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 ~~September~~June 30, ~~2021~~2022

☐ 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 ~~November~~August 1, ~~2021,~~2022, the registrant had ~~172,318,821~~176,959,543 shares of common stock outstanding.

EXACT SCIENCES CORPORATION

INDEX


		Page Number
	Part I - Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets (unaudited) as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021	3

	Condensed Consolidated Statements of Operations (unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	4

	Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	5

	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	6

	Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4337

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5551

Item 4.	Controls and Procedures	5552

	Part II - Other Information

Item 1.	Legal Proceedings	5753

Item 1A.	Risk Factors	5753

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6055

Item 3.	Defaults Upon Senior Securities	6055

Item 4.	Mine Safety Disclosures	6055

Item 5	Other Information	6055

Item 6.	Exhibits	6156

	Signatures	6257

Table of Contents

EXACT SCIENCES CORPORATION

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share data - unaudited)

Part I — Financial Information


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	273,779	$	1,491,288	Cash and cash equivalents	$	213,421	$	315,471
Marketable securities	Marketable securities	944,688		348,699		Marketable securities	514,623		715,005
Accounts receivable, net	Accounts receivable, net	249,572		233,185		Accounts receivable, net	186,542		216,645
Inventory	Inventory	95,167		92,265		Inventory	115,172		104,994
Prepaid expenses and other current assets	Prepaid expenses and other current assets	52,385		33,157		Prepaid expenses and other current assets	71,875		74,122
Total current assets	Total current assets	1,615,591		2,198,594		Total current assets	1,101,633		1,426,237
Long-term Assets:	Long-term Assets:					Long-term Assets:
Property, plant and equipment, net	Property, plant and equipment, net	524,200		451,986		Property, plant and equipment, net	663,653		580,248
Operating lease right-of-use assets	Operating lease right-of-use assets	167,911		125,947		Operating lease right-of-use assets	182,494		174,225
Goodwill	Goodwill	2,242,535		1,237,672		Goodwill	2,345,922		2,335,172
Intangible assets, net	Intangible assets, net	2,044,958		847,123		Intangible assets, net	2,046,773		2,094,411
Other long-term assets, net	Other long-term assets, net	59,241		63,770		Other long-term assets, net	96,680		74,591
Total assets	Total assets	$	6,654,436	$	4,925,092	Total assets	$	6,437,155	$	6,684,884
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Accounts payable	Accounts payable	$	41,717	$	35,709	Accounts payable	$	84,167	$	67,829
Accrued liabilities	Accrued liabilities	304,714		233,604		Accrued liabilities	308,219		398,556
Operating lease liabilities, current portion	Operating lease liabilities, current portion	19,220		11,483		Operating lease liabilities, current portion	25,813		19,710
Debt, current portion		1,319		1,319
Convertible notes, net, current portion		313,104		312,716
Other current liabilities	Other current liabilities	30,157		38,265		Other current liabilities	25,132		30,973
Total current liabilities	Total current liabilities	710,231		633,096		Total current liabilities	443,331		517,068
Long-term Liabilities:	Long-term Liabilities:					Long-term Liabilities:
Convertible notes, net, less current portion		1,865,647		1,861,685
Long-term debt, less current portion		21,438		22,342
Convertible notes, net						Convertible notes, net	2,183,145		2,180,232
Long-term debt						Long-term debt	50,000		—
Other long-term liabilities	Other long-term liabilities	436,580		51,342		Other long-term liabilities	364,107		417,782
Operating lease liabilities, less current portion	Operating lease liabilities, less current portion	162,950		121,075		Operating lease liabilities, less current portion	187,226		182,166
Total liabilities	Total liabilities	3,196,846		2,689,540		Total liabilities	3,227,809		3,297,248
Commitments and contingencies (Note 14)	Commitments and contingencies (Note 14)	0		0		Commitments and contingencies (Note 14)	0		0
Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—no shares at September 30, 2021 and December 31, 2020		—		—
Common stock, $0.01 par value Authorized—400,000,000 shares issued and outstanding—172,242,798 and 159,423,410 shares at September 30, 2021 and December 31, 2020		1,723		1,595
Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—no shares at June 30, 2022 and December 31, 2021						Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—no shares at June 30, 2022 and December 31, 2021	—		—
Common stock, $0.01 par value Authorized—400,000,000 shares issued and outstanding—176,801,434 and 173,674,067 shares at June 30, 2022 and December 31, 2021						Common stock, $0.01 par value Authorized—400,000,000 shares issued and outstanding—176,801,434 and 173,674,067 shares at June 30, 2022 and December 31, 2021	1,769		1,738
Additional paid-in capital	Additional paid-in capital	5,876,644		4,279,327		Additional paid-in capital	6,204,742		6,028,861
Accumulated other comprehensive income		133		526
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(8,645)		(1,443)
Accumulated deficit	Accumulated deficit	(2,420,910)		(2,045,896)		Accumulated deficit	(2,988,520)		(2,641,520)
Total stockholders’ equity	Total stockholders’ equity	3,457,590		2,235,552		Total stockholders’ equity	3,209,346		3,387,636
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	6,654,436	$	4,925,092	Total liabilities and stockholders’ equity	$	6,437,155	$	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 September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenue	Revenue	$	456,379	$	408,363	$	1,293,275	$	1,025,052	Revenue	$	521,640	$	434,819	$	1,008,211	$	836,896

Operating expenses	Operating expenses									Operating expenses
Cost of sales (exclusive of amortization of acquired intangible assets)	Cost of sales (exclusive of amortization of acquired intangible assets)	115,738		95,061		339,699		254,559		Cost of sales (exclusive of amortization of acquired intangible assets)	144,600		113,968		279,305		223,961
Research and development	Research and development	75,356		31,471		297,158		107,653		Research and development	106,083		106,235		208,331		221,802
Sales and marketing	Sales and marketing	196,617		136,481		577,585		423,092		Sales and marketing	215,922		194,827		448,103		380,968
General and administrative	General and administrative	186,541		115,589		621,897		336,265		General and administrative	181,672		167,629		351,442		435,356
Amortization of acquired intangible assets	Amortization of acquired intangible assets	23,940		23,430		70,954		70,199		Amortization of acquired intangible assets	26,356		23,824		51,010		47,014
Intangible asset impairment charge	Intangible asset impairment charge	20,210		209,666		20,210		209,666		Intangible asset impairment charge	6,591		—		6,591		—
Total operating expenses	Total operating expenses	618,402		611,698		1,927,503		1,401,434		Total operating expenses	681,224		606,483		1,344,782		1,309,101

Other operating income		—		—		—		23,665
Loss from operations	Loss from operations	(162,023)		(203,335)		(634,228)		(352,717)		Loss from operations	(159,584)		(171,664)		(336,571)		(472,205)

Other income (expense)	Other income (expense)									Other income (expense)
Investment income (expense), net	Investment income (expense), net	(4,093)		2,523		30,524		5,532		Investment income (expense), net	(3,719)		3,429		(5,206)		34,617
Interest expense	Interest expense	(4,680)		(4,478)		(13,948)		(63,382)		Interest expense	(4,511)		(4,652)		(8,989)		(9,268)
Total other income (expense)	Total other income (expense)	(8,773)		(1,955)		16,576		(57,850)		Total other income (expense)	(8,230)		(1,223)		(14,195)		25,349

Net loss before tax	Net loss before tax	(170,796)		(205,290)		(617,652)		(410,567)		Net loss before tax	(167,814)		(172,887)		(350,766)		(446,856)

Income tax benefit		3,858		2,752		242,638		5,294
Income tax benefit (expense)										Income tax benefit (expense)	1,751		(4,025)		3,766		238,780

Net loss	Net loss	$	(166,938)	$	(202,538)	$	(375,014)	$	(405,273)	Net loss	$	(166,063)	$	(176,912)	$	(347,000)	$	(208,076)

Net loss per share—basic and diluted	Net loss per share—basic and diluted	$	(0.97)	$	(1.35)	$	(2.19)	$	(2.71)	Net loss per share—basic and diluted	$	(0.94)	$	(1.03)	$	(1.98)	$	(1.22)

Weighted average common shares outstanding—basic and diluted	Weighted average common shares outstanding—basic and diluted	171,978		150,155		170,978		149,346		Weighted average common shares outstanding—basic and diluted	176,364		171,494		175,396		170,469

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 September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net loss $ (166,938) $ (202,538) $ (375,014) $ (405,273)
Other comprehensive income (loss), before tax:
Unrealized gain (loss) on available-for-sale investments 66 (405) (563) 1,159
Foreign currency adjustment — — — 25
Comprehensive loss, before tax (166,872) (202,943) (375,577) (404,089)
Income tax expense related to items of other comprehensive loss — — 170 —
Comprehensive loss, net of tax $ (166,872) $ (202,943) $ (375,407) $ (404,089)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net loss	$	(166,063)	$	(176,912)	$	(347,000)	$	(208,076)
Other comprehensive loss, before tax:
Unrealized loss on available-for-sale investments	(1,488)		(297)		(6,455)		(629)
Foreign currency translation loss	(510)		—		(747)		—
Comprehensive loss, before tax	(168,061)		(177,209)		(354,202)		(208,705)
Income tax benefit related to items of other comprehensive loss	—		—		—		170
Comprehensive loss, net of tax	$	(168,061)	$	(177,209)	$	(354,202)	$	(208,535)

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				Common Stock					Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity
		Number of Shares	$0.01 Par Value								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
Conversion of convertible notes, net of tax		344	—		26				—			—				26
Balance, January 1, 2022																			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	Exercise of common stock options	967,107	10		8,749				—			—				8,759			Exercise of common stock options	485,537			5		4,277			—			—			4,282
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	Compensation expense related to issuance of stock options and restricted stock awards	1,355,435	13		158,239				—			—				158,252			Compensation expense related to issuance of stock options and restricted stock awards	1,391,797			14		52,427			—			—			52,441
Issuance of common stock for business combination and asset acquisition		9,384,410	94		1,254,704				—			—				1,254,798
Other																			Other	7			—		(7)			—			—			(7)
Net loss	Net loss	—	—		—				—			(31,164)				(31,164)			Net loss	—			—		—			—			(180,937)			(180,937)
Other comprehensive loss	Other comprehensive loss	—	—		—				(162)			—				(162)			Other comprehensive loss	—			—		—			(5,204)			—			(5,204)
Balance, March 31, 2021		171,293,312	$	1,714	$	5,723,977			$	364		$	(2,077,060)			$	3,648,995
Conversion of convertible notes, net of tax		197	—		14				—			—				14
Balance, March 31, 2022																			Balance, March 31, 2022	175,551,408			$	1,757	$	6,085,558		$	(6,647)		$	(2,822,457)		$	3,258,211
Exercise of common stock options	Exercise of common stock options	140,478	1		2,857				—			—				2,858			Exercise of common stock options	84,485			1		742			—			—			743
Issuance of common stock to fund the Company’s 2021 401(k) match																			Issuance of common stock to fund the Company’s 2021 401(k) match	391,129			4		29,198			—			—			29,202
Compensation expense related to issuance of stock options and restricted stock awards	Compensation expense related to issuance of stock options and restricted stock awards	121,575	2		56,283				—			—				56,285			Compensation expense related to issuance of stock options and restricted stock awards	183,095			2		58,930			—			—			58,932
Issuance of common stock for business combinations	Issuance of common stock for business combinations	126,026	1		16,119				—			—				16,120			Issuance of common stock for business combinations	265,186			2		14,788			—			—			14,790
Purchase of employee stock purchase plan shares	Purchase of employee stock purchase plan shares	173,717	2		12,036				—			—				12,038			Purchase of employee stock purchase plan shares	326,131			3		15,526			—			—			15,529
Net loss	Net loss	—	—		—				—			(176,912)				(176,912)			Net loss	—			—		—			—			(166,063)			(166,063)
Other comprehensive loss	Other comprehensive loss	—	—		—				(297)			—				(297)			Other comprehensive loss	—			—		—			(1,998)			—			(1,998)
Balance, June 30, 2021		171,855,305	$	1,720	$	5,811,286			$	67		$	(2,253,972)			$	3,559,101
Conversion of convertible notes, net of tax		39	—		3				—			—				3
Exercise of common stock options		100,474	1		1,754				—			—				1,755
Compensation expense related to issuance of stock options and restricted stock awards		286,980	2		63,601				—			—				63,603
Net loss		—	—		—				—			(166,938)				(166,938)
Other comprehensive income		—	—		—				66			—				66
Balance, September 30, 2021		172,242,798	$	1,723	$	5,876,644			$	133		$	(2,420,910)			$	3,457,590
Balance, June 30, 2022																			Balance, June 30, 2022	176,801,434			$	1,769	$	6,204,742		$	(8,645)		$	(2,988,520)		$	3,209,346

~~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				Common Stock					Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity
		Number of Shares	$0.01 Par Value								Number of Shares								$0.01 Par Value
Balance, January 1, 2020		147,625,696	$	1,477			$	3,178,552						$	(100)			$	(1,222,290)		$	1,957,639
Balance, January 1, 2021																			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																			Settlement of convertible notes, net of tax	344			—		26			—			—			26
Exercise of common stock options	Exercise of common stock options	160,286	2		4,298				—			—				4,300			Exercise of common stock options	967,107			10		8,749			—			—			8,759
Issuance of common stock to fund the Company’s 2019 401(k) match		136,559	1		12,006				—			—				12,007
Issuance of common stock to fund the Company’s 2020 401(k) match																			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	Compensation expense related to issuance of stock options and restricted stock awards	1,141,376	11		29,549				—			—				29,560			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		382,947	4		28,593				—			—				28,597
Issuance of common stock for business combinations, net of issuance costs																			Issuance of common stock for business combinations, net of issuance costs	9,384,410			94		1,254,704			—			—			1,254,798
Net loss	Net loss	—	—		—				—			(134,643)				(134,643)			Net loss	—			—		—			—			(31,164)			(31,164)
Other comprehensive loss	Other comprehensive loss	—	—		—				(1,617)			—				(1,617)			Other comprehensive loss	—			—		—			(162)			—			(162)
Balance, March 31, 2020		149,446,864	$	1,495	$	3,252,998			$	(1,717)		$	(1,356,933)			$	1,895,843
Exercise of common stock options		208,434	2		6,636				—			—				6,638
Compensation expense related to issuance of stock options and restricted stock awards		157,579	2		40,037				—			—				40,039
Purchase of employee stock purchase plan shares		167,921	2		9,797				—			—				9,799
Net loss		—	—		—				—			(68,092)				(68,092)
Other comprehensive income		—	—		—				3,206			—				3,206
Balance, June 30, 2020		149,980,798	$	1,501	$	3,309,468			$	1,489		$	(1,425,025)			$	1,887,433
Balance, March 31, 2021																			Balance, March 31, 2021	171,293,312			$	1,714	$	5,723,977		$	364		$	(2,077,060)		$	3,648,995
Settlement of convertible notes, net of tax																			Settlement of convertible notes, net of tax	197			—		14			—			—			14
Exercise of common stock options	Exercise of common stock options	140,145	1		4,469				—			—				4,470			Exercise of common stock options	140,478			1		2,857			—			—			2,858
Compensation expense related to issuance of stock options and restricted stock awards	Compensation expense related to issuance of stock options and restricted stock awards	249,197	2		41,474				—			—				41,476			Compensation expense related to issuance of stock options and restricted stock awards	121,575			2		56,283			—			—			56,285
Issuance of common stock for business combinations	Issuance of common stock for business combinations	3,346	1		249				—			—				250			Issuance of common stock for business combinations	126,026			1		16,119			—			—			16,120
Purchase of employee stock purchase plan shares																			Purchase of employee stock purchase plan shares	173,717			2		12,036			—			—			12,038
Net loss	Net loss	—	—		—				—			(202,538)				(202,538)			Net loss	—			—		—			—			(176,912)			(176,912)
Other comprehensive loss	Other comprehensive loss	—	—		—				(405)			—				(405)			Other comprehensive loss	—			—		—			(297)			—			(297)
Balance, September 30, 2020		150,373,486	$	1,505	$	3,355,660			$	1,084		$	(1,627,563)			$	1,730,686
Balance, June 30, 2021																			Balance, June 30, 2021	171,855,305			$	1,720	$	5,811,286		$	67		$	(2,253,972)		$	3,559,101

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)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2021		2020			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(375,014)	$	(405,273)	Net loss	$	(347,000)	$	(208,076)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:					Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		64,267		53,345
Depreciation						Depreciation	48,498		42,007
Loss on disposal of property, plant and equipment	Loss on disposal of property, plant and equipment	928		930		Loss on disposal of property, plant and equipment	166		639
Unrealized (gain) loss on equity investments	Unrealized (gain) loss on equity investments	1,937		(1,183)		Unrealized (gain) loss on equity investments	4,247		(2,486)
Deferred tax benefit	Deferred tax benefit	(248,716)		(6,161)		Deferred tax benefit	(4,940)		(244,509)
Stock-based compensation	Stock-based compensation	197,180		111,075		Stock-based compensation	111,373		133,577
Post-combination expense for acceleration of unvested equity	Post-combination expense for acceleration of unvested equity	80,960		—		Post-combination expense for acceleration of unvested equity	—		80,960
Realized gain on preferred stock investment	Realized gain on preferred stock investment	(30,500)		—		Realized gain on preferred stock investment	—		(30,500)
Loss on settlement of convertible notes		—		50,819
Amortization of deferred financing costs, convertible note debt discount and issuance costs, and other liabilities	Amortization of deferred financing costs, convertible note debt discount and issuance costs, and other liabilities	4,948		340		Amortization of deferred financing costs, convertible note debt discount and issuance costs, and other liabilities	3,420		3,282
Amortization of premium on short-term investments	Amortization of premium on short-term investments	3,265		1,040		Amortization of premium on short-term investments	1,493		1,616
Amortization of acquired intangible assets	Amortization of acquired intangible assets	70,954		70,199		Amortization of acquired intangible assets	51,010		47,014
Intangible asset impairment charge	Intangible asset impairment charge	20,210		209,666		Intangible asset impairment charge	6,591		—
Asset acquisition IPR&D expense	Asset acquisition IPR&D expense	85,337		—		Asset acquisition IPR&D expense	—		85,337
Remeasurement of contingent consideration	Remeasurement of contingent consideration	10,986		—		Remeasurement of contingent consideration	(51,759)		9,201
Non-cash lease expense	Non-cash lease expense	18,347		11,041		Non-cash lease expense	17,281		11,837
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable, net	Accounts receivable, net	(14,038)		(73,642)		Accounts receivable, net	30,632		8,995
Inventory, net	Inventory, net	(1,091)		(18,472)		Inventory, net	(10,178)		4,267
Operating lease liabilities	Operating lease liabilities	(11,834)		(6,135)		Operating lease liabilities	(10,668)		(7,095)
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	64,344		(7,608)		Accounts payable and accrued liabilities	(79,339)		27,138
Other assets and liabilities	Other assets and liabilities	(20,134)		35,097		Other assets and liabilities	(5,497)		(94)
Net cash provided by (used in) operating activities		(77,664)		25,078
Net cash used in operating activities						Net cash used in operating activities	(234,670)		(36,890)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of marketable securities	Purchases of marketable securities	(1,021,557)		(890,012)		Purchases of marketable securities	(79,110)		(915,289)
Maturities and sales of marketable securities	Maturities and sales of marketable securities	424,830		559,907		Maturities and sales of marketable securities	269,310		325,380
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(76,374)		(48,371)		Purchases of property, plant and equipment	(96,949)		(37,504)
Business combination, net of cash acquired		(415,549)		(6,658)
Business combination, net of cash acquired and issuance costs						Business combination, net of cash acquired and issuance costs	685		(415,549)
Asset acquisition	Asset acquisition	(58,073)		—		Asset acquisition	—		(58,073)
Investments in privately held companies	Investments in privately held companies	(13,555)		(10,610)		Investments in privately held companies	(26,667)		(10,000)
Other investing activities	Other investing activities	(244)		345		Other investing activities	(49)		(244)
Net cash used in investing activities		(1,160,522)		(395,399)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	67,220		(1,111,279)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuance of convertible notes, net		—		1,125,547
Proceeds from accounts receivable securitization facility						Proceeds from accounts receivable securitization facility	50,000		—
Proceeds from exercise of common stock options	Proceeds from exercise of common stock options	13,372		15,408		Proceeds from exercise of common stock options	5,025		11,617
Proceeds in connection with the Company’s employee stock purchase plan	Proceeds in connection with the Company’s employee stock purchase plan	12,038		9,799		Proceeds in connection with the Company’s employee stock purchase plan	15,529		12,038
Payments on settlement of convertible notes		—		(150,054)
Other financing activities	Other financing activities	(4,742)		(938)		Other financing activities	(4,407)		(3,068)
Net cash provided by financing activities	Net cash provided by financing activities	20,668		999,762		Net cash provided by financing activities	66,147		20,587
Net increase (decrease) in cash, cash equivalents and restricted cash		(1,217,518)		629,441
Effects of exchange rate changes on cash and cash equivalents						Effects of exchange rate changes on cash and cash equivalents	(747)		—
Net decrease in cash, cash equivalents and restricted cash						Net decrease in cash, cash equivalents and restricted cash	(102,050)		(1,127,582)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	1,491,594		177,528		Cash, cash equivalents and restricted cash, beginning of period	315,768		1,491,594
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	274,076	$	806,969	Cash, cash equivalents and restricted cash, end of period	$	213,718	$	364,012

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EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands - unaudited)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2021		2020			2022		2021
Supplemental disclosure of non-cash investing and financing activities	Supplemental disclosure of non-cash investing and financing activities					Supplemental disclosure of non-cash investing and financing activities
Property, plant and equipment acquired but not paid	Property, plant and equipment acquired but not paid	$	21,110	$	7,209	Property, plant and equipment acquired but not paid	$	34,604	$	15,139
Unrealized gain (loss) on available-for-sale investments, before tax		$	(563)	$	1,159
Issuance of 162,606 and 136,559 shares of common stock to fund the Company’s 401(k) matching contribution for 2020 and 2019, respectively		$	22,934	$	12,007
Issuance of 9,510,436 and 382,947 shares of common stock for business combinations and asset acquisition for 2021 and 2020, respectively		$	1,270,918	$	28,847
Business combination contingent consideration liability	Business combination contingent consideration liability	$	350,348	$	—	Business combination contingent consideration liability	$	4,600	$	350,348
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Interest paid	Interest paid	$	10,685	$	9,239	Interest paid	$	5,133	$	5,414
Reconciliation of cash, cash equivalents and restricted cash:						Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents						Cash and cash equivalents	$	213,421	$	363,715
Restricted cash — included in prepaid expenses and other current assets as of June 30, 2022, and other long-term assets, net as of June 30, 2021						Restricted cash — included in prepaid expenses and other current assets as of June 30, 2022, and other long-term assets, net as of June 30, 2021	297		297
Total cash, cash equivalents and restricted cash						Total cash, cash equivalents and restricted cash	$	213,718	$	364,012

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 ~~brands~~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, ~~2020~~2021 included in the Company’s Annual Report on Form 10-K (the ~~“2020~~“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, ~~2020~~2021 has been derived from audited financial statements, but does not contain all of the footnote disclosures from the ~~2020~~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 ~~2020~~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 ~~2020~~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 ~~September~~June 30, ~~2021~~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, ~~equity~~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 ~~impacted~~had an impact on the ~~Company's~~Company’s revenues and operating ~~results for the three and nine months ended September 30, 2021.~~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 ~~nine~~six months ended ~~September~~June 30, ~~2021,~~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, ~~2020,~~2021, except as described in the Collateralized Debt Instruments and Recently Adopted Accounting Pronouncements ~~section~~sections below.

