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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-35092

EXACT SCIENCES CORPORATION

(Exact name of registrant as specified in its charter)

Delaware			02-0478229
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)
5505 Endeavor Lane, Madison WI			53719
(Address of principal executive offices)			(Zip Code)

(608) 535-8815 (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

EXAS

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer			☒			Accelerated filer			☐
Non-accelerated filer			☐			Smaller reporting company			☐
Emerging growth company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 25, 2022, the registrant had 175,945,110 shares of common stock outstanding.

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EXACT SCIENCES CORPORATION

INDEX

						Page Number
			Part I - Financial Information
Item 1.			Financial Statements
			Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2022 and December 31, 2021			3
			Condensed Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2022 and 2021			4
			Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the Three Months Ended March 31, 2022 and 2021			5
			Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Three Months Ended March 31, 2022 and 2021			6
			Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2022 and 2021			7
			Notes to Condensed Consolidated Financial Statements (unaudited)			9
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			43
Item 4.			Controls and Procedures			43
			Part II - Other Information
Item 1.			Legal Proceedings			44
Item 1A.			Risk Factors			44
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 3.			Defaults Upon Senior Securities			44
Item 4.			Mine Safety Disclosures			44
Item 5			Other Information			44
Item 6.			Exhibits			45
			Signatures			46

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EXACT SCIENCES CORPORATION

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share data - unaudited)

Part I — Financial Information

			March 31, 2022						December 31, 2021
ASSETS
Current Assets:
Cash and cash equivalents			$	189,776					$	315,471
Marketable securities			627,204						715,005
Accounts receivable, net			205,625						216,645
Inventory			112,958						104,994
Prepaid expenses and other current assets			79,575						74,122
Total current assets			1,215,138						1,426,237
Long-term Assets:
Property, plant and equipment, net			622,613						580,248
Operating lease right-of-use assets			170,373						174,225
Goodwill			2,335,172						2,335,172
Intangible assets, net			2,069,757						2,094,411
Other long-term assets, net			77,484						74,591
Total assets			$	6,490,537					$	6,684,884
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable			$	66,471					$	67,829
Accrued liabilities			365,916						398,556
Operating lease liabilities, current portion			19,711						19,710
Other current liabilities			28,854						30,973
Total current liabilities			480,952						517,068
Long-term Liabilities:
Convertible notes, net			2,181,680						2,180,232
Other long-term liabilities			389,062						417,782
Operating lease liabilities, less current portion			180,632						182,166
Total liabilities			3,232,326						3,297,248
Commitments and contingencies (Note 14)
Stockholders’ Equity:
Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—no shares at March 31, 2022 and December 31, 2021			—						—
Common stock, $0.01 par value Authorized—400,000,000 shares issued and outstanding—175,551,408 and 173,674,067 shares at March 31, 2022 and December 31, 2021			1,757						1,738
Additional paid-in capital			6,085,558						6,028,861
Accumulated other comprehensive loss			(6,647)						(1,443)
Accumulated deficit			(2,822,457)						(2,641,520)
Total stockholders’ equity			3,258,211						3,387,636
Total liabilities and stockholders’ equity			$	6,490,537					$	6,684,884

The accompanying notes are an integral part of these condensed consolidated financial statements.

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EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Operations

(Amounts in thousands, except per share data - unaudited)

			Three Months Ended March 31,
			2022						2021
Revenue			$	486,571					$	402,077
Operating expenses
Cost of sales (exclusive of amortization of acquired intangible assets)			134,705						109,993
Research and development			102,248						115,567
Sales and marketing			232,181						186,141
General and administrative			169,770						267,727
Amortization of acquired intangible assets			24,654						23,190
Total operating expenses			663,558						702,618
Loss from operations			(176,987)						(300,541)
Other income (expense)
Investment income (expense), net			(1,487)						31,188
Interest expense			(4,478)						(4,616)
Total other income (expense)			(5,965)						26,572
Net loss before tax			(182,952)						(273,969)
Income tax benefit			2,015						242,805
Net loss			$	(180,937)					$	(31,164)
Net loss per share—basic and diluted			$	(1.04)					$	(0.18)
Weighted average common shares outstanding—basic and diluted			174,417						169,434

The accompanying notes are an integral part of these condensed consolidated financial statements.

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EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Comprehensive Loss

(Amounts in thousands - unaudited)

			Three Months Ended March 31,
			2022						2021
Net loss			$	(180,937)					$	(31,164)
Other comprehensive income (loss), before tax:
Unrealized loss on available-for-sale investments			(4,967)						(332)
Foreign currency translation loss			(237)						—
Comprehensive loss, before tax			(186,141)						(31,496)
Income tax benefit related to items of other comprehensive loss			—						170
Comprehensive loss, net of tax			$	(186,141)					$	(31,326)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity

(Amounts in thousands, except share data - unaudited)

			Common Stock												Additional Paid-In Capital						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Stockholders’ Equity
			Number of Shares						$0.01 Par Value
Balance, January 1, 2022			173,674,067						$	1,738					$	6,028,861					$	(1,443)					$	(2,641,520)					$	3,387,636
Exercise of common stock options			485,537						5						4,277						—						—						4,282
Compensation expense related to issuance of stock options and restricted stock awards			1,391,797						14						52,427						—						—						52,441
Other			7						—						(7)						—						—						(7)
Net loss			—						—						—						—						(180,937)						(180,937)
Other comprehensive loss			—						—						—						(5,204)						—						(5,204)
Balance, March 31, 2022			175,551,408						$	1,757					$	6,085,558					$	(6,647)					$	(2,822,457)					$	3,258,211

			Common Stock												Additional Paid-In Capital						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Stockholders’ Equity
			Number of Shares						$0.01 Par Value
Balance, January 1, 2021			159,423,410						$	1,595					$	4,279,327					$	526					$	(2,045,896)					$	2,235,552
Settlement of convertible notes, net of tax			344						—						26						—						—						26
Exercise of common stock options			967,107						10						8,749						—						—						8,759
Issuance of common stock to fund the Company’s 2020 401(k) match			162,606						2						22,932						—						—						22,934
Compensation expense related to issuance of stock options and restricted stock awards			1,355,435						13						158,239						—						—						158,252
Issuance of common stock for business combinations, net of issuance costs			9,384,410						94						1,254,704						—						—						1,254,798
Net loss			—						—						—						—						(31,164)						(31,164)
Other comprehensive loss			—						—						—						(162)						—						(162)
Balance, March 31, 2021			171,293,312						$	1,714					$	5,723,977					$	364					$	(2,077,060)					$	3,648,995

The accompanying notes are an integral part of these condensed consolidated financial statements.

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EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands - unaudited)

			Three Months Ended March 31,
			2022						2021
Cash flows from operating activities:
Net loss			$	(180,937)					$	(31,164)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			22,993						20,508
Loss on disposal of property, plant and equipment			321						337
Unrealized (gain) loss on equity investments			1,350						(7)
Deferred tax benefit			(1,912)						(243,130)
Stock-based compensation			52,441						77,292
Post-combination expense for acceleration of unvested equity			—						80,960
Realized gain on preferred stock investment			—						(30,500)
Amortization of deferred financing costs, convertible note debt discount and issuance costs, and other liabilities			1,700						1,633
Amortization of premium on short-term investments			956						439
Amortization of acquired intangible assets			24,654						23,190
Asset acquisition IPR&D expense			—						52,263
Remeasurement of contingent consideration			(26,680)						2,879
Non-cash lease expense			7,363						5,740
Changes in assets and liabilities:
Accounts receivable, net			11,020						(22,950)
Inventory, net			(7,964)						3,232
Operating lease liabilities			(5,177)						(3,120)
Accounts payable and accrued liabilities			(66,048)						(15,862)
Other assets and liabilities			(7,834)						1,033
Net cash used in operating activities			(173,754)						(77,227)
Cash flows from investing activities:
Purchases of marketable securities			(70,267)						(162,498)
Maturities and sales of marketable securities			150,630						236,295
Purchases of property, plant and equipment			(33,623)						(12,920)
Business combination, net of cash acquired			—						(343,248)
Asset acquisition			—						(25,000)
Investments in privately held companies			(1,172)						(10,000)
Other investing activities			(7)						(141)
Net cash provided by (used in) investing activities			45,561						(317,512)
Cash flows from financing activities:
Proceeds from exercise of common stock options			4,282						8,759
Other financing activities			(1,547)						(1,514)
Net cash provided by financing activities			2,735						7,245
Effects of exchange rate changes on cash and cash equivalents			(237)						—
Net decrease in cash, cash equivalents and restricted cash			(125,695)						(387,494)
Cash, cash equivalents and restricted cash, beginning of period			315,768						1,491,594
Cash, cash equivalents and restricted cash, end of period			$	190,073					$	1,104,100

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EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands - unaudited)

			Three Months Ended March 31,
			2022						2021
Supplemental disclosure of non-cash investing and financing activities
Property, plant and equipment acquired but not paid			$	31,491					$	8,697
Business combination contingent consideration liability			$	—					$	331,348
Supplemental disclosure of cash flow information:
Interest paid			$	5,133					$	5,274
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents			$	189,776					$	1,103,816
Restricted cash — included in other long-term assets, net			297						284
Total cash, cash equivalents and restricted cash			$	190,073					$	1,104,100

The accompanying notes are an integral part of these condensed consolidated financial statements.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Exact Sciences Corporation (together with its subsidiaries, “Exact,” or the “Company”) was incorporated in February 1995. Exact is a leading global cancer diagnostics company. It has developed some of the most impactful tests in cancer screening and diagnostics, including Cologuard® and Oncotype DX®. Exact is currently working on the development of additional tests, with the goal of bringing new, innovative cancer tests to patients throughout the world.

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements, which include the accounts of Exact Sciences Corporation and those of its wholly owned subsidiaries and variable interest entities, are unaudited and have been prepared on a basis substantially consistent with the Company’s audited financial statements and notes as of and for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K (the “2021 Form 10-K”). All intercompany transactions and balances have been eliminated upon consolidation. These condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair statement of its financial position, operating results and cash flows for the periods presented. The condensed consolidated balance sheet at December 31, 2021 has been derived from audited financial statements, but does not contain all of the footnote disclosures from the 2021 Form 10-K. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year. The statements should be read in conjunction with the audited financial statements and related notes included in the 2021 Form 10-K.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting policies are those that affect the Company’s financial statements materially and involve difficult, subjective or complex judgments by management, and actual results could differ from those estimates. These estimates include revenue recognition, valuation of intangible assets and goodwill, and accounting for income taxes among others. The Company’s critical accounting policies and estimates are explained further in the notes to the condensed consolidated financial statements in this Quarterly Report and the 2021 Form 10-K.

The spread of the coronavirus (“COVID-19”) has affected many segments of the global economy, including the cancer screening and diagnostics industry. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of March 31, 2022 and through the date of the filing of this Quarterly Report on Form 10-Q. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, marketable and non-marketable investments, software, and the carrying value of the goodwill and other long-lived assets. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in additional material impacts to the Company’s consolidated financial statements in future reporting periods.

The pandemic and related precautionary measures began to materially disrupt the Company's operations in March 2020 and may continue to disrupt the business for an unknown period of time. As a result, the pandemic had an impact on the Company’s revenues and operating results.

The ultimate impact of COVID-19 depends on factors beyond the Company’s knowledge or control, including the duration and severity of the outbreak, as well as third-party actions taken to contain its spread and mitigate its public health effects. As a result, the Company is unable to estimate the extent to which COVID-19 will negatively impact its financial results or liquidity.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Significant Accounting Policies

During the three months ended March 31, 2022, there were no changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, except as described in the Recently Adopted Accounting Pronouncements section below.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation in the condensed consolidated financial statements and accompanying notes to the condensed consolidated financial statements.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In October 2021, The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805). This update requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification (“ASC”) 606. This differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. The amendments in this update should be applied prospectively, and are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company early adopted the amendments in this update during the first quarter of fiscal year 2022. There was no material impact to the Company’s condensed consolidated financial statements.

Net Loss Per Share

Basic net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average common shares outstanding during the period. Basic and diluted net loss per share is the same because all outstanding common stock equivalents have been excluded, as they are anti-dilutive as a result of the Company’s losses.

