overview
EXAS reported 3Q16 revenue of $28.1m and EPS of ($0.36), which was above both consensus and our estimates. Higher average selling price (ASP) of $412 or +10.2% YoY was the biggest positive surprise, which drove 436 bps in Gross Margin expansion QoQ. This more than offset issues we believe are driving the stock down 14% today; sequentially slowing tests/doc growth, sequentially lower compliance of 67%, cautious commentary on seasonality in Q416, guidance that failed to incorporate the Q316 upside.
Key Takeaways
- Cologuard’s average selling price (ASP) increased to $412 compared to management’s guidance of the low $390s. This was a positive surprise and represented a 10.2% increase YoY% and a 5.4% increase sequentially. In part we believe this was driven by a higher mix of commercially insured patients as a result of new insurance coverage and the advertising campaign.
- Cost per test was $178, down -21.6% from its peak this year in Q1 and down -4.3% sequentially.
- Gross margin also improved from 52.3% in Q216 to 56.7% in Q316 as a result of higher average selling price and lower cost per test.
- EXAS added 9,000 physicians this quarter bringing their cumulative physicians ordering to 50,000, an 85.2% YoY% increase. Commentary suggested the company is continuing to see strong sequential growth in physician adds of ~700 per week.
- Management narrowed their full-year guidance range to $93-95 million, versus the previous $90-100 million range. This implies sales of $28.9m-$30.9m for 4Q16, compared to $29.8m consenus. In our view, this was the most negative issue and may explain today's decline. However, given our model and continued physician outreach we still expect upside to both guidance and consensus in Q416, which we currently have modelled at $31.2m.
- 68,000 tests were completed in the quarter, below our estimate of 69,000, but above their guidance of 65,000 and consensus of 66,000. Slower than projected ratio of Cologuard tests per physician of 1.36 compared to our projected 1.43, was the primary difference in our model. While this ratio did increase 3% sequentially, it is down -16% YoY%. Per our conversations with physicians and a former EXAS field representative we think this may have to do with a portion of the 50,000 “physicians ordering” not ordering anymore due to their frustrations with EXAS. (Click Here for Field Notes)
Please call or email with questions.
Thomas Tobin
Managing Director
@HedgeyeHC