Collateralized Debt Instruments

Debt instruments that are collateralized by security interests in financial assets held by the Company are accounted for as a secured borrowing and therefore: (i) the asset balances pledged as collateral are included within the applicable balance sheet line item and the borrowings are included within long-term debt in the condensed consolidated balance sheet; (ii) interest expense is included within the condensed consolidated statements of operations; and (iii) in the case of collateralized accounts receivable, receipts from customers related to the underlying accounts receivable are reflected as operating cash flows, and (iv) borrowings and repayments under the collateralized loans are reflected as financing cash flows within the condensed consolidated statements of cash flows.

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 ~~August 2020,~~October 2021, The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2020-06,~~2021-08, ~~Debt – Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)~~Business Combinations (Topic 805). This update ~~simplifies the accounting for convertible debt instruments by removing the beneficial conversion~~requires that an entity (acquirer) recognize and ~~cash conversion separation models for convertible instruments. Under the update, the embedded conversion features are no longer separated~~measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification (“ASC”) 606. This differs from the ~~host~~current requirement to measure contract ~~for convertible instruments with conversion features that are not required to be accounted for as derivatives or that do not result~~assets and contract liabilities acquired in substantial premiums accounted for as paid-in capital. The update also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will no longer be available. This standard may be adopted through either a ~~modified retrospective method of transition or a full retrospective method of transition.~~business combination at fair value. The amendments in this update should be applied prospectively, and are effective for fiscal years beginning after December 15, ~~2021,~~2022, including interim periods within those fiscal years. Early adoption is permitted, ~~but no earlier than fiscal years beginning after December 15, 2020.~~

including adoption in an interim period. The Company early adopted the ~~standard on January 1, 2021 through application~~amendments in this update during the first quarter of ~~the full retrospective method of transition. This method of adoption~~fiscal year 2022. There was ~~applied~~no material impact to ~~enhance comparability between the periods presented in~~ the Company’s ~~financial statements. The Company applied the standard to convertible notes outstanding as of the date of the first offering of the Company’s outstanding convertible notes as discussed in Note 9.~~

The Company’s convertible debt instruments will be accounted for as a single liability measured at its amortized cost. The notes are no longer bifurcated between debt and equity, rather accounted for entirely as debt at face value net of any discount or premium and issuance costs. Interest expense is comprised of (1) cash interest payments, (2) amortization of any debt discounts or premiums based on the original offering, and (3) amortization of any debt issuance costs. Gain or loss on extinguishment of convertible notes is calculated as the difference between the (i) fair value of the consideration transferred and (ii) the sum of the carrying value of the debt at the time of repurchase.

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

As of January 1, 2019, the cumulative effect of adoption resulted in a decrease in additional-paid-in-capital of $260.2 million, a decrease in accumulated deficit of $26.6 million, and an increase to net deferred tax assets of $55.7 million offset by a corresponding increase of $55.7 million in the valuation allowance. As of January 1, 2020, the cumulative effect of adoption resulted in a decrease in additional-paid-in-capital of $227.8 million, an increase in accumulated deficit of $102.6 million, and an increase to the net deferred tax assets of $83.2 million offset by a corresponding increase of $74.7 million in the valuation allowance resulting in a net decrease of $8.5 million in recorded deferred tax liabilities. As of December 31, 2020, the cumulative effect of adoption resulted in an increase in the net carrying amount of convertible notes, net, current portion of $57.3 million and convertible notes, net, less current portion of $540.9 million, a decrease in additional-paid-in-capital of $510.3 million, an increase in accumulated deficit of $77.7 million, and an increase to net deferred tax assets of $146.0 million offset by a corresponding increase of $135.8 million in the valuation allowance resulting in a net decrease of $10.2 million in recorded deferred tax liabilities. For the three months ended September 30, 2020, interest expense in the condensed consolidated statement of operations decreased by $19.1 million as a result of a decrease in amortization of debt discounts, premiums, and issuance costs, income tax benefit decreased by $1.8 million and net loss per share, basic and diluted, decreased by $0.12 per share. For the nine months ended September 30, 2020, interest expense in the condensed consolidated statement of operations decreased by $8.3 million as a result of a decrease in amortization of debt discounts, premiums, and issuance costs of $51.2 million, which was offset by an increase in loss on extinguishment of $42.9 million in connection with the extinguishment of $100.0 million face value of 2025 Notes. Income tax benefit decreased by $1.8 million and net loss per share, basic and diluted, increased by $0.04 per share.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.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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:


		September 30,			June 30,
(In thousands)	(In thousands)	2021	2020	(In thousands)	2022	2021
Shares issuable in connection with acquisitions (1)	Shares issuable in connection with acquisitions (1)	45	157	Shares issuable in connection with acquisitions (1)	45	157
Shares issuable upon exercise of stock options	Shares issuable upon exercise of stock options	2,380	2,429	Shares issuable upon exercise of stock options	1,683	2,486
Shares issuable upon the release of restricted stock awards	Shares issuable upon the release of restricted stock awards	4,306	4,035	Shares issuable upon the release of restricted stock awards	5,772	4,334
Shares issuable upon the release of performance share units	Shares issuable upon the release of performance share units	863	619	Shares issuable upon the release of performance share units	992	867
Shares issuable upon conversion of convertible notes	Shares issuable upon conversion of convertible notes	20,309	20,309	Shares issuable upon conversion of convertible notes	20,309	20,309
		27,903	27,549		28,801	28,153

______________

(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 June 30, 2022 as compared to June 30, 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 September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2022		2021		2022		2021
Screening	Screening									Screening
Medicare Parts B & C	Medicare Parts B & C	$	116,088	$	98,847	$	329,034	$	256,589	Medicare Parts B & C	$	135,252	$	111,387	$	249,007	$	212,946
Commercial	Commercial	151,245		106,002		419,268		280,451		Commercial	181,186		140,149		342,866		268,023
Other	Other	13,045		9,774		36,341		28,367		Other	37,456		12,401		68,543		23,296
Total Screening	Total Screening	280,378		214,623		784,643		565,407		Total Screening	353,894		263,937		660,416		504,265
Precision Oncology	Precision Oncology									Precision Oncology
Medicare Parts B & C	Medicare Parts B & C	$	51,607	$	33,945	$	142,428	$	114,973	Medicare Parts B & C	$	52,621	$	48,310	$	105,186	$	93,147
Commercial	Commercial	42,844		37,402		145,821		137,212		Commercial	45,940		47,144		92,002		93,956
International	International	27,229		16,243		80,133		56,227		International	28,341		26,848		57,784		52,904
Other	Other	23,732		3,989		44,246		14,493		Other	27,093		15,507		51,643		27,209
Total Precision Oncology	Total Precision Oncology	145,412		91,579		412,628		322,905		Total Precision Oncology	153,995		137,809		306,615		267,216
COVID-19 Testing	COVID-19 Testing	$	30,589	$	102,161	$	96,004	$	136,740	COVID-19 Testing	$	13,751	$	33,073	$	41,180	$	65,415
Total	Total	$	456,379	$	408,363	$	1,293,275	$	1,025,052	Total	$	521,640	$	434,819	$	1,008,211	$	836,896

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

The downward adjustment to revenue from changes in transaction price was $0.2 million for the three months ended September 30, 2021 and revenue recognized from changes in transaction price was $0.5 million for the three months ended September 30, 2020. The downward adjustment to revenue from changes in transaction price was $13.2 million for the nine months ended September 30, 2021 and revenue recognized from changes in transaction price was $9.1 million for the nine months ended September 30, 2020. At each reporting period end, the Company conducts an analysis of the estimates used to calculate the transaction price to determine whether any new information available impacts those estimates made in prior reporting periods.

~~Deferred~~ The Company recognized revenue ~~balances are reported~~from a change in ~~other current liabilities in the Company’s condensed consolidated balance sheets and were $18.7~~transaction price of $7.1 million and ~~$25.0~~$11.3 million as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021, $17.8 million of the Company’s deferred revenue balance is a result of the billing terms pursuant to the existing COVID-19 laboratory service agreements (“LSAs”) with customers.

~~Revenue recognized~~ for the three and six months ended ~~September~~June 30, ~~2021 and 2020, which was included~~2022, respectively. The Company recorded a downward adjustment to revenue from a change in ~~the deferred revenue balance at the beginning~~transaction price of ~~each period, was $0.2~~$14.7 million and ~~$5,000, respectively. Of the $0.2~~$13.0 million ~~of revenue recognized~~ for the three and six months ended ~~September~~June 30, 2021, which was included in the deferred revenue balance at the beginning of the period, $0.1 million related to COVID-19 testing. Revenue recognized for the nine months ended September 30, 2021 and 2020, which was included in the deferred revenue balance at the beginning of each period, was $24.6 million and $0.2 million, respectively. Of the $24.6 million of revenue recognized for the nine months ended September 30, 2021, which was included in the deferred revenue balance at the beginning of the period, $24.3 million related to COVID-19 testing.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Company had deferred revenue of $1.2 million and $1.0 million as of June 30, 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 June 30, 2022 and 2021, which was included in the deferred revenue balance at the beginning of each period, was $0.1 million and $10.4 million, respectively. Of the $10.4 million of revenue recognized for the three months ended June 30, 2021, $10.3 million related to COVID-19 testing. Revenue recognized for the six months ended June 30, 2022 and 2021, which was included in the deferred revenue balance at the beginning of each period, was $0.4 million and $24.4 million, respectively. Of the $24.4 million of revenue recognized for the six months ended June 30, 2021, $24.1 million related to COVID-19 testing.

(3) MARKETABLE SECURITIES

The following table sets forth the Company’s cash, cash equivalents, restricted cash, and marketable securities at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


(In thousands)	(In thousands)	September 30, 2021		December 31, 2020		(In thousands)	June 30, 2022		December 31, 2021
Cash, cash equivalents, and restricted cash	Cash, cash equivalents, and restricted cash					Cash, cash equivalents, and restricted cash
Cash and money market	Cash and money market	$	273,779	$	901,294	Cash and money market	$	157,219	$	247,335
Cash equivalents	Cash equivalents	—		589,994		Cash equivalents	56,202		68,136
Restricted cash	Restricted cash	297		306		Restricted cash	297		297
Total cash, cash equivalents, and restricted cash	Total cash, cash equivalents, and restricted cash	274,076		1,491,594		Total cash, cash equivalents, and restricted cash	213,718		315,768
Marketable securities	Marketable securities					Marketable securities
Available-for-sale debt securities	Available-for-sale debt securities	941,620		347,178		Available-for-sale debt securities	$	513,520	$	711,669
Equity securities	Equity securities	3,068		1,521		Equity securities	1,103		3,336
Total marketable securities	Total marketable securities	944,688		348,699		Total marketable securities	514,623		715,005
Total cash and cash equivalents, restricted cash and marketable securities	Total cash and cash equivalents, restricted cash and marketable securities	$	1,218,764	$	1,840,293	Total cash and cash equivalents, restricted cash and marketable securities	$	728,341	$	1,030,773

Available-for-sale debt securities at ~~September~~June 30, ~~2021~~2022 consisted of the following:


(In thousands)	(In thousands)	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss) (1)		Losses in Accumulated Other Comprehensive Income (Loss) (1)		Estimated Fair Value		(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										Cash equivalents
Commercial paper										Commercial paper	$	53,265	$	—	$	—	$	53,265
U.S. government agency securities										U.S. government agency securities	2,937		—		—		2,937
Total cash equivalents										Total cash equivalents	56,202		—		—		56,202
Marketable securities	Marketable securities									Marketable securities
Corporate bonds	Corporate bonds	$	368,662	$	213	$	(43)	$	368,832	Corporate bonds	$	157,170	$	1	$	(2,290)	$	154,881
U.S. government agency securities	U.S. government agency securities	276,146		19		(84)		276,081		U.S. government agency securities	250,731		1		(4,555)		246,177
Certificates of deposit	Certificates of deposit	175,508		35		(1)		175,542		Certificates of deposit	24,211		—		(12)		24,199
Commercial paper	Commercial paper	10,000		1		—		10,001		Commercial paper	10,208		—		(1)		10,207
Asset backed securities	Asset backed securities	111,171		11		(18)		111,164		Asset backed securities	79,121		—		(1,065)		78,056
Total marketable securities										Total marketable securities	521,441		2		(7,923)		513,520
Total available-for-sale securities	Total available-for-sale securities	$	941,487	$	279	$	(146)	$	941,620	Total available-for-sale securities	$	577,643	$	2	$	(7,923)	$	569,722

______________

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

1413

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Available-for-sale debt securities at December 31, ~~2020~~2021 consisted of the following:


(In thousands)	(In thousands)	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss) (1)		Losses in Accumulated Other Comprehensive Income (Loss) (1)		Estimated Fair Value		(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	Cash equivalents									Cash equivalents
U.S. government agency securities	U.S. government agency securities	$	589,986	$	8	$	—	$	589,994	U.S. government agency securities	$	3,543	$	—	$	—	$	3,543
Commercial paper										Commercial paper	64,593		—		—		64,593
Total cash equivalents	Total cash equivalents	589,986		8		—		589,994		Total cash equivalents	68,136		—		—		68,136
Marketable securities	Marketable securities									Marketable securities
U.S. government agency securities	U.S. government agency securities	207,119		52		—		207,171		U.S. government agency securities	$	250,793	$	—	$	(873)	$	249,920
Asset backed securities	Asset backed securities	7,070		24		—		7,094		Asset backed securities	94,565		2		(107)		94,460
Commercial paper										Commercial paper	6,996		—		—		6,996
Certificates of deposit										Certificates of deposit	47,147		2		(10)		47,139
Corporate bonds	Corporate bonds	132,301		612		—		132,913		Corporate bonds	313,634		13		(493)		313,154
Total marketable securities	Total marketable securities	346,490		688		—		347,178		Total marketable securities	713,135		17		(1,483)		711,669
Total available-for-sale securities	Total available-for-sale securities	$	936,476	$	696	$	—	$	937,172	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 ~~September~~June 30, ~~2021:~~2022:


		Due one year or less				Due after one year through five years					Due one year or less				Due after one year through five years
(In thousands)	(In thousands)	Cost		Fair Value		Cost		Fair Value		(In thousands)	Cost		Fair Value		Cost		Fair Value
Cash equivalents										Cash equivalents
Commercial paper										Commercial paper	$	53,265	$	53,265	$	—	$	—
U.S. government agency securities										U.S. government agency securities	2,937		2,937		—		—
Total cash equivalents										Total cash equivalents	56,202		56,202		—		—
Marketable securities	Marketable securities									Marketable securities
U.S. government agency securities	U.S. government agency securities	$	7,049	$	7,067	$	269,097	$	269,014	U.S. government agency securities	$	224,768	$	220,874	$	25,963	$	25,303
Corporate bonds	Corporate bonds	235,977		236,101		132,685		132,731		Corporate bonds	123,496		121,974		33,674		32,907
Certificates of deposit	Certificates of deposit	175,508		175,542		—		—		Certificates of deposit	24,211		24,199		—		—
Asset backed securities	Asset backed securities	—		—		111,171		111,164		Asset backed securities	—		—		79,121		78,056
Commercial paper	Commercial paper	10,000		10,001		—		—		Commercial paper	10,208		10,207		—		—
Total marketable securities										Total marketable securities	382,683		377,254		138,758		136,266
Total	Total	$	428,534	$	428,711	$	512,953	$	512,909	Total	$	438,885	$	433,456	$	138,758	$	136,266

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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 ~~September~~June 30, ~~2021,~~2022, aggregated by investment category and length of time ~~that~~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 $ 155,043 $ (43) $ — $ — $ 155,043 $ (43)
Certificates of deposit 15,650 (1) — — 15,650 (1)
Asset backed securities 81,478 (18) — — 81,478 (18)
U.S. government agency securities 259,019 (84) — — 259,019 (84)
Total available-for-sale securities $ 511,190 $ (146) $ — $ — $ 511,190 $ (146)

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~


	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	$	149,879	$	(2,290)	$	—	$	—	$	149,879	$	(2,290)
Certificates of deposit	24,199		(12)		—		—		24,199		(12)
Asset backed securities	78,056		(1,065)		—		—		78,056		(1,065)
U.S. government agency securities	244,179		(4,555)		—		—		244,179		(4,555)
Commercial paper	2,999		(1)		—		—		2,999		(1)
Total available-for-sale securities	$	499,312	$	(7,923)	$	—	$	—	$	499,312	$	(7,923)

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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~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 realized gain recorded on available-for-sale debt securities was not material to the condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020.~~

The Company recorded a loss of $4.5 million and $1.9 million from its equity securities for the three and nine months ended September 30, 2021 as compared to a gain of $33,000 and a loss of $0.3 million for the three and nine months ended September 30, 2020.

The gains and losses recorded on available-for-sale debt securities and equity securities are included in investment income, ~~(expense),~~ net in the Company’s condensed consolidated statements of operations. The gains and losses recorded were not significant for the three and six months ended June 30, 2022 and 2021.

(4) INVENTORY

Inventory consisted of the following:


(In thousands)	(In thousands)	September 30, 2021		December 31, 2020		(In thousands)	June 30, 2022		December 31, 2021
Raw materials	Raw materials	$	47,971	$	43,083	Raw materials	$	57,087	$	51,321
Semi-finished and finished goods	Semi-finished and finished goods	47,196		49,182		Semi-finished and finished goods	58,085		53,673
Total inventory	Total inventory	$	95,167	$	92,265	Total inventory	$	115,172	$	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)	(In thousands)	Estimated Useful Life	September 30, 2021		December 31, 2020		(In thousands)	Estimated Useful Life	June 30, 2022		December 31, 2021
Property, plant and equipment	Property, plant and equipment						Property, plant and equipment
Land	Land	n/a	$	4,466	$	4,466	Land	n/a	$	4,716	$	4,716
Leasehold and building improvements	Leasehold and building improvements	(1)	142,025		117,865		Leasehold and building improvements	(1)	166,559		147,083
Land improvements	Land improvements	15 years	4,894		4,864		Land improvements	15 years	5,207		5,206
Buildings	Buildings	30 - 40 years	201,040		200,980		Buildings	30 - 40 years	215,280		210,560
Computer equipment and computer software	Computer equipment and computer software	3 years	99,889		75,417		Computer equipment and computer software	3 years	123,464		109,119
Laboratory equipment	Laboratory equipment	3 - 10 years	175,393		142,110		Laboratory equipment	3 - 10 years	213,261		189,748
Furniture and fixtures	Furniture and fixtures	3 - 10 years	27,593		24,968		Furniture and fixtures	3 - 10 years	29,833		28,293
Assets under construction	Assets under construction	n/a	64,187		18,854		Assets under construction	n/a	165,365		100,339
Property, plant and equipment, at cost	Property, plant and equipment, at cost		719,487		589,524		Property, plant and equipment, at cost		923,685		795,064
Accumulated depreciation	Accumulated depreciation		(195,287)		(137,538)		Accumulated depreciation		(260,032)		(214,816)
Property, plant and equipment, net	Property, plant and equipment, net		$	524,200	$	451,986	Property, plant and equipment, net		$	663,653	$	580,248

______________

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

Depreciation expense for the three months ended ~~September~~June 30, 2022 and 2021 ~~and 2020~~ was ~~$22.3~~$25.5 million and ~~$19.7~~$21.5 million, respectively. Depreciation expense for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021 ~~and 2020~~ was ~~$64.3~~$48.5 million and ~~$53.3~~$42.0 million, respectively.

At ~~September~~June 30, ~~2021,~~2022, the Company had ~~$64.2~~$165.4 million of assets under construction, which consisted of ~~$11.8~~$94.1 million related to buildings, $41.5 million in laboratory equipment, ~~$40.6~~$15.8 million ~~related to~~in leasehold and building ~~and leasehold~~ improvements, ~~$11.6~~$13.0 million in capitalized costs related to software projects, and ~~$0.2~~$1.0 million ~~related to~~in land improvements. Depreciation will begin on these assets once they are placed into service upon ~~completion between 2021 and 2023.~~completion.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

(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 ~~September~~June 30, ~~2021:~~2022:


(In thousands)	(In thousands)	Weighted Average Remaining Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Balance at September 30, 2021		(In thousands)	Weighted Average Remaining Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Balance at June 30, 2022
Finite-lived intangible assets	Finite-lived intangible assets								Finite-lived intangible assets
Trade name	Trade name	14.1	$	100,700	$	(11,980)	$	88,720	Trade name	13.0	$	104,000	$	(17,028)	$	86,972
Customer relationships	Customer relationships	12.0	2,700		(539)		2,161		Customer relationships	8.5	4,000		(222)		3,778
Patents	Patents	3.0	10,442		(6,427)		4,015		Patents	3.2	10,942		(7,458)		3,484
Acquired developed technology(1)	Acquired developed technology(1)	8.4	853,171		(155,404)		697,767		Acquired developed technology(1)	8.1	920,334		(219,788)		700,546
Supply agreements	Supply agreements	5.7	2,295		—		2,295		Supply agreements	4.9	2,295		(302)		1,993
Total finite-lived intangible assets	Total finite-lived intangible assets		969,308		(174,350)		794,958		Total finite-lived intangible assets		1,041,571		(244,798)		796,773
In-process research and development	In-process research and development	n/a	1,250,000		—		1,250,000		In-process research and development	n/a	1,250,000		—		1,250,000
Total intangible assets	Total intangible assets		$	2,219,308	$	(174,350)	$	2,044,958	Total intangible assets		$	2,291,571	$	(244,798)	$	2,046,773

______________

(1)The gross carrying amount includes an immaterial foreign currency translation adjustment related to the intangible assets acquired as a result of the acquisition of OmicEra Diagnostics GmbH (“OmicEra”), whose functional currency is also its local currency. Intangible asset balances are translated into U.S. dollars using exchange rates in effect at period end, and adjustments related to foreign currency translation are included in other comprehensive income.

The following table summarizes the net-book-value and estimated remaining life of the Company’s intangible assets as of December 31, ~~2020:~~2021:


(In thousands)	(In thousands)	Weighted Average Remaining Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net balance at December 31, 2020		(In thousands)	Weighted Average Remaining Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net balance at December 31, 2021
Finite-lived intangible assets	Finite-lived intangible assets								Finite-lived intangible assets
Trade name	Trade name	14.9	$	100,700	$	(7,258)	$	93,442	Trade name	13.4	$	104,700	$	(13,554)	$	91,146
Customer relationships	Customer relationships	12.8	2,700		(404)		2,296		Customer relationships	9.6	6,700		(1,577)		5,123
Patents		3.7	10,441		(5,422)		5,019
Patents and licenses									Patents and licenses	3.6	10,942		(6,763)		4,179
Acquired developed technology	Acquired developed technology	9.0	814,171		(93,278)		720,893		Acquired developed technology	8.6	918,171		(176,402)		741,769
Supply agreements	Supply agreements	6.5	30,000		(4,527)		25,473		Supply agreements	5.4	2,295		(101)		2,194
Total finite-lived intangible assets									Total finite-lived intangible assets		1,042,808		(198,397)		844,411
In-process research and development									In-process research and development	n/a	1,250,000		—		1,250,000
Total intangible assets	Total intangible assets		$	958,012	$	(110,889)	$	847,123	Total intangible assets		$	2,292,808	$	(198,397)	$	2,094,411

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

As of ~~September~~June 30, ~~2021,~~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)	(In thousands)			(In thousands)
2021 (remaining three months)		$	23,053
2022		92,205
2022 (remaining six months)				2022 (remaining six months)	$	49,288
2023	2023	92,202		2023	98,574
2024	2024	91,868		2024	98,240
2025	2025	90,820		2025	97,192
2026				2026	96,132
Thereafter	Thereafter	404,810		Thereafter	357,347
		$	794,958		$	796,773

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

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

During the ~~third~~second quarter of ~~2021 and in connection with the preparation of the financial statements,~~2022, the Company recorded a non-cash, pre-tax impairment loss of ~~$20.2~~$6.6 million related to the ~~supply agreement~~acquired developed technology intangible asset ~~that was initially recorded~~acquired as ~~part~~a result of the ~~combination with Genomic Health~~acquisition of Paradigm Diagnostics, Inc. due to lower than anticipated performance of the underlying product. ~~The Company utilized the income approach to measure the fair value of the supply agreement, which involves significant unobservable inputs (Level 3 inputs).~~ The impairment is recorded in intangible asset impairment charge in the condensed consolidated statement of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021.~~

During the third quarter of 2020, the Company began discussions with Biocartis regarding the termination of its agreements with Biocartis related to the development of an in vitro diagnostic (“IVD”) version of the Oncotype DX Breast Recurrence Score® test. As a result, and in connection with the preparation of the financial statements included in the Company’s Form 10-Q for the period ended September 30, 2020, the Company recorded a non-cash, pre-tax impairment loss of $200.0 million related to the in-process research and development intangible asset that was initially recorded as part of the combination with Genomic Health. The impairment is recorded in intangible asset impairment charge in the condensed consolidated statement of operations for the three and nine months ended September 30, 2020.