The following potentially issuable common shares were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect due to net losses for each period:

						March 31,
(In thousands)						2022						2021
Shares issuable in connection with acquisitions (1)						45						157
Shares issuable upon exercise of stock options						1,790						2,633
Shares issuable upon the release of restricted stock awards						6,991						4,467
Shares issuable upon the release of performance share units						963						846
Shares issuable upon conversion of convertible notes						20,309						20,309
						30,098						28,412

______________

(1)During the third quarter of 2021, shares were issued related to holdback amounts on the previously closed acquisition of Viomics, Inc. (“Viomics”) causing the decrease in shares issuable as of March 31, 2022 as compared to March 31, 2021. The remaining issuable shares relate to the previously closed acquisition of Paradigm Diagnostics, Inc. (“Paradigm”) in March 2020.

(2) REVENUE

The Company’s revenue is primarily generated by its laboratory testing services utilizing its Cologuard, Oncotype DX, and COVID-19 tests. The services are completed upon release of a patient’s test result to the ordering healthcare provider.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Disaggregation of Revenue

The following table presents the Company’s revenues disaggregated by revenue source:

						Three Months Ended March 31,
(In thousands)						2022						2021
Screening
Medicare Parts B & C						$	113,755					$	101,559
Commercial						161,680						127,874
Other						31,087						10,895
Total Screening						306,522						240,328
Precision Oncology
Medicare Parts B & C						$	52,565					$	44,837
Commercial						46,062						46,812
International						29,443						26,056
Other						24,550						11,702
Total Precision Oncology						152,620						129,407
COVID-19 Testing						$	27,429					$	32,342
Total						$	486,571					$	402,077

Screening revenue primarily includes laboratory service revenue from the Cologuard test while Precision Oncology revenue primarily includes laboratory service revenue from global Oncotype® products.

Revenue recognized from changes in transaction price was $4.2 million and $1.7 million for the three months ended March 31, 2022 and 2021, respectively.

The Company had deferred revenue of $1.3 million and $1.0 million as of March 31, 2022 and December 31, 2021, respectively. Deferred revenue is reported in other current liabilities in the Company’s condensed consolidated balance sheets.

Revenue recognized for the three months ended March 31, 2022 and 2021, which was included in the deferred revenue balance at the beginning of each period, was $0.3 million and $14.0 million, respectively. Of the $14.0 million of revenue recognized for the three months ended March 31, 2021, which was included in the deferred revenue balance at the beginning of the period, $13.8 million related to COVID-19 testing.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(3) MARKETABLE SECURITIES

The following table sets forth the Company’s cash, cash equivalents, restricted cash, and marketable securities at March 31, 2022 and December 31, 2021:

(In thousands)						March 31, 2022						December 31, 2021
Cash, cash equivalents, and restricted cash
Cash and money market						$	135,320					$	247,335
Cash equivalents						54,456						68,136
Restricted cash						297						297
Total cash, cash equivalents, and restricted cash						190,073						315,768
Marketable securities
Available-for-sale debt securities						$	625,383					$	711,669
Equity securities						1,821						3,336
Total marketable securities						627,204						715,005
Total cash and cash equivalents, restricted cash and marketable securities						$	817,277					$	1,030,773

Available-for-sale debt securities at March 31, 2022 consisted of the following:

(In thousands)						Amortized Cost						Gains in Accumulated Other Comprehensive Income (Loss) (1)						Losses in Accumulated Other Comprehensive Income (Loss) (1)						Estimated Fair Value
Cash equivalents
Commercial paper						$	51,979					$	—					$	—					$	51,979
U.S. government agency securities						2,477						—						—						2,477
Total cash equivalents						54,456						—						—						54,456
Marketable securities
Corporate bonds						$	229,768					$	—					$	(1,952)					$	227,816
U.S. government agency securities						250,764						—						(3,594)						247,170
Certificates of deposit						41,204						—						(50)						41,154
Commercial paper						12,924						—						(4)						12,920
Asset backed securities						97,156						—						(833)						96,323
Total marketable securities						631,816						—						(6,433)						625,383
Total available-for-sale securities						$	686,272					$	—					$	(6,433)					$	679,839

______________

(1)Gains and losses in accumulated other comprehensive income (loss) (“AOCI”) are reported before tax impact.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Available-for-sale debt securities at December 31, 2021 consisted of the following:

(In thousands)						Amortized Cost						Gains in Accumulated Other Comprehensive Income (Loss) (1)						Losses in Accumulated Other Comprehensive Income (Loss) (1)						Estimated Fair Value
Cash equivalents
U.S. government agency securities						$	3,543					$	—					$	—					$	3,543
Commercial paper						64,593						—						—						64,593
Total cash equivalents						68,136						—						—						68,136
Marketable securities
U.S. government agency securities						$	250,793					$	—					$	(873)					$	249,920
Asset backed securities						94,565						2						(107)						94,460
Commercial paper						6,996						—						—						6,996
Certificates of deposit						47,147						2						(10)						47,139
Corporate bonds						313,634						13						(493)						313,154
Total marketable securities						713,135						17						(1,483)						711,669
Total available-for-sale securities						$	781,271					$	17					$	(1,483)					$	779,805

______________

(1)Gains and losses in AOCI are reported before tax impact.

The following table summarizes contractual underlying maturities of the Company’s available-for-sale debt securities at March 31, 2022:

						Due one year or less												Due after one year through five years
(In thousands)						Cost						Fair Value						Cost						Fair Value
Cash equivalents
Commercial paper						$	51,979					$	51,979					$	—					$	—
U.S. government agency securities						2,477						2,477						—						—
Total cash equivalents						54,456						54,456						—						—
Marketable securities
U.S. government agency securities						$	134,099					$	132,683					$	116,665					$	114,487
Corporate bonds						114,973						114,482						114,795						113,334
Certificates of deposit						41,204						41,154						—						—
Asset backed securities						—						—						97,156						96,323
Commercial paper						12,924						12,920						—						—
Total marketable securities						303,200						301,239						328,616						324,144
Total						$	357,656					$	355,695					$	328,616					$	324,144

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes the gross unrealized losses and fair values of available-for-sale debt securities in an unrealized loss position as of March 31, 2022, aggregated by investment category and length of time those individual securities have been in a continuous unrealized loss position:

						Less than one year												One year or greater												Total
(In thousands)						Fair Value						Gross Unrealized Loss						Fair Value						Gross Unrealized Loss						Fair Value						Gross Unrealized Loss
Marketable securities
Corporate bonds						$	216,816					$	(1,952)					$	—					$	—					$	216,816					$	(1,952)
Certificates of deposit						41,154						(50)						—						—						41,154						(50)
Asset backed securities						96,324						(833)						—						—						96,324						(833)
U.S. government agency securities						247,170						(3,594)						—						—						247,170						(3,594)
Commercial paper						3,989						(4)						—						—						3,989						(4)
Total available-for-sale securities						$	605,453					$	(6,433)					$	—					$	—					$	605,453					$	(6,433)

The Company evaluates investments that are in an unrealized loss position for impairment as a result of credit loss. It was determined that no credit losses exist as of March 31, 2022 and December 31, 2021, because the change in market value for those securities in an unrealized loss position has resulted from fluctuating interest rates rather than a deterioration of the credit worthiness of the issuers.

The gains and losses recorded are included in investment income, net in the Company’s condensed consolidated statements of operations. The gains and losses recorded on available-for-sale debt securities and equity securities were not significant for the three months ended March 31, 2022 and 2021.

(4) INVENTORY

Inventory consisted of the following:

(In thousands)						March 31, 2022						December 31, 2021
Raw materials						$	55,402					$	51,321
Semi-finished and finished goods						57,556						53,673
Total inventory						$	112,958					$	104,994

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

(5) PROPERTY, PLANT AND EQUIPMENT

The carrying value and estimated useful lives of property, plant and equipment are as follows:

(In thousands)						Estimated Useful Life						March 31, 2022						December 31, 2021
Property, plant and equipment
Land						n/a						$	4,716					$	4,716
Leasehold and building improvements						(1)						166,286						147,083
Land improvements						15 years						5,206						5,206
Buildings						30 - 40 years						210,439						210,560
Computer equipment and computer software						3 years						117,393						109,119
Laboratory equipment						3 - 10 years						202,104						189,748
Furniture and fixtures						3 - 10 years						29,727						28,293
Assets under construction						n/a						123,873						100,339
Property, plant and equipment, at cost												859,744						795,064
Accumulated depreciation												(237,131)						(214,816)
Property, plant and equipment, net												$	622,613					$	580,248

______________

(1)Lesser of remaining lease term, building life, or estimated useful life.

Depreciation expense for the three months ended March 31, 2022 and 2021 was $23.0 million and $20.5 million, respectively.

At March 31, 2022, the Company had $123.9 million of assets under construction, which consisted of $69.1 million related to buildings, $26.4 million in laboratory equipment, $16.2 million in leasehold and building improvements, $11.5 million in capitalized costs related to software projects, and $0.7 million in land improvements. Depreciation will begin on these assets once they are placed into service upon completion between 2022 and 2024.

(6) INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

The following table summarizes the net-book-value and estimated remaining life of the Company’s intangible assets as of March 31, 2022:

(In thousands)						Weighted Average Remaining Life (Years)						Gross Carrying Amount						Accumulated Amortization						Net Balance at March 31, 2022
Finite-lived intangible assets
Trade name						13.2						$	104,700					$	(15,378)					$	89,322
Customer relationships						9.4						6,700						(1,712)						4,988
Patents						3.4						10,942						(7,110)						3,832
Acquired developed technology						8.4						918,171						(198,649)						719,522
Supply agreements						5.2						2,295						(202)						2,093
Total finite-lived intangible assets												1,042,808						(223,051)						819,757
In-process research and development						n/a						1,250,000						—						1,250,000
Total intangible assets												$	2,292,808					$	(223,051)					$	2,069,757

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes the net-book-value and estimated remaining life of the Company’s intangible assets as of December 31, 2021:

(In thousands)						Weighted Average Remaining Life (Years)						Gross Carrying Amount						Accumulated Amortization						Net balance at December 31, 2021
Finite-lived intangible assets
Trade name						13.4						$	104,700					$	(13,554)					$	91,146
Customer relationships						9.6						6,700						(1,577)						5,123
Patents and licenses						3.6						10,942						(6,763)						4,179
Acquired developed technology						8.6						918,171						(176,402)						741,769
Supply agreements						5.4						2,295						(101)						2,194
Total finite-lived intangible assets												1,042,808						(198,397)						844,411
In-process research and development						n/a						1,250,000						—						1,250,000
Total intangible assets												$	2,292,808					$	(198,397)					$	2,094,411

As of March 31, 2022, the estimated future amortization expense associated with the Company’s finite-lived intangible assets for each of the five succeeding fiscal years is as follows:

(In thousands)
2022 (remaining nine months)						$	73,962
2023						98,611
2024						98,276
2025						97,228
2026						96,169
Thereafter						355,511
						$	819,757

The Company’s acquired intangible assets are being amortized on a straight-line basis over the estimated useful life.

Goodwill

The change in the carrying amount of goodwill for the periods ended March 31, 2022 and December 31, 2021 is as follows:

(In thousands)
Balance, January 1, 2021						$	1,237,672
Thrive acquisition						948,105
Ashion acquisition						56,758
PreventionGenetics acquisition						92,637
Balance, December 31, 2021						2,335,172
Balance March 31, 2022						$	2,335,172

There were no impairment losses for the three months ended March 31, 2022 and 2021.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

(7) FAIR VALUE MEASUREMENTS

The three levels of the fair value hierarchy established are as follows:

Level 1    Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2    Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3    Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.

The following table presents the Company’s fair value measurements as of March 31, 2022 along with the level within the fair value hierarchy in which the fair value measurements, in their entirety, fall.

(In thousands)						Fair Value at March 31, 2022						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Cash, cash equivalents, and restricted cash
Cash and money market						$	135,320					$	135,320					$	—					$	—
Commercial paper						51,979						—						51,979						—
U.S. government agency securities						2,477						—						2,477						—
Restricted cash						297						297						—						—
Marketable securities
Corporate bonds						$	227,816					$	—					$	227,816					$	—
Certificates of deposit						41,154						—						41,154						—
Commercial paper						12,920						—						12,920						—
U.S. government agency securities						247,170						—						247,170						—
Asset backed securities						96,323						—						96,323						—
Equity securities						1,821						1,821						—						—
Non-marketable securities						$	2,640					$	—					$	—					$	2,640
Liabilities
Contingent consideration						$	(332,341)					$	—					$	—					$	(332,341)
Total						$	487,576					$	137,438					$	679,839					$	(329,701)

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table presents the Company’s fair value measurements as of December 31, 2021 along with the level within the fair value hierarchy in which the fair value measurements, in their entirety, fall.

