, we’re kind of assuming performance like we have seen. And then the thing to remember is that our test is a PCR test, or it’s our proprietary version of PCR, which is a very low-cost per test approach.

And so, when we have all the data about the people who have refused a frontline screening test, we have the ability to work with the providers, the health systems, the payers, to get those people screened with our CRC blood test, and then to try to encourage them to switch to Cologuard in the year after that. So, we think this is a meaningful opportunity for us, and we’re clearly the best situated to deliver on that. Especially when you look at Medicare today, Medicare Part B is only about — it’s under 20% of our overall opportunity, and Medicare Advantage is probably 22%. It’s more than half of all the Medicare patients.

With the lower-cost tests, we have the ability to go and contract with those Medicare Advantage plans with a clear plan to switch those patients to a test that gets a quality measure credit of three years, which is what they care about. So, we’re excited about this opportunity, and we think it can lead to getting more people screened and also drive growth at Exact.

Operator

The next question comes from Andrew Brackmann with William Blair. Please go ahead.

Andrew Brackmann — William Blair and Company — Analyst

Hi, guys. Good afternoon. Thanks for taking the question. 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 talk about your line of sight to additional partnerships with these groups and just the nature of discussions now versus maybe a couple of years ago? Thanks.

Kevin Conroy — Chairman and Chief Executive Officer

Yeah. Thanks, Andrew. In addition to backlog of colonoscopy, health systems, they want to make sure that they can partner with companies that go beyond product, that they have other things that can help them with workflow, can help them with staff turnover, and that’s where we fit really, really nicely. The workflow piece of it, we’re electronically interfaced with our products, which is great.

In terms of adding additional things to them, we have an amazing customer service organization that not just — we’re not just providing product, but we’re helping them get their patients screened. And that back-end support is tremendous. The other thing I’ll mention about health systems are the data and analytics that we provide. So, a lot of health systems are actually — they’re blinded to a lot of data that they need to get at.

So, we actually go in with accurate lists that need to be screened first time or rescreened, or we have a 45 to 49 population that they need to actually detect. When we provide that data and analytics to them, again, we’re helping them broader than just the product, and that’s where we’re seeing these partnerships increase quarter over quarter.

Operator

OK. Your next question comes from Puneet Souda with Leerink Partners. Please go ahead.

Puneet Souda — Leerink Partners — Analyst

Hey, guys. Thanks for taking my questions. And Kevin, a bigger question for you. It appears that the relationship of Cologuard test to Cologuard reps and the leverages is similar to what you had a few years ago.

Simply put, more reps means more Cologuard orders. This is the first time you had slowed down investments in a decade on the reps. So, the question is, if the lesson here is that you will need to continue to scale the sales force as you penetrate the market further for Cologuard in the next few years. Is it safe to say that scaling has to continue and the investments into the business have to continue? Or is there an improved leverage that you will continue to get as we get into our penetration numbers for Cologuard?

Kevin Conroy — Chairman and Chief Executive Officer

I think the answer to that is we will increase investments, and we will get more leverage. As we become a $2 billion, $2.5 billion, $3 billion, $4 billion category, we will continue to make additional investments. And it’s the right thing to do. It’s the right thing to do for patients.

It’s the right thing to do for our customers. They actually want us to come in and help educate their physicians, their nurses, their physician assistants. So, we will have the ability to do this. We’re talking about a pretty modest investment in terms of sales force growth relative to the impact.

It takes three to six months to get a return on the investment that you have made because the number of Cologuard orders per office visit is high. We haven’t I think laid out what that number is, but it’s 50% higher now than it was two years ago. So, it continues to grow, and it just makes sense. You would be disappointed and our investors would be disappointed in us if we didn’t make continued investments in our sales force.

Everett Cunningham — Chief Commercial Officer

And I’ll just — this is Everett. I’ll just add one other thing to that. As we unlock new opportunities in the field and I think about our relationships with health systems, our relationship with payers in terms of care gap opportunities, we’re doubling down in terms of our federally qualified health centers and challenged geographies and ZIP codes. I talked about the new providers that we generated in the last year.

As we unlock these new segments of growth, we’re going to need sales reps, account executives, multicultural approaches to driving this business. And so, it’s not just adding reps for the sake of adding reps but adding reps to get at these new opportunities of growth.