During the third quarter of 2020, the Company abandoned certain research and development assets acquired through an asset purchase agreement with Armune Biosciences, Inc. in 2017. These assets were expected to complement the Company’s product pipeline and were expected to have alternative future uses at the time of acquisition; however, due to changes in strategic priorities and efforts during the third quarter of 2020, these assets are no longer expected to be utilized to advance the Company’s product pipeline. As a result, and in connection with the preparation of the financial statements included in the Company’s Form 10-Q for the period ended September 30, 2020, the Company wrote-off the gross cost basis of the intangible asset of $12.2 million and accumulated amortization of $2.5 million as of September 30, 2020. This write-off resulted in a non-cash, pre-tax impairment loss of $9.7 million, which is recorded in intangible asset impairment charge in the condensed consolidated statement of operations for the three and nine months ended September 30, 2020.2022.

Goodwill

The change in the carrying amount of goodwill for the periods ended ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 is as follows:


(In thousands)
Balance, January 1, ~~2020~~	$	~~1,203,197~~
~~Paradigm & Viomics acquisition~~	~~30,431~~
~~Genomic Health acquisition adjustment (1)~~	~~4,044~~
~~Balance, December 31, 2020~~2021	$	1,237,672
Thrive acquisition	948,105
Ashion ~~Acquisition~~acquisition	56,758
PreventionGenetics acquisition	92,637
Balance, ~~September~~December 31, 2021	2,335,172
OmicEra acquisition	10,748
PreventionGenetics acquisition adjustment	42
Effects of changes in foreign currency exchange rates (1)	(40)
Balance June 30, ~~2021~~2022	$	~~2,242,535~~2,345,922

______________

(1)~~The Company recognized a measurement period adjustment to goodwill~~Represents the impact of foreign currency translation related to ~~an increase~~the goodwill acquired as a result of the acquisition of OmicEra. Goodwill balances are translated into U.S. dollars using exchange rates in ~~Genomic Health’s pre-acquisition deferred tax liability due~~effect at period end, and adjustments related to ~~finalization of certain income-tax related items.~~foreign currency translation are included in other comprehensive income.

There were no impairment losses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021.

(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.

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 ~~September~~June 30, ~~2021~~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 September 30, 2021 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 $ 273,779 $ 273,779 $ — $ —
Restricted cash 297 297 — —
Marketable securities
Corporate bonds 368,832 — 368,832 —
Certificates of deposit 175,542 — 175,542 —
Commercial paper 10,001 — 10,001 —
U.S. government agency securities 276,081 — 276,081 —
Asset backed securities 111,164 — 111,164 —
Equity securities (1) 3,068 — 3,068 —
Non-marketable securities 2,540 — — 2,540
Liabilities
Contingent consideration (363,647) — — (363,647)
Total $ 857,657 $ 274,076 $ 944,688 $ (361,107)

~~______________~~

~~(1)~~The equity securities held are classified as Level 2 as they are subject to a short-term lock-up restriction and have been discounted from the observable market prices of the similar unrestricted equity securities.


(In thousands)	Fair Value at June 30, 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	$	157,219	$	157,219	$	—	$	—
Commercial paper	53,265		—		53,265		—
U.S. government agency securities	2,937		—		2,937		—
Restricted cash	297		297		—		—
Marketable securities
Corporate bonds	$	154,881	$	—	$	154,881	$	—
Certificates of deposit	24,199		—		24,199		—
Commercial paper	10,207		—		10,207		—
U.S. government agency securities	246,177		—		246,177		—
Asset backed securities	78,056		—		78,056		—
Equity securities	1,103		1,103		—		—
Non-marketable securities	$	2,690	$	—	$	—	$	2,690
Liabilities
Contingent consideration	$	(311,785)	$	—	$	—	$	(311,785)
Total	$	419,246	$	158,619	$	569,722	$	(309,095)

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table presents the Company’s fair value measurements as of December 31, ~~2020~~2021 along with the level within the fair value hierarchy in which the fair value measurements, in their entirety, fall.


(In thousands)	(In thousands)	Fair Value at December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(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 cash equivalents									Cash and cash equivalents
Cash and money market	Cash and money market	$	901,294	$	901,294	$	—	$	—	Cash and money market	$	247,335	$	247,335	$	—	$	—
Commercial paper										Commercial paper	64,593		—		64,593		—
U.S. government agency securities	U.S. government agency securities	589,994		—		589,994		—		U.S. government agency securities	3,543		—		3,543		—
Restricted cash	Restricted cash	306		306		—		—		Restricted cash	297		297		—		—
Marketable securities	Marketable securities									Marketable securities
U.S. government agency securities	U.S. government agency securities	207,171		—		207,171		—		U.S. government agency securities	$	249,920	$	—	$	249,920	$	—
Corporate bonds	Corporate bonds	132,913		—		132,913		—		Corporate bonds	313,154		—		313,154		—
Asset backed securities	Asset backed securities	7,094		—		7,094		—		Asset backed securities	94,460		—		94,460		—
Certificates of deposit										Certificates of deposit	47,139		—		47,139		—
Commercial paper										Commercial paper	6,996		—		6,996		—
Equity securities	Equity securities	1,521		1,521		—		—		Equity securities	3,336		3,336		—		—
Non-marketable securities										Non-marketable securities	$	3,090	$	—	$	—	$	3,090
Liabilities	Liabilities									Liabilities
Contingent consideration	Contingent consideration	(2,477)		—		—		(2,477)		Contingent consideration	$	(359,021)	$	—	$	—	$	(359,021)
Total	Total	$	1,837,816	$	903,121	$	937,172	$	(2,477)	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 ~~periods~~three and six months ended ~~September~~June 30, ~~2021 and December 31, 2020.~~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. ~~The Company’s marketable equity security investment in Biocartis held as of December 31, 2020 was classified as a Level 1 instrument prior to being sold in the first quarter of 2021.~~

Contingent Consideration

Certain of the Company’s business combinations involve potential payment of future consideration that is contingent upon the achievement of certain regulatory and product revenue milestones being achieved. A liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized within general and administrative expenses on the Company’s condensed consolidated statements of operations.

The fair value of contingent consideration as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 was ~~$363.6~~$311.8 million and ~~$2.5~~$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, ~~2021~~2022	$	~~2,477~~359,021
Purchase price contingent consideration (1)	~~350,348~~4,600
Changes in fair value	~~10,986~~ (51,759)
Payments	~~(164)~~(77)
Ending balance, ~~September~~June 30, ~~2021~~2022	$	~~363,647~~311,785

______________

(1)The increase in ~~the~~ contingent consideration liability is due to the contingent consideration associated with the ~~acquisitions~~acquisition of ~~Ashion Analytics, LLC (“Ashion”) and Thrive Earlier Detection Corporation (“Thrive”).~~OmicEra. Refer to Note 1716 for further information.

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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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EXACT SCIENCES CORPORATION

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”), Ashion Analytics, LLC (“Ashion”), and ~~Ashion~~OmicEra acquisitions was ~~$361.3~~$310.6 million and $357.8 million as of ~~September~~June 30, ~~2021.~~2022 and December 31, 2021, respectively. The Company evaluates the fair value of the expected contingent consideration and the corresponding liability related to the regulatory and product development ~~contingent consideration liabilities~~milestones 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 rate that considers~~ 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 ~~measurements of contingent consideration for which a liability is recorded include significant unobservable inputs. As of September 30, 2021, 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 ~~90.5%~~91% as of June 30, 2022 and December 31, 2021, and a weighted average present-value factor of ~~2.0%.~~6.5% and 2.3% as of June 30, 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 ~~$2.3~~$1.2 million as of ~~September~~June 30, 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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the aggregate carrying amounts of the Company’s non-marketable equity securities without readily determinable fair values were ~~$22.7~~$48.7 million and ~~$29.1~~$25.3 million, respectively, which are classified as a component of other long-term assets, net in the Company’s condensed consolidated balance sheets. There have been no material 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 $14.4 million remained callable through 2033 as of June 30, 2022. The aggregate carrying amount of the Funds, which are classified as a component of other long-term assets, net in the Company’s condensed consolidated balance sheets, were $3.1 million and $1.5 million as of June 30, 2022 and December 31, 2021, respectively.

Derivative Financial Instruments

The Company enters into foreign currency forward contracts on the last day of each month to mitigate the impact of adverse movements in foreign exchange rates related to the remeasurement of monetary assets and liabilities and hedge our foreign currency exchange rate exposure. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had open foreign currency forward contracts with notional amounts of ~~$29.5~~$28.9 million and ~~$22.4~~$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 open foreign currency forward contracts was zero at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, and there were no gains or losses recorded to adjust the fair value of the open foreign currency contract held as of June 30, 2022. The contracts are closed subsequent to each month-end, and the gains and losses recorded from the contracts were not material for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021.

(8) LONG-TERM DEBT

~~Construction Loan Agreement~~Accounts Receivable Securitization Facility

~~During December 2017,~~On June 29, 2022, the Company, through a wholly-owned special purpose entity, Exact Receivables LLC (“Exact Receivables”) entered into ~~a loan agreement~~an accounts receivable securitization program (the “Securitization Facility”) with ~~Fifth Third~~PNC Bank, ~~(formerly MB Financial Bank, N.A.) (the “Construction Loan Agreement”~~National Association (“PNC”), ~~which provides the Company~~ with a non-revolving construction loan (the “Construction Loan”) of $25.6 million. The Company used the Construction Loan proceeds to finance the construction of an additional clinical laboratory and related facilities in Madison, Wisconsin. The Construction Loan is collateralized by the additional clinical laboratory and related facilities.

Pursuant to the Construction Loan Agreement, funds drawn will bear interest at a rate equal to the sum of the 1-month LIBOR rate plus 2.25 percent. Regular monthly payments are interest-only for the first 24 months, with further payments based on a 20-year amortization schedule. Amounts borrowed pursuant to the Construction Loan Agreement may be prepaid at any time without penalty. Thescheduled maturity date of June 29, 2024. The Securitization Facility provides Exact Receivables with a revolving line-of-credit of up to $150.0 million of borrowing capacity, subject to certain borrowing base requirements, by collateralizing a security interest in the ~~Construction Loan Agreement is December 10, 2022.~~

~~In November 2017, Fifth Third Bank, on behalf~~domestic customer accounts receivable of certain wholly-owned subsidiaries of the ~~Company, issued an Irrevocable Standby Letter of Credit in~~Company. The amount available under the Securitization Facility fluctuates over time based on the total amount of ~~$0.6 million in favor~~eligible customer accounts receivable generated by the Company during the normal course of operations. The Securitization Facility requires the Company to maintain minimum borrowings under the facility of $50.0 million. The debt issuance costs incurred related to the Securitization Facility were not material and are being amortized over the life of the ~~City~~Securitization Facility through interest expense within the condensed consolidated statements of Madison, Wisconsin (the “City Letter of Credit”). The City Letter of Credit is deemed to have been issued pursuant to the Construction Loan Agreement. The amount of the City Letter of Credit will reduce, dollar for dollar, the amount available for borrowing under the Construction Loan Agreement.operations.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~As a condition~~In connection with the Securitization Facility, the Company also entered into two Receivables Purchase Agreements (“Receivable Purchase Agreements”) on June 29, 2022. The Receivable Purchase Agreements are among the Company and certain wholly-owned subsidiaries of the Company, and between the Company and Exact Receivables. Under the agreements, the wholly-owned subsidiaries sell all of their right, title and interest of their accounts receivable to ~~Fifth Third Bank’s initial advance of loan proceeds~~Exact Receivables. The receivables are used to collateralize borrowings made under the ~~Construction~~Securitization Facility. The Company retains the responsibility of servicing the accounts receivable balances pledged as collateral under the Securitization Facility and provides a performance guaranty.

As of June 30, 2022, the eligible borrowing base under the Securitization Facility was $119.2 million of which the Company elected to collateralize $50.0 million. As of June 30, 2022, the Company had an outstanding balance of $50.0 million, which is recorded to long-term debt on the Company’s condensed consolidated balance sheets. The outstanding balance accrues interest at a rate equal to a daily secured overnight financing rate (“SOFR”) rate plus a SOFR adjustment and an applicable margin. The interest rate was 3.24% at June 30, 2022.

Revolving Loan Agreement

During November 2021, the Company ~~was required to first invest at least $16.4 million of its own cash~~entered into ~~the construction project.~~a revolving loan agreement (the “Revolving Loan Agreement”) with PNC. The ~~Company fulfilled its required initial investment and made its first draw on the Construction~~Revolving Loan ~~in June 2018. In December 2019,~~Agreement provides the Company ~~began making monthly payments towards~~with a revolving line of credit of up to $150.0 million (the “Revolver”). The Revolver is collateralized by the outstanding principal balance plus accrued interest. As of September 30, 2021 and December 31, 2020, the outstanding balance was $22.8 million and $23.8 million, respectively, from the Construction Loan, including $0.7 million of interest incurred,Company’s marketable securities held by PNC, which is accrued for as an interest reserve and represents a portion of the loan balance. The Company capitalized the $0.7 million of interest to the construction project. The Company incurred approximately $0.2 million of debt issuance costs related to the Construction Loan, which are recorded as a direct deduction from the liability. The debt issuance costs are being amortized over the life of the Construction Loan.

The carrying amount of the Construction Loan approximates fair value due to the short maturity of this instrument. The Construction Loan is privately held with no public market for this debt and therefore is classified as a Level 3 fair value measurement. The change in the fair value during the three and nine months ended September 30, 2021 was due to payments made on the loan resulting in a decrease in the liability.

~~The Construction Loan Agreement was amended effective June 30, 2020 to include a financial covenant~~must continue to maintain a minimum ~~liquidity~~market value of ~~$250 million~~$150.0 million. The Revolver is available for general working capital purposes and ~~remove~~all other lawful corporate purposes. In addition, the ~~minimum tangible net worth covenant. As~~Company may request, in lieu of ~~September~~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 June 30, ~~2021,~~2022, the Company is in compliance with all covenants.

During the ~~covenant included in~~fourth quarter of 2021, PNC issued a letter of credit of $2.9 million, which reduced the ~~amended agreement.~~

~~Tax Increment Financing Loan Agreements~~

~~The Company entered into 2 separate Tax Increment Financing Loan Agreements (“TIFs”) in February 2019~~amount available for cash advances under the line of credit to $147.1 million as of June 30, 2022 and December 31, 2021. As of June ~~2019 with the City of Madison, Wisconsin. The TIFs provide for $4.6 million of financing in the aggregate. In return for the loans,~~30, 2022 and December 31, 2021, the Company ~~is obligated to create and maintain 500 full-time jobs over a five-year period, starting on~~has not drawn funds from, nor are any amounts outstanding under, the ~~date of occupancy of the buildings constructed. In the event that the job creation goals are not met, the Company would be required to pay a penalty.~~

The Company records the earned financial incentives as the full-time equivalent positions are filled. The amount earned is recorded as a liability and amortized as a reduction of operating expenses over a two-year period, which is the timeframe when the TIFs will be repaid through property taxes.

As of December 31, 2019, the Company had earned and received payment of the full $4.6 million from the City of Madison, and the corresponding liability became fully amortized in October 2020. In May 2021 the City of Madison confirmed that the Company had repaid the TIFs in full and released the Company from the loans and the related property lien.Revolving Loan Agreement.

(9) CONVERTIBLE NOTES

Convertible note obligations included in the condensed consolidated balance sheet consisted of the following as of ~~September~~June 30, ~~2021:~~2022:


								Fair Value (2)										Fair Value (1)
(In thousands)	(In thousands)	Principal Amount		Unamortized Debt Discount and Issuance Costs		Net Carrying Amount		Amount		Leveling	(In thousands)	Principal Amount		Unamortized Debt Discount and Issuance Costs		Net Carrying Amount		Amount		Leveling
2028 Convertible notes - 0.375%	2028 Convertible notes - 0.375%	$	1,150,000	$	(19,596)	$	1,130,404	$	1,222,968	2	2028 Convertible notes - 0.375%	$	1,150,000	$	(17,313)	$	1,132,687	$	767,625	2
2027 Convertible notes - 0.375%	2027 Convertible notes - 0.375%	747,500		(12,257)		735,243		834,285		2	2027 Convertible notes - 0.375%	747,500		(10,577)		736,923		545,750		2
2025 Convertible notes - 1.000% ~~(1)~~	2025 Convertible notes - 1.000% ~~(1)~~	315,005		(1,901)		313,104		455,204		2	2025 Convertible notes - 1.000% ~~(1)~~	315,005		(1,470)		313,535		291,058		2

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Convertible note obligations included in the condensed consolidated balance sheet consisted of the following as of December 31, ~~2020:~~2021:


								Fair Value (2)										Fair Value (1)
(In thousands)	(In thousands)	Principal Amount		Unamortized Debt Discount and Issuance Costs		Net Carrying Amount		Amount		Leveling	(In thousands)	Principal Amount		Unamortized Debt Discount and Issuance Costs		Net Carrying Amount		Amount		Leveling
2028 Convertible notes - 0.375%	2028 Convertible notes - 0.375%	$	1,150,000	$	(21,878)	$	1,128,122	$	1,526,625	2	2028 Convertible notes - 0.375%	$	1,150,000	$	(18,826)	$	1,131,174	$	1,139,650	2
2027 Convertible notes - 0.375%	2027 Convertible notes - 0.375%	747,500		(13,937)		733,563		992,306		2	2027 Convertible notes - 0.375%	747,500		(11,691)		735,809		771,794		2
2025 Convertible notes - 1.000% ~~(1)~~	2025 Convertible notes - 1.000% ~~(1)~~	315,049		(2,333)		312,716		601,744		2	2025 Convertible notes - 1.000% ~~(1)~~	315,005		(1,756)		313,249		415,473		2

______________

(1)Based on the Company’s share price on the days leading up to September 30, 2021 and December 31, 2020, holders of the 2025 Convertible Notes have the right to convert their debentures. As a result, the 2025 Convertible Notes are included within convertible notes, net, current portion on the condensed consolidated balance sheets. Some holders did convert their debentures, resulting in a decrease of the principal amount of the 2025 Convertible Notes.

~~(2)~~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.

~~Issuances and Settlements~~

In January 2018, the Company issued and sold $690.0 million in aggregate principal amount of 1.0% Convertible Notes (the “January 2025 Notes”) with a maturity date of January 15, 2025. The January 2025 Notes accrue interest at a fixed rate of 1.0% per year, payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018. The net proceeds from the issuance of the January 2025 Notes were approximately $671.1 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.

In June 2018, the Company issued and sold an additional $218.5 million in aggregate principal amount of 1.0% Convertible Notes (the “June 2025 Notes”). The June 2025 Notes were issued under the same indenture pursuant to which the Company previously issued the January 2025 Notes (the “Indenture”). The January 2025 Notes and the June 2025 Notes (collectively, the “2025 Notes”) have identical terms (including the same January 15, 2025 maturity date) and are treated as a single series of securities. The net proceeds from the issuance of the June 2025 Notes were approximately $225.3 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.

In March 2019, the Company issued and sold $747.5 million in aggregate principal amount of 0.375% Convertible Notes (the “2027 Notes”) with a maturity date of March 15, 2027. The 2027 Notes accrue interest at a fixed rate of 0.375% per year, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2019. The net proceeds from the issuance of the 2027 Notes were approximately $729.5 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.

The Company utilized a portion of the proceeds from the issuance of the 2027 Notes to settle a portion of the 2025 Notes in privately negotiated transactions. In March 2019, the Company used cash of $494.1 million and an aggregate of 2.2 million shares of the Company’s common stock valued at $182.4 million for total consideration of $676.5 million to settle $493.4 million of the 2025 Notes, of which $0.7 million was used to pay off interest accrued on the 2025 Notes. The transaction resulted in a loss on settlement of convertible notes of $187.7 million, which is reflected in accumulated deficit in the Company’s condensed consolidated balance sheets. The loss represents the difference between (i) the fair value of the consideration transferred and (ii) the carrying value of the debt at the time of repurchase.

In February 2020, the Company issued and sold $1.15 billion in aggregate principal amount of 0.375% Convertible Notes (the “2028 Notes” and, collectively with the 2025 Notes and the 2027 Notes, the “Notes”) with a maturity date of March 1, 2028. The 2028 Notes accrue interest at a fixed rate of 0.375% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2020. The net proceeds from the issuance of the 2028 Notes were approximately $1.13 billion, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

In February 2020, the Company used $150.1 million of the proceeds from the issuance of the 2028 Notes to settle $100.0 million of the 2025 Notes, of which $0.1 million was used to pay off interest accrued on the 2025 Notes. The transaction resulted in a loss on settlement of convertible notes of $50.8 million, which is recorded in interest expense in the Company’s condensed consolidated statement of operations. The loss represents the difference between (i) the fair value of the consideration transferred and (ii) the carrying value of the debt at the time of repurchase.

Summary of Conversion Features

Until the six-months immediately preceding the maturity date of the applicable series of ~~Notes,~~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 ~~Notes,~~(“2025 Notes”), 2027 ~~Notes,~~(“2027 Notes”), and 2028 ~~Notes,~~(“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~~are potentially convertible ininto 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.

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 ~~$95.45~~$39.39 on ~~September~~June 30, ~~2021,~~2022, the if-converted values on the ~~Company’s 2025 Notes exceed the principal amount by $83.6 million and the 2027 Notes and 2028~~ 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.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Interest Expense

Interest expense includes the following:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2022		2021		2022		2021
Debt issuance costs amortization	Debt issuance costs amortization	$	1,444	$	1,443	$	4,284	$	3,860	Debt issuance costs amortization	$	1,428	$	1,428	$	2,840	$	2,840
Debt discount amortization	Debt discount amortization	37		37		110		94		Debt discount amortization	37		37		73		73
Loss on settlement of convertible notes		—		—		—		50,819
Coupon interest expense	Coupon interest expense	2,566		2,567		7,699		7,065		Coupon interest expense	2,566		2,566		5,133		5,133
Total interest expense on convertible notes	Total interest expense on convertible notes	4,047		4,047		12,093		61,838		Total interest expense on convertible notes	4,031		4,031		8,046		8,046
Other interest expense	Other interest expense	633		431		1,855		1,544		Other interest expense	480		621		943		1,222
Total interest expense	Total interest expense	$	4,680	$	4,478	$	13,948	$	63,382	Total interest expense	$	4,511	$	4,652	$	8,989	$	9,268

The following table summarizes the effective interest rates onof the 2025 Notes, 2027 Notes, and 2028 Notes for the three months ended September 30, 2021 and 2020 were 1.18%, 0.68%, and 0.64% and 1.18%, 0.68%, and 0.64%, respectively. The effective interest rates on the 2025 Notes, 2027 Notes, and 2028 Notes for the nine months ended September 30, 2021 and 2020 were 1.18%, 0.67%, and 0.64% and 1.21%, 0.68%, and 0.63%, respectively. Notes:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
2025 Convertible Notes	1.18	%	1.18	%	1.18	%	1.18	%
2027 Convertible Notes	0.67	%	0.67	%	0.67	%	0.67	%
2028 Convertible Notes	0.64	%	0.64	%	0.64	%	0.64	%

The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is ~~3.30, 5.46,~~2.55, 4.71, and ~~6.42~~5.67 years for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively.