(In thousands)						Fair Value at December 31, 2021						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Cash and cash equivalents
Cash and money market						$	247,335					$	247,335					$	—					$	—
Commercial paper						64,593						—						64,593						—
U.S. government agency securities						3,543						—						3,543						—
Restricted cash						297						297						—						—
Marketable securities
U.S. government agency securities						$	249,920					$	—					$	249,920					$	—
Corporate bonds						313,154						—						313,154						—
Asset backed securities						94,460						—						94,460						—
Certificates of deposit						47,139						—						47,139						—
Commercial paper						6,996						—						6,996						—
Equity securities						3,336						3,336						—						—
Non-marketable securities						$	3,090					$	—					$	—					$	3,090
Liabilities
Contingent consideration						$	(359,021)					$	—					$	—					$	(359,021)
Total						$	674,842					$	250,968					$	779,805					$	(355,931)

There have been no changes in valuation techniques or transfers between fair value measurement levels during the three months ended March 31, 2022. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities are valued using a third-party pricing agency where the valuation is based on observable inputs including pricing for similar assets and other observable market factors.

Contingent Consideration

The fair value of contingent consideration as of March 31, 2022 and December 31, 2021 was $332.3 million and $359.0 million, respectively, which was recorded in other long-term liabilities in the condensed consolidated balance sheets.

The following table provides a reconciliation of the beginning and ending balances of contingent consideration:

(In thousands)						Contingent Consideration
Beginning balance, January 1, 2022						$	359,021
Changes in fair value						(26,680)
Ending balance, March 31, 2022						$	332,341

This fair value measurement of contingent consideration is categorized as a Level 3 liability, as the measurement amount is based primarily on significant inputs not observable in the market.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

The fair value of the contingent consideration liability recorded related to regulatory and product development milestones associated with the acquisitions of Thrive Earlier Detection Corporation (“Thrive”) and Ashion Analytics, LLC (“Ashion”) was $331.1 million and $357.8 million as of March 31, 2022 and December 31, 2021, respectively. The Company evaluates the fair value of the regulatory and product development milestones related expected contingent consideration and the corresponding liability using the probability-weighted scenario based discounted cash flow model, which is consistent with the initial measurement of the expected contingent consideration liabilities. Probabilities of success are applied to each potential scenario and the resulting values are discounted using a present-value factor. The passage of time in addition to changes in projected milestone achievement timing, present-value factor, the degree of achievement, if applicable, and probabilities of success may result in adjustments to the fair value measurement. The fair value of the contingent consideration liability recorded related to regulatory and product development milestones was determined using a weighted average probability of success of 91% as of March 31, 2022 and December 31, 2021, respectively, and a weighted average present-value factor of 4.5% and 2.3% as of March 31, 2022 and December 31, 2021, respectively. The projected fiscal year of payment range is from 2024 to 2027. Unobservable inputs were weighted by the relative fair value of the contingent consideration liability.

The fair value of the contingent consideration earnout liability related to certain revenue milestones associated with the Biomatrica acquisition was $1.2 million as of March 31, 2022 and December 31, 2021. The revenue milestone associated with the Ashion acquisition is not expected to be achieved and therefore no liability has been recorded for this milestone.

Non-Marketable Equity Investments

As of March 31, 2022 and December 31, 2021, the aggregate carrying amounts of the Company’s non-marketable equity securities without readily determinable fair values were $25.9 million and $25.3 million, respectively, which are classified as a component of other long-term assets in the Company’s condensed consolidated balance sheets. There have been no downward or upward adjustments made on these investments since initial recognition.

The Company has committed capital to venture capital investment funds (the “Funds”) of $17.5 million, of which $14.8 million remained callable through 2033 as of March 31, 2022. The aggregate carrying amount of the Funds, which are classified as a component of other long-term assets in the Company’s condensed consolidated balance sheets, were $2.7 million and $1.5 million as of March 31, 2022 and December 31, 2021, respectively.

Derivative Financial Instruments

As of March 31, 2022 and December 31, 2021, the Company had open foreign currency forward contracts with notional amounts of $48.9 million and $46.7 million, respectively. The Company's foreign exchange derivative instruments are classified as Level 2 within the fair value hierarchy as they are valued using inputs that are observable in the market or can be derived principally from or corroborated by observable market data. The fair value of the foreign currency forward contracts was zero at March 31, 2022 and December 31, 2021, and there were no gains or losses recorded for the three months ended March 31, 2022 and 2021.

(8) LONG-TERM DEBT

Revolving Loan Agreement

During November 2021, the Company entered into a revolving loan agreement (the “Revolving Loan Agreement”) with PNC Bank, National Association (“PNC”). The Revolving Loan Agreement provides the Company with a revolving line of credit of up to $150.0 million (the “Revolver”). The Revolver is collateralized by the Company’s marketable securities held by PNC, which must continue to maintain a minimum market value of $150.0 million. The Revolver is available for general working capital purposes and all other lawful corporate purposes. In addition, the Company may request, in lieu of cash advances, letters of credit with an aggregate stated amount outstanding not to exceed $20.0 million. The availability of advances under the line of credit will be reduced by the stated amount of each letter of credit issued and outstanding.

Borrowings under the Revolving Loan Agreement accrue interest at an annual rate equal to the sum of the daily Bloomberg Short-Term Bank Yield Index Rate plus the applicable margin of 0.60%. Loans under the Revolving Loan Agreement may be prepaid at any time without penalty. The Revolver’s maturity date is November 5, 2023.

The Company has agreed in the Revolving Loan Agreement to various financial covenants, and as of March 31, 2022, the Company is in compliance with all covenants.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

During the fourth quarter of 2021, PNC issued a letter of credit of $2.9 million, which reduced the amount available for cash advances under the line of credit to $147.1 million as of March 31, 2022 and December 31, 2021. As of March 31, 2022 and December 31, 2021, the Company has not drawn funds from, nor are any amounts outstanding under, the Revolving Loan Agreement.

(9) CONVERTIBLE NOTES

Convertible note obligations included in the condensed consolidated balance sheet consisted of the following as of March 31, 2022:

																								Fair Value (1)
(In thousands)						Principal Amount						Unamortized Debt Discount and Issuance Costs						Net Carrying Amount						Amount						Leveling
2028 Convertible notes - 0.375%						$	1,150,000					$	(18,074)					$	1,131,926					$	1,032,125					2
2027 Convertible notes - 0.375%						747,500						(11,137)						736,363						712,315						2
2025 Convertible notes - 1.000%						315,005						(1,614)						313,391						377,833						2

Convertible note obligations included in the condensed consolidated balance sheet consisted of the following as of December 31, 2021:

																								Fair Value (1)
(In thousands)						Principal Amount						Unamortized Debt Discount and Issuance Costs						Net Carrying Amount						Amount						Leveling
2028 Convertible notes - 0.375%						$	1,150,000					$	(18,826)					$	1,131,174					$	1,139,650					2
2027 Convertible notes - 0.375%						747,500						(11,691)						735,809						771,794						2
2025 Convertible notes - 1.000%						315,005						(1,756)						313,249						415,473						2

______________

(1)The fair values are based on observable market prices for this debt, which is traded in less active markets and therefore is classified as a Level 2 fair value measurement.

Summary of Conversion Features

Until the six-months immediately preceding the maturity date of the applicable series of the Company’s convertible notes (the “Notes”), each series of Notes is convertible only upon the occurrence of certain events and during certain periods, as set forth in the Indentures filed at the time of the original offerings. On or after the date that is six-months immediately preceding the maturity date of the applicable series of Notes until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert such Notes at any time. The Notes will be convertible into cash, shares of the Company’s common stock (plus, if applicable, cash in lieu of any fractional share), or a combination of cash and shares of the Company’s common stock, at the Company’s election.

It is the Company’s intent and policy to settle all conversions through combination settlement. The initial conversion rate is 13.26, 8.96, and 8.21 shares of common stock per $1,000 principal amount for the convertible notes due in 2025 (“2025 Notes”), 2027 (“2027 Notes”), and 2028 (“2028 Notes”), respectively, which is equivalent to an initial conversion price of approximately $75.43, $111.66, and $121.84 per share of the Company’s common stock for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively. The 2025 Notes, 2027 Notes, and 2028 Notes may be convertible in up to 4.2 million, 6.7 million, and 9.4 million shares, respectively. The conversion rate is subject to adjustment upon the occurrence of certain specified events as set forth in the Indentures filed at the time of the original offerings but will not be adjusted for accrued and unpaid interest. In addition, holders of the Notes who convert their Notes in connection with a “make-whole fundamental change” (as defined in the Indenture), will, under certain circumstances, be entitled to an increase in the conversion rate.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

If the Company undergoes a “fundamental change” (as defined in the Indenture), holders of the Notes may require the Company to repurchase for cash all or part of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest.

Based on the closing price of the Company’s common stock of $69.92 on March 31, 2022, the if-converted values on the Notes do not exceed the principal amount.

The Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by the Company.

Ranking of Convertible Notes

The Notes are the Company’s senior unsecured obligations and (i) rank senior in right of payment to all of its future indebtedness that is expressly subordinated in right of payment to the Notes; (ii) rank equal in right of payment to each outstanding series thereof and to all of the Company’s future liabilities that are not so subordinated, unsecured indebtedness; (iii) are effectively junior to all of the Company’s existing and future secured indebtedness and other secured obligations, to the extent of the value of the assets securing that indebtedness and other secured obligations; and (iv) are structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries.

Issuance Costs

Issuance costs are amortized to interest expense over the term of the Notes. The following table summarizes the original issuance costs at the time of issuance for each set of Notes:

(In thousands)
January 2025 Notes						$	10,284
June 2025 Notes						7,362
2027 Notes						14,285
2028 Notes						24,453

Interest Expense

Interest expense includes the following:

						Three Months Ended March 31,
(In thousands)						2022						2021
Debt issuance costs amortization						$	1,412					$	1,413
Debt discount amortization						36						36
Coupon interest expense						2,567						2,567
Total interest expense on convertible notes						4,015						4,016
Other interest expense						463						600
Total interest expense						$	4,478					$	4,616

The effective interest rates on the 2025 Notes, 2027 Notes, and 2028 Notes for the three months ended March 31, 2022 and 2021 were 1.18%, 0.67%, and 0.64% and 1.18%, 0.67%, and 0.64%, respectively. The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is 2.80, 4.96, and 5.92 years for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

(10) LICENSE AND COLLABORATION AGREEMENTS

The Company licenses certain technologies that are, or may be, incorporated into its technology under several license agreements, as well as the rights to commercialize certain diagnostic tests through collaboration agreements. Generally, the license agreements require the Company to pay single-digit royalties based on net revenues received using the technologies and may require minimum royalty amounts, milestone payments, or maintenance fees.

Mayo

In June 2009, the Company entered into a license agreement with the Mayo Foundation for Medical Education and Research (“Mayo”). The Company’s license agreement with Mayo was most recently amended and restated in September 2020. Under the license agreement, Mayo granted the Company an exclusive, worldwide license to certain Mayo patents and patent applications, as well as a non-exclusive, worldwide license with regard to certain Mayo know-how. The scope of the license covers any screening, surveillance or diagnostic test or tool for use in connection with any type of cancer, pre-cancer, disease or condition.

The licensed Mayo patents and patent applications contain both method and composition claims that relate to sample processing, analytical testing and data analysis associated with nucleic acid screening for cancers and other diseases. The jurisdictions covered by these patents and patent applications include the U.S., Australia, Canada, the European Union, China, Japan and Korea. Under the license agreement, the Company assumed the obligation and expense of prosecuting and maintaining the licensed Mayo patents and is obligated to make commercially reasonable efforts to bring to market products using the licensed Mayo intellectual property.

Pursuant to the Company’s agreement with Mayo, the Company is required to pay Mayo a low-single-digit royalty on the Company’s net sales of current and future products using the licensed Mayo intellectual property each year during the term of the Mayo agreement.

As part of the most recent amendment, the Company agreed to pay Mayo an additional $6.3 million, payable in five equal annual installments through 2024. The annual installments are recorded in research and development expenses in the Company’s condensed consolidated statements of operations.

The license agreement will remain in effect, unless earlier terminated by the parties in accordance with the agreement, until the last of the licensed patents expires in 2039 (or later, if certain licensed patent applications are issued). However, if the Company is still using the licensed Mayo know-how or certain Mayo-provided biological specimens or their derivatives on such expiration date, the term shall continue until the earlier of the date the Company stops using such know-how and materials and the date that is five years after the last licensed patent expires. The license agreement contains customary termination provisions and permits Mayo to terminate the license agreement if the Company sues Mayo or its affiliates, other than any such suit claiming an uncured material breach by Mayo of the license agreement.