Puneet Souda — Leerink Partners — Analyst

Helpful, guys. Thank you.

Operator

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

Matt Sykes — Goldman Sachs — Analyst

Hi. Good afternoon. Thanks for taking my questions. Apologies upfront.

I’m going to ask another marketing leverage question, but mine’s focused on the shift and mix toward larger health systems and whether that creates more leverage, either from a centralized call point or the fact that some of the health systems, once adopted, kind of do some of the marketing for you within the system. I’m just wondering if that will allow you that operating leverage you’re talking about in terms of increasing marketing spend leading to ever-increasing revenue. Just how do the health systems play into that dynamic?

Kevin Conroy — Chairman and Chief Executive Officer

There is no doubt that you’re seeing that leverage. Just going back over the last couple of years, and Jeff can provide the details in terms of the dollar of Cologuard growth, I believe around $800 million over the last couple of years with the sales force that is smaller than it was two years ago and a marketing spend that was smaller than it was. The leverage is obvious. The question is, how much do you keep that up? And we’re eating it up less than the 2022 spend.

So, the leverage we’re getting out of health systems, the leverage we’re getting out of payers, the payer leverage is incredible because that is a very small team that is executing on those relationships. And then, our IT team and a small group of people around customer experience, and really delivering that impact. So, this is — the payer segment is a huge opportunity as we look out over the next five to 10 years.

Jeff Elliott — Chief Financial Officer

And the leverage gets even better over time. Today, here, we are talking mainly about Cologuard. But as we add new products, as we launch new products with this sales team through these electronic origin channels to the same customer care team the leverage gets even better. So, we’re still building some of the foundation here and getting leverage.

And over time, I think things get a lot more attractive.

Matt Sykes — Goldman Sachs — Analyst

Thank you very much.

Operator

Your next question comes from Dan Brennan with TD Cowen. Please go ahead.

Dan Brennan — TD Cowen — Analyst

Great. Thanks for the question. Jeff, good luck. Great working with you.

Kevin, I thought I heard you mention earlier to Doug’s question, maybe something about the quarter off to a good start. Maybe there was some comment. I just wanted to clarify that. You’ve talked about these payer programs in the back half of the year.

It sounds like it could be notable. Could you just help frame how we think about those, like size and anything of that? And then, Jeff, you talked about these out-of-period captures that you had last year. Would you be — could you kind of share with us out of the 1.8 million Cologuard test in the first half last year? I know those grew 34% year over year, like any sense, or can you help us think through just what percent of those kind of we’re at a period? So, we can kind of normalize things, and get a better sense of underlying growth rate? And then any color on 45 to 49, I haven’t heard it come up like in terms of kind of contribution or anything in the quarter. We had 105 million and I’m wondering if we were in the right ZIP code.

Thank you.

Kevin Conroy — Chairman and Chief Executive Officer

We’ll try to keep track of all those questions. I think the first one, what I said was just based on the marketing investment alone, the increased marketing investment in Q1. We have seen accelerated growth in Q2. So, we have confidence with the guide that we’ve given for Q2.

And then when you have the sales force adds and we have even more confidence. So, in terms of payer programs in the back half, I don’t think we’re prepared to size that right now. Last year, it was in the tens of millions of dollars total. And we think it will be significantly more than that in the back half of this year.

So, we’ll probably provide more clarity as time goes on, but that’s about as much clarity as Jeff will allow in his last earnings call.

Jeff Elliott — Chief Financial Officer

Dan, thanks. A couple more here. You asked on 45 to 49. Still very strong growth here.

When you look at the size of opportunities, about 20 million people, about 4 million people turn 45 every year and essentially all of them are on screens. So, Cologuard fits in really well. It’s a huge opportunity. And it’s approaching 20% of revenue of screening revenue today, so very strong growth.

It did — volumes grew double digits in Q1, even with that tough comp. We expect strong growth to continue. Kevin talked a bit about upping some of the investment target of the rescreen population. There’s still a long ways for this to run.

You asked on the sequential kind of last year, what was the impact? We have given some clues here. We haven’t sized it, but I’ll kind of reiterate that in a normal year, you would expect Q4 to step down and then the Q1. Last year, we saw the opposite. We saw Q1 up.

I think it was up almost close to 10%. A few things happened. One was the abnormal flu season last year, very light, very early. This year, more of a normal flu season.