(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 ~~low~~ 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.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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~~5 equal annual installments through 2024. The annual installments are recorded in research and development expenses in the Company’s condensed consolidated statements of operations.

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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 ~~2038~~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 $1.3 million and ~~$0.9~~$1.0 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company incurred charges of ~~$3.5~~$2.7 million and ~~$2.8~~$2.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~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.

(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 ~~extends~~extended the relationship between the Company and Pfizer and ~~restructures~~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 ~~includes~~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.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 ~~provides~~provided a fee-for-service model that ~~includes~~included certain fixed fees and performance-related bonuses. The performance-related bonuses ~~are~~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 ~~$16.8~~$2.5 million and ~~$18.0~~$24.1 million for the service fee for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company incurred charges of ~~$63.6~~$5.0 million and ~~$39.7~~$46.8 million for the service fee for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company incurred charges of ~~$30.2~~$27.1 million and ~~$15.8~~$31.1 million for promotion, sales and marketing services performed by Pfizer on behalf of the Company during the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company incurred charges of ~~$88.0~~$65.5 million and ~~$56.3~~$57.7 million for promotion, sales and marketing services performed by Pfizer on behalf of the Company during the ~~nine~~six months ended ~~September~~June 30, ~~2021 and 2020, respectively. During~~ 2022 and ~~contingent upon the achievement of certain Cologuard test revenue metrics during~~ 2021, the Company will pay Pfizer a royalty based on a low single-digit royalty rate applied to actual 2022 Cologuard test revenues. The term of the Restated Promotion Agreement runs through December 31, 2022.respectively.

(12) STOCKHOLDERS’ EQUITY

OmicEra Diagnostics Acquisition Stock Issuance

In May 2022, the Company completed its acquisition of OmicEra. In connection with the acquisition, which is further described in Note 16, the Company issued 0.3 million shares of the Company's common stock that had a fair value of $14.8 million.

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 ~~17,~~16, the Company issued 0.1 million shares of the Company’s common ~~shares~~stock that had a fair value of $16.2 million.

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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 ~~17,~~16, the Company issued 9.3 million shares of the Company’s common ~~shares~~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 ~~17.~~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.

~~Paradigm Diagnostics, Inc. and Viomics, Inc. Acquisition Stock Issuance~~

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In March 2020, the Company completed the acquisitions of Paradigm and Viomics. The purchase price for these acquisitions consisted of cash and stock with a fair value of $40.4 million. Of the $40.4 million purchase price, $32.2 million is expectedEXACT SCIENCES CORPORATION

Notes to be settled through the issuance of 0.4 million shares of common stock. Of the $32.2 million that will be settled through the issuance of common stock, $28.8 million was issued as of September 30, 2021, and the remainder was withheld and may become issuable as additional merger consideration subject to the terms and conditions of the acquisition agreements.Condensed Consolidated Financial Statements

(Unaudited)

Changes in Accumulated Other Comprehensive Income (Loss)

The amount recognized in AOCI for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 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 loss (271) (271)
Net current period change in accumulated other comprehensive loss, before tax (563) (563)
Income tax expense related to items of other comprehensive income 170 170
Balance at September 30, 2021 $ 133 $ 133

~~The amounts recognized in AOCI for the nine months ended September 30, 2020 were as follows:~~


(In thousands)	(In thousands)	Foreign Currency Translation Adjustments		Unrealized Gain (Loss) on Marketable Securities (1)		Accumulated Other Comprehensive Income (Loss)		(In thousands)	Foreign Currency Translation Adjustments		Unrealized Gain (Loss) on Marketable Securities (1)		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2019		$	(25)	$	(75)	$	(100)
Balance at December 31, 2021								Balance at December 31, 2021	$	23	$	(1,466)	$	(1,443)
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	—		1,159		1,159		Other comprehensive loss before reclassifications	(747)		(6,551)		(7,298)
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	25		—		25		Amounts reclassified from accumulated other comprehensive loss	—		96		96
Net current period change in accumulated other comprehensive loss, before tax		25		1,159		1,184
Balance at September 30, 2020		$	—	$	1,084	$	1,084
Net current period change in accumulated other comprehensive loss								Net current period change in accumulated other comprehensive loss	(747)		(6,455)		(7,202)
Balance at June 30, 2022								Balance at June 30, 2022	$	(724)	$	(7,921)	$	(8,645)

______________

(1)There was no tax impact from the amounts recognized in AOCI for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2022.

The amounts recognized in AOCI for the six months ended June 30, 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	(399)		(399)
Amounts reclassified from accumulated other comprehensive income	(230)		(230)
Net current period change in accumulated other comprehensive income, before tax	(629)		(629)
Income tax benefit related to items of other comprehensive income	170		170
Balance at June 30, 2021	$	67	$	67

Amounts reclassified from AOCI for the six months ended June 30, 2022 and 2021 were as follows:


	Affected Line Item in the Statements of Operations	Six Months Ended June 30,
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	$	96	$	(230)
Total reclassifications		$	96	$	(230)

(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)

~~Amounts reclassified from AOCI for the nine months ended September 30, 2021 and 2020 were as follows:~~

Affected Line Item in the
Statements of Operations Nine Months Ended September 30,
Details about AOCI Components (In thousands) 2021 2020
Change in value of available-for-sale investments
Sales and maturities of available-for-sale investments Investment income (expense), net $ (271) $ —
Foreign currency adjustment General and administrative — 25
Total reclassifications $ (271) $ 25

~~(13) STOCK-BASED COMPENSATION~~

~~Stock-Based Compensation Plans~~

The Company maintains the 2010 Omnibus Long-Term Incentive Plan (As Amended and Restated Effective July 27, 2017), the 2019 Omnibus Long-Term Incentive Plan, the 2010 Employee Stock Purchase Plan, and the 2016 Inducement Award Plan (collectively, the “Stock Plans”).

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 ~~$63.6~~$58.9 million and ~~$41.5~~$56.3 million in stock-based compensation expense during the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company recorded ~~$283.3~~$111.4 million and ~~$111.1~~$219.7 million in stock-based compensation expense during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

As of ~~September~~June 30, ~~2021,~~2022, there was ~~$401.6~~approximately $472.7 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 ~~2.8~~2.9 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 ~~September~~June 30, 2021, the Company accelerated ~~34,167~~4,982 shares of previously unvested stock options and ~~24,865~~5,827 shares of previously unvested restricted stock awards and restricted stock units and recorded ~~$4.5~~$1.0 million of non-cash stock-based compensation for the accelerated awards. During the ~~nine~~six months ended ~~September~~June 30, 2021, the Company accelerated ~~138,163~~103,996 shares of previously unvested stock options and ~~58,171~~33,306 shares of previously unvested restricted stock awards and restricted stock units and recorded ~~$19.0~~$14.5 million of non-cash stock-based compensation for the accelerated awards. As further discussed in Note ~~17,~~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.

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Stock Options

The Company determines the fair value of each service-based option award on the date of grant using the Black-Scholes option-pricing model, which utilizes several key assumptions which are disclosed in the following table:

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Option Plan Shares
Risk-free interest rates (1) (1) (1) 0.11% - 1.47%
Expected term (in years) (1) (1) (1) 0.25 - 6.15
Expected volatility (1) (1) (1) 44.19% - 77.51%
Dividend yield (1) (1) (1) —%

~~______________~~

~~(1)The Company did not grant stock options under its 2010 Omnibus Long-Term Incentive Plan or 2019 Omnibus Long-Term Incentive Plan during the period.~~

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


Options	Options	Shares	Weighted Average Exercise Price (1)		Weighted Average Remaining Contractual Term(Years)	Aggregate Intrinsic Value(2)		Options	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (1)
(Aggregate intrinsic value in thousands)	(Aggregate intrinsic value in thousands)							(Aggregate intrinsic value in thousands)
Outstanding, January 1, 2021		2,231,059	$	39.67	6.0
Outstanding, January 1, 2022								Outstanding, January 1, 2022	2,284,276	$	34.65	5.5
Granted	Granted	—	—					Granted	—	—
Assumed through acquisition		1,393,748	5.51
Exercised	Exercised	(1,208,355)	11.09					Exercised	(570,138)	8.83
Forfeited	Forfeited	(36,909)	62.85					Forfeited	(31,385)	79.11
Outstanding, September 30, 2021		2,379,543	$	33.81	5.6	$	147,337
Vested and expected to vest, September 30, 2021		2,379,543	$	33.81	5.6	$	147,337
Exercisable, September 30, 2021		1,816,492	$	25.17	4.9	$	127,826
Outstanding, June 30, 2022								Outstanding, June 30, 2022	1,682,753	$	42.57	5.3	$	22,630
Vested and expected to vest, June 30, 2022								Vested and expected to vest, June 30, 2022	1,682,753	$	42.57	5.3	$	22,630
Exercisable, June 30, 2022								Exercisable, June 30, 2022	1,448,347	$	37.22	5.0	$	20,988

______________

(1)~~The weighted average grant date fair value of options granted during the nine months ended September 30, 2020 was $58.57.~~

~~(2)~~The total intrinsic value of options exercised during the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021 ~~and 2020~~ was ~~$148.8~~$32.5 million and ~~$29.0~~$140.2 million, respectively, determined as of the date of exercise.

The Company received approximately ~~$13.4~~$5.0 million and ~~$15.4~~$11.6 million from stock option exercises during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~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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Notes to Condensed Consolidated Financial Statements

(Unaudited)

A summary of restricted stock and restricted stock unit activity during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 is as follows:

Restricted stock and restricted stock units Shares Weighted
Average Grant
Date Fair Value (2)
Outstanding, January 1, 2021 3,968,214 $ 79.50
Granted 2,084,705 133.80
Assumed through acquisition 242,123 127.79
Released (1) (1,582,760) 72.28
Forfeited (406,201) 99.94
Outstanding, September 30, 2021 4,306,081 $ 109.23


Restricted stock and restricted stock units	Shares	Weighted Average Grant Date Fair Value (1)
Outstanding, January 1, 2022	4,320,910	$	108.84
Granted	3,313,712	74.52
Released (2)	(1,256,999)	97.38
Forfeited	(605,450)	93.95
Outstanding, June 30, 2022	5,772,173	$	92.31

______________

(1)The weighted average grant date fair value of the restricted stock units granted during the six months ended June 30, 2021 was $140.63.

(2)The fair value of restricted stock units vested and converted to shares of the Company’s common stock was ~~$114.4~~$122.4 million and ~~$79.1~~$93.1 million during the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~and 2020,~~ respectively.

~~(2)The weighted average grant date fair value of the restricted stock units granted during the nine months ended September 30, 2020 was $90.95.~~

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-based compensation arrangements granted under all equity compensation~~share unit activity is as follows:


Performance share units	Performance share units	Shares (1)	Weighted Average Grant Date Fair Value (2)		Performance share units	Shares (1)	Weighted Average Grant Date Fair Value (2)
Outstanding, January 1, 2021		618,515	$	93.22
Outstanding, January 1, 2022					Outstanding, January 1, 2022	878,114	$	107.18
Granted	Granted	253,120	140.96		Granted	744,844	92.05
Released(3)	Released(3)	—	—		Released(3)	(292,134)	93.22
Forfeited	Forfeited	(8,991)	68.23		Forfeited	(338,977)	114.78
Outstanding, September 30, 2021		862,644	$	107.49
Outstanding, June 30, 2022					Outstanding, June 30, 2022	991,847	$	105.81

______________

(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 ~~September~~June 30, ~~2021~~2022 was ~~249,695.~~256,242.

(2)The weighted average grant date fair value of the performance share units granted during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$90.17.~~$140.96.

(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 six months ended June 30, 2022. There were no performance share units vested and converted to shares of the Company’s common stock during the six months ended June 30, 2021.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Employee Stock Purchase Plan (“ESPP”)

The fair value of ESPP shares is based on the assumptions in the following table:

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
ESPP Shares
Risk-free interest rates (1) (1) 0.04% - 0.16% 0.12% - 0.20%
Expected term (in years) (1) (1) 0.5 - 2 0.5 - 2
Expected volatility (1) (1) 48.38% - 68.51% 63.67% - 89.04%
Dividend yield (1) (1) —% —%

~~______________~~


	Three Months Ended June 30,		Six Months Ended June 30,
	2022	2021	2022	2021
ESPP Shares
Risk-free interest rates	1.49% - 2.73%	0.04% - 0.16%	1.49% - 2.73%	0.04% - 0.16%
Expected term (in years)	0.5 - 2	0.5 - 2	0.5 - 2	0.5 - 2
Expected volatility	50.94% - 60.34%	48.38% - 68.51%	50.94% - 60.34%	48.38% - 68.51%
Dividend yield	—%	—%	—%	—%

~~(1)The Company did not issue stock purchase rights under its 2010 Employee Stock Purchase Plan during the three months ended September 30, 2021 and 2020, respectively.~~

(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:


		Nine Months Ended September 30,							Six Months Ended June 30,
(In thousands)	(In thousands)	2021			2020			(In thousands)	2022			2021
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:							Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	19,835		$	12,827		Operating cash flows from operating leases	$	15,899		$	12,309
Operating cash flows from finance leases	Operating cash flows from finance leases	723			125			Operating cash flows from finance leases	56			480
Finance cash flows from finance leases	Finance cash flows from finance leases	3,805			620			Finance cash flows from finance leases	2,845			2,443
Non-cash investing and financing activities:	Non-cash investing and financing activities:							Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities (1)	Right-of-use assets obtained in exchange for new operating lease liabilities (1)	60,480			13,662			Right-of-use assets obtained in exchange for new operating lease liabilities (1)	$	22,158		$	54,451
Right-of-use assets obtained in exchange for new finance lease liabilities	Right-of-use assets obtained in exchange for new finance lease liabilities	4,296			17,420			Right-of-use assets obtained in exchange for new finance lease liabilities	6,033			2,308
Weighted-average remaining lease term - operating leases (in years)	Weighted-average remaining lease term - operating leases (in years)	8.14			8.95			Weighted-average remaining lease term - operating leases (in years)	7.33			8.43
Weighted-average remaining lease term - finance leases (in years)	Weighted-average remaining lease term - finance leases (in years)	3.13			3.86			Weighted-average remaining lease term - finance leases (in years)	3.64			3.28
Weighted-average discount rate - operating leases	Weighted-average discount rate - operating leases	6.28		%	6.83		%	Weighted-average discount rate - operating leases	6.11		%	6.32		%
Weighted-average discount rate - finance leases	Weighted-average discount rate - finance leases	5.42		%	5.87		%	Weighted-average discount rate - finance leases	6.09		%	5.54		%

_____________

(1)For the ~~nine~~six months ended ~~September~~June 30, 2022, this includes right-of-use assets recorded as a result of the lease modification discussed below of $8.1 million. For the six months ended June 30, 2021, this includes right-of-use assets acquired as part of the business combinations described in Note 1716 of $39.6 million.

As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company’s right-of-use assets from operating leases are ~~$167.9~~$182.5 million and ~~$125.9~~$174.2 million, respectively, which are reported in operating lease right-of-use assets in the Company’s condensed consolidated balance sheets. As of ~~September~~June 30, ~~2021,~~2022, the Company has outstanding operating lease obligations of ~~$182.2~~$213.0 million, of which ~~$19.2~~$25.8 million is reported in operating lease liabilities, current portion and ~~$163.0~~$187.2 million is reported in operating lease liabilities, less current portion in the Company’s condensed consolidated balance sheets. As of December 31, ~~2020,~~2021, the Company had outstanding operating lease obligations of ~~$132.6~~$201.9 million, of which ~~$11.5~~$19.7 million is reported in operating lease liabilities, current portion and ~~$121.1~~$182.2 million is reported in operating lease liabilities, less current portion in the Company’s condensed consolidated balance sheets. The Company calculates its incremental borrowing rates for specific lease terms, used to discount future lease payments, as a function of the U.S. Treasury rate and an indicative Moody’s rating for operating leases.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company’s right-of-use assets from finance leases are ~~$18.7~~$9.5 million and ~~$18.6~~$18.2 million, respectively, which are reported in other long-term assets, net in the Company’s condensed consolidated balance sheets. As of ~~September~~June 30, ~~2021,~~2022, the Company has outstanding finance lease obligations of ~~$19.1~~$9.7 million, of which ~~$5.9~~$2.6 million is reported in other current liabilities and ~~$13.2~~$7.1 million is reported in other long-term liabilities in the Company’s condensed consolidated balance sheets. As of December 31, ~~2020,~~2021, the Company had outstanding finance lease obligations of $18.7 million, of which ~~$4.7~~$6.2 million is reported in other current liabilities and ~~$14.0~~$12.5 million is reported in other long-term liabilities in the Company’s condensed consolidated balance sheets.

On June 1, 2022, certain of the Company’s vehicle leases were amended. The Company ~~calculates its incremental borrowing rates for specific~~determined that this amendment was a lease ~~terms, used to discount future~~modification, effective June 1, 2022. Under the lease ~~payments, as~~modification guidance within ASC 842, the Company reassessed the lease classification and remeasured the corresponding right-of-use assets and lease liabilities. The Company determined that a ~~function~~portion of the ~~U.S. Treasury rate~~modified leases are to be accounted for as operating leases, and ~~an indicative Moody’s rating for~~therefore derecognized the previous finance ~~leases.~~

~~The Company executed a~~ lease ~~agreement for a new facility in La Jolla, California, which~~right-of-use asset of $10.3 million and the ~~Company is expecting to commence in the fourth quarter~~related finance lease liability of ~~2021. The Company anticipates that it will recognize $22.9~~$10.8 million, inand recognized an operating lease right-of-use ~~assets~~asset of $8.1 million and ~~$22.9 million in~~the related operating lease ~~liabilities in the condensed consolidated balance sheet, respectively, upon commencement~~liability of ~~the lease.~~$8.6 million.

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 initial 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 initial civil damages estimate ~~does~~did not include potential treble damages, civil or criminal penalties or other remedies that the DOJ could seek against the Company. The DOJ has since presented a total adjusted demand of $53.8 million for civil damages, which includes a multiplier and penalties. 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 ~~for the three and nine months ended September~~as of June 30, ~~2021.~~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 ~~for the three and nine months ended September~~as of June 30, ~~2021~~2022 is based on several factors, considerations, and judgments, and the ultimate resolution of this matter could result in a material loss in excess of the recorded accrual.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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.

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.

In connection with the Company's combination with Genomic Health, on June 22, 2020, Suzanne Flannery, a purported former stockholder of Genomic Health, filed a Verified Individual and Class Action Complaint in the Delaware Court of Chancery, captioned Flannery v. Genomic Health, Inc., et al., C.A. No. 2020-0492. Flannery amended her complaint on November 23, 2020. The amended complaint asserts individual and class action claims, including: (i) a violation of 8 Del. C. § 203 by Genomic Health, Exact Sciences and a purported controlling group of former Genomic Health stockholders; (ii) conversion by Genomic Health, Exact Sciences and Spring Acquisition Corp.; (iii) breach of fiduciary duty by Genomic Health's former directors; (iv) breach of fiduciary duty by the purported controlling group; and (v) aiding and abetting breach of fiduciary duty against Exact Sciences, Spring Acquisition and Goldman Sachs & Co. LLC, Genomic Health's financial advisor in the combination. The amended complaint seeks, among other things, declaratory relief, unspecified monetary damages and attorneys' fees and costs. All defendants moved to dismiss the amended complaint. Oral argument on defendants’ motions to dismiss the amended complaint occurred in May 2021, and in September 2021 the case was officially dismissed by the court.

(15) ~~NEW MARKET TAX CREDIT~~

During the fourth quarter of 2014, the Company received approximately $2.4 million in net proceeds from financing agreements related to working capital and capital improvements at 1 of its Madison, Wisconsin facilities. This financing arrangement was structured with an unrelated third-party financial institution (the “Investor”), an investment fund, and its majority owned community development entity in connection with the Company’s participation in transactions qualified under the federal New Markets Tax Credit (“NMTC”) program, pursuant to Section 45D of the Internal Revenue Code of 1986, as amended. The Company is required to be in compliance through December 2021 with various regulations and contractual provisions that apply to the NMTC arrangement. Noncompliance with applicable requirements could result in the Investor’s projected tax benefits not being realized and, therefore, require the Company to indemnify the Investor for any loss or recapture of NMTC related to the financing until such time as the recapture provisions have expired under the applicable statute of limitations. The Company does not anticipate any credit recapture will be required in connection with this financing arrangement.

The Investor and its majority owned community development entity are considered Variable Interest Entities (“VIEs”) and the Company is the primary beneficiary of the VIEs. This conclusion was reached based on the following:

•the ongoing activities of the VIEs — collecting and remitting interest and fees and NMTC compliance — were all considered in the initial design and are not expected to significantly affect performance throughout the life of the VIE;

•~~contractual arrangements obligate the Company to comply with NMTC rules and regulations and provide various other guarantees to the Investor and community development entity;~~

•~~the Investor lacks a material interest in the underlying economics of the project; and~~

•~~the Company is obligated to absorb losses of the VIEs.~~

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Because the Company is the primary beneficiary of the VIEs, they have been included in the consolidated financial statements. There are no other assets, liabilities or transactions in these VIEs outside of the financing transactions executed as part of the NMTC arrangement.

~~(16)~~ WISCONSIN ECONOMIC DEVELOPMENT TAX CREDITS

During ~~the first quarter of~~February 2015, the Company entered into an agreement with the Wisconsin Economic Development Corporation (“~~WEDC”~~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 ~~seven-year period.~~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 June 30, 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 ~~occur. The amount of tax credits earned is recorded as a liability and amortized as a reduction of operating expenses over the expected period of benefit.~~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 ~~over~~in the ~~life of~~period in which the ~~agreement, as~~credits are earned. The credits recognized will be required to be repaid if the Company ~~is required to~~does not maintain ~~the~~ minimum ~~level of full-time positions through the seven-year period.~~cumulative job requirements.

As of ~~September~~June 30, ~~2021,~~2022, the Company has earned ~~all~~ $9.0 million of the refundable tax credits ~~and has received payment of $7.5 million from~~under the ~~WEDC.~~Amended WEDC Agreement. The unpaid portion is ~~$1.5~~$9.0 million as of June 30, 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, net in the Company’s condensed consolidated balance sheets reflecting when collection of the refundable tax credits is expected to occur. As

Table of September 30, 2021 and December 31, 2020, the corresponding liability, which reflected when the expected benefit of tax credit amortization would reduce future operating expenses, has been fully amortized.Contents

EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2022, the Company ~~amortized $0.6~~recorded zero and $1.0 million ~~and $1.7 million,~~ respectively, ~~of the tax credits earned~~ as a reduction ~~of operating expenses.~~to operational expenses for the credits earned for job creation.