In addition to granting the Company a license to the covered Mayo intellectual property, Mayo provides the Company with product development and research and development assistance pursuant to the license agreement and other collaborative arrangements. In September 2020, Mayo also agreed to make available certain personnel to provide such assistance through January 2025. In connection with this collaboration, the Company incurred charges of $1.4 million and $1.2 million for the three months ended March 31, 2022 and 2021, respectively. The charges incurred in connection with this collaboration are recorded in research and development expenses in the Company’s condensed consolidated statements of operations.

Johns Hopkins University (“JHU”)

Through the acquisition of Thrive, the Company acquired a worldwide exclusive license agreement with JHU for use of several JHU patents and licensed know-how. The license is designed to enable the Company to leverage JHU proprietary data in the development and commercialization of a blood-based, multi-cancer early detection test. The agreement terms include single-digit sales-based royalties and sales-based milestone payments of $10.0 million, $15.0 million, and $20.0 million upon achieving calendar year licensed product revenue using JHU proprietary data of $0.50 billion, $1.00 billion, and $1.50 billion, respectively.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

(11) PFIZER PROMOTION AGREEMENT

In August 2018, the Company entered into a Promotion Agreement (the “Original Promotion Agreement”) with Pfizer Inc. (“Pfizer”), which was amended and restated in October 2020 (the “Restated Promotion Agreement”). The Restated Promotion Agreement extended the relationship between the Company and Pfizer and restructured the manner in which the Company compensates Pfizer for promotion of the Cologuard test through a service fee, and provision of certain other sales and marketing services related to the Cologuard test. The Restated Promotion Agreement included fixed and performance-related fees, some of which retroactively went into effect on April 1, 2020. In November 2021, the Company and Pfizer entered into an amendment to the Restated Promotion Agreement (the “November 2021 Amendment”), which provided that after November 30, 2021, Pfizer will no longer promote the Cologuard test to healthcare providers. The November 2021 Amendment provides that the Company will pay Pfizer a total of $35.9 million in three installments during the second, third, and fourth quarters of 2022. The November 2021 Amendment eliminated the Company's obligation to pay Pfizer royalties or other fees except for certain media fees, advertising fees, and any detail fees owed to Pfizer for promoting the Cologuard test prior to November 30, 2021. The $35.9 million fee incurred as a result of the November 2021 Amendment was recognized in full during the fourth quarter of 2021. All payments to Pfizer are recorded in sales and marketing expenses in the Company’s condensed consolidated statements of operations.

Under the Original Promotion Agreement, the service fee was calculated based on incremental gross profits over specified baselines during the term. Under the Restated Promotion Agreement (and prior to giving effect to the November 2021 Amendment), the service fee provided a fee-for-service model that included certain fixed fees and performance-related bonuses. The performance-related bonuses were contingent upon the achievement of certain annual performance criteria with any applicable expense being recognized ratably upon achievement of the payment becoming probable. The Company incurred charges of $2.5 million and $22.7 million for the service fee for the three months ended March 31, 2022 and 2021, respectively. The Company incurred charges of $38.4 million and $26.6 million for promotion, sales and marketing services performed by Pfizer on behalf of the Company during the three months ended March 31, 2022 and 2021, respectively.

(12) STOCKHOLDERS’ EQUITY

PreventionGenetics LLC (“PreventionGenetics”) Acquisition Stock Issuance

In December 2021, the Company completed its acquisition of PreventionGenetics. In connection with the acquisition, which is further described in Note 16, the Company issued 1.1 million shares of the Company's common stock that had a fair value of $84.2 million.

Ashion Acquisition Stock Issuance

In April 2021, the Company completed its acquisition of Ashion. In connection with the acquisition, which is further described in Note 16, the Company issued 0.1 million shares of the Company’s common stock that had a fair value of $16.2 million.

Thrive Acquisition Stock Issuance

In January 2021, the Company completed its acquisition of Thrive. In connection with the acquisition, which is further described in Note 16, the Company issued 9.3 million shares of the Company’s common stock that had a fair value of $1.19 billion.

Targeted Digital Sequencing (“TARDIS”) License Acquisition Stock Issuance

In January 2021, the Company acquired a worldwide exclusive license to the TARDIS technology from The Translational Genomics Research Institute (“TGen”), which is further described in Note 16. As part of the consideration transferred, the Company issued 0.2 million shares of the Company’s common stock that had a fair value of $27.3 million.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Exact Sciences 401(k) Plan

As further discussed in Note 16 of the Company’s most recently filed Form 10-K, the Company maintains a qualified 401(k) retirement savings plan (the “401(k) Plan”) for Exact Sciences employees and matching contributions are made annually by the Company in the form of the Company’s common stock. The Company issued 0.4 million shares of the Company’s common stock to fund the Company’s 2021 401(k) match in April 2022.

Changes in Accumulated Other Comprehensive Income (Loss)

The amount recognized in AOCI for the three months ended March 31, 2022 were as follows:

(In thousands)						Foreign Currency Translation Adjustments						Unrealized Gain (Loss) on Marketable Securities (1)						Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2021						$	23					$	(1,466)					$	(1,443)
Other comprehensive loss before reclassifications						(237)						(4,994)						(5,231)
Amounts reclassified from accumulated other comprehensive loss						—						27						27
Net current period change in accumulated other comprehensive loss						(237)						(4,967)						(5,204)
Balance at March 31, 2022						$	(214)					$	(6,433)					$	(6,647)

______________

(1)There was no tax impact from the amounts recognized in AOCI for the three months ended March 31, 2022.

The amounts recognized in AOCI for the three months ended March 31, 2021 were as follows:

(In thousands)						Unrealized Gain (Loss) on Marketable Securities						Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2020						$	526					$	526
Other comprehensive loss before reclassifications						(292)						(292)
Amounts reclassified from accumulated other comprehensive income						(40)						(40)
Net current period change in accumulated other comprehensive income, before tax						(332)						(332)
Income tax benefit related to items of other comprehensive income						170						170
Balance at March 31, 2021						$	364					$	364

Amounts reclassified from AOCI for the three months ended March 31, 2022 and 2021 were as follows:

						Affected Line Item in the Statements of Operations						Three Months Ended March 31,
Details about AOCI Components (In thousands)												2022						2021
Change in value of available-for-sale investments
Sales and maturities of available-for-sale investments						Investment income (expense), net						$	27					$	(40)
Total reclassifications												$	27					$	(40)

(13) STOCK-BASED COMPENSATION

Stock-Based Compensation Plans

The Company maintains the following plans for which awards were granted from or had shares outstanding in 2022: 2010 Omnibus Long-Term Incentive Plan (As Amended and Restated Effective July 27, 2017), the 2019 Omnibus Long-Term Incentive Plan, and the 2010 Employee Stock Purchase Plan (collectively referred to as the “Stock Plans”).

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Stock-Based Compensation Expense

The Company records stock-based compensation expense in connection with the amortization of restricted stock and restricted stock unit awards (“RSUs”), stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees, non-employee consultants and non-employee directors. The Company recorded $52.4 million and $163.5 million in stock-based compensation expense during the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, there was approximately $551.7 million of expected total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. The Company expects to recognize that cost over a weighted average period of 3.1 years.

In connection with the acquisition of Thrive, the Company accelerated the vesting of shares of previously unvested stock options and restricted stock units for employees with qualifying termination events. During the three months ended March 31, 2021, the Company accelerated 99,014 shares of previously unvested stock options and 27,479 shares of previously unvested restricted stock awards and restricted stock units and recorded $13.5 million of non-cash stock-based compensation for the accelerated awards. As further discussed in Note 16, the Company also recorded $86.2 million in stock-based compensation related to accelerated vesting of awards held by Thrive employees in connection with the acquisition.

Stock Options

A summary of stock option activity under the Stock Plans is as follows:

Options						Shares						Weighted Average Exercise Price						Weighted Average Remaining Contractual Term(Years)						Aggregate Intrinsic Value (1)
(Aggregate intrinsic value in thousands)
Outstanding, January 1, 2022						2,284,276						$	34.65					5.5
Granted						—						—
Exercised						(485,653)						8.84
Forfeited						(8,571)						86.02
Outstanding, March 31, 2022						1,790,052						$	41.41					5.8						$	63,737
Vested and expected to vest, March 31, 2022						1,790,052						$	41.41					5.8						$	63,737
Exercisable, March 31, 2022						1,509,645						$	36.47					5.4						$	58,202

______________

(1)The total intrinsic value of options exercised during the three months ended March 31, 2022 and 2021 was $29.6 million and $126.0 million, respectively, determined as of the date of exercise.

The Company received approximately $4.3 million and $8.8 million from stock option exercises during the three months ended March 31, 2022 and 2021, respectively.

Restricted Stock and Restricted Stock Units

The fair value of restricted stock and restricted stock units is determined on the date of grant using the closing stock price on that day.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

A summary of restricted stock and restricted stock unit activity during the three months ended March 31, 2022 is as follows:

Restricted stock and restricted stock units						Shares						Weighted Average Grant Date Fair Value (2)
Outstanding, January 1, 2022						4,320,910						$	108.84
Granted						3,042,920						77.31
Released (1)						(1,100,885)						100.61
Forfeited						(235,095)						106.76
Outstanding, March 31, 2022						6,027,850						$	94.35

______________

(1)The fair value of restricted stock units vested and converted to shares of the Company’s common stock was $110.8 million and $80.9 million during the three months ended March 31, 2022 and 2021, respectively.

(2)The weighted average grant date fair value of the restricted stock units granted during the three months ended March 31, 2021 was $143.66.

Performance Share Units

The Company has issued performance-based equity awards to certain employees which vest upon the achievement of certain performance goals, including financial performance targets and operational milestones.

In January 2022, the Company issued additional performance-based equity awards, which include a market condition in the form of a total shareholder return (“TSR”) modifier. At the end of the three-year performance period, the total units earned, if any, are adjusted by applying the modifier, ranging from 50% to 150%. The TSR modifier is based on stock price performance relative to a group of peer companies for the same three-year period. The fair value of the awards granted was calculated using a Monte Carlo simulation model, as the TSR modifier contains a market condition.

A summary of performance share unit activity is as follows:

Performance share units						Shares (1)						Weighted Average Grant Date Fair Value (2)
Outstanding, January 1, 2022						878,114						$	107.18
Granted						711,629						92.31
Released (3)						(292,134)						93.22
Forfeited						(334,515)						94.30
Outstanding, March 31, 2022						963,094						$	104.90

______________

(1)The performance share units listed above assumes attainment of maximum payout rates as set forth in the performance criteria. Applying actual or expected payout rates, the number of outstanding performance share units as of March 31, 2022 was 259,865.

(2)The weighted average grant date fair value of the performance share units granted during the three months ended March 31, 2021 was $147.81.

(3)The fair value of performance share units vested and converted to shares of the Company’s common stock was $27.2 million for the three months ended March 31, 2022. There were no performance share units vested and converted to shares of the Company’s common stock during the three months ended March 31, 2021.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Employee Stock Purchase Plan (“ESPP”)

There were no shares issued under the 2010 Employee Stock Purchase Plan during the three months ended March 31, 2022 and 2021.

(14) COMMITMENTS AND CONTINGENCIES

Leases

Supplemental disclosure of cash flow information related to the Company’s cash and non-cash activities with its leases are as follows:

						Three Months Ended March 31,
(In thousands)						2022						2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases						$	8,097					$	5,558
Operating cash flows from finance leases						211						248
Finance cash flows from finance leases						1,548						1,203
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities (1)						$	4,259					$	40,406
Right-of-use assets obtained in exchange for new finance lease liabilities						878						639
Weighted-average remaining lease term - operating leases (in years)						8.17						8.69
Weighted-average remaining lease term - finance leases (in years)						2.80						3.45
Weighted-average discount rate - operating leases						6.09		%				6.41		%
Weighted-average discount rate - finance leases						5.32		%				5.66		%

_____________

(1)For the three months ended March 31, 2021, this includes right-of-use assets acquired as part of the business combinations described in Note 16 of $39.6 million.

As of March 31, 2022 and December 31, 2021, the Company’s right-of-use assets from operating leases are $170.4 million and $174.2 million, respectively, which are reported in operating lease right-of-use assets in the Company’s condensed consolidated balance sheets. As of March 31, 2022, the Company has outstanding operating lease obligations of $200.3 million, of which $19.7 million is reported in operating lease liabilities, current portion and $180.6 million is reported in operating lease liabilities, less current portion in the Company’s condensed consolidated balance sheets. As of December 31, 2021, the Company had outstanding operating lease obligations of $201.9 million, of which $19.7 million is reported in operating lease liabilities, current portion and $182.2 million is reported in operating lease liabilities, less current portion in the Company’s condensed consolidated balance sheets.