The other were the IT upgrades, upgraded the billing systems, and the patient compliance system. So, that whole delta is not out-of-period revenue. Some of that is due to flu.

Operator

OK. Your next question comes from David Westenberg with Piper Sandler. Please go ahead.

David Westenberg — Piper Sandler — Analyst

Hi. Thank you for taking the question. And congrats, Jeff, and have a good next chapter of your life. So, I just wanted to — investors were a little bit concerned, I think, with some of the implications for the back half of the year ramp.

I actually think you did lay out the comps in the front half of the year, were pretty challenging. And I know we’re kind of belaboring the question, this kind of Doug’s question and Dan’s as well. But can you give us any sense of trends in terms of hospital utilization in March? And how much maybe that flows through, give us a reminder of how long it takes to kind of flow through the P&L? And see some of that impact maybe in April and May. And I know you’re not in the habit of giving kind of a month-by-month play, but I just really think that maybe a little bit of color on why that’s — again, that second half of the year step up is not that ridiculous? And then, just as a clarification, I mean, I think of our models and prior to this earnings — sorry, prior to this print versus right now, I mean, we really aren’t going to change very much, right? You’re not really asking us to change almost anything on the initial guidance, right? So, anyway, that’s just it.

Jeff Elliott — Chief Financial Officer

Yeah. This is Jeff. I’ll start. Agreed.

Yeah. we maintained guidance. Look, we’re only 90 days in, a long year. We feel very good about our ability to achieve this year and the longer-term goals.

I think we did articulate the comps very challenging in the front half. They get easier as the year goes on. We talked about the investment already starting to see the impact in April of the marketing investments. The sales rep investments, very confident there that will play off kind of mid-year and beyond.

Again, we’ve done this before. We know the reps carry a very strong return, and we’re looking forward to seeing that. And then the care gap program, Kevin gave some clues on size, that inherently is more second-half weighted, seeing very good early demand, and confident in the growth in the second half there. You asked on the flow-through of kind of macro factors into our P&L.

The typical timing from, let’s say, from kind of order, which physicians typically would order Cologuard or Oncotype during a face-to-face visit. Cologuard is a wellness visit. So, I think of 30 to 40 days or so still from a wellness visit to the median time we get to revenue. There can be a longer tail.

It can be up to, say, 12 months, and most of that happens fairly early. When you think — you asked on kind of overall hospital utilization, that’s not something we typically monitor broadly. We look more at things like wellness visits and screening trends. Wellness visit has been softer.

This is a multiyear trend we’ve seen. They have been softer while there is still 60 million people out there who need to be screened today, and we expect very strong growth to continue. Wellness visits have been down year on year recently. I think it’s even close to 10% in recent quarters.

That’s something that we can fight through given the opportunity that presents here.

David Westenberg — Piper Sandler — Analyst

Thank you.

Operator

We might be able to take one more question. Mark Massaro with BTIG. please go ahead.

Mark Massaro — BTIG — Analyst

Hi, guys. Thank you. And 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. I think many of us were thinking 2026, although we also recognize there’s been a little bit of a delay with their bulletin. Can you just expand on why you think it will go into ’27? And then maybe for you, Jeff, or Kevin, Certainly, I think one of the surprises on the call was your increased expansion of salespeople.

Kevin, you indicated that overall spending will still be down in ’24 relative to ’23. Is that just on the sales and marketing line, or is that total opex? And in order to keep your revenue guidance intact, help us think about what some of the puts and takes might be. In other words, should we expect a little bit of less investment in R&D?

Kevin Conroy — Chairman and Chief Executive Officer

So, what I said was that sales and marketing expense in ’24 would still be less than it was in ’22. So, it will obviously be up from ’23 and somewhere in that range. And obviously, we have a lot of room in our overall budget to be able to achieve all of our goals, both top line and bottom line with the resources we have. And again, I’d like to emphasize that this is a modest increase in terms of our overall sales spend, and marketing spend.

But we would — just for clarity’s sake, we wanted to deliver that. And also, I will reiterate our confidence in the guide. So, we know our business, we know it really well. I’ll repeat what I said earlier with I’ve never been more confident about the near and long-term trajectory of Exact.