~~(17)~~(16) BUSINESS COMBINATIONS AND ASSET ACQUISITIONS

Business Combinations

~~Ashion Analytics, LLC~~OmicEra Diagnostics, GmbH

On ~~April 14, 2021,~~May 2, 2022, the Company completed the acquisition ~~(“Ashion~~(the “OmicEra Acquisition”) of all of the outstanding equity interests of ~~Ashion from PMed Management, LLC (“PMed”), which is a subsidiary of TGen.~~OmicEra Diagnostics GmbH. The ~~Ashion~~OmicEra Acquisition provided the Company a ~~Clinical Laboratory Improvement Amendments (“CLIA”) certified and College of American Pathologists (“CAP”) accredited sequencing~~state-of-the-art proteomics lab based in ~~Phoenix, Arizona. Ashion developed GEMExTra®, a comprehensive genomic cancer test,~~Planegg, Germany. OmicEra combines its mass spectrometry-based proteome analysis technology with its in-house proteomics scientific expertise to discover more reliable and ~~provides access to whole exome, matched germline,~~valuable protein biomarkers, which will expand the Company’s research and ~~transcriptome sequencing~~development capabilities. The Company has included the financial results of ~~Ashion~~OmicEra in the consolidated financial statements from the date of the combination.

The combination date fair value of the consideration transferred for ~~Ashion~~OmicEra was approximately ~~$110.0~~$19.4 million, which consisted of the following:

(In thousands)
Cash $ 74,775
Common stock issued 16,224
Contingent consideration 19,000
Total purchase price $ 109,999


(In thousands)
Common stock issued	$	14,792
Contingent consideration	4,600
Working capital adjustment to be settled in cash	16
Total purchase price	$	19,408

The fair value of the ~~125,444~~265,186 common shares issued as part of the consideration transferred was determined on the basis of the average of the high and low market price of the ~~Company's~~Company’s shares on the acquisition date, which was ~~$129.33.~~

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

$55.78.

The ~~contingent consideration arrangement~~purchase agreement requires the Company to pay ~~$20.0~~a maximum of $6.0 million of additional cash consideration to ~~PMed~~OmicEra upon the ~~Company’s commercial launch, on or before~~achievement of certain earnout conditions related to the ~~tenth anniversary~~identification of protein biomarkers, as well as the growth of the ~~Ashion Acquisition, of a test for minimal residual disease (“MRD”) detection and/or treatment (the “Commercial Launch Milestone”).~~proteomics research and development team. The fair value of the ~~Commercial Launch Milestone~~contingent consideration at the acquisition date was ~~$19.0~~$4.6 million. The contingent consideration arrangement also requires the Company to pay $30.0 million of additional cash upon the Company’s achievement, on or before the fifth anniversary of the Ashion Acquisition, of cumulative revenues from MRD products of $500.0 million (the “MRD Product Revenue Milestone”). No value was ascribed to the MRD Product Revenue Milestone based on probability assessments as of the acquisition date. The fair value of the ~~Commercial Launch Milestone and MRD Product Revenue Milestone~~contingent consideration was estimated using a probability-weighted ~~scenario based~~scenario-based discounted cash flow model. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ~~Accounting Standards Codification (“ASC”)~~ASC 820. The key assumptions are described in Note 7.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date.

(In thousands)
Cash and cash equivalents $ 2,474
Accounts receivable 2,349
Inventory 1,811
Prepaid expenses and other current assets 425
Property, plant and equipment 9,947
Operating lease right-of-use assets 548
Developed technology 39,000
Total identifiable assets acquired $ 56,554
Accounts payable (1,477)
Accrued liabilities (1,190)
Operating lease liabilities, current portion (343)
Other current liabilities (98)
Operating lease liabilities, less current portion (205)
Total liabilities assumed $ (3,313)
Net identifiable assets acquired $ 53,241
Goodwill 56,758
Net assets acquired $ 109,999


(In thousands)
Net operating assets	$	2,586
Developed technology	10,000
Total identifiable assets acquired	12,586

Net operating liabilities	(3,926)
Net identifiable assets acquired	8,660

Goodwill	10,748
Net assets acquired	$	19,408

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Company recorded ~~$39.0~~$10.0 million of identifiable intangible assets related to the developed technology associated with ~~GEMExTra.~~OmicEra’s proteome analysis platform. Developed technology represents purchased technology that had reached technological feasibility and for which ~~Ashion~~OmicEra had substantially completed development as of the date of combination. The fair value of the developed technology has been determined using the income approach multi-period excess earnings method, which involves significant unobservable inputs (Level 3 inputs). These inputs include projected sales, margin, ~~and~~obsolescence factor, required rate of return, and tax rate. Cash flows were discounted to their present value as of the closing date. Developed technology is amortized on a straight-line basis over its estimated useful life of 1316 years.

The calculation of the excess ~~of the~~ purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill, which is primarily attributed to the acquired workforce expertise, the potential to enhance the capabilities ~~in the advancement~~ of ~~creating~~current and ~~launching new~~future products, ~~including an MRD product,~~ and expected ~~sales force synergies related to the developed technology.~~research and development synergies. The total goodwill related to this combination is not deductible for tax purposes.

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

The total purchase price allocation is preliminary and based upon estimates and assumptions that are subject to change within the measurement period as additional information for the estimates is obtained. The measurement period remains open pending the completion of valuation procedures related to certain acquired assets and liabilities assumed, primarily in connection with the developed technology intangible asset.

Pro forma impact and results of operations disclosures have not been included due to immateriality.

~~During the nine months ended September 30, 2021, the Company incurred $1.6 million of acquisition-related~~Acquisition-related costs ~~recorded in general~~were not material and administrative expenses in the condensed consolidated statement of operations, respectively. These costs include fees associated with financial, legal, accounting and other advisors incurred to complete the merger.

~~Thrive Earlier Detection Corporation~~

On January 5, 2021, the Company completed the acquisition (“Thrive Merger”) of all of the outstanding capital stock of Thrive. 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 screening test, CancerSEEK, with the Company’s scientific platform, clinical organization and commercial infrastructure will establish the Company as a leading competitor in blood-based, multi-cancer early detection. The Company has included the financial results of Thrive in the consolidated financial statements from the date of the combination.

~~The combination date fair value of the consideration transferred for Thrive was approximately $2.19 billion, which consisted of the following:~~

(In thousands)
Common stock issued $ 1,175,431
Cash 584,996
Contingent consideration 331,348
Fair value of replaced equity awards 52,245
Previously held equity investment fair value 43,034
Total purchase price $ 2,187,054

The Company issued 9,323,266 common shares that had a fair value of $1.19 billion based on the average of the high and low market price of the Company's shares on the acquisition date, which was $127.79. Of the total consideration for common stock issued, $1.18 billion was allocated to the purchase consideration and $16.0 million was recorded as compensation within general and administrative expenses in the condensed consolidated statement of operations on the acquisition date due to accelerated vesting of legacy Thrive restricted stock awards (“RSA”) and RSU awards in connection with the acquisition.

The Company paid $590.2 million in cash on the acquisition date. Of the total consideration for cash, $585.0 million was allocated to the purchase consideration and $5.2 million was recorded as compensation within general and administrative expenses on the acquisition date due to accelerated vesting of legacy Thrive RSU and RSA awards that were cash-settled in connection with the acquisition.

The contingent consideration arrangement requires the Company to pay up to $450.0 million of additional cash consideration to Thrive’s former shareholders upon the achievement of two discrete events, U.S. Food and Drug Administration (“FDA”) approval and Centers for Medicare & Medicaid Services (“CMS”) coverage, for $150.0 million and up to $300.0 million, respectively. The fair value of the contingent consideration arrangement at the acquisition date was $352.0 million. The fair value of the contingent consideration was estimated using a probability-weighted scenario based discounted cash flow model. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. The key assumptions are described in Note 7. Of the total fair value of the contingent consideration, $331.3 million was allocated to the consideration transferred, $6.4 million was allocated to the Company’s previous ownership interest in Thrive, and $14.3 million was deemed compensatory as participation is dependent on replaced unvested equity awards vesting which requires future service. Compensation expense related to the milestones could be up to $18.2 million undiscounted and will be recognized in the future once probable and payable.

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

The Company replaced unvested stock options, RSUs, and RSAs and vested stock options with a combination-date fair value of $197.0 million. Of the total consideration for replaced equity awards, $52.2 million was allocated to the consideration transferred and $144.8 million was deemed compensatory as it was attributable to post acquisition vesting. Of the total compensation related to replaced awards, $65.0 million was expensed on the acquisition date due to accelerated vesting of stock options in connection with the acquisition and $79.8 million relates to future services and will be expensed over the remaining service periods of the unvested stock options, RSUs, and RSAs on a straight-line basis. Including expense recognized for accelerated vesting of RSUs and RSAs described above, total expected stock-based compensation expense is $166.0 million, of which $86.2 million was recognized immediately to general and administrative expenses in the condensed consolidated statement of operations due to accelerated vesting.

The fair value of the stock options assumed by the Company was determined using the Black-Scholes option pricing model. The fair value of the RSA and RSUs assumed by the Company was determined based on the average of the high and low market price of the Company's shares on the acquisition date. The share conversion ratio of 0.06216 was applied to convert Thrive’s outstanding equity awards for Thrive’s common stock into equity awards for shares of the Company’s common stock.

~~The fair value of options assumed were based on the assumptions in the following table:~~


~~Option Plan Shares Assumed~~
~~Risk-free interest rates~~						~~0.11% - 0.12%~~
~~Expected term (in years)~~						~~1.26 - 1.57~~
~~Expected volatility~~						~~65.54% - 71.00%~~
~~Dividend yield~~						—%
~~Weighted average fair value per share of options assumed~~						~~$109.74 - $124.89~~

The Company previously held a preferred stock investment of $12.5 million in Thrive and recognized a gain of approximately $30.5 million on the transaction within investment income (expense), net on the Company’s condensed consolidated statement of operations, which represented the adjustment of the Company’s historical investment to the acquisition date fair value. The fair value of the Company’s previous ownership in Thrive was determined based on the pro-rata share payout applied to the Company’s interest combined with the fair value of the Company’s share of the contingent consideration arrangement, as discussed above.

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:~~

(In thousands) Preliminary Allocation
January 5, 2021 Measurement Period Adjustments Allocation as of September 30, 2021
Cash and cash equivalents $ 241,748 $ — $ 241,748
Prepaid expenses and other current assets 3,939 — 3,939
Property, plant and equipment 29,977 — 29,977
Operating lease right-of-use assets 39,027 — 39,027
Other long-term assets 67 — 67
In-process research and development (IPR&D) 1,250,000 — 1,250,000
Total identifiable assets acquired $ 1,564,758 $ — $ 1,564,758
Accounts payable (3,222) — (3,222)
Accrued liabilities (6,218) (1,862) (8,080)
Operating lease liabilities, current portion (2,980) — (2,980)
Operating lease liabilities, less current portion (38,622) — (38,622)
Deferred tax liability (272,905) — (272,905)
Total liabilities assumed $ (323,947) $ (1,862) $ (325,809)
Net identifiable assets acquired $ 1,240,811 $ (1,862) $ 1,238,949
Goodwill 946,243 1,862 948,105
Net assets acquired $ 2,187,054 $ — $ 2,187,054

IPR&D represents the fair value assigned to research and development assets that have not reached technological feasibility. The primary basis for determining technological feasibility of these projects is obtaining regulatory approval to market the underlying product and expected commercial release. The amounts capitalized are accounted for as indefinite-lived intangible assets, subject to impairment testing, until completion or abandonment of the research and development efforts associated with the projects. The Company recorded $1.25 billion of IPR&D related to a project associated with the development of an FDA approved blood-based, multi cancer screening test. The IPR&D asset was valued using the multiple-period excess earnings method approach, which involves significant unobservable inputs (Level 3 inputs). These inputs include projected sales, margin, required rate of return and tax rate, as well as estimates of achievement probability and timing related to the royalty and milestone obligations due to JHU, as described in Note 10.

The calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill, which is primarily attributed to the research and development workforce expertise, next generation sequencing capabilities and expected synergies. The total goodwill related to this combination is not deductible for tax purposes.

The net loss before tax of Thrive included in the Company’s condensed consolidated statement of operations from the combination date of January 5, 2021 to September 30, 2021 was $219.6 million. The net loss before tax of Thrive included in the Company’s condensed consolidated statement of operations for the three months ended September 30, 2021 was $39.6 million.

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

The following unaudited pro forma financial information summarizes the combined results of operations for the Company and Thrive, as though the companies were combined as of the beginning of January 1, 2020.

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2021 2020 2021 2020
Total revenues $ 456,379 $ 408,363 $ 1,293,275 $ 1,025,052
Net loss before tax (170,797) (224,860) (536,253) (575,981)

The unaudited pro forma financial information for all periods presented above has been calculated after adjusting the results of Thrive to reflect the business combination accounting effects resulting from this combination. The Company incurred $86.2 million of stock-based compensation expense related to accelerated vesting in connection with the acquisition, $13.5 million of stock-based compensation expense related to accelerated vesting for employees with qualifying termination events, and $10.3 million of transaction costs incurred to execute the acquisition during the first quarter of 2021. These expenses are included in general and administrative expenses on the condensed consolidated statement of operations for the nine months ended September 30, 2021 and are reflected in pro forma earnings for the nine months ended September 30, 2020 in the table above. The Company recorded a realized gain of $30.5 million during the first quarter of 2021 in investment income (expense), net on the Company’s condensed consolidated statement of operations relating to the Company’s pre-acquisition investment in Thrive. This gain has been reduced to $7.6 million due to the Company’s smaller ownership interest in Thrive on January 1, 2020, and is reflected in pro forma earnings for the nine months ended September 30, 2020 in the table above. The Company recorded a remeasurement of contingent consideration of $10.5 million related to Thrive in general and administrative expenses in the condensed consolidated statement of operations for the nine months ended September 30, 2021. This expense is reflected in the nine months ended September 30, 2020 in the table above. The historical consolidated financial statements have been adjusted in the unaudited pro forma combined financial information to give effect to pro forma events that are directly attributable to the business combination and factually supportable. The unaudited pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the combination had taken place as of January 1, 2020.

~~During the nine months ended September 30, 2021, the Company incurred $10.3 million of acquisition-related costs~~ recorded inwithin general and administrative expenses in the condensed consolidated statement of operations. These costs include fees associated with financial, legal, accounting, and other advisors incurred to complete the merger.

~~In connection with acquisition-related severances,~~PreventionGenetics LLC

On December 31, 2021, the Company ~~recorded $4.5 million~~completed the acquisition (the “PreventionGenetics Acquisition”) of expense related to vesting of previously unvested equity awards and $1.2 million of additional benefit charges for the three months ended September 30, 2021. The Company recorded $19.0 million of expense related to vesting of previously unvested equity awards and $3.9 million of additional benefit charges for the nine months ended September 30, 2021.

~~Paradigm Diagnostics, Inc. and Viomics, Inc.~~

~~On March 3, 2020, the Company acquired~~ all of the outstanding ~~capital stock~~equity interests of ~~Paradigm~~PreventionGenetics, LLC. The PreventionGenetics Acquisition provided the Company a Clinical Laboratory Improvement Amendments (“CLIA”) certified and ~~Viomics, two~~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.

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 and six months ended June 30, 2022, 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 ~~party companies~~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 ~~one another headquartered~~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, in transactions that were deemed~~Arizona. Ashion developed the GEMExTra® test, a comprehensive genomic cancer test, and provides access to ~~be a single business~~whole exome, matched germline, and transcriptome sequencing capabilities.

Refer to the Company’s 2021 10-K for detailed disclosures on the combination, ~~in accordance with ASC 805, Business Combinations, (“~~including the ~~Paradigm Acquisition”). Paradigm provides comprehensive genomic-based profiling tests that assist~~fair value of the consideration transferred, purchase price allocation, and goodwill and intangible assets identified in the ~~diagnosis~~transaction. During the three and ~~therapy recommendations for late-stage cancer. Viomics provides a platform for identification of biomarkers.~~

~~The Company entered into this acquisition~~six months ended June 30, 2022, there were no changes to ~~enhance its product portfolio in cancer diagnostics~~the purchase price allocation and ~~to enhance its capabilities for biomarker identification.~~the measurement period has closed.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Thrive Earlier Detection Corporation

On January 5, 2021, the Company completed the acquisition 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 ~~acquisition date~~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 ~~to be~~ transferred, for Paradigm and Viomics was $40.4 million, which consists of $32.2 million payable in shares of the Company’s common stock and $8.2 million which was settled through a cash payment. Of the $32.2 million to be settled through the issuance of common stock, $28.8 million was issued as of September 30, 2021, and the remaining $3.4 million, which was withheld and may become payable as additional merger consideration, is included in other current liabilities in the condensed consolidated balance sheet as of September 30, 2021. Thefinal purchase price ~~was allocated to the underlying assets acquired~~allocation, and ~~liabilities assumed based upon their estimated fair values as follows:~~

(In thousands) Preliminary Allocation
March 3, 2020 Measurement Period Adjustments Final Allocation
March 3, 2021
Net operating assets $ 6,133 $ (760) $ 5,373
Goodwill 29,695 736 30,431
Developed technology 7,800 — 7,800
Net operating liabilities (3,123) (80) (3,203)
Total purchase price $ 40,505 $ (104) $ 40,401

~~The measurement period adjustments primarily related to accounts receivable valuation and working capital adjustments.~~

The fair value of identifiable intangible assets has been determined using the income approach, which involves significant unobservable inputs (Level 3 inputs). These inputs include projected sales, margin, weighted average cost of capital and tax rate.

Developed technology represents purchased technology that had reached technological feasibility and for which development had been completed as of the acquisition date. Fair value was determined using future discounted cash flows related to the projected income stream of the developed technology for a discrete projection period. Cash flows were discounted to their present value as of the closing date. Developed technology is amortized on a straight-line basis over its estimated useful life of 15 years.

~~The calculation of the excess of the purchase price over the estimated fair value of the tangible net assets~~goodwill and intangible assets ~~acquired was recorded to goodwill, which is primarily attributed to the assembled workforce, and expected synergies. The total goodwill related to this acquisition is not deductible for tax purposes.~~

The Company agreed to issue to the previous investors in Viomics equity interests with an acquisition-date fair value of up to $8.4 million in Viomics, vesting over 4 years based on certain retention arrangements. Payment is contingent upon continued employment with the Company over the ~~four~~ ~~year vesting period and is recognized as stock-based compensation expense in general and administrative expense~~identified in the ~~condensed consolidated statement of operations.~~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 paid cash of $33.6 million for 100% of the outstanding capital stock in PFS.~~ ~~PFS is a healthcare company focused on personalizing treatment for breast cancer patients to improve outcomes and reduce unnecessary treatment.~~ 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.

~~The assets acquired and liabilities assumed were substantially comprised~~ Refer to the Company’s 2021 10-K for detailed disclosures on the asset acquisition, including the fair value of the ~~IPR&D asset as shown in the table below. The IPR&D asset acquired was recorded to research~~consideration transferred and development expense in the condensed consolidated statement of operations immediately after acquisition as the asset was deemed to be incomplete and had no alternative future use at the time of acquisition.

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~The Company accounted for the acquisition in accordance with the accounting standards codification guidance for business combinations, whereby the total~~ purchase price ~~was allocated to the acquired net tangible and intangible assets based on their estimated fair values as of the closing date.~~

~~Acquisition related costs were not material in this asset acquisition.~~

~~The following table summarizes the allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed:~~

(In thousands)
Consideration
Cash paid for acquisition of PFS Genomics outstanding shares $ 33,569
Assets acquired and liabilities assumed
Cash 496
IPR&D asset 33,074
Other assets and liabilities (1)
Net assets acquired $ 33,569
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. ~~In connection with~~Refer to the Company’s 2021 10-K for detailed disclosures on the asset acquisition, including the ~~Company paid upfront~~ fair value ~~consideration of $52.3 million comprised of $25.0 million in cash and issuance of 0.2 million shares of common stock valued at $27.3 million based on the average~~ of the ~~high~~consideration transferred and low market price of the Company’s shares on the acquisition date. In addition, the Company is obligated to make milestone payments to TGen of $10.0 million and $35.0 million upon achieving cumulative product revenueinformation related to ~~MRD detection and/or treatment totaling $100.0 million and $250.0 million, respectively. These payments are~~ contingent upon achievement of these cumulative revenues on or before December 31, 2030. The upfront consideration was recorded to research and development expense in the condensed consolidated statement of operations immediately after acquisition as the asset was deemed to be incomplete and had no alternative future use at the time of acquisition. The Company will record the sales milestones once achievement is deemed probable. No acquisition related costs were incurred in this asset acquisition during the three and nine months ended September 30, 2021.milestones.

~~(18)~~(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.

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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 September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2022		2021		2022		2021
United States	United States	$	429,150	$	392,120	$	1,213,142	$	968,825	United States	$	493,299	$	407,971	$	950,427	$	783,992
Outside of United States	Outside of United States	27,229		16,243		80,133		56,227		Outside of United States	28,341		26,848		57,784		52,904
Total revenues	Total revenues	$	456,379	$	408,363	$	1,293,275	$	1,025,052	Total revenues	$	521,640	$	434,819	$	1,008,211	$	836,896

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

~~(19)~~

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(18) INCOME TAXES

The Company recorded an income tax benefit of ~~$3.9~~$1.8 million and ~~$2.8~~an income tax expense of $4.0 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company recorded an income tax benefit of ~~$242.6~~$3.8 million and ~~$5.3~~$238.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company’s income tax ~~expense~~benefit recorded during the three months ended ~~September~~June 30, ~~2021~~2022 is primarily related to ~~foreign tax expense, as well as~~ the future limitations on and expiration of certain Federal and State deferred tax ~~assets.~~assets, offset by current foreign and state tax expense. The Company’s income tax benefit recorded during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 is primarily related to ~~an income tax benefit~~the future limitations on and expiration of ~~$239.2 million recorded as a result of the change in the~~certain Federal and State deferred tax ~~asset valuation allowance resulting from the Thrive Merger.~~assets, offset by current foreign and state tax expense. A deferred tax liability of approximately ~~$32.7~~$27.4 million was recorded as of ~~September~~June 30, ~~2021,~~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 ~~$17.7~~$24.4 million and ~~$16.6~~$21.8 million of unrecognized tax benefits at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~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 ~~September~~June 30, ~~2021,~~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 ~~2001~~2002 through ~~2021,~~2022, and to state income tax examinations for the tax years ~~2001~~2002 through ~~2021.~~2022. No interest or penalties related to income taxes have been accrued or recognized as of ~~September~~June 30, ~~2021.~~2022.

(19) SUBSEQUENT EVENTS

On August 2, 2022, pursuant to an asset purchase agreement with MDxHealth SA (“MDxHealth”), the Company completed a divestiture of certain assets related to the Company’s Oncotype DX Genomic Prostate Score® for consideration of approximately $30.0 million, compromised of cash and equity. Up to an additional $70.0 million would be earned and receivable in cash and/or equity if certain sales earnout milestones are achieved by MDxHealth between 2023 and 2025. Further, the Company agreed to provide certain transitional services to MDxHealth, including employee leasing and lab services.

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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, ~~2020,~~2021, which has been filed with the SEC (the ~~“2020~~“2021 Form 10-K”).

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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 meet our payment obligations under our indebtedness; 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; ~~our ability to realize the benefits of our recently hired sales representatives and our promotion agreement with Pfizer;~~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 changing macroeconomic conditions, including the effects of inflation and interest rate and foreign currency exchange rate fluctuations and ~~our~~any such 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 or the divestiture of business operations will be greater than expected and the possibility that integration or divestiture 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;~~proceedings; our ability to retain and hire key ~~personnel, including employees at businesses we acquire.~~personnel. 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 ~~2020~~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 ~~brands~~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.