As of March 31, 2022 and December 31, 2021, the Company’s right-of-use assets from finance leases are $17.4 million and $18.2 million, respectively, which are reported in other long-term assets, net in the Company’s condensed consolidated balance sheets. As of March 31, 2022, the Company has outstanding finance lease obligations of $18.0 million, of which $6.4 million is reported in other current liabilities and $11.6 million is reported in other long-term liabilities in the Company’s condensed consolidated balance sheets. As of December 31, 2021, the Company had outstanding finance lease obligations of $18.7 million, of which $6.2 million is reported in other current liabilities and $12.5 million is reported in other long-term liabilities in the Company’s condensed consolidated balance sheets.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Legal Matters

The Company records reserves and accrues costs for certain legal proceedings and regulatory matters to the extent that it determines an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. While such reserves and accrued costs reflect the Company’s best estimate of the probable loss for such matters, the recorded amounts may differ materially from the actual amount of any such losses. In some cases, no estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal and regulatory proceedings, which may be exacerbated by various factors, including but not limited to, they may involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel legal theories or legal uncertainties; involve disputed facts; represent a shift in regulatory policy; involve a large number of parties, claimants or regulatory bodies; are in the early stages of the proceedings; involve a number of separate proceedings and/or a wide range of potential outcomes; or result in a change of business practices.

As of the date of this Quarterly Report on Form 10-Q, amounts accrued for legal proceedings and regulatory matters were not material except for the amounts accrued related to the Medicare Date of Service Rule Investigation (the “DOS Rule Investigation”) discussed below. However, it is possible that in a particular quarter or annual period the Company’s financial condition, results of operations, cash flow and/or liquidity could be materially adversely affected by an ultimate unfavorable resolution of, or development in, legal and/or regulatory proceedings, including as described below. Except for the proceedings discussed below, the Company believes that the ultimate outcome of any of the regulatory and legal proceedings that are currently pending against it should not have a material adverse effect on financial condition, results of operations, cash flow or liquidity.

The Company is currently responding to civil investigative demands and administrative subpoenas issued pursuant to the Health Insurance Portability and Accountability Act of 1996 by the United States Department of Justice (“DOJ”) concerning Genomic Health’s compliance with the Medicare Date of Service billing regulations. The Company has been cooperating with these inquiries and has produced documents in response thereto.

During the second quarter of 2021, as part of ongoing discussions between the DOJ and the Company regarding the DOS Rule Investigation, the DOJ presented an estimate of civil damages in the amount of $48.2 million relating to alleged non-compliance with the Medicare Date of Service billing regulations from 2007 to 2020. The civil damages estimate does not include potential treble damages, civil or criminal penalties or other remedies that the DOJ could seek against the Company. Based on the Company’s review and analysis of the DOJ presentation, ongoing discussions held with the DOJ, the civil damages estimate, and range of potential exposure, the Company recorded an accrual of approximately $10 million as of March 31, 2022.

As noted above, litigation outcomes are difficult to predict, and the estimation of probable losses requires an analysis of multiple possible outcomes that often depend on judgments about potential actions by third parties. Accordingly, the recorded accrual of approximately $10 million as of March 31, 2022 is based on several factors, considerations, and judgments, and the ultimate resolution of this matter could result in a loss in excess of the recorded accrual.

On June 24, 2019, Niles Rosen M.D. filed a sealed ex parte qui tam lawsuit against the Company in the United States District Court for the Middle District of Florida, that alleged a violation of the Federal Anti-Kickback Statute and False Claims Act for offering gift cards to patients in exchange for returning the Cologuard screening test (the “Qui Tam Suit”). Dr. Rosen seeks on behalf of the U.S. government and himself an award of civil penalties, treble damages and fees and costs. On February 25, 2020, the Company received a civil investigative demand by the DOJ related to the Company’s gift card program. The Company produced documents in response thereto. On March 25, 2021, the DOJ filed a notice of its election to decline intervention in the Qui Tam Suit. This election does not prevent Dr. Rosen from continuing the Qui Tam Suit. On April 12, 2021, Dr. Rosen filed an amended complaint against the Company, alleging violations of the Federal Anti-Kickback Statute and False Claims Act. The Company first learned of the Qui Tam Suit and the DOJ’s election to decline intervention in July 2021. The Company intends to vigorously defend itself against Dr. Rosen's claims and seek, among other things, the Company’s attorneys' fees and costs incurred in defending this action. Although the Company denies Dr. Rosen's allegations and believes that it has meritorious defenses to his False Claims Act claims, neither the outcome of the litigation nor can a reasonable estimate or an estimated range of loss associated with the litigation be determined at this time.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Adverse outcomes from the DOS Rule Investigation and the Qui Tam Suit could include the Company being required to pay treble damages, incur civil and criminal penalties, paying attorneys’ fees, entering into a corporate integrity agreement, being excluded from participation in government healthcare programs, including Medicare and Medicaid, and other adverse actions that could materially affect the Company’s business, financial condition, and results of operation.

(15) WISCONSIN ECONOMIC DEVELOPMENT TAX CREDITS

During February 2015, the Company entered into an agreement with the Wisconsin Economic Development Corporation (“WEDC,” “Original WEDC Agreement”) to earn $9.0 million in refundable tax credits on the condition that the Company expends $26.3 million in capital investments and establishes and maintains 758 full-time positions over a seven-year period.

During December 2021, the Company amended its agreement with the WEDC (“Amended WEDC Agreement”) to earn an additional $18.5 million in refundable tax credits on the condition that the Company expends $350.0 million in capital investments and establishes and maintains 1,300 additional full-time positions over a five-year period. The capital investment credits are earned at a rate of 10% of eligible capital investments up to a maximum of $7.0 million, while the jobs creation credits are earned annually pursuant to the agreement.

The tax credits earned are first applied against the tax liability otherwise due, and if there is no such liability present, the claim for tax credits will be reimbursed in cash to the Company. The maximum amount of the refundable tax credit to be earned for each year is fixed, and the Company earns the credits by meeting certain capital investment and job creation thresholds over the term of the agreement. Should the Company earn and receive the job creation tax credits but not maintain those full-time positions through the end of the agreement, the Company may be required to pay those credits back to the WEDC.

Under the Original WEDC Agreement, the Company recorded the earned tax credits as job creation and capital investments occurred. The tax credits earned from capital investment are being recognized as an offset to depreciation expense over the expected life of the acquired capital assets. The tax credits earned related to job creation were recognized as an offset to operational expenses through December 31, 2020.

As of March 31, 2022, the Company has earned all $9.0 million of the refundable tax credits and has received payment of $9.0 million from the WEDC under the Original WEDC Agreement.

Under the Amended WEDC Agreement, the Company records the earned tax credits as job creation and capital investments occurs. The tax credits earned from capital investment are recognized as a reduction to capital expenditures at the time the costs are incurred, and then as an offset to depreciation expense over the expected life of the acquired capital assets. The tax credits earned related to job creation are recognized as an offset to operational expenses in the period in which the credits are earned. The credits recognized will be required to be repaid if the Company does not maintain minimum cumulative job requirements.

As of March 31, 2022, the Company has earned $9.0 million of the refundable tax credits under the Amended WEDC Agreement. The unpaid portion is $9.0 million as of March 31, 2022, of which $1.7 million is reported in prepaid expenses and other current assets and $7.3 million is reported in other long-term assets, reflecting when collection of the refundable tax credits is expected to occur.

During the three months ended March 31, 2022, the Company recorded $1.0 million as a reduction to operational expenses for the credits earned for job creation.

(16) BUSINESS COMBINATIONS AND ASSET ACQUISITIONS

Business Combinations

PreventionGenetics LLC

On December 31, 2021, the Company completed the acquisition (the “PreventionGenetics Acquisition”) of all of the outstanding equity interests of PreventionGenetics, LLC. The PreventionGenetics Acquisition provided the Company a Clinical Laboratory Improvement Amendments (“CLIA”) certified and College of American Pathologist (“CAP”) accredited sequencing lab based in Marshfield, Wisconsin. PreventionGenetics provides more than 5,000 predefined genetic tests for nearly all clinically relevant genes, additional custom panels, and comprehensive germline, whole exome (“PGxome®”), and whole genome (“PGnome®”) sequencing tests.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Refer to the Company’s 2021 10-K for detailed disclosures on the combination, including the fair value of the consideration transferred, purchase price allocation, and goodwill and intangible assets identified in the transaction. During the three months ended March 31, 2021, there were no material changes to the purchase price and purchase price allocation. The measurement period remains open pending the completion of valuation procedures related to certain acquired assets and liabilities assumed, primarily in connection with the intangible assets.

Ashion Analytics, LLC

On April 14, 2021, the Company completed the acquisition (“Ashion Acquisition”) of all of the outstanding equity interests of Ashion Analytics, LLC from PMed Management, LLC (“PMed”), which is a subsidiary of TGen. The Ashion Acquisition provided the Company a CLIA certified and CAP accredited sequencing lab based in Phoenix, Arizona. Ashion developed the GEMExTra® test, a comprehensive genomic cancer test, and provides access to whole exome, matched germline, and transcriptome sequencing capabilities.

Refer to the Company’s 2021 10-K for detailed disclosures on the combination, including the fair value of the consideration transferred, purchase price allocation, and goodwill and intangible assets identified in the transaction. During the three months ended March 31, 2021, there were no changes to the purchase price allocation and the measurement period has closed.

Thrive Earlier Detection Corporation

On January 5, 2021, the Company completed the acquisition (“Thrive Merger”) of all of the outstanding capital stock of Thrive Earlier Detection Corporation. Thrive, headquartered in Cambridge, Massachusetts, is a healthcare company dedicated to incorporating earlier cancer detection into routine medical care. The Company expects that combining Thrive's early-stage multi-cancer early detection test with the Company’s scientific platform, clinical organization and commercial infrastructure will bring an accurate blood-based, multi-cancer detection test to patients faster.

Refer to the Company’s 2021 10-K for detailed disclosures on the combination, including the fair value of the consideration transferred, final purchase price allocation, and goodwill and intangible assets identified in the transaction.

Asset Acquisitions

PFS Genomics Inc.

On May 3, 2021, the Company acquired 90% of the outstanding capital stock of PFS Genomics Inc. (“PFS”). On June 23, 2021, the Company completed the acquisition of the remaining 10% interest in PFS. The Company expects this acquisition to expand its ability to help guide early-stage breast cancer treatment through individualized radiotherapy treatment decisions.

The transaction was treated as an asset acquisition under GAAP because substantially all of the fair value of the gross assets acquired were deemed to be associated with the acquired technology. Refer to the Company’s 2021 10-K for detailed disclosures on the asset acquisition, including the fair value of the consideration transferred and purchase price allocation.

TARDIS License Agreement

On January 11, 2021, the Company entered into a worldwide exclusive license to the proprietary TARDIS technology from TGen, an affiliate of City of Hope. Under the agreement, the Company acquired a royalty-free, worldwide exclusive license to proprietary TARDIS patents and know-how. The Company intends to develop and commercialize the TARDIS technology as a minimal residual disease test.

The Company accounted for this transaction as an asset acquisition. Refer to the Company’s 2021 10-K for detailed disclosures on the asset acquisition, including the fair value of the consideration transferred and information related to contingent milestones.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(17) SEGMENT INFORMATION

Management determined that the Company functions as a single operating segment, and thus reports as a single reportable segment. This operating segment is focused on the development and global commercialization of clinical laboratory services allowing healthcare providers and patients to make individualized treatment decisions. Management assessed the discrete financial information routinely reviewed by the Company's Chief Operating Decision Maker, its President and Chief Executive Officer, to monitor the Company's operating performance and support decisions regarding allocation of resources to its operations. Performance is continuously monitored at the consolidated level to timely identify deviations from expected results.

The following table summarizes total revenue from customers by geographic region. Product revenues are attributed to countries based on ship-to location.

						Three Months Ended March 31,
(In thousands)						2022						2021
United States						$	457,128					$	376,021
Outside of United States						29,443						26,056
Total revenues						$	486,571					$	402,077

Long-lived assets located in countries outside of the United States are not significant.