And we’re excited about Cologuard and also the new product launches that we have that are coming as well. In terms of the USPSTF timing, typically, what you would have seen already is in the first quarter document that emanates from USPSTF laying out what the study plan is and what the whole schedule is. And we just heard that that may be pushed out a year. If it’s not a surprise, USPSTF is a really busy group with a fixed amount of resources.

And if you remember, Cologuard when it first got included in the guidelines in 2014, the prior update was eight years before that. So, although the stated schedule is five years, it was eight years, and then five years that is being included yes. Yes. So, it’s not unusual for there to be a little bit of a delay, and it’s critical.

Yes, aspiring entrants can come to market, but we know how hard it was to deliver on Cologuard in those early years when we weren’t in the quality measures. It was tough to get customers to order Cologuard as a replacement for the FIT test, which was in the quality measures. So, we’re in a strong position. And here’s another thing that people don’t fully appreciate.

We’re already working on Cologuard 3.0. And so, in terms of improved performance even from Cologuard Plus, we’re never going to stop investing in being the unquestioned leader in colon cancer screening. We’ve worked really hard to deliver on the impact that we’ve had in this disease. We’re proud of it.

And our R&D team is second to none. And our commercial organization, we’ve been talking about the new heads — the impact Everett’s organization has had, it has been remarkable, and the leverage that they’ve been able to deliver. They’re really proud of what they’ve done, and you’re just going to see continued positive results.

Mark Massaro — BTIG — Analyst

Great. Thank you.

Operator

We have a couple more questions here. I’m going to go to Eve Burstein with Bernstein Research. Please go ahead. Eve, go ahead with your question.

Eve Burstein — AllianceBernstein — Analyst

Hi there. Thank you so much. I appreciate the time. I’ll actually ask a question not about Cologuard but about Oncotype DX Breast and how the FDA LDT rule affects it.

This one is an interesting case because you’re the clear market leader here, but some of your competitors in the space do have FDA approval. So, a couple of parts here. One, 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? Two, if you did choose to pursue FDA approval, have you already generated the data that you need to do so in the rich body of literature you already have? Or would you need to do more work? And then three, if you didn’t choose to pursue FDA approval, could you be at a new competitive disadvantage versus the FDA-approved tests that are out there?

Kevin Conroy — Chairman and Chief Executive Officer

You are correct. There is a grandfathering provision in the new guidance document. So, Oncotype DX is in a great position in the U.S. and outside the U.S.

based on our current regulatory position. That won’t change. And we’re also, in New York State, approved. So, there are two different ways that we are OK with the current approach.

We also have the ability to submit for FDA approval should anything change in the future, which we don’t expect to do. But we have more data with Oncotype DX than virtually any diagnostic ever developed. I think altogether, four or five New England Journal of Medicine publications, randomized studies, and well over 1 million, probably well over 1.5 million total patient results. So, it may be one of the most studied diagnostics, cancer diagnostics of all time.

We’re in great shape. And we’re in great shape from a competitive perspective. And that’s important because Oncotype DX is the only test that has that Level 1, that Tier 1 evidence because of the multiple randomized controlled studies. And other tests just have not been able to prove what we’ve been able to prove both in terms of the ability to predict chemotherapy benefit, and also determine the likelihood of recurrence.

Those are two benefits that nobody else has been able to show, with the level of evidence that we’ve been able to show. So, we’re confident in continued growth.

Operator

All right. Thank you, ladies and gentlemen. That concludes today’s call. [Operator signoff]

Duration: 0 minutes

Call participants:

Erik Holznecht — Manager, Investor Relations

Kevin Conroy — Chairman and Chief Executive Officer

Jeff Elliott — Chief Financial Officer

Aaron Bloomer — Vice President, Finance

Catherine Schulte — Robert W. Baird and Company — Analyst

Vijay Kumar — Evercore ISI — Analyst

Doug Schenkel — Wolfe Research — Analyst

Everett Cunningham — Chief Commercial Officer

Patrick Donnelly — Citi — Analyst

Dan Arias — Stifel Financial Corp. — Analyst

Jack Meehan — Nephron Research — Analyst

Andrew Brackmann — William Blair and Company — Analyst

Puneet Souda — Leerink Partners — Analyst

Matt Sykes — Goldman Sachs — Analyst

Dan Brennan — TD Cowen — Analyst

David Westenberg — Piper Sandler — Analyst

Mark Massaro — BTIG — Analyst

Eve Burstein — AllianceBernstein — Analyst

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