~~Acquisitions~~

~~Refer~~

Acquisitions and Divestitures

On May 2, 2022, we completed the acquisition of OmicEra Diagnostics GmbH (“OmicEra”). OmicEra is a life sciences company that provides us with a state-of-the-art proteomics lab in Planegg, Germany. OmicEra combines its mass spectrometry-based proteome analysis technology with its in-house proteomics scientific expertise to ~~Note 17~~discover more reliable and valuable protein biomarkers, which will expand our research and development capabilities. We expect this acquisition to advance future products including our blood-based colorectal cancer and multi-cancer early detection (“MCED”) tests.

On August 2, 2022, we completed a divestiture of assets related to our Oncotype DX Genomic Prostate Score® test to MDxHealth SA ("MDxHealth"). As part of the transaction, certain members of our ~~condensed consolidated financial statements included in~~dedicated urology teams will transition to MDxHealth, a commercial-stage precision diagnostics company focused solely on prostate cancer and other urologic diseases. To ensure a smooth transition for patients, we have agreed to provide certain transitional services to MDxHealth, including employee leasing and lab services. We believe this ~~Quarterly Report~~will allow our team to focus on ~~Form 10-Q for full discussion of acquisitions completed during~~ the ~~year.~~highest impact projects core to our vision.

Our ~~Cologuard Test~~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. ~~In 2020~~Each year in the United States there ~~was estimated to be~~are approximately ~~148,000~~150,000 new cases of colorectal cancer and 53,000 ~~deaths from colorectal cancer.~~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 ~~Oncotype~~Precision Oncology Tests

~~We apply our world-class scientific~~Our portfolio delivers actionable genomic insights to inform prognosis and ~~commercial expertise and infrastructure~~cancer treatment after a diagnosis. In breast cancer, the Oncotype DX Breast Recurrence Score® test is the only test shown to ~~lead~~predict the ~~translation~~likelihood of clinical and genomic data into clinically actionable results for treatment planning throughout the cancer patient’s journey, from diagnosis to treatment selection and monitoring. Our Oncotype tests include our flagship line of Oncotype DX® gene expression tests for breast, prostate and colon cancer,chemotherapy benefit as well as recurrence in invasive breast cancer. The Oncotype ~~DX AR-V7 Nucleus Detect®~~DX® test ~~a liquid-based~~is recognized as the standard of care and is included in all major breast cancer treatment guidelines. The Oncomap™ ExTra test ~~for advanced stage prostate cancer.~~

~~In October 2020, we announced the introduction of the Oncotype MAP~~TM ~~Pan-Cancer Tissue (“Oncotype MAP”) test, which is a rapid,~~applies comprehensive tumor profiling, ~~panel that aids~~utilizing whole exome and whole transcriptome sequencing, to aid in therapy selection for patients with advanced, metastatic, refractory, relapsed, or recurrent cancer. With an extensive panel of approximately 20,000 genes and 169 introns, the Oncomap ExTra test is one of the most comprehensive genomic (DNA) and transcriptomic (RNA) panels available today. We enable patients to take a more active role in their cancer care and makes it easy for providers to order tests, interpret results, and personalize medicine by applying real-world evidence and guideline recommendations.

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International Business Background and Products

We commercialize our ~~Oncotype~~Oncotype® tests internationally through employees in Canada, Japan and ~~six~~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 ~~new~~unmet cancer ~~areas~~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:

•~~Colon~~Colorectal Cancer Screening. We are seeking opportunities to improve upon our Cologuard test’s performance characteristics. In ~~October 2019,~~January 2022, we and Mayo Foundation for Medical Education and Research (“Mayo”) presented at the American ~~College~~Society of ~~Gastroenterology’s 2019 Annual Scientific Meeting~~Clinical Oncology Gastrointestinal Cancers Symposium findings from a ~~blinded-case control~~ study ~~showing enhanced~~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 ~~adenoma detection using newly discovered methylation biomarkers.~~pre-cancerous lesions. To establish the performance of an enhanced multi-target stool DNA test, we expect to enroll ~~more than 10,000~~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”)~~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 ~~establish us as a leading competitor in~~bring an accurate blood-based, multi-cancer early ~~detection.~~

•~~Hepatocellular Carcinoma (~~“~~HCC~~”~~) Test Development.~~ ~~We are currently developing a blood-based biomarker~~detection 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 45% sensitivity at 90% specificity for early stage HCC. Our test was made available on a limited basis beginning in the second quarter of 2021.patients.

•Minimal Residual Disease (“MRD”) Test Development. We plan to offer both a tumor-informed and tumor-naive minimal residual disease test to help detect small amounts of tumor DNA that may remain in patients’ blood after they have undergone initial treatment. Our goal is to support all patients in MRD and recurrence monitoring, whether there is access to tumor tissue to inform patient-specific biomarker targets or no access to tissue such that a predefined biomarker panel is used. We are currently evaluating different technological approaches for both test types. In January 2021, we acquired an exclusive license to The Translational Genomics Research Institute (“TGen”) proprietary Targeted Digital Sequencing (“TARDIS”) ~~technology.~~technology to support development of our tumor-informed test. We ~~are currently seeking to utilize this compelling and technically distinct approach to develop a test~~have also published proof of concept data showing the ability of cancer-associated methylation markers to detect ~~small amounts of tumor~~distantly recurrent colorectal cancer with promising performance.

•Hereditary Cancer Testing. In December 2021, we acquired PreventionGenetics, LLC (“PreventionGenetics”), a DNA testing laboratory that ~~may remain in patients’ blood after they have undergone initial treatment. In a study published in~~ ~~Science Translational Medicine, TARDIS demonstrated high accuracy in assessing molecular response~~provides more than 5,000 predefined genetic tests for nearly all clinically relevant genes, additional custom panels, and ~~residual disease during neoadjuvant therapy to treat breast cancer. TARDIS achieved up to 100-fold improvement beyond the current limit of circulating tumor DNA detection.~~comprehensive germline whole exome and whole genome sequencing tests. We intend to ~~expand our precision oncology business to become a leader in minimal residual disease testing, which will leverage our existing foundation to deliver better solutions to patients navigating cancer.~~

•~~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~~use PreventionGenetics' capabilities to expand the use of ~~genomic~~hereditary cancer testing ~~to address additional populations, including higher-risk patients.~~

~~We may also use a number of other technologies across various development programs~~in the U.S. and product implementations. While early-stage cancer continues to be our main focus, we believe we also have an opportunity to expand our business further along the patient’s cancer journey, both through our research and development process and strategic collaborations.globally.

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.

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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 ~~our~~offering COVID-19 testing business. Although we expect that demand for our COVID-19 testing services will decline over time as the pandemic abates, as discussed below, demand for these services remained relatively strong during the quarter ended September 30, 2021, in part due to increased COVID-19 cases in certain areastesting.

Table of ~~the country during the quarter.~~Contents

~~2021~~

2022 Priorities

Our top priorities for ~~2021~~2022 are to (1) ~~get~~impact more ~~people tested,~~lives, (2) advance new ~~solutions,~~tests, and (3) ~~enhance our customer experience.~~take care of the people we serve.

~~Get~~Impact More ~~People Tested~~Lives

We are committed to delivering critical answers to patients by getting more people tested with our ~~Cologuard and Oncotype tests. Depending on the course of the COVID-19 pandemic, we expect to continue to provide COVID-19 testing.~~laboratory testing services.

Advance New ~~Solutions~~Tests

In ~~2021,~~2022, we are focused on advancing new ~~solutions~~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 ~~their~~the entire cancer ~~journeys.~~journey. We plan to ~~continue investing~~prioritize investments in ~~ongoing and additional~~ clinical ~~trials~~studies to support our three most important product development ~~efforts in enhancing existing products.~~ 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 ~~also plan~~want to ~~bring new products to patients and providers as further discussed in the Pipeline Research and Development section above.~~

~~Enhance Our Customer Experience~~

~~Another priority for 2021 is to enhance our customer experience. To establish long-term relationships with patients and providers,~~take even better care of everyone we serve. We plan to improve customer ~~communications~~relations by delivering simple and ~~create new ways~~smooth workflows, providing communication that is clear and easy to ~~personalize their experiences.~~understand, and providing results that are fast and accurate. Our goal is to become ~~the cancer diagnostic provider~~a caring partner to answer questions and help people navigate what is a difficult time in their life.

Recent Developments and Trends

Impacts of ~~choice for providers~~COVID-19 and ~~patients.~~

~~Results of Operations~~Current Inflationary Environment

The ~~spread of~~ongoing COVID-19 pandemic 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 have~~ 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, the revenue from which has partially offset the pandemic’s impact on our Screening and Precision Oncology testing revenue.~~

Due to social distancing, stay-at-home orders, and other actions taken in response to COVID-19, there was a significant and widespread decline in standard wellness visits and preventive services beginning at the end of the first quarter of 2020. We took steps to limit exposure to COVID-19 based on recommendations from government and health agencies, including limiting field-based, face-to-face interactions by our sales force. The pandemic negatively impacted both ourtesting. Our Screening and Precision Oncology businesses were negatively impacted by the pandemic but have in ~~2020. We began to see orders recovering towards the end~~large part recovered. Future outbreaks of ~~2020 to near pre-pandemic levels.~~

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~~While Cologuard test orders have increased from the early pandemic lows, the growth has been slower than expected due to continuing restrictions on~~COVID-19 and its variants could diminish patients’ and our ~~and Pfizer Inc.’s (“Pfizer”)~~ sales representatives’ access to healthcare provider ~~offices~~offices. Pandemic-related 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.

The inflationary environment has resulted in higher prices which have impacted our operations, including personnel-related costs. The severity and ~~additional outbreaks~~duration of COVID-19 and its variants during 2021, which further diminished access to healthcare provider offices. Our Cologuard test is promotionally responsive, and preventive health and wellness visits continue to be deprioritized due to the ~~risk of COVID-19. The COVID-19 pandemic has also reduced well-patient access to healthcare providers, which has contributed to,~~current inflationary environment remain uncertain and may continue to contribute to, delays to clinical studies that are critical to the launch of future products and services. Even after the pandemic subsides, some healthcare providers and health systems may limit the extent and type of sales representatives’ access to their facilities and personnel. We have not seen the impact to our ~~Precision Oncology business as it relates to the COVID-19 variants like we have with our~~ operations.

Cologuard test. This is mostly due to the fact that patients are already diagnosed with cancer and there is greater urgency to access healthcare providers and our Oncotype tests. We could see a delayed impact in our Precision Oncology business from the COVID-19 variants if patients deprioritize preventive services, including mammograms and prostate cancer screening.

Although health and safety precautions loosened in many jurisdictions during the quarter ended June 30, 2021 as the number of COVID-19 cases began to decline and vaccination rates increased, beginning in late July 2021, COVID-19 cases, including cases associated with the highly contagious delta variant, increased significantly in the United States. With the recent resurgence of COVID-19 cases, mask mandates, social-distancing, and other protective measures were reinstated in many parts of the country. Although infection rates have begun to fall in some parts of the country, cases are continuing to climb in other regions, and public health officials and medical professionals have warned that COVID-19 cases may spike again nationally, particularly if vaccination rates do not quickly increase or if additional, potent disease variants emerge. It is unclear how long any future resurgences may last, how severe they may be, and what safety measures governments may impose in response. It is also unclear how long individuals will remain cautious about resuming activities such as preventive-care medical visits or how long medical practices will remain cautious about allowing individuals, such as sales representatives, into their offices.Promotion

In ~~September 2021,~~March 2022, we ~~completed an expedited hiring process~~announced our partnership with Katie Couric, award winning journalist and onboarded approximately 400 former Pfizer sales representatives to increase adoption of our Cologuard test and our pipeline of innovative screening tests. Prior to late August 2021, when Pfizer announced a decrease in the number of sales positions supporting its Internal Medicine therapeutic area, these employees had been promoting our Cologuard test under our promotion agreement with Pfizer (the “Promotion Agreement”).

We are uncertain how many or what type of sales details Pfizer’s sales representatives will contribute during the remainder of 2021 and beyond. In October 2020, we amended and restated our Promotion Agreement with Pfizer to, among other things, address changes to the operational landscape resulting from the COVID-19 pandemic, and we are in the process of discussing further amendments to the Promotion Agreement. Those discussions could result in material changes to the Promotion Agreement. If we are unable to manage our relationships with Pfizer and Pfizer’s sales representatives, or if we or Pfizer fail to optimally or effectively promote, market and sell our Cologuard test, our results of operation could be adversely affected.

~~We have adjusted, and expect~~colorectal cancer advocate, to continue to ~~adjust, our COVID-19 precautionary measures~~highlight the urgent need for people to get screened. Entitled ‘Mission to Screen,’ the year-long marketing and social-media campaign will educate Americans on the importance of early detection, starting colon cancer screening at ~~our various locations based on local recovery levels~~age 45 for average risk individuals, and ~~applicable governmental regulations. During~~ the ~~third quarter~~availability of ~~2021, we announced that anyone working onsite at an Exact Sciences’ U.S. facility~~multiple screening options. 'Mission to Screen' will be placed in broadcast and ~~anyone going into~~digital outlets. It includes a ~~healthcare setting~~national television commercial, a website featuring interviews with real doctors and patients, and a social media initiative encouraging people to ~~perform~~share their ~~job in the U.S. must be fully vaccinated. As part~~reasons to screen.

Results of this announcement, we provided information to help educate and encourage our employees to receive the COVID-19 vaccination. We have also authorized more employees to work on-site and expect more teams to return onsite in the fourth quarter of 2021. Our business could be negatively affected if we take excessive, ineffective or inadequate precautions.

We continue to plan for future growth through investing in our existing operations and through the acquisitions further discussed in our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.Operations

We have generated significant losses since inception and, as of ~~September~~June 30, ~~2021,~~2022, we had an accumulated deficit of approximately ~~$2.42~~$2.99 billion. We expect to continue to incur losses for the near future, and it is possible we may never achieve profitability.

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


	Three Months Ended June 30,
Amounts in millions	2022		2021		Change
Screening	$	353.9	$	263.9	$	90.0
Precision Oncology	154.0		137.8		16.2
COVID-19 Testing	13.8		33.1		(19.3)
Total	$	521.6	$	434.8	$	86.8


	Six Months Ended June 30,
Amounts in millions	2022		2021		Change
Screening	$	660.4	$	504.3	$	156.2
Precision Oncology	306.6		267.2		39.4
COVID-19 Testing	41.2		65.4		(24.2)
Total	$	1,008.2	$	836.9	$	171.3

The increase in Screening revenue, which primarily includes laboratory service revenue from our Cologuard test, was $280.4 million and $214.6 million for the three months ended September 30, 2021 and 2020, respectively. Screening revenue was $784.6 million and $565.4 million for nine months ended September 30, 2021 and 2020, respectively. The increase for the three and nine months ended September 30, 2021 was primarilymainly due to an increase in the number of completed Cologuard tests ~~partially offset by~~and revenue generated from new products as a ~~decrease~~result of our acquisition of PreventionGenetics in ~~transaction price as discussed below. Relative recovery from~~ the ~~COVID-19 pandemic~~fourth quarter of 2021. Improved sales team productivity, our partnership with Katie Couric, more patients rescreening with our Cologuard test, and ~~increases in electronic ordering rates, screening of patients~~first-time users in the 45 to 49 age group ~~and screening of patients that previously completed a Cologuard test~~ contributed to the increase in completed Cologuard tests for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021. Our~~2022. Relative recovery from the COVID-19 pandemic contributed to sales team productivity for the three and six months ended June 30, 2022. The increase in Precision Oncology revenue, which primarily includes laboratory service revenue from our global Oncotype products, was $145.4 million and $91.6 million for the three months ended September 30, 2021 and 2020, respectively. Precision Oncology revenue was $412.6 million and $322.9 million for the nine months ended September 30, 2021 and 2020, respectively. The increase for the three and nine months ended September 30, 2021 was primarilymainly due to an increase in the number of completed Oncotype tests. In the third quarter of 2020, Oncotype test revenue was negatively impacted as a result of the COVID-19 pandemic. During the third quarter of 2021, we saw an increase in Oncotype DX breast test orders,tests, both domestically and ~~internationally. Additionally, in 2021 we had~~internationally, and revenue generated from new products as a result of our ~~recent acquisitions that we did not have~~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 and ~~nine~~six months ended ~~September~~June 30, ~~2020. For~~2022.

During the three and six months ended ~~September~~June 30, 2022, revenue recognized from changes in transaction price was $7.1 million and $11.3 million, respectively. During the three and six months ended June 30, 2021, there was a downward adjustment to revenue from a change in transaction price of $14.7 million and ~~2020, we also generated~~$13.0 million, respectively.

We expect continuing revenue growth for our Cologuard and Oncotype products subject to seasonal variability. We would expect revenue from our COVID-19 testing ~~of $30.6 million~~to decline as the pandemic abates and ~~$102.2 million, respectively. For~~alternative testing options become more widely available. Our revenues are affected by the ~~nine months ended September 30, 2021 and 2020, we generated revenue from our COVID-19 testing of $96.0 million and $136.7 million, respectively.~~

During the three and nine months ended September 30, 2021, we recorded a downward adjustment to revenue of $0.2 million and $13.2 million, respectively, on completed tests from the prior year after identifying a lower realized reimbursement rate on a portiontest volume of our laboratory testing services. This change in transaction price is primarily driven by certain prior claims not being submitted to insurance timely. We are working to address these issues, and are more broadly working on improvements to our billing systems to prevent recurrence. Pursuant to our contracts with payers and standards withinproducts, patient adherence rates, payer mix, the ~~industry, claims submitted outside~~levels of ~~specified timeframes may not be reimbursed. Successful~~ reimbursement, ~~for our laboratory testing services will continue to depend on our ability to execute~~ our order to cash operations, ~~efficiently. At each reporting period-end, we monitor our estimates~~and payment patterns of ~~transaction price to ensure reflection~~payers and patients.

Table of ~~conditions that exist at each reporting date, and while we strive to restrict volatility in our realized reimbursement rates, changes in transaction price can occur.~~Contents

~~Our cost structure.~~Cost of sales (exclusive of amortization of acquired intangible assets). Our selling, general and administrative expenses consist primarily of non-research personnel salaries, office expenses, professional fees, sales and marketing expenses incurred in support of our commercialization efforts and non-cash stock-based compensation.

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.

We expect that revenue and cost of sales for our services will continue to fluctuate and be affected by the test volume of our products, our operating efficiencies, patient adherence rates, payer mix, the levels of reimbursement, and payment patterns of payers and patients.

~~Table of Contents~~

~~Cost of sales (exclusive of amortization of acquired intangible assets).~~ Cost of sales (exclusive of amortization of acquired intangible assets) increased to $115.7 million for the three months ended September 30, 2021 compared to $95.1 million for the three months ended September 30, 2020. Cost of sales (exclusive of amortization of acquired intangible assets) increased to $339.7 million for the nine months ended September 30, 2021 compared to $254.6 million for the nine months ended September 30, 2020. The increase in cost of sales for the three and six months ended June 30, 2022 is primarily due to an increase in production costs and personnel expenses, which is ~~a direct result of~~primarily due to an increase in completed Cologuard and Oncotype ~~tests.~~tests and the corresponding increase in headcount to support the increase in tests completed. In addition, our production costs and personnel expenses have risen as a result of the inflationary environment discussed above. The increase was partially offset by a reduction in the number of COVID-19 tests completed year over year.

Three Months Ended September 30,
Amounts in millions 2021 2020 Change
Production costs $ 63.9 $ 51.4 $ 12.5
Personnel expenses 31.7 26.8 4.9
Facility and support services 15.7 13.3 2.4
Stock-based compensation 4.3 3.5 0.8
Other cost of sales expenses 0.1 0.1 —
Total cost of sales expense $ 115.7 $ 95.1 $ 20.6

Nine Months Ended September 30,
Amounts in millions 2021 2020 Change
Production costs $ 188.8 $ 134.3 $ 54.5
Personnel expenses 92.4 72.5 19.9
Facility and support services 44.9 38.2 6.7
Stock-based compensation 12.8 9.3 3.5
Other cost of sales expenses 0.8 0.3 0.5
Total cost of sales expense $ 339.7 $ 254.6 $ 85.1

~~Research and development expenses.~~ ~~Research and development expenses increased~~ We expect that cost of sales will generally continue to $75.4 million for the three months ended September 30, 2021 compared to $31.5 million for the three months ended September 30, 2020. Research and development expenses increased to $297.2 million for the nine months ended September 30, 2021 compared to $107.7 million for the nine months ended September 30, 2020. The increase ~~for the three and nine months ended September 30, 2021 is primarily~~in future periods as a result of ~~the acquisition of Thrive~~an increase in ~~January 2021, which resulted in increased direct research~~our existing laboratory testing services and ~~development expenses,~~ as ~~well as an~~we launch our pipeline products. We also expect to see a corresponding increase in personnel and stock-based compensation expenses due to the increase in headcount. We also saw an increase in clinical trial related expenses, which were driven by the BLUE-C study as enrollment increased in 2021 following a slowdown in 2020 due to the COVID-19 pandemic and cost cutting measures that we put in place. Specific to the nine months ended September 30, 2021, direct research and development expenses increased year over year due to our acquisition of the license to the TARDIS technology in January 2021 and our acquisition of PFS Genomics in May 2021, which resulted in an expense of $52.3 million and $33.1 million upon acquisition, respectively. The acquisitions are further described in Note 17 of our condensed consolidated financial statements included insupport services associated with this ~~Quarterly Report on Form 10-Q.~~growth.


		Three Months Ended September 30,							Three Months Ended June 30,
Amounts in millions	Amounts in millions	2021		2020		Change		Amounts in millions	2022		2021		Change
Production costs								Production costs	$	84.0	$	64.2	$	19.8
Personnel expenses	Personnel expenses	$	25.1	$	13.1	$	12.0	Personnel expenses	40.4		29.7		10.7
Direct research and development		28.7		7.4		21.3
Facility and support services								Facility and support services	14.9		15.0		(0.1)
Stock-based compensation	Stock-based compensation	12.2		5.0		7.2		Stock-based compensation	5.4		4.4		1.0
Facility and support services		6.4		5.0		1.4
Professional fees		1.7		0.5		1.2
Other research and development		1.3		0.5		0.8
Total research and development expenses		$	75.4	$	31.5	$	43.9
Other cost of sales expenses								Other cost of sales expenses	(0.1)		0.7		(0.8)
Total cost of sales expense								Total cost of sales expense	$	144.6	$	114.0	$	30.6


	Six Months Ended June 30,
Amounts in millions	2022		2021		Change
Production costs	$	157.3	$	124.8	$	32.5
Personnel expenses	79.4		60.7		18.7
Facility and support services	32.2		29.3		2.9
Stock-based compensation	9.7		8.5		1.2
Other cost of sales expenses	0.7		0.7		—
Total cost of sales expense	$	279.3	$	224.0	$	55.3

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Nine Months Ended September 30,
Amounts in millions 2021 2020 Change
Technology acquisition $ 85.3 $ — $ 85.3
Personnel expenses 69.7 45.2 24.5
Direct research and development 74.9 32.4 42.5
Stock-based compensation 39.3 14.6 24.7
Facility and support services 18.8 11.1 7.7
Professional fees 4.7 2.4 2.3
Other research and development 4.5 2.0 2.5
Total research and development expenses $ 297.2 $ 107.7 $ 189.5

~~General~~Research and ~~administrative~~development expenses.~~General~~ The decrease in research and ~~administrative~~development expenses ~~increased to $186.5 million~~ for the three and six months ended ~~September~~June 30, ~~2021 compared~~2022 was primarily due to ~~$115.6~~the $52.3 million incurred for the ~~three months ended September 30, 2020. General~~acquisition of the exclusive license to TARDIS in January 2021 and ~~administrative expenses increased to $621.9~~the $33.1 million incurred for the ~~nine months ended September 30, 2021 compared~~acquisition of PFS Genomics, Inc., which was completed in June 2021. These acquisitions were accounted for as asset acquisitions, as opposed to ~~$336.3 million~~the May 2022 OmicEra acquisition which was accounted for ~~the nine months ended September 30, 2020. The increase in general~~as a business combination, and administrative expenses was in part due to $10.2 million and $141.4 million in acquisition and integration related costs incurred during the three and nine months ended September 30, 2021 as part of our acquisitions completed during the year, which primarily consists of integration related stock-based compensation and professional and legal fees incurred. The acquisition and integration related costs also include the remeasurement of the contingent consideration liabilities recorded from our acquisitions, which are ~~included in other general and administrative expenses. The contingent consideration liability is~~ further ~~discussed~~described in Note 716 of our condensed consolidated financial statements ~~included~~ in this Quarterly Report on Form 10-Q. ~~Personnel~~When excluding the impact of these asset acquisitions, research and development expenses increased by $33.0 million and ~~stock-based compensation also~~$71.8 million for the three and six months ended June 30, 2022 primarily due to an increase in BLUE-C and MCED clinical trial related expenses. In addition, personnel related costs increased due to an increase in headcount to ~~prepare for future growth in~~support our operations and from our recent acquisitions. Due to the COVID-19 pandemic and the protective measures put in place in the first half of 2020, we experienced lower spend in our personnel and professional fees. As our business began to recover in the third quarter of 2020, personnel expenses andongoing clinical trials, which was partially offset by favorable stock-based compensation ~~increased due~~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 ~~additional headcount. These factors account for a portion of the~~ increase ~~that~~in future periods as we ~~see for the three and nine months ended September 30, 2021 when compared~~continue to ~~the prior year.~~invest to advance new tests.


