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, ~~2022~~2023

☐ 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 2, 2022,~~July 31, 2023, the registrant had ~~177,684,039~~180,665,327 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~~J une ~~30, 2022~~3 0 , 2023 and December 31, ~~2021~~2022	3

	Condensed Consolidated Statements of Operations (unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June ~~30,~~3 0 , 2023 and 2022 ~~and 2021~~	4

	Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June ~~30,~~3 0 , 2023 and 2022 ~~and 2021~~	5

	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Six ~~Nine~~Months Ended ~~September~~June ~~30,~~3 0 , 2023 and 2022 ~~and 2021~~	6

	Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3934

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5044

Item 4.	Controls and Procedures	5145

	Part II - Other Information

Item 1.	Legal Proceedings	5246

Item 1A.	Risk Factors	5246

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5246

Item 3.	Defaults Upon Senior Securities	5246

Item 4.	Mine Safety Disclosures	5246

Item 5.	Other Information	5246

Item 6.	Exhibits	5348

	Signatures	5449

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EXACT SCIENCES CORPORATION

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share data - unaudited)

Part I — Financial Information


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current Assets:
Current assets:						Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	235,306	$	315,471	Cash and cash equivalents	$	604,363	$	242,493
Marketable securities	Marketable securities	433,808		715,005		Marketable securities	171,349		389,564
Accounts receivable, net	Accounts receivable, net	189,206		216,645		Accounts receivable, net	178,317		158,043
Inventory	Inventory	114,699		104,994		Inventory	130,770		118,259
Prepaid expenses and other current assets	Prepaid expenses and other current assets	75,487		74,122		Prepaid expenses and other current assets	89,129		73,898
Total current assets	Total current assets	1,048,506		1,426,237		Total current assets	1,173,928		982,257
Long-term Assets:	Long-term Assets:					Long-term Assets:
Property, plant and equipment, net	Property, plant and equipment, net	670,506		580,248		Property, plant and equipment, net	686,602		684,756
Operating lease right-of-use assets	Operating lease right-of-use assets	175,945		174,225		Operating lease right-of-use assets	148,690		167,003
Goodwill	Goodwill	2,345,180		2,335,172		Goodwill	2,346,248		2,346,040
Intangible assets, net	Intangible assets, net	1,977,690		2,094,411		Intangible assets, net	1,910,559		1,956,240
Other long-term assets, net	Other long-term assets, net	88,739		74,591		Other long-term assets, net	89,536		90,577
Total assets	Total assets	$	6,306,566	$	6,684,884	Total assets	$	6,355,563	$	6,226,873
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current liabilities:						Current liabilities:
Accounts payable	Accounts payable	$	63,583	$	67,829	Accounts payable	$	75,080	$	74,916
Accrued liabilities	Accrued liabilities	307,990		398,556		Accrued liabilities	299,586		299,216
Operating lease liabilities, current portion	Operating lease liabilities, current portion	27,054		19,710		Operating lease liabilities, current portion	29,872		28,366
Debt, current portion						Debt, current portion	50,000		—
Other current liabilities	Other current liabilities	25,049		30,973		Other current liabilities	33,519		10,249
Total current liabilities	Total current liabilities	423,676		517,068		Total current liabilities	488,057		412,747
Long-term Liabilities:
Long-term liabilities:						Long-term liabilities:
Convertible notes, net	Convertible notes, net	2,184,625		2,180,232		Convertible notes, net	2,311,567		2,186,106
Long-term debt		50,000		—
Long-term debt, less current portion						Long-term debt, less current portion	—		50,000
Other long-term liabilities	Other long-term liabilities	354,998		417,782		Other long-term liabilities	330,816		352,459
Operating lease liabilities, less current portion	Operating lease liabilities, less current portion	184,633		182,166		Operating lease liabilities, less current portion	168,501		182,399
Total liabilities	Total liabilities	3,197,932		3,297,248		Total liabilities	3,298,941		3,183,711
Commitments and contingencies (Note 14)	Commitments and contingencies (Note 14)					Commitments and contingencies (Note 14)
Stockholders’ Equity:
Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—no shares at September 30, 2022 and December 31, 2021		—		—
Common stock, $0.01 par value Authorized—400,000,000 shares issued and outstanding—177,253,533 and 173,674,067 shares at September 30, 2022 and December 31, 2021		1,774		1,738
Stockholders’ equity:						Stockholders’ equity:
Preferred stock, $0.01 par value Authorized—5,000,000; shares issued and outstanding—no shares at June 30, 2023 and December 31, 2022						Preferred stock, $0.01 par value Authorized—5,000,000; shares issued and outstanding—no shares at June 30, 2023 and December 31, 2022	—		—
Common stock, $0.01 par value Authorized—400,000,000; shares issued and outstanding—180,545,663 and 177,925,631 shares at June 30, 2023 and December 31, 2022						Common stock, $0.01 par value Authorized—400,000,000; shares issued and outstanding—180,545,663 and 177,925,631 shares at June 30, 2023 and December 31, 2022	1,806		1,780
Additional paid-in capital	Additional paid-in capital	6,255,211		6,028,861		Additional paid-in capital	6,475,742		6,311,644
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(11,070)		(1,443)		Accumulated other comprehensive loss	(723)		(5,236)
Accumulated deficit	Accumulated deficit	(3,137,281)		(2,641,520)		Accumulated deficit	(3,420,203)		(3,265,026)
Total stockholders’ equity	Total stockholders’ equity	3,108,634		3,387,636		Total stockholders’ equity	3,056,622		3,043,162
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	6,306,566	$	6,684,884	Total liabilities and stockholders’ equity	$	6,355,563	$	6,226,873