(18) INCOME TAXES

The Company recorded an income tax benefit of $2.0 million and $242.8 million for the three months ended March 31, 2022 and 2021, respectively. The Company’s income tax benefit recorded during the three months ended March 31, 2022 is primarily related to the future limitations on and expiration of certain Federal and State deferred tax assets, offset by current foreign and state tax expense. A deferred tax liability of approximately $26.4 million was recorded as of March 31, 2022, which is included in other long-term liabilities on the Company’s condensed consolidated balance sheet. The Company continues to maintain a full valuation allowance against its deferred tax assets based on management’s determination that it is more likely than not the benefit will not be realized.

The Company had $23.1 million and $21.8 million of unrecognized tax benefits at March 31, 2022 and December 31, 2021, respectively. These amounts have been recorded as a reduction to the Company’s deferred tax asset, if recognized they would not have an impact on the effective tax rate due to the existing valuation allowance. Certain of the Company's unrecognized tax benefits could change due to activities of various tax authorities, including possible settlement of audits, or through normal expiration of various statutes of limitations. The Company does not expect a material change in unrecognized tax benefits in the next twelve months.

As of March 31, 2022, due to the carryforward of unutilized net operating losses and research and development credits, the Company is subject to U.S. federal income tax examinations for the tax years 2002 through 2022, and to state income tax examinations for the tax years 2002 through 2022. No interest or penalties related to income taxes have been accrued or recognized as of March 31, 2022.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Objective

The purpose of this Management's Discussion and Analysis is to better allow our investors to understand and view our company from management's perspective. We are providing an overview of our business and strategy including a discussion of our financial condition and results of operations. The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021, which has been filed with the SEC (the “2021 Form 10-K”).

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “would,” “could,” “seek,” “intend,” “plan,” “goal,” “project,” “estimate,” “anticipate” or other comparable terms. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q regarding our strategies, prospects, expectations, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding expected future operating results; our strategies, positioning, resources, capabilities and expectations for future events or performance; and the anticipated benefits of our acquisitions, including estimated synergies and other financial impacts. Forward-looking statements are neither historical facts nor assurances of future performance or events. Instead, they are based only on current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Actual results, conditions and events may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause actual results, conditions and events to differ materially from those indicated in the forward-looking statements include, among others, the following: uncertainties associated with the coronavirus (“COVID-19”) pandemic, including its possible effects on our operations, including our supply chain and clinical studies, and the demand for our cancer and COVID-19 testing products and services; our ability to efficiently and flexibly manage our business amid uncertainties related to COVID-19; our ability to raise additional capital in amounts and on terms satisfactory to us, if at all; our ability to successfully and profitably market our products and services; the acceptance of our products and services by patients and healthcare providers; our ability to meet demand for our products and services; the willingness of health insurance companies and other payers to cover our products and services and adequately reimburse us for such products and services; the amount and nature of competition for our products and services; the effects of any judicial, executive or legislative action affecting us or the healthcare system; recommendations, guidelines and quality metrics issued by various organizations regarding cancer screening or our products and services; our ability to successfully develop new products and services and assess potential market opportunities; our ability to effectively enter into and utilize strategic partnerships and acquisitions; our success establishing and maintaining collaborative, licensing and supplier arrangements; our ability to obtain and maintain regulatory approvals and comply with applicable regulations; our ability to manage an international business and our expectations regarding our international expansion and opportunities; the potential effects of foreign currency exchange rate fluctuations and our efforts to hedge such effects; the possibility that the anticipated benefits from our business acquisitions will not be realized in full or at all or may take longer to realize than expected; the possibility that costs or difficulties related to the integration of acquired businesses’ operations will be greater than expected and the possibility that integration efforts will disrupt our business and strain management time and resources; the outcome of any litigation, government investigations, enforcement actions or other legal proceedings, including in connection with acquisitions; our ability to retain and hire key personnel, including employees at businesses we acquire. The risks included above are not exhaustive. Other important risks and uncertainties are described in the Risk Factors and in Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of the 2021 Form 10-K and subsequently filed Quarterly Reports on Form 10-Q. You are further cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

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Overview

Exact Sciences Corporation (together with its subsidiaries, “Exact,” “we,” “us,” “our” or the “Company”) is a leading, global, advanced cancer diagnostics company. We have developed some of the most impactful tests in cancer diagnostics, and we are currently working on the development of additional tests, with the goal of bringing new, innovative cancer tests to patients throughout the world.

Our Screening Tests

Colorectal Cancer Screening

Colorectal cancer is the second leading cause of cancer deaths in the United States and the leading cause of cancer deaths in the United States among non-smokers. Each year in the United States there are approximately 150,000 new cases of colorectal cancer and 53,000 deaths. It is widely accepted that colorectal cancer is among the most preventable, yet least prevented cancers.

Our Cologuard® test is a non-invasive stool-based DNA (“sDNA”) screening test that utilizes a multi-target approach to detect DNA and hemoglobin biomarkers associated with colorectal cancer and pre-cancer. Upon approval by the U.S. Food and Drug Administration (“FDA”) in August 2014, our Cologuard test became the first and only FDA-approved sDNA non-invasive colorectal cancer screening test. Our Cologuard test is now indicated for average risk adults 45 years of age and older.

Clinical Genetic Testing

We provide more than 5,000 predefined genetic tests for nearly all clinically relevant genes, additional custom panels, and comprehensive germline, whole exome (“PGxome®”), and whole genome (“PGnome®”) sequencing tests.

Our Precision Oncology Tests

We apply our world-class scientific and commercial expertise and infrastructure to lead the translation of clinical and genomic data into actionable results for treatment planning throughout the cancer patient’s journey.

Our portfolio of Oncotype tests is currently comprised of:

•our flagship line of Oncotype DX® gene expression tests for breast, prostate and colon cancers,

•oncomapTM test, a test delivering rapid, comprehensive tumor profiling to aid therapy selection for patients with advanced, metastatic, refractory or recurrent cancer,

•oncomap ExTra test, one of the most comprehensive genomic (DNA) and transcriptomic (RNA) panels available today that provides a complete biological picture of certain refractory, rare, or aggressive cancers, and

•Oncotype DX AR-V7 Nucleus Detect® test, a liquid-based test for advanced stage prostate cancer.

International Business Background and Products

We commercialize our Oncotype® tests internationally through employees in Canada, Japan and eight European countries, as well as through exclusive distribution agreements. We have provided our Oncotype tests in more than 90 countries outside of the United States. We do not offer our Cologuard test or COVID-19 testing outside of the United States.

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Pipeline Research and Development

Our research and development efforts are focused on developing new products and enhancing existing products to address unmet cancer needs and expand the clinical utility and addressable patient populations for our existing tests. We expect to advance liquid biopsy through biomarker discovery and validation in tissue, blood, or other fluids and to leverage recent business development activities to accelerate our leadership in earlier cancer detection and treatment guidance. We are pursuing the following opportunities:

•Colorectal Cancer Screening. We are seeking opportunities to improve upon our Cologuard test’s performance characteristics. In January 2022, we and Mayo Foundation for Medical Education and Research (“Mayo”) presented at the American Society of Clinical Oncology Gastrointestinal Cancers Symposium findings from a study including prospectively collected samples that showed overall sensitivity of 95% for colorectal cancer at specificity of 92%. Subgroup analyses showed 83% sensitivity for high-grade dysplasia, the most dangerous pre-cancerous lesions, and 57% for all advanced pre-cancerous lesions. To establish the performance of an enhanced multi-target stool DNA test, we expect to enroll at least 20,000 patients 40 years of age and older in our multi-center, prospective BLUE-C study. The timing of any such enhancements to our Cologuard test is unknown and would be subject to FDA approval. We are also working to develop a blood-based screening test for colorectal cancer.

•Multi-Cancer Early Detection (“MCED”) Test Development. We are currently seeking to develop a blood-based, MCED test. In January 2021, we completed the acquisition of Thrive Earlier Detection Corporation (“Thrive”), a healthcare company dedicated to developing a blood-based, MCED test. An early version of Thrive’s test has achieved promising results in a 10,000-patient, prospective, interventional study detecting 10 different types of cancer, including seven with no current recommended screening guidelines, with very few false positives. We intend to combine Thrive's expertise with our scientific capabilities, clinical organization, and commercial infrastructure to bring an accurate blood-based, multi-cancer early detection test to patients.

•Minimal Residual Disease (“MRD”) Test Development. In January 2021, we acquired an exclusive license to The Translational Genomics Research Institute (“TGen”) proprietary Targeted Digital Sequencing (“TARDIS”) technology. We are currently seeking to utilize this compelling and technically distinct approach to develop a tumor-informed test to detect small amounts of tumor DNA that may remain in patients’ blood after they have undergone initial treatment. In a 2019 study published in Science Translational Medicine, TARDIS demonstrated high accuracy in assessing molecular response and residual disease during neoadjuvant therapy to treat breast cancer. The study reported that TARDIS achieved up to 100-fold improvement over alternative circulating tumor DNA detection methods. We are also working on a tumor-naive approach to MRD and recurrence monitoring in order to support patients where there is no access to the tumor tissue to inform patient-specific biomarker targets. We have published data showing the ability of cancer-associated methylation markers to reliably detect distantly recurrent colorectal cancer from a blood draw with promising accuracy.

•Hereditary Cancer Testing. In December 2021, we acquired PreventionGenetics, LLC (“PreventionGenetics”), a DNA testing laboratory that provides more than 5,000 predefined genetic tests for nearly all clinically relevant genes, additional custom panels, and comprehensive germline whole exome and whole genome sequencing tests. We intend to use PreventionGenetics' capabilities to expand the use of hereditary cancer testing in the U.S. and globally.

•Hepatocellular Carcinoma (“HCC”) Test Development. We are currently developing a blood-based biomarker test to serve as an alternative to ultrasound and alpha-fetoprotein (“AFP”) for use in HCC testing. HCC is the most common type of liver cancer. Our goal is to provide a patient-friendly test that performs better than the current guideline-recommended testing options. In August 2021, the performance of our OncoguardTM Liver liquid biopsy test was published in the peer-reviewed journal, Clinical Gastroenterology and Hepatology. The test delivers 82% early-stage sensitivity and an overall 88% sensitivity for HCC at 87% specificity with a novel combination of six blood-based biomarkers for HCC. The study compared performance to the AFP test, which demonstrated 40% sensitivity for early stage HCC at 100% specificity. Our test was made available on a limited basis beginning in the second quarter of 2021.

•Development Studies for Oncotype DX Products. We may also conduct or fund clinical studies that could support additional opportunities for our Oncotype DX products. For example, we are exploring clinical studies to expand the use of genomic testing to address additional populations, including higher-risk patients. In addition, we are using technology from our acquisition of PFS Genomics to better personalize treatment for breast cancer patients, improve outcomes, and reduce unnecessary treatment.

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Research and development, which includes our clinical study programs, accounts for a material portion of our operating expenses. As we seek to enhance our current product portfolio and expand our product pipeline by developing additional cancer screening and diagnostic tests, we expect that our research and development expenditures will continue to increase.

COVID-19 Testing Business

In late March 2020, we began providing COVID-19 testing. We have partnered with various customers, including the State of Wisconsin Department of Health Services, to administer testing. Customers are responsible for employing trained personnel to collect specimens. Specimens are sent to our laboratory in Madison, Wisconsin, where we run the assay in our laboratories and provide test results to ordering providers. In light of the uncertainty surrounding the COVID-19 pandemic, we intend to periodically reassess offering COVID-19 testing. We expect that demand for our COVID-19 testing services will decline over time as the pandemic abates.

2022 Priorities

Our top priorities for 2022 are to (1) impact more lives, (2) advance new tests, and (3) take care of the people we serve.

Impact More Lives

We are committed to delivering critical answers to patients by getting more people tested with our laboratory testing services.

Advance New Tests

In 2022, we are focused on advancing new tests to provide better answers to patients, beginning with assessing risk for cancer through screening, and then changing the way cancer is detected and treated throughout the entire cancer journey. We plan to prioritize investments in clinical studies to support our three most important product development programs: (1) colon cancer screening tests, (2) multi-cancer early detection, and (3) minimal residual disease and recurrence testing.

Take Care of the People we Serve

We want to take even better care of everyone we serve. We plan to improve customer relations by delivering simple and smooth workflows, providing communication that is clear and easy to understand, and providing results that are fast and accurate. Our goal is to become a caring partner to answer questions and help people navigate what is a difficult time in their life.