		Three Months Ended September 30,							Three Months Ended June 30,
Amounts in millions	Amounts in millions	2021		2020		Change		Amounts in millions	2022		2021		Change
Direct research and development								Direct research and development	$	42.8	$	27.4	$	15.4
Personnel expenses								Personnel expenses	35.9		22.9		13.0
Facility and support services								Facility and support services	11.0		6.4		4.6
Stock-based compensation	Stock-based compensation	$	32.4	$	21.5	$	10.9	Stock-based compensation	9.9		12.4		(2.5)
Personnel expenses		79.3		53.7		25.6
Professional and legal fees		34.1		15.9		18.2
Facility and support services		25.7		13.4		12.3
Other general and administrative		15.0		11.1		3.9
Total general and administrative expenses		$	186.5	$	115.6	$	70.9
Professional fees								Professional fees	4.4		1.9		2.5
Other research and development								Other research and development	2.1		2.1		—
Licensed technology acquisition								Licensed technology acquisition	—		33.1		(33.1)
Total research and development expenses								Total research and development expenses	$	106.1	$	106.2	$	(0.1)


		Nine Months Ended September 30,							Six Months Ended June 30,
Amounts in millions	Amounts in millions	2021		2020		Change		Amounts in millions	2022		2021		Change
Direct research and development								Direct research and development	$	86.9	$	46.2	$	40.7
Personnel expenses								Personnel expenses	71.4		44.6		26.8
Facility and support services								Facility and support services	20.6		12.4		8.2
Stock-based compensation	Stock-based compensation	$	189.6	$	54.8	$	134.8	Stock-based compensation	19.5		27.2		(7.7)
Personnel expenses		225.5		159.3		66.2
Professional and legal fees		99.2		52.9		46.3
Facility and support services		60.8		42.4		18.4
Other general and administrative		46.8		26.9		19.9
Total general and administrative expenses		$	621.9	$	336.3	$	285.6
Professional fees								Professional fees	6.6		3.1		3.5
Other research and development								Other research and development	3.3		3.0		0.3
Licensed technology acquisition								Licensed technology acquisition	—		85.3		(85.3)
Total research and development expenses								Total research and development expenses	$	208.3	$	221.8	$	(13.5)

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Sales and marketing expenses. Sales and marketing expenses increased to $196.6 million for the three months ended September 30, 2021 compared to $136.5 million for the three months ended September 30, 2020. Sales and marketing expenses increased to $577.6 million for the nine months ended September 30, 2021 compared to $423.1 million for the nine months ended September 30, 2020. 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. ~~In addition,~~This increase was partially offset by a decrease in professional and legal fees ~~increased~~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 June 30,
Amounts in millions	2022		2021		Change
Personnel expenses	$	114.4	$	84.6	$	29.8
Direct marketing costs	57.4		47.2		10.2
Stock-based compensation	18.0		13.7		4.3
Facility and support services	15.2		18.0		(2.8)
Professional and legal fees	10.7		30.8		(20.1)
Other sales and marketing expenses	0.2		0.5		(0.3)
Total sales and marketing expenses	$	215.9	$	194.8	$	21.1


	Six Months Ended June 30,
Amounts in millions	2022		2021		Change
Personnel expenses	$	237.3	$	169.6	$	67.7
Direct marketing costs	121.7		88.6		33.1
Stock-based compensation	33.1		26.8		6.3
Professional and legal fees	28.9		58.5		(29.6)
Facility and support services	25.7		35.8		(10.1)
Other sales and marketing expenses	1.4		1.7		(0.3)
Total sales and marketing expenses	$	448.1	$	381.0	$	67.1

Table of Contents

General and administrative expenses. The decrease in general and administrative expenses for the six months ended June 30, 2022 was primarily due to lower acquisition and integration related costs in the three and six months ended June 30, 2022, as compared to the prior year period. We incurred $12.9 million and $131.3 million in acquisition and integration related costs during the three and ~~nine~~six months ended ~~September~~June 30, 2021 as part of our acquisitions completed during the year, 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 and six months ended June 30, 2022. When excluding the impact of acquisition and integration related costs, personnel expenses increased due to an increase in ~~costs incurred related~~headcount to support our ~~Promotion Agreement with Pfizer~~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 gains of $25.1 million and $51.8 million recorded during the ~~second~~three and ~~third quarters of 2021 as compared to 2020, which were reduced due to cost saving measures~~six months ended June 30, 2022 as a result of the ~~COVID-19 pandemic.~~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 September 30,							Three Months Ended June 30,
Amounts in millions	Amounts in millions	2021		2020		Change		Amounts in millions	2022		2021		Change
Personnel expenses	Personnel expenses	$	92.3	$	67.4	$	24.9	Personnel expenses	$	98.7	$	73.7	$	25.0
Direct marketing costs		48.0		26.9		21.1
Facility and support services								Facility and support services	34.9		19.9		15.0
Professional and legal fees	Professional and legal fees	23.0		19.5		3.5		Professional and legal fees	30.1		29.8		0.3
Facility and support services		16.7		10.5		6.2
Stock-based compensation	Stock-based compensation	14.7		11.5		3.2		Stock-based compensation	25.6		25.8		(0.2)
Other sales and marketing expenses		1.9		0.7		1.2
Total sales and marketing expenses		$	196.6	$	136.5	$	60.1
Other general and administrative								Other general and administrative	(7.6)		18.4		(26.0)
Total general and administrative expenses								Total general and administrative expenses	$	181.7	$	167.6	$	14.1


		Nine Months Ended September 30,							Six Months Ended June 30,
Amounts in millions	Amounts in millions	2021		2020		Change		Amounts in millions	2022		2021		Change
Personnel expenses	Personnel expenses	$	264.3	$	209.0	$	55.3	Personnel expenses	$	199.2	$	146.2	$	53.0
Direct marketing costs		136.5		90.0		46.5
Facility and support services								Facility and support services	66.6		35.2		31.4
Professional and legal fees	Professional and legal fees	81.5		56.9		24.6		Professional and legal fees	57.0		65.1		(8.1)
Facility and support services		50.0		33.4		16.6
Stock-based compensation	Stock-based compensation	41.6		32.4		9.2		Stock-based compensation	49.1		157.2		(108.1)
Other sales and marketing expenses		3.7		1.4		2.3
Total sales and marketing expenses		$	577.6	$	423.1	$	154.5
Other general and administrative								Other general and administrative	(20.5)		31.7		(52.2)
Total general and administrative expenses								Total general and administrative expenses	$	351.4	$	435.4	$	(84.0)

Amortization of acquired intangible assets. Amortization of acquired intangible assets increased to ~~$23.9~~$26.4 million for the three months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$23.4~~$23.8 million for the three months ended ~~September~~June 30, ~~2020.~~2021. Amortization of acquired intangible assets increased to ~~$71.0~~$51.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022, compared to ~~$70.2~~$47.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The increase in amortization of acquired intangible assets was ~~primarily~~ due to the amortization of intangible assets acquired as part of our ~~acquisition~~acquisitions of Ashion ~~Analytics, LLC.~~in April 2021, PreventionGenetics in December 2021, and OmicEra in May 2022.

Intangible asset impairment charge. Intangible asset impairment charge ~~decreased to $20.2~~was $6.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$209.7 million~~zero for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The intangible asset impairment charge recorded during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021 relates~~2022 related to the impairment of the ~~supply agreement~~acquired developed technology intangible asset acquired as part of the ~~combination with Genomic Health. The impairment recorded during the three and nine months ended September 30, 2020 primarily relates to the impairment~~acquisition of ~~the in-process research and development intangible asset acquired as part of the combination with Genomic Health.~~

~~Other operating income.~~ Other operating income decreased to zero for the three and nine months ended September 30, 2021 compared to zero and $23.7 million for the three and nine months ended September 30, 2020, respectively. The income generated during the three and nine months ended September 30, 2020 represents the funding received under the Coronavirus Aid, Relief, and Economic Security ActParadigm Diagnostics, Inc. (“~~CARES Act”~~Paradigm”) ~~Provider Relief Fund, which was accepted from the Department of Health & Human Services in May 2020.~~.

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Investment income (expense), net. ~~Investment income (expense),~~For the three months ended June 30, 2022, we had net ~~decreased to an~~investment expense of ~~$4.1~~$3.7 million, compared to net investment income of $3.4 million for the three months ended ~~September~~June 30, ~~2021~~2021. For the six months ended June 30, 2022, we had net investment expense of $5.2 million, compared to net investment income of ~~$2.5~~$34.6 million for the ~~three~~six months ended ~~September~~June 30, ~~2020. Investment income (expense),~~2021. The net ~~increased to $30.5 million for the nine months ended September 30, 2021 compared to $5.5 million for the nine months ended September 30, 2020. The decrease in~~ investment ~~income (expense), net~~expense for the three and six months ended ~~September~~June 30, ~~2021~~2022 was primarily due to losses recorded on our equity securities. ~~The increase in~~Net investment income ~~net~~ for the ~~nine~~six months ended ~~September~~June 30, 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 1719 of our ~~condensed consolidated financial statements included in this Quarterly Report on~~most recently filed Form ~~10-Q.~~10-K for the year ended December 31, 2021.

Interest expense. Interest expense ~~increased~~decreased to $4.5 million for the three months ended June 30, 2022 compared to $4.7 million for the three months ended ~~September~~June 30, ~~2021 compared to $4.5 million for the three months ended September 30, 2020.~~2021. Interest expense recorded from our outstanding convertible notes totaled $4.0 million during each of the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. Interest expense decreased to ~~$13.9~~$9.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$63.4~~$9.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. Interest expense recorded from our outstanding convertible notes totaled ~~$12.1 million and $61.8~~$8.0 million during each of the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and 2020, respectively. Of the interest expense recorded on our outstanding convertible notes for the nine months ended September 30, 2020, $50.8 million is due to the loss on settlement of convertible notes.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 construction loan and finance leases for the three and nine months ended September 30, 2021 and 2020.

Income tax ~~benefit.~~ benefit (expense).Income tax benefit ~~increased to $3.9~~was $1.8 million for the three months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$2.8~~an expense of $4.0 million for the three months ended ~~September~~June 30, ~~2020.~~2021. Income tax benefit ~~increased~~decreased to ~~$242.6~~$3.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$5.3~~$238.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. This ~~increase~~decrease in income tax benefit is primarily due to an income tax benefit of $239.2 million recorded during the ~~nine~~six months ended ~~September~~June 30, 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 ~~since inception~~ 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 June 30, 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.

We have access to a revolving line-of-credit (the “Revolver”) of up to $150.0 million, which expires in November 2023. The Revolver is collateralized by certain marketable securities which must continue to maintain a minimum market value of $150.0 million. During the fourth quarter of 2021, PNC Bank, National Association 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 ~~September~~June 30, ~~2021,~~2022, we had not drawn any funds under the Revolver. In addition to the Revolver, we have access to $150.0 million under an accounts receivable securitization facility (the “Securitization Facility”), which expires in June 2024. The amount that we may borrow is determined based on the amount of qualifying accounts receivable at a given point in time. The Securitization Facility is collateralized by our accounts receivables. As of June 30, 2022, we had $50.0 million outstanding under the Securitization Facility, which is the minimum amount that we must borrow under the terms of the Securitization Facility. The Revolver and Securitization Facility are further described in Note 8 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

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 business plans and strategic investments, 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.

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Cash, Cash Equivalents and Marketable Securities

As of June 30, 2022, we had approximately ~~$273.8~~$213.4 million in unrestricted cash and cash equivalents and approximately ~~$944.7~~$514.6 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.

~~Net cash used in operating~~Cash Flows


	Six Months Ended June 30,
Amounts In millions	2022		2021
Net cash used in operating activities	$	(234.7)	$	(36.9)
Net cash provided by (used in) investing activities	67.2		(1,111.3)
Net cash provided by financing activities	66.1		20.6

Operating activities ~~was $77.7 million for the nine months ended September 30, 2021 compared to cash provided by operations of $25.1 million for the nine months ended September 30, 2020.~~

The increase in cash used in operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was primarily due to an increase in ~~cash payments made related~~our net loss. The increase in our net loss was primarily due to an increase in expenses ~~necessary~~incurred to process our tests and an increase in operating expenses incurred to ~~prepare for future~~support the growth of our ~~operations.~~operations as further discussed above. The increase in cash used was also due to timing of payments on our accounts payable and accrued expenses, including payments made during the six months ended June 30, 2022 under our promotion agreement with Pfizer and for certain personnel related liabilities that were accrued for as of December 31, 2021. This was partially offset by an increase in revenue, which was driven by an increase in completed Cologuard and Oncotype tests.

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Net cash used in investing activities was $1.16 billion for the nine months ended September 30, 2021 compared to cash use of $395.4 million for the nine months ended September 30, 2020. The increase in cash used inCash provided by investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2021 compared to the same period in 2020~~2022, was primarily ~~the result of the timing of purchases, sales, and maturities of marketable securities. Excluding the impact of~~due to a net cash inflow from purchases, sales, and maturities of marketable securities ~~net cash~~of $190.2 million, which was partially offset by purchases of property and equipment of $96.9 million and investments in privately held companies of $26.7 million. Cash used in investing activities ~~was $563.8 million~~ for the ~~nine~~six months ended ~~September~~June 30, 2021 ~~compared~~was primarily due to ~~$65.3~~a net cash outflow from purchases, sales, and maturities of marketable securities of $589.9 million, ~~for the nine months ended September 30, 2020. Cash use consisted primarily of~~ our acquisition of Thrive of $343.2 million, our acquisition of Ashion of $72.3 million, our asset acquisition of PFS Genomics of $33.1 million, ~~and~~ our TARDIS license asset acquisition of $25.0 million, purchases of property and equipment of ~~$76.4~~$37.5 million, and investments in privately held companies of $13.6 million for the nine months ended September 30, 2021. Cash use primarily consisted of purchase of property and equipment of $48.4 million, investments in privately held companies of $10.6 million, and business combinations of $6.7 million for the nine months ended September 30, 2020.$10.0 million.

~~Net cash provided by financing~~Financing activities ~~was $20.7 million for the nine months ended September 30, 2021 compared to $999.8 million for the nine months ended September 30, 2020.~~

The cash provided by financing activities during the ~~nine~~six months ended ~~September~~June 30, 2022 consisted of proceeds of $50.0 million from our accounts receivable securitization facility, $15.5 million in connection with our employee stock purchase plan, and $5.0 million from the exercise of stock options, which was partially offset by cash outflows of $4.4 million for other financing activities. The cash provided by financing activities for the six months ended June 30, 2021 consisted of proceeds of ~~$13.4~~$11.6 million from the exercise of stock options and $12.0 million in connection with our employee stock purchase plan, which was partially offset by ~~cash outflows of $4.7~~$3.1 million for other financing activities. The cash provided by financing activities for the nine months ended September 30, 2020 was primarily the result of proceeds of $1.13 billion from our issuance of Convertible Notes with a maturity date of March 1, 2028 (the “2028 Notes”), and we used $150.1 million of cash to settle a portion of the 2025 Notes. In addition, during the nine months ended September 30, 2020 we received proceeds of $15.4 million from the exercise of stock options and $9.8 million in connection with our employee stock purchase plan.

We expect that cash and cash equivalents and marketable securities on hand at September 30, 2021 will be sufficient to fund our current operations for at least the next twelve months based on current operating plans. However, we may need to raise additional capital to fully fund our current strategic plan, which includes successfully commercializing our Cologuard test and Oncotype products and developing a pipeline of future products. Additionally, we may enter into transactions to acquire other businesses, products, services, or technologies as partMaterial Cash Requirements

A discussion of our strategic plan. If we are unable to obtain sufficient additional funds to enable us to fund our operations through the completion of such plan, our results of operations and financial condition would be materially adversely affected, and we may be required to delay the implementation of our plan and otherwise scale back our operations. Even if we successfully raise sufficient funds to complete our plan, there is no certainty that we will be successful in generating sufficientmaterial cash ~~flow from operations or achieving and maintaining profitable operations in the future to enable us to meet our obligations as they come due.~~

~~A table reflecting certain of our specified contractual obligations~~requirements as of December 31, ~~2020~~2021 was provided in the Management’s Discussion and Analysis of Financial Condition and Results of Operation of our ~~2020~~2021 Form 10-K. ~~There~~Other than the Securitization Facility described above, there were no material changes outside the ordinary course of our business in our specified ~~contractual obligations~~material cash requirements during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

As of June 30, 2022, we had no off-balance sheet arrangements.

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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 ~~2020~~2021 Form 10-K, as well as our Management’s Discussion and Analysis of Financial Condition and Results of Operations on our ~~2020~~2021 Form 10-K, we believe that the following ~~accounting policies and~~ judgments are most critical to aid in fully understanding and evaluating our reported financial results. Other than the adoption of Accounting Standards Update 2020-06 fully discussed in Note 9 of our condensed consolidated financial statements in this Quarterly Report on Form 10-Q, there have not been any significant changes to our critical accounting policies and estimates during the nine months ended September 30, 2021.

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Revenue Recognition. ~~Revenues are recognized~~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 ~~laboratory service~~ agreements, ~~(“LSAs”) with various organizations,~~ 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 our 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.

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Business Combinations and Asset Acquisitions. ~~Business Combinations are accounted~~We account for ~~under~~acquired businesses using the acquisition method ~~in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. The acquisition method~~of accounting, which requires ~~identifiable~~that the assets acquired and liabilities assumed ~~and any non-controlling interest in~~be recorded at the ~~business acquired be recognized and measured~~date of acquisition at their respective fair ~~value on the acquisition date, which~~values. Goodwill is the ~~date that the acquirer obtains control of the acquired business. The amount by which the fair value of consideration transferred as~~residual after allocating the purchase price ~~exceeds the~~to net ~~fair value of~~ assets acquired, ~~and liabilities assumed~~unless the transaction is recorded as goodwill. Acquisitions that do not meet the definition of a business combination under the ASC are accounted for as asset acquisitions. Asset acquisitions are accounted for by allocating the cost of the acquisition to the individual assets acquired and liabilities assumed on a relative fair value basis. Goodwill is not recognized in an asset acquisition ~~with any consideration~~ in which the excess ~~of net assets acquired~~is allocated to acquired assets on a relative fair value basis. ~~Transaction costs are expensed in~~Determining the fair value of identifiable assets and liabilities, particularly intangible assets and contingent consideration, requires management to make significant judgements and estimates.

As a ~~business combination and are considered a component of the cost~~result of the acquisition of OmicEra, we identified a developed technology intangible asset, which we determined to have a fair value of $10.0 million. 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.

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. We recorded a contingent consideration liability of $4.6 million as a result of the acquisition of OmicEra

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 ~~asset acquisition.~~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 six months ended June 30, 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. ~~Assets~~We recorded an impairment charge of $6.6 million during the three and six months ended June 30, 2022 related to ~~be disposed of are reported at~~ the ~~lower~~acquired developed technology intangible asset acquired as part of the ~~carrying amount or~~acquisition of Paradigm. We utilized the income approach to measure the fair value ~~less costs~~of the acquired developed technology, which required management to ~~sell.~~make estimates including revenue projections, estimated cash flows and discount rate.

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Recent Accounting Pronouncements

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

~~Off-Balance Sheet Arrangements~~

~~As of September 30, 2021, we had no off-balance sheet arrangements.~~

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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.~~securities and our outstanding variable-rate debt. 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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~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~~100 basis point decrease in market 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.

AAs of June 30, 2022, we had $50.0 million in outstanding variable rate debt. Based on a hypothetical ~~ten percent change~~100 basis point increase in market interest rates, annual interest expense on variable rate debt as of June 30, 2022 would increase by approximately $0.5 million. If we were to draw down additional amounts under either our Revolving Loan or Securitization Facility, the impact of increases in prevailing market interest rates would ~~not have a material adverse impact on our future operating results or cash flows.~~be even greater. All of our other 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 ~~September~~June 30, ~~2021,~~2022, we had open foreign currency forward contracts with notional amounts of ~~$29.5~~$28.9 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.

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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 ~~September~~June 30, ~~2021,~~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.

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In January 2021, we acquired all of the outstanding capital stock of Thrive (see Note 17 of the accompanying condensed consolidated financial statements for additional information). As of September 30, 2021, management is in the process of evaluating and integrating the internal controls of Thrive into our existing operations. Other than the controls enhanced or implemented to integrate the Thrive business, thereThere have been no significant changes in internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2021~~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 ~~2020~~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 ~~2020~~2021 Form 10-K.

Our indebtedness could adversely affect our business, financial condition, and results of operations and our ability to meet our payment obligations under such indebtedness and limit our ability to raise additional capital to fund our operations.

We have a significant amount of indebtedness. As of June 30, 2022, we had total indebtedness of $2.26 billion, including $2.21 billion in aggregate principal and interest due under our 1.0%, 0.375% and 0.375% convertible senior notes due 2025, 2027 and 2028 and $50.0 million of borrowings under our Securitization Facility. We also had $2.9 million of letters of credit issued under our Revolver. This level of debt could have significant consequences on our future operations, including:

•increasing our vulnerability to adverse economic and industry conditions;

•making it more difficult for us to meet our payment and other obligations;

•making it more difficult to obtain any necessary future financing for working capital, capital expenditures, debt service requirements, or other purposes;

•requiring the dedication of a substantial portion of any cash flow from operations to service our indebtedness, thereby reducing the amount of cash flow available for other purposes, including capital expenditures;

•placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital than we have; and

•limiting our flexibility in planning for, or reacting to, changes in our business and the markets in which we compete.

Any of the above-listed factors could have an adverse effect on our business, financial condition, and results of operations and our ability to meet our payment obligations under our indebtedness.

Our ability to meet our payment and other obligations under our indebtedness depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, or that future borrowings will be available to us, in an amount sufficient to enable us to meet our payment obligations under our indebtedness and to fund other liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital and of which such events could have an adverse effect on our business, financial condition, and results of operations.

Our credit facilities contain certain customary representations, warranties, affirmative covenants and negative covenants, events of default as well as termination events which would permit the lenders to terminate upon the occurrence of certain specified events, including, among others, failure to pay amounts when due, certain defaults on other material indebtedness, certain judgments, a change of control and bankruptcy and insolvency events. A breach of any covenant in our credit facilities or the agreements and indentures governing any other indebtedness that we may have outstanding from time to time would result in a default under that agreement or indenture after any applicable grace periods. A default, if not waived, could result in

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acceleration of the debt outstanding under the agreement and in a default with respect to, and an acceleration of, the debt outstanding under other debt agreements. If that occurs, we may not be able to make all of the required payments or borrow sufficient funds to refinance such debt. Even if new financing were available at that time, it may not be on terms that are acceptable to us or terms as favorable as our current agreements. If our debt is in default for any reason, our business, results of operations and financial condition could be materially and adversely affected.

We may engage in acquisitions or divestitures that are not successful and which could disrupt our business and reduce our financial resources and shareholder value.

We undertake acquisition activities from time to time. For example, in January 2021 we acquired Thrive Earlier Detection Corporation, in April 2021 we acquired Ashion Analytics, LLC, in June 2021 we acquired PFS Genomics Inc., in December 2021 we acquired PreventionGenetics, LLC, and in May 2022 we acquired OmicEra Diagnostics GmbH. Certain risks may exist as a result of these and other acquisition activities, including, among others, that:

•we may encounter potential unknown liabilities and unforeseen increased expenses, delays or unfavorable conditions in connection with the integration of the acquired businesses into our business;

•we may be unable to successfully integrate the acquired businesses into our business;

•we may lose key employees;

•we may encounter potential unknown liabilities and unforeseen risks associated with contracts containing consent and/or other provisions that may be triggered by the acquisitions;

•we may be unable to realize the anticipated benefits of ~~our newly hired sales representatives~~the acquisitions or ~~our Pfizer Promotion Agreement.~~

In September 2021, we completed an expedited hiring process and onboarded approximately 400 former Pfizer sales representatives. Prior to late August 2021, when Pfizer announced a decrease in the number of sales positions supporting its Internal Medicine therapeutic area, these employees had been promoting our Cologuard test under the Promotion Agreement between Exact Sciences and Pfizer. The newly hired representatives increased the size of our primary care field sales team to more than 850 representatives.

~~Certain risks may exist that may prevent us from realizing~~do so within the anticipated ~~benefits of our newly hired sales representatives, including, among others:~~

•We may encounter potential unknown liabilities or unforeseen increased expenses or delays in connection with the integration of the new representatives into our workforce and their deployment into the field;timeframe;

•~~Cultural and other differences between Pfizer and us could delay or prevent the successful integration and subsequent retention of these new sales personnel;~~

•Healthcare providers may be more reluctant to allocate time for meetings with Exact sales representatives offering a more limited product portfolio as compared to the product portfolio offered by those representatives when at Pfizer;

•~~Our management’s attention may be diverted by the integration and deployment process;~~

•~~Precautionary measures taken in response to the COVID-19 pandemic, together with changing policies at healthcare providers offices and hospitals, may limit~~ our ~~sales representatives’ interactions with healthcare providers for an unknown period of time;~~future results will suffer if we do not effectively manage our expanded operations; and

•~~Depending on~~ the ~~course~~market price of our common stock may decline as a result of the ~~COVID-19 pandemic,~~acquisitions.

In the future, we may enter into transactions to acquire other businesses, products, services or technologies, which may ultimately be unsuccessful. If we do identify suitable candidates, we may not be able to make such acquisitions on favorable terms or at all. Any acquisitions we make may not strengthen our competitive position, and these transactions may be viewed negatively by investors, healthcare providers, patients and others. In addition to the risks outlined above, we may decide to incur debt in connection with an acquisition or issue our common stock or other securities to the stockholders of the acquired company, which would reduce the percentage ownership of our existing stockholders. We cannot predict the number, timing or size of future acquisitions or the effect that any such transactions might have on our operating results.

We may also pursue strategic divestitures from time to time. For example, in August 2022 we completed a divestiture of assets related to our Oncotype DX Genomic Prostate Score to MDxHealth SA. A successful divestiture depends on various factors, including our ability to effectively transfer liabilities, contracts, facilities and employees to the purchaser, identify and separate the personnel, contracts and assets, including intellectual property, to be divested from the intellectual property that we wish to keep and reduce fixed costs previously associated with the divested assets or business. In exiting a business, we may still retain liabilities associated with those businesses and other indemnification obligations. We may also need to ~~once again withdraw all~~provide transition services to the buyer for an extended period of time following the closing, which may cause us to incur unanticipated costs and distraction. With respect to any divestiture, we may encounter difficulty finding potential acquirers or other divestiture options on favorable terms. Any divestiture could affect our profitability as a ~~portion~~result of ~~our sales representatives~~the gains or losses on such sale of a business or service, the loss of the operating income resulting from such sale or the ~~field.~~costs or liabilities that are not assumed by the acquirer (i.e., stranded costs) that may negatively impact profitability subsequent to any divestiture. The Company may also be required to recognize impairment charges as a result of a divestiture.

Our business is affected by macroeconomic conditions.

~~If we are unable to successfully realize the anticipated benefits of our new sales personnel,~~Various macroeconomic factors could adversely affect our business and ~~operating~~the results ~~could be harmed.~~

For the Promotion Agreement to be successful, we will need to effectively coordinate sales and marketing activities among our and Pfizer’s teams. We are in discussions with Pfizer that could result in material changes to our relationship with Pfizer. Pfizer continues to promote our Cologuard test under the Promotion Agreement through a smaller sales team, but the changing dynamics of our operations and ~~Pfizer’s sales teams~~financial condition, including changes in inflation, interest rates and foreign currency exchange rates and overall economic conditions and uncertainties, including those resulting from the current and future conditions in the global financial markets. For instance, we experienced inflationary pressures in 2022 and expect such pressures to continue in 2023. Cost inflation, including increases in raw material prices, labor rates, and transportation costs may ~~reduce or otherwise alter~~impact our profitability. Our ability to recover these cost increases through price increases is significantly limited by the ~~benefits~~process by which we are reimbursed for our products and services by government and private payers. The volatility of the ~~Promotion Agreement. We are uncertain how many or what type~~capital markets could also affect the value of ~~sales details Pfizer’s sales representatives will contribute during the fourth quarter of 2021~~our investments and ~~beyond.~~our ability to liquidate our investments in order to fund our operations.

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~~The COVID-19 outbreak has~~Increasing interest rates and ~~may further materially and~~reduced access to capital markets could also adversely affect the ability of our ~~business and financial results.~~

The COVID-19 pandemic, together with related precautionary measures, has 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 significantly impact, our operating results including our revenues, margins, and cash utilization, among other measures. The territories in which we market, sell, distribute and perform our tests have attempted to address the COVID-19 pandemic in varying ways, including stay-at-home orders, temporarily closing businesses, restricting gatherings, restricting travel, and mandating social distancing and face coverings. Certain jurisdictions have begun re-opening only to return to restrictions due to increases in new COVID-19 cases. Although health and safety precautions loosened in many jurisdictions over the past several months as the number of COVID-19 cases declined and vaccination rates increased, beginning in early July 2021, COVID-19 cases, including cases associated with the highly contagious delta variant, have increased significantly in the United States. Although, infection rates have begun to fall in some parts of the country, cases are continuing to climb in other regions, and public health officials and medical professionals have warned that COVID-19 cases may spike again nationally, particularly if vaccination rates do not quickly increase or if additional, potent disease variants emerge. It is unclear how long any resurgence will last, how severe it will be, and what safety measures governments will impose in response to it. Mask mandates, social-distancing, travel restrictions and stay-at-home orders are in force in many areas of the country and could be reinstated elsewhere. Even before the recent increase in cases, many individuals remained cautious about resuming activities such as preventive-care medical visits and many medical practices remained cautious about allowing individuals, such as sales representatives, into their offices. 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.

~~The COVID-19 pandemic has materially impacted our business, and may continue to impact our business for an unknown period of time. Such impacts may include the following:~~

•Both our and Pfizer’s sales teams have been, and for an extended period of time may continue to be, limited in their in-person interactions with healthcare providers, and therefore, also limited in their ability to engage in various types of healthcare provider education activities as contemplated by our and Pfizer’s Cologuard Promotion Agreement;

•~~Healthcare providers or patients have canceled or delayed scheduling, and for an extended period of time may continue to cancel or delay scheduling, standard wellness visits~~suppliers, distributors, licensors, collaborators, contract manufacturers and other ~~non-emergency appointments and procedures (including mammograms and prostate cancer screenings), contributing~~commercial partners to ~~a decline~~remain effective business partners or to remain in ~~orders for our products or services;~~

•~~Restrictions on travel, commerce and shipping may prevent patients and pathologists from shipping samples to our clinical laboratories;~~

•Pandemic-related supply chain disruptions (whether caused by restrictions, congestion, or slowdowns in shipping or logistics, increases in demand for certain goods used on our operations, or otherwise) may hinder, or even force us to suspend, operations at some or all of our clinical laboratories;

•Illnesses, quarantines, financial hardships, restrictions on travel, commerce and shipping, or other consequences of the pandemic, may disrupt our business relationships, and we or other parties may assert rights under force majeure clauses to excuse performance;

•We have experienced, and for an extended period of time may continue to experience, reduced volumes at our clinical laboratories and we may need to suspend operations at some or all of our clinical laboratories;

•Our efforts to manage our operations through a volatile and cyclical pandemic, which efforts may include cost cutting measures, may hinder our efforts to commercialize our products or delay the development of future products and services;

•We and our partners have postponed or cancelled clinical studies, which may delay or prevent our launch of future products and services and increase the opportunity for competitors to develop products and services that compete with ours;

•~~Our workforce may be infected by the virus or otherwise distracted;~~

•A combination of factors, including infection from the virus, supply shortfalls or disruptions, and inability to obtain or maintain equipment, could increase our operating expenses and adversely affect our lab capacity and our ability to meet the demand for our testing services;

•We have adjusted, and expect to continue to adjust, our precautionary measures at our various locations based on our perception of local recovery levels and applicable governmental regulations; our business could be negatively affected if we take excessive, ineffective or inadequate precautions; and

•We may inaccurately estimate the duration or severity of the COVID-19 pandemic, which could cause us to misalign our staffing, spending, activities and precautionary measures with current or future market conditions.

~~Table of Contents~~

Despite our efforts, the ultimate impact of COVID-19 depends on factors beyond our knowledge or control, including the duration and severity of the outbreak, third-party actions taken to contain its spread and mitigate its public health effects and short- and long-term changes in the behaviors of medical professionals and patients resulting from the pandemic.

~~We heavily rely upon certain suppliers, including suppliers that are the sole source of certain products; the loss or interruption of supply from our suppliers could have a disruptive effect on our~~ business.

We purchase certain supplies from third-party suppliers and manufacturers. In some cases, due to the unique attributes of products that are incorporated into our tests, we maintain either a single-source supplier relationship or a very limited set of supplier relationships. Certain of our third-party suppliers possess exclusive intellectual property or otherwise may be the only party with the rights or expertise to provide us critical supplies. These third parties are independent entities subject to their own unique operational, regulatory compliance, and financial risks that are outside our control. These third parties may not be willing to enter or renew long-term supply arrangements with us or continue to supply us at all. Additionally, they may not perform their obligations in a timely and cost-effective manner and they may be unwilling or unable to increase production capacity commensurate with demand for our tests or future products or services. Our relationships with suppliers may also be negatively affected by general supply chain material shortages worldwide, as suppliers struggle to keep pace with demand and manage their own supply chains.

We may become dependent on additional single- or limited-source suppliers, or become increasingly dependent on existing suppliers, as we expand and develop our product and service pipeline. For example, our Oncotype MAP and GEMExTra® tests are currently only validated to be performed on Illumina’s sequencing platform and we are not aware of any other platform that we could use in the near future as a commercially viable alternative. Further, Illumina may become the sole supplier of certain equipment and reagents necessary for future tests we may develop, including MCED, minimal residual disease, and recurrence monitoring tests. We currently procure Illumina equipment and reagents on a purchase order basis, without any long-term supply agreement. In August 2021, Illumina completed its acquisition of GRAIL, which is commercializing a MCED test against which certain of our planned tests would compete. Illumina’s ownership of GRAIL could incentivize Illumina to offer its sequencing products in a manner that advantages GRAIL over us and other competitors, including the potential that Illumina may be unwilling or unable to supply, or commit to supplying, us with sequencing equipment and reagents on commercially acceptable terms, or at all. Although Illumina has made an irrevocable standing offer to supply any customer with its sequencing products on certain terms, that offer may not provide pricing or other terms necessary for us or others to successfully compete against GRAIL, including outside of the U.S. Although we expect to continue our efforts to validate alternative sequencing platforms on which we could run our Oncotype MAP or GEMExTra tests or other future tests in a commercially viable manner, we may expend considerable time and efforts, endure delays to our test development and commercialization timelines, and be ultimately unsuccessful in our efforts to validate alternatives. Even if we validate an alternative sequencing platform, we may become substantially dependent on the supplier of that platform.

Similarly, as an additional example, we rely on Hamilton Company to provide us laboratory equipment and related supplies (such as racking and pipette tips) necessary to perform certain critical DNA analysis steps in our clinical laboratory tests, including our Cologuard, Oncotype DX and COVID-19 tests. Although other companies may offer viable alternative platforms, we have invested significant capital, time and expertise to procure Hamilton machines and to optimize their use in our tests. Industry demand for Hamilton supplies has increased significantly since the onset of the COVID-19 pandemic, and although we have a long-term supply agreement with Hamilton, it is possible that Hamilton could become unable or unwilling to continue to provide us with certain equipment and supplies on commercially acceptable terms, if at all. Hamilton may require us to exclusively use Hamilton consumables and components in connection with certain Hamilton laboratory equipment. Therefore, if our access to certain Hamilton consumables and components became impacted, we may need to completely replace the Hamilton platform. Validating alternative vendors’ offerings could be expensive, time-consuming, and unsuccessful. Further, because our Cologuard test is regulated by the FDA, we may also need FDA clearance or approval to replace certain Hamilton equipment and supplies with another vendor’s offerings. FDA approval or clearance may entail extensive new clinical and material costs and delays and may be ultimately unsuccessful.

The loss of a critical ~~supplier, the~~business partner, or a failure to perform by a critical ~~supplier, the deterioration of our relationship with a critical supplier or any unilateral modification to the contractual terms under which we are supplied materials~~business partner, could have a disruptive effect on our business and could adversely affect our results of ~~operations for an extended period of time, particularly if we are required to validate an alternative supplier.~~

~~Table of Contents~~

~~Our results of operations can be adversely affected by labor shortages, turnover and labor cost increases.~~

Labor is a significant component of operating our business. A number of factors may adversely affect the labor force available to us or increase labor costs, including high employment levels, federal unemployment subsidies, including unemployment benefits offered in response to the COVID-19 pandemic, increased wages offered by other employers, vaccine mandates and other government regulations and our responses thereto. As more employers offer remote work, we may have more difficulty recruiting for jobs that require on-site attendance, such as certain clinical laboratory and sales roles. Although we have not experienced any material labor shortage to date, we have recently observed an overall tightening and increasingly competitive labor market. A sustained labor shortage or increased turnover rates within our employee base, caused by COVID-19 or as a result of general macroeconomic factors, could lead to increased costs, such as increased overtime or financial incentives to meet demand and increased wage rates to attract and retain employees, and could negatively affect our ability to efficiently operate our clinical laboratories and overall business. If we are unable to hire and retain employees capable of performing at a high-level, or if mitigation measures we may take to respond to a decrease in labor availability have unintended negative effects, our business could be adversely affected. An overall labor shortage, lack of skilled labor, increased turnover or labor inflation, caused by COVID-19 or as a result of general macroeconomic factors, could have a material adverse impact on our business and operating results.

~~We may be a party to litigation in the normal course of business or otherwise, which could affect our business and financial position.~~

From time to time, we are a party to or otherwise involved in legal proceedings, claims and government investigations and other legal matters, both inside and outside the United States, arising in the ordinary course of our business or otherwise. We are currently involved in various legal proceedings and claims that have not yet been fully resolved, and additional claims may arise in the future. Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within our control. Litigation is subject to significant uncertainty and may be expensive, time-consuming, and disruptive to our operations. Although we will vigorously defend ourselves in such legal proceedings, their ultimate resolution and potential financial and other impacts on us are uncertain. For these and other reasons, we may choose to settle legal proceedings and claims, regardless of their actual merit. If a legal proceeding is resolved against us, it could result in significant compensatory damages, and in certain circumstances punitive or trebled damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief imposed on us. If our existing insurance does not cover the amount or types of damages awarded, or if other resolution or actions taken as a result of a legal proceeding were to restrain our ability to operate, our financial position, results of operations or cash flows could be materially adversely affected. In addition, legal proceedings, and any adverse resolution thereof, can result in adverse publicity and damage to our reputation, which could adversely impact our business.

The amounts we record for legal contingencies can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. While we have accrued for certain potential legal liabilities, there is no guarantee that additional costs will not be incurred beyond the amounts accrued. Additional information regarding certain legal matters in which we are involved can be found in Note 14 to our Condensed Consolidated Financial Statements in Part I, Item 1.

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

~~Not applicable.~~On May 2, 2022, we completed the acquisition of OmicEra Diagnostics GmbH. As part of the purchase price, we issued to the selling equity holders an aggregate of 265,186 shares of common stock as consideration for their ownership in OmicEra Diagnostics GmbH.

We believe that the offers and sales of the securities referenced above were exempt from registration under the Securities Act of 1933 (the “Securities Act”) by virtue of Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder as transactions not involving any public offering. Use of this exemption is based on the following facts:

•Neither we nor any person acting on our behalf solicited any offer to buy or sell securities by any form of general solicitation or advertising.

•At the time of the acquisition, the recipients of the securities were accredited investors, as defined in Rule 501(a) of the Securities Act.

•The recipients of the securities have had access to information regarding the Company and are knowledgeable about us and our business affairs.

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

~~Fifth~~Sixth Amended and Restated By-Laws of the Registrant

8-K (Exhibit 3.1)

~~3/3/2021~~1/28/2022

001-35092

10.1*

Amendment No. 1 to Exact Sciences Corporation 2019 Omnibus Long-Term Incentive Plan

8-K (Exhibit 10.1)

6/10/2022

001-35092

10.2*

Amended and Restated Exact Sciences Corporation 2010 Employee Stock Purchase Plan

8-K (Exhibit 10.2)

6/10/2022

001-35092

10.3**

Receivables Financing Agreement dated as of June 29, 2022 by and among Exact Receivables LLC, as borrower, the persons from time to time party thereto as lenders and group agents, PNC Bank, National Association, as administrative agent, Exact Sciences Laboratories, LLC, as initial servicer, and PNC Capital Markets, LLC, as structuring agent

8-K (Exhibit 10.1)

6/30/2022

001-35092

10.4**

Receivables Purchase Agreement dated as of June 29, 2022 by and among Exact Sciences Corporation, as seller, Exact Sciences Laboratories, LLC, as initial servicer, and Exact Receivables LLC, as buyer

8-K (Exhibit 10.2)

6/30/2022

001-35092

10.5**

Receivables Purchase Agreement dated as of June 29, 2022 by and among the entities from time to time party thereto as originators, Exact Sciences Laboratories, LLC, as initial servicer, and Exact Sciences Corporation, as buyer

8-K (Exhibit 10.3)

6/30/2022

001-35092

31.1

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

31.2

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

32.1

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

101

The following materials from the Quarterly Report on Form 10-Q of Exact Sciences Corporation for the quarter ended ~~September~~June 30, ~~2021~~2022 filed on ~~November~~August 2, ~~2021,~~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

104

The cover page from our Quarterly Report for the period ended ~~September~~June 30, ~~2021,~~2022, filed with the Securities and Exchange Commission on ~~November~~August 2, ~~2021,~~2022, is formatted in Inline Extensible Business Reporting Language (“iXBRL”)

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

(**) Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby undertakes to furnish supplemental copies of any of the omitted schedules upon request by the U.S. Securities and Exchange Commission.

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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: ~~November~~August 2, ~~2021~~2022	By:	/s/ Kevin T. Conroy
		Kevin T. Conroy
		President and Chief Executive Officer (Principal Executive Officer)

Date: ~~November~~August 2, ~~2021~~2022	By:	/s/ Jeffrey T. Elliott
		Jeffrey T. Elliott
		Executive Vice President, Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer)

6257


(In thousands)	Fair Value at September 30, 2021		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	$	273,779	$	273,779	$	—	$	—
Restricted cash	297		297		—		—
Marketable securities
Corporate bonds	368,832		—		368,832		—
Certificates of deposit	175,542		—		175,542		—
Commercial paper	10,001		—		10,001		—
U.S. government agency securities	276,081		—		276,081		—
Asset backed securities	111,164		—		111,164		—
Equity securities (1)	3,068		—		3,068		—
Non-marketable securities	2,540		—		—		2,540
Liabilities
Contingent consideration	(363,647)		—		—		(363,647)
Total	$	857,657	$	274,076	$	944,688	$	(361,107)


(In thousands)
Cash	$	74,775
Common stock issued	16,224
Contingent consideration	19,000
Total purchase price	$	109,999


(In thousands)
Cash and cash equivalents	$	2,474
Accounts receivable	2,349
Inventory	1,811
Prepaid expenses and other current assets	425
Property, plant and equipment	9,947
Operating lease right-of-use assets	548
Developed technology	39,000
Total identifiable assets acquired	$	56,554

Accounts payable	(1,477)
Accrued liabilities	(1,190)
Operating lease liabilities, current portion	(343)
Other current liabilities	(98)
Operating lease liabilities, less current portion	(205)
Total liabilities assumed	$	(3,313)
Net identifiable assets acquired	$	53,241

Goodwill	56,758
Net assets acquired	$	109,999


(In thousands)
Common stock issued	$	1,175,431
Cash	584,996
Contingent consideration	331,348
Fair value of replaced equity awards	52,245
Previously held equity investment fair value	43,034
Total purchase price	$	2,187,054


(In thousands)	Preliminary Allocation January 5, 2021		Measurement Period Adjustments		Allocation as of September 30, 2021
Cash and cash equivalents	$	241,748	$	—	$	241,748
Prepaid expenses and other current assets	3,939		—		3,939
Property, plant and equipment	29,977		—		29,977
Operating lease right-of-use assets	39,027		—		39,027
Other long-term assets	67		—		67
In-process research and development (IPR&D)	1,250,000		—		1,250,000
Total identifiable assets acquired	$	1,564,758	$	—	$	1,564,758

Accounts payable	(3,222)		—		(3,222)
Accrued liabilities	(6,218)		(1,862)		(8,080)
Operating lease liabilities, current portion	(2,980)		—		(2,980)
Operating lease liabilities, less current portion	(38,622)		—		(38,622)
Deferred tax liability	(272,905)		—		(272,905)
Total liabilities assumed	$	(323,947)	$	(1,862)	$	(325,809)
Net identifiable assets acquired	$	1,240,811	$	(1,862)	$	1,238,949

Goodwill	946,243		1,862		948,105
Net assets acquired	$	2,187,054	$	—	$	2,187,054


(In thousands)	Preliminary Allocation March 3, 2020		Measurement Period Adjustments		Final Allocation March 3, 2021
Net operating assets	$	6,133	$	(760)	$	5,373
Goodwill	29,695		736		30,431
Developed technology	7,800		—		7,800
Net operating liabilities	(3,123)		(80)		(3,203)
Total purchase price	$	40,505	$	(104)	$	40,401


(In thousands)
Consideration
Cash paid for acquisition of PFS Genomics outstanding shares	$	33,569
Assets acquired and liabilities assumed
Cash	496
IPR&D asset	33,074
Other assets and liabilities	(1)
Net assets acquired	$	33,569