Business Environment and Current Trends

COVID-19 Impact

The spread of COVID-19 has affected many segments of the global economy, including the cancer screening and diagnostics industry. The pandemic and related precautionary measures have materially disrupted our business since March 2020 and may continue to disrupt our business for an unknown period of time. COVID-19 has significantly impacted, and may continue to impact, our workforce, supply chain and operating results including our testing volumes, revenues, margins and cash utilization, among other measures. The level and nature of the disruption caused by COVID-19 is unpredictable, may be cyclical and long-lasting and may vary from location to location. As a result of the pandemic, we continue to provide COVID-19 testing. Our Screening and Precision Oncology businesses have been negatively impacted by the pandemic but have in large part recovered. Future outbreaks of COVID-19 and its variants could diminish patients’ and our sales representatives’ access to healthcare provider offices.

Pandemic-related cost inflation and supply chain disruptions, whether caused by restrictions or slowdowns in shipping or logistics, increases in demand for certain goods used in our operations, or otherwise, could impact our operations. In addition, personnel-related costs have continued to rise as a result of the aforementioned inflation, which has and may continue to impact our operations.

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Cologuard Promotion

In March 2022, we announced our partnership with Katie Couric, award winning journalist and colorectal cancer advocate, to continue to highlight the urgent need for people to get screened. Entitled ‘Mission to Screen,’ the year-long marketing and social-media campaign will educate Americans and the importance of early detection, starting colon cancer screening at age 45 for average risk individuals, and the availability of multiple screening options. 'Mission to Screen' will be placed in broadcast and digital outlets. It includes a national television commercial, a website featuring interviews with real doctors and patients, and a social media initiative encouraging people to share their reasons to screen.

Results of Operations

We have generated significant losses since inception and, as of March 31, 2022, we had an accumulated deficit of approximately $2.82 billion. We expect to continue to incur losses for the near future, and it is possible we may never achieve profitability.

Revenue. Our revenue is primarily generated by our laboratory testing services from our Cologuard, Oncotype, and COVID-19 tests.

						Three Months Ended March 31,
Amounts in millions						2022						2021						Change
Screening						$	306.5					$	240.3					$	66.2
Precision Oncology						152.6						129.4						23.2
COVID-19 Testing						27.4						32.3						(4.9)
Total						$	486.5					$	402.0					$	84.5

The increase in Screening revenue, which primarily includes laboratory service revenue from our Cologuard test, was mainly due to an increase in the number of completed Cologuard tests. Improved sales team productivity, increased patients rescreening with our Cologuard test and first-time users in the 45 to 49 age group, and higher electronic ordering rates contributed to the increase in completed Cologuard tests for the three months ended March 31, 2022. Relative recovery from the COVID-19 pandemic contributed to sales team productivity for the three months ended March 31, 2022. The increase in Precision Oncology revenue, which primarily includes laboratory service revenue from our global Oncotype products, was mainly due to an increase in the number of completed Oncotype tests, both domestically and internationally, and revenue generated from new products as a result of our acquisition of Ashion Analytics, LLC (“Ashion”) in the second quarter of 2021. Continued adoption by node-positive patients following the RxPONDER publication in the New England Journal of Medicine also contributed to the increase in completed Oncotype tests for the three months ended March 31, 2022.

We expect revenues to continue to increase in 2022, both from our Screening and Precision Oncology laboratory testing services. We would expect revenue from our COVID-19 testing to decline as the pandemic abates and alternative testing options become more widely available. Our revenues are affected by the test volume of our products, patient adherence rates, payer mix, the levels of reimbursement, our order to cash operations, and payment patterns of payers and patients.

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Cost of sales (exclusive of amortization of acquired intangible assets). Cost of sales includes costs related to inventory production and usage, shipment of collection kits and tissue samples, royalties and the cost of services to process tests and provide results to healthcare providers. The increase in cost of sales is primarily due to an increase in production costs and personnel expenses, which is a direct result of an increase in completed Cologuard and Oncotype tests and the corresponding increase in headcount to support the increase in tests completed. The increase was partially offset by a reduction in the number of COVID-19 tests completed year over year. We expect that cost of sales will generally continue to increase in future periods as a result of an increase in our existing laboratory testing services and as we launch our pipeline products. We also expect to see a corresponding increase in personnel and support services associated with this growth.

						Three Months Ended March 31,
Amounts in millions						2022						2021						Change
Production costs						$	73.3					$	60.6					$	12.7
Personnel expenses						39.1						31.0						8.1
Facility and support services						17.3						14.2						3.1
Stock-based compensation						4.3						4.1						0.2
Other cost of sales expenses						0.7						0.1						0.6
Total cost of sales expense						$	134.7					$	110.0					$	24.7

Research and development expenses. The decrease in research and development expenses was primarily due to the $52.3 million incurred during the three months ended March 31, 2021 for the acquisition of the exclusive license to TARDIS. The acquisition was accounted for as an asset acquisition and is further described in Note 16 of our condensed consolidated financial statements in this Quarterly Report on Form 10-Q. When excluding the impact of this asset acquisition, research and development expenses increased by $38.9 million. The increase in research and development expenses is primarily due to an increase in clinical trial related expenses, which were driven by the BLUE-C study. In addition, personnel related costs increased due to an increase in headcount to support our ongoing clinical trials, which was partially offset by favorable stock-based compensation expense primarily driven by a decrease in expense associated with equity awards issued in connection with the Thrive acquisition. We expect that research and development expenses will generally continue to increase in future periods as we continue to invest to advance new tests.

						Three Months Ended March 31,
Amounts in millions						2022						2021						Change
Direct research and development						$	44.1					$	19.0					$	25.1
Personnel expenses						35.5						21.7						13.8
Stock-based compensation						9.6						14.8						(5.2)
Facility and support services						9.6						6.0						3.6
Professional fees						2.2						1.0						1.2
Other research and development						1.2						0.8						0.4
Licensed technology acquisition						—						52.3						(52.3)
Total research and development expenses						$	102.2					$	115.6					$	(13.4)

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Sales and marketing expenses. The increase in sales and marketing expenses was primarily due to an increase in direct marketing spend to support the future growth of our products and increased personnel expenses and stock-based compensation as a result of an increase in headcount, including the approximately 400 former Pfizer, Inc. (“Pfizer”) sales representatives that were onboarded in the third quarter of 2021. This increase was partially offset by a decrease in professional and legal fees primarily due to a decrease in expenses incurred related to our promotion agreement with Pfizer, which was amended in the fourth quarter of 2021 as further discussed in Note 11 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. We expect that sales and marketing expenses will generally continue to increase in future periods to support the expected future growth of our Cologuard, Oncotype, and pipeline products. We expect sales and marketing expenses to decrease as a percentage of revenue over time.

						Three Months Ended March 31,
Amounts in millions						2022						2021						Change
Personnel expenses						$	122.9					$	85.0					$	37.9
Direct marketing costs						64.3						41.4						22.9
Professional and legal fees						18.2						27.6						(9.4)
Stock-based compensation						15.0						13.2						1.8
Facility and support services						10.5						17.7						(7.2)
Other sales and marketing expenses						1.3						1.2						0.1
Total sales and marketing expenses						$	232.2					$	186.1					$	46.1

General and administrative expenses. The decrease in general and administrative expenses was primarily due to lower acquisition and integration related costs in the three months ended March 31, 2022, as compared to the prior year period. We incurred $115.0 million in acquisition and integration related costs incurred during the three months ended March 31, 2021 as part of our acquisition of Thrive in January 2021, which primarily consisted of integration related stock-based compensation and professional and legal fees incurred. Acquisition and integration related costs were not significant for the three months ended March 31, 2022. When excluding the impact of acquisition and integration related costs, personnel expenses increased due to an increase in headcount to prepare for future growth in our operations and from our recent acquisitions. In addition, facility and support services increased to support the build out of our facilities and our increased headcount. The decrease in other general and administrative expenses is primarily due to a gain of $26.7 million recorded during the three months ended March 31, 2022 as a result of the change in fair value of our outstanding contingent consideration as further described in Note 7 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. We expect significant leverage in general and administrative expenses going forward, but expenses will generally continue to increase in future periods due to an increase in headcount that will be necessary to support the growth in our existing and pipeline products.

						Three Months Ended March 31,
Amounts in millions						2022						2021						Change
Personnel expenses						$	100.5					$	72.5					$	28.0
Facility and support services						31.7						15.2						16.5
Professional and legal fees						26.9						35.3						(8.4)
Stock-based compensation						23.5						131.4						(107.9)
Other general and administrative						(12.8)						13.3						(26.1)
Total general and administrative expenses						$	169.8					$	267.7					$	(97.9)

Amortization of acquired intangible assets. Amortization of acquired intangible assets increased to $24.7 million for the three months ended March 31, 2022 compared to $23.2 million for the three months ended March 31, 2021. The increase in amortization of acquired intangible assets was due to the amortization of intangible assets acquired as part of our acquisitions of Ashion in April 2021 and PreventionGenetics in December 2021.

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Investment income (expense), net. For the three months ended March 31, 2022, we had net investment expense of $1.5 million, compared to net investment income of $31.2 million for the three months ended March 31, 2021. The net investment expense for the three months ended March 31, 2022 was primarily due to losses recorded on our equity securities. Net investment income for the three months ended March 31, 2021 was primarily due to the realized gain of $30.5 million that was recorded on our preferred stock investment in Thrive at closing in January 2021, which represented the adjustment to our historical investment to its fair value prior to our acquisition of Thrive. Our acquisition of Thrive is further described in Note 19 of our most recently filed Form 10-K for the year ended December 31, 2021.

Interest expense. Interest expense decreased to $4.5 million for the three months ended March 31, 2022 compared to $4.6 million for the three months ended March 31, 2021. Interest expense recorded from our outstanding convertible notes totaled $4.0 million during each of the three months ended March 31, 2022 and 2021. The convertible notes are further described in Note 9 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. In addition, we recognized an immaterial amount of interest expense relating to stated interest expense on our finance leases for the three months ended March 31, 2022 and 2021.

Income tax benefit. Income tax benefit decreased to $2.0 million for the three months ended March 31, 2022 compared to $242.8 million for the three months ended March 31, 2021. This decrease in income tax benefit is primarily due to an income tax benefit of $239.2 million recorded during the three months ended March 31, 2021, as a result of the change in the deferred tax asset valuation allowance resulting from the acquisition of Thrive.

Liquidity and Capital Resources

Overview

We have incurred losses and negative cash flows from operations since our inception, and have historically financed our operations primarily through public offerings of our common stock and convertible debt and through revenue generated by the sale of our laboratory testing services. We expect our operating expenditures to continue to increase to support future growth of our laboratory testing services, as well as an increase in research and development and clinical trial costs to support the advancement of our pipeline products and bringing new tests to market. We expect that cash and cash equivalents and marketable securities on hand at March 31, 2022, along with cash flows generated through our operations, will be sufficient to fund our current operations for at least the next twelve months based on current operating plans. Our revolving loan provides us with a revolving line of credit of up to $150.0 million. Our revolving loan agreement is collateralized by our marketable securities held by PNC Bank, National Association, which must continue to maintain a minimum market value of $150.0 million. We may raise additional capital to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons. If we are unable to obtain sufficient additional funds to enable us to fund our planned operations, our results of operations and financial condition could be materially adversely affected, and we may be required to delay the implementation of our plans or otherwise scale back our operations. There can be no certainty that we will ever be successful in generating sufficient cash flow from operations to achieve and maintain profitability and meet all of our obligations as they come due.

Cash, Cash Equivalents and Marketable Securities

As of March 31, 2022, we had approximately $189.8 million in unrestricted cash and cash equivalents and approximately $627.2 million in marketable securities.

The majority of our investments in marketable securities consist of fixed income investments, and all are deemed available-for-sale. The objectives of this portfolio are to provide liquidity and safety of principal while striving to achieve the highest rate of return. Our investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer.

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Cash Flows

						Three Months Ended March 31,
Amounts In millions						2022						2021
Net cash used in operating activities						$	(173.8)					$	(77.2)
Net cash provided by (used in) investing activities						45.6						(317.5)
Net cash provided by financing activities						2.7						7.2

Operating activities

The increase in cash used in operating activities for the three months ended March 31, 2022 was primarily due to an increase in cash payments made related to expenses necessary to process our tests and an increase in operating expenses to prepare for future growth of our operations. This was partially offset by an increase in revenue, which was driven by an increase in completed Cologuard and Oncotype tests.

Investing activities

Cash provided by investing activities for the three months ended March 31, 2022, was primarily due to a net cash inflow from purchases, sales, and maturities of marketable securities of $80.4 million, which was partially offset by purchases of property and equipment of $33.6 million. Cash used in investing activities for the three months ended March 31, 2021, consisted primarily of our acquisition of Thrive of $343.2 million, our TARDIS license asset acquisition of $25.0 million, purchases of property and equipment of $12.9 million, and investments in privately held companies of $10.0 million.

Financing activities

The cash provided by financing activities during the three months ended March 31, 2022 consisted of proceeds of $4.3 million from the exercise of stock options, which was partially offset by cash outflows of $1.5 million for other financing activities. The cash provided by financing activities for the three months ended March 31, 2021 consisted of proceeds of $8.8 million from the exercise of stock options, which was partially offset by $1.5 million for other financing activities.

Material Cash Requirements

A discussion of our material cash requirements as of December 31, 2021 was provided in the Management’s Discussion and Analysis of Financial Condition and Results of Operation of our 2021 Form 10-K. There were no material changes outside the ordinary course of our business in our specified material cash requirements during the three months ended March 31, 2022.

As of March 31, 2022, we had no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and on various other factors that are believed to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 1 of our financial statements included in our 2021 Form 10-K, as well as our Management’s Discussion and Analysis of Financial Condition and Results of Operations on our 2021 Form 10-K, we believe that the following judgments are most critical to aid in fully understanding and evaluating our reported financial results.

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Revenue Recognition. We recognize revenues when we release a result to the ordering healthcare provider, in an amount that reflects the consideration we expect to collect in exchange for those services. The amount of revenue we recognize is based on the established billing rates less contractual and other adjustments, which yields the unconstrained amount that we expect to ultimately collect.

We determine the amount we expect to ultimately collect using historical collections, established reimbursement rates, and other adjustments. Any changes in these inputs would ultimately impact the amount of revenue recognized during the period. The expected amount is typically lower than, if applicable, the agreed-upon reimbursement amount due to several factors, such as the amount of any patient co-payments, out-of-network payers, the existence of secondary payers, and claim denials. The consideration derived from our contracts is fixed when we contract with a direct bill payer. Our ability to collect is not contingent on the customer’s ability to collect through their downstream billing efforts.

In the case of some of our agreements, the right to bill and collect exists prior to the receipt of a specimen and release of a test result to the ordering healthcare provider, which results in deferred revenue. The deferred revenue balance is generally relieved upon the release of the applicable patient’s test result to the ordering healthcare provider or as of the date the customer has surpassed the window of time in which they are able to exercise their rights for testing services. We believe these points in time represent our fulfillment of our obligations to the customer.

The quality of our billing operations, most notably those activities that relate to obtaining the correct information in order to bill effectively for services provided, directly impacts the collectability of our receivables and revenue estimates. As such, we continually assess the state of our order to cash operations in order to identify areas of risk and opportunity that allow us to appropriately estimate receivables and revenue. Upon ultimate collection, the aggregate amount received from payers and patients where reimbursement was estimated is compared to previous collection estimates and, if necessary, the transaction price is adjusted. Finally, should we later determine the judgments underlying estimated collections change, our financial results could be negatively impacted in future quarters.

Tax Positions. We record a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

We compute our provision for income taxes based on the statutory tax rates and tax planning opportunities available to us in the various jurisdictions that we operate. Judgment is required in evaluating our tax positions and determining our annual tax provision.

We have incurred significant losses since our inception and due to the uncertainty of the amount and timing of future taxable income, it may be necessary to record an allowance to reduce the tax assets we have recognized.

Management has determined that a valuation allowance is necessary to reduce the tax assets to the amount that is more likely than not to be realized. Based on this determination, we continue to maintain a full valuation allowance against its deferred tax assets. Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact our effective tax rate.

Business Combinations and Asset Acquisitions. We account for acquired businesses using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Goodwill is the residual after allocating the purchase price to net assets acquired, unless the transaction is an asset acquisition in which the excess is allocated to acquired assets on a relative fair value basis. Determining the fair value of identifiable assets and liabilities, particularly intangible assets and contingent consideration, requires management to make significant judgements and estimates.

Key assumptions used to value our finite lived intangible assets acquired through business combinations include projected revenue growth, projected gross margin and operating expenses, discount rates, terminal growth rate, and other factors. We believe that the estimates applied are based on reasonable assumptions, but the estimates are inherently uncertain. As a result, the actual results may differ from the assumptions and judgments used to determine fair value of the assets acquired, which could result in material impairment charges in the future. Determining the useful life of the developed technology also requires judgment and actual useful life may differ.

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In-process research and development (“IPR&D”) assets may be identified as a result of business combinations. There are major risks and uncertainties associated with IPR&D due to the regulatory approvals needed, which rely on the success of clinical trials that demonstrate product effectiveness. Key assumptions used to calculate the fair value of the IPR&D asset included inputs such as projected revenues, gross margin, required rate of return, tax rate, probability of commercial success, and obsolescence factor. We believe that the estimates applied are based on reasonable assumptions, but the estimates are inherently uncertain. As a result, the eventual realized value of the IPR&D project may vary from its fair value at the date of acquisition, and material IPR&D impairment charges may occur in future periods.

Business Combinations may include contingent consideration to be paid based on the occurrence of future events, such as the achievement of certain development, regulatory and sales milestones. Contingent consideration is a financial liability recorded at fair value at the acquisition date. The estimate of fair value contains uncertainties as it involves judgement about the likelihood and timing of achieving milestones as well as the present-value factor.

Remeasurement of Contingent Consideration. We remeasure the fair value of outstanding contingent consideration liabilities at each reporting period. The estimate of fair value contains uncertainties as it involves judgement about the likelihood and timing of achieving milestones as well as the present-value factor. A change in the probability of success assumption could have a material impact on the estimated fair value.

Impairment of Indefinite-Lived Assets. We test indefinite-lived assets for impairment on an annual basis during the fourth quarter, or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Based on the qualitative assessment, if it is determined that the fair value of indefinite-lived intangible assets is more likely than not to be less than its carrying amount, the fair value will be calculated and compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value. Determining whether impairment indicators exist and estimating the fair value of our indefinite-lived intangible assets if necessary for impairment testing requires significant judgment. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors. We also perform our annual IPR&D assessment using a qualitative assessment. Qualitative factors considered in this assessment include industry and market conditions, financial and strategic factors, the status of product development, and the consideration of legal, competitive, regulatory, and technical risks. There were no events or changes in circumstances that indicated that the carrying amount of our indefinite-lived assets may not be recoverable in the first quarter of 2022.

Impairment of Long-Lived Assets. We evaluate the fair value of long-lived assets, which include property, plant and equipment, finite-lived intangible assets, and investments in privately held companies, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. The review of qualitative factors requires significant judgement. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Recent Accounting Pronouncements

See Note 1 in the Notes to Condensed Consolidated Financial Statements for the discussion of Recent Accounting Pronouncements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our exposure to market risk is principally confined to our cash, cash equivalents and marketable securities. We invest our cash, cash equivalents, and marketable securities in securities of the U.S. governments and its agencies and in investment-grade, highly liquid investments consisting of commercial paper, bank certificates of deposit, and corporate bonds, which as of March 31, 2022 and December 31, 2021 were classified as available-for-sale. We place our cash, cash equivalents, restricted cash, and marketable securities with high-quality financial institutions, limit the amount of credit exposure to any one institution, and have established investment guidelines relative to diversification and maturities designed to maintain safety and liquidity.

Based on a hypothetical ten percent adverse movement in interest rates, the potential losses in future earnings, fair value of risk-sensitive financial instruments, and cash flows are immaterial, although the actual effects may differ materially from the hypothetical analysis. While we believe our cash, cash equivalents, restricted cash, and marketable securities do not contain excessive risk, we cannot provide absolute assurance that, in the future, our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash, cash equivalents, restricted cash, and marketable securities at one or more financial institutions that are in excess of federally insured limits. Given the potential instability of financial institutions, we cannot provide assurance that we will not experience losses on these deposits. We do not utilize interest rate hedging agreements or other interest rate derivative instruments.

A hypothetical ten percent change in interest rates would not have a material adverse impact on our future operating results or cash flows. All of our significant interest-bearing liabilities bear interest at fixed rates and therefore are not subject to fluctuations in market interest rates; however, because these interest rates are fixed, we may be paying a higher interest rate, relative to market, in the future if circumstances change.

Foreign Currency Risk

The functional currency for most of our international subsidiaries is the U.S. dollar, and as a result we are not subject to material gains and losses from foreign currency translation of the subsidiary financial statements. Substantially all of our revenues are recognized in U.S. dollars, although a small portion is denominated in foreign currency as we continue to expand into markets outside of the U.S. Certain expenses related to our international activities are payable in foreign currencies. As a result, factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets will affect our financial results.

We enter into forward contracts to mitigate the impact of adverse movements in foreign exchange rates related to the re-measurement of monetary assets and liabilities and hedge our foreign currency exchange rate exposure. As of March 31, 2022, we had open foreign currency forward contracts with notional amounts of $48.9 million. Although the impact of currency fluctuations on our financial results has been immaterial in the past, there can be no guarantee that the impact of currency fluctuations related to our international activities will not be material in the future.

Item 4. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our principal executive officer and our principal financial officer concluded that, as of March 31, 2022, our disclosure controls and procedures were effective. Disclosure controls and procedures enable us to record, process, summarize and report information required to be included in our Exchange Act filings within the required time period. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the periodic reports filed with the SEC is accumulated and communicated to our management, including our principal executive, financial and accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There have been no significant changes in internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II - Other Information

Item 1. Legal Proceedings

From time to time we are a party to various legal proceedings arising in the ordinary course of our business. Legal proceedings, including litigation, government investigations and enforcement actions could result in material costs, occupy significant management resources and entail civil and criminal penalties. The information called for by this item is incorporated by reference to the information in Note 14 of the Notes to Condensed Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this report, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I, “Item 1A. Risk Factors” in the 2021 Form 10-K and in Part II, “Item 1A. Risk Factors” in our subsequently filed Quarterly Reports on Form 10-Q. Other than the factors set forth below, there have been no material changes to the risk factors described in the 2021 Form 10-K.

The ongoing military action by Russia in Ukraine could have negative impact on the global economy which could materially adversely affect our business, operations, operating results and financial condition.

On February 24, 2022, Russian forces launched significant military action against Ukraine, and sustained conflict and disruption in the region is possible. The impact to Ukraine as well as actions taken by other countries, including new and stricter sanctions imposed by Canada, the United Kingdom, the European Union, the U.S. and other countries and companies and organizations against officials, individuals, regions, and industries in Russia and Ukraine, and actions taken by Russia in response to such sanctions, and each country’s potential response to such sanctions, tensions, and military actions could adversely affect the global economy and financial markets and thus could affect our business, operations, operating results and financial condition as well as the price of our common stock and our ability to raise additional capital when needed on acceptable terms. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions caused by Russian military action or resulting sanctions may magnify the impact of other risks described in our Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

The following documents are filed as part of this Form 10-Q.

Exhibit Number

Exhibit Description

Filed with This Report

Incorporated by Reference herein from Form or Schedule

Filing Date

SEC File / Registration Number

3.1

Sixth Amended and Restated Certificate of Incorporation of the Registrant

S-1 (Exhibit 3.3)

12/4/2000

333-48812

3.2

Amendment to Sixth Amended and Restated Certificate of Incorporation of the Registrant

8-K (Exhibit 3.1)

7/24/2020

001-35092

3.3

Sixth Amended and Restated By-Laws of the Registrant

8-K (Exhibit 3.1)

1/28/2022

001-35092

10.1

2010 Employee Stock Purchase Plan (As Amended and Restated on March 11, 2022)*

X

10.2

Non-Employee Director Compensation Policy dated January 25, 2022*

X

31.1

Certification Pursuant to Rule 13(a)-14(a) or Rule 15d-14(a) of Securities Exchange Act of 1934

X

31.2

Certification Pursuant to Rule 13(a)-14(a) or Rule 15d-14(a) of Securities Exchange Act of 1934

X

32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

101

The following materials from the Quarterly Report on Form 10-Q of Exact Sciences Corporation for the quarter ended March 31, 2022 filed on April 26, 2022, formatted in Inline eXtensible Business Reporting Language (“iXBRL”): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statement of Changes in Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) related notes to these financial statements

X

104

The cover page from our Quarterly Report for the period ended March 31, 2022, filed with the Securities and Exchange Commission on April 26, 2022, is formatted in Inline Extensible Business Reporting Language (“iXBRL”)

X

(*) Indicates a management contract or any compensatory plan, contract or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

						EXACT SCIENCES CORPORATION
Date: April 26, 2022			By:			/s/ Kevin T. Conroy
						Kevin T. Conroy
						President and Chief Executive Officer (Principal Executive Officer)
Date: April 26, 2022			By:			/s/ Jeffrey T. Elliott
						Jeffrey T. Elliott
						Executive Vice President, Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer)

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