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,
		2022		2021		2022		2021			2023		2022		2023		2022
Revenue	Revenue	$	523,073	$	456,379	$	1,531,284	$	1,293,275	Revenue	$	622,093	$	521,640	$	1,224,543	$	1,008,211

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)	147,937		115,738		427,242		339,699		Cost of sales (exclusive of amortization of acquired intangible assets)	156,991		144,600		313,857		279,305
Research and development	Research and development	90,813		75,356		299,144		297,158		Research and development	104,095		106,083		199,514		208,331
Sales and marketing	Sales and marketing	187,697		196,617		635,800		577,585		Sales and marketing	176,490		215,922		363,454		448,103
General and administrative	General and administrative	191,968		186,541		543,410		621,897		General and administrative	237,965		181,672		455,260		351,442
Amortization of acquired intangible assets	Amortization of acquired intangible assets	23,526		23,940		74,536		70,954		Amortization of acquired intangible assets	22,929		26,356		45,857		51,010
Impairment of long-lived assets	Impairment of long-lived assets	5,946		20,210		12,537		20,210		Impairment of long-lived assets	552		6,591		621		6,591
Total operating expenses	Total operating expenses	647,887		618,402		1,992,669		1,927,503		Total operating expenses	699,022		681,224		1,378,563		1,344,782

Other operating loss		(13,244)		—		(13,244)		—
Loss from operations	Loss from operations	(138,058)		(162,023)		(474,629)		(634,228)		Loss from operations	(76,929)		(159,584)		(154,020)		(336,571)

Other income (expense)	Other income (expense)									Other income (expense)
Investment income (loss), net	Investment income (loss), net	(8,584)		(4,093)		(13,790)		30,524		Investment income (loss), net	4,828		(3,719)		5,318		(5,206)
Interest expense	Interest expense	(5,235)		(4,680)		(14,224)		(13,948)		Interest expense	(7,818)		(4,511)		(3,711)		(8,989)
Total other income (expense)	Total other income (expense)	(13,819)		(8,773)		(28,014)		16,576		Total other income (expense)	(2,990)		(8,230)		1,607		(14,195)

Net loss before tax	Net loss before tax	(151,877)		(170,796)		(502,643)		(617,652)		Net loss before tax	(79,919)		(167,814)		(152,413)		(350,766)

Income tax benefit		3,116		3,858		6,882		242,638
Income tax benefit (expense)										Income tax benefit (expense)	(1,107)		1,751		(2,764)		3,766

Net loss	Net loss	$	(148,761)	$	(166,938)	$	(495,761)	$	(375,014)	Net loss	$	(81,026)	$	(166,063)	$	(155,177)	$	(347,000)

Net loss per share—basic and diluted	Net loss per share—basic and diluted	$	(0.84)	$	(0.97)	$	(2.82)	$	(2.19)	Net loss per share—basic and diluted	$	(0.45)	$	(0.94)	$	(0.87)	$	(1.98)

Weighted average common shares outstanding—basic and diluted	Weighted average common shares outstanding—basic and diluted	176,997		171,978		175,935		170,978		Weighted average common shares outstanding—basic and diluted	180,204		176,364		179,393		175,396

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,
2022 2021 2022 2021
Net loss $ (148,761) $ (166,938) $ (495,761) $ (375,014)
Other comprehensive loss, before tax:
Unrealized gain (loss) on available-for-sale investments 4 66 (6,451) (563)
Foreign currency translation loss (2,429) — (3,176) —
Comprehensive loss, before tax (151,186) (166,872) (505,388) (375,577)
Income tax benefit related to items of other comprehensive loss — — — 170
Comprehensive loss, net of tax $ (151,186) $ (166,872) $ (505,388) $ (375,407)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net loss	$	(81,026)	$	(166,063)	$	(155,177)	$	(347,000)
Other comprehensive loss, net of tax:
Unrealized gain (loss) on available-for-sale investments	937		(1,488)		3,904		(6,455)
Foreign currency translation adjustment	59		(510)		609		(747)
Comprehensive loss	$	(80,030)	$	(168,061)	$	(150,664)	$	(354,202)

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 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, 2022		173,674,067	$	1,738			$	6,028,861						$	(1,443)			$	(2,641,520)		$	3,387,636
Balance, January 1, 2023																			Balance, January 1, 2023	177,925,631			$	1,780		$	6,311,644		$	(5,236)		$	(3,265,026)		$	3,043,162
Exercise of common stock options	Exercise of common stock options	485,537	5		4,277				—			—				4,282			Exercise of common stock options	88,228			1		963			—			—			964
Issuance of common stock to fund the Company’s 2022 401(k) match																			Issuance of common stock to fund the Company’s 2022 401(k) match	517,215			5		35,072			—			—			35,077
Compensation expense related to issuance of stock options and restricted stock awards	Compensation expense related to issuance of stock options and restricted stock awards	1,391,797	14		52,427				—			—				52,441			Compensation expense related to issuance of stock options and restricted stock awards	1,299,071			13		49,126			—			—			49,139
Other		7	—		(7)				—			—				(7)
Net loss	Net loss	—	—		—				—			(180,937)				(180,937)			Net loss	—			—		—			—			(74,151)			(74,151)
Other comprehensive loss		—	—		—				(5,204)			—				(5,204)
Balance, March 31, 2022		175,551,408	$	1,757	$	6,085,558			$	(6,647)		$	(2,822,457)			$	3,258,211
Other comprehensive income																			Other comprehensive income	—			—		—			3,517			—			3,517
Balance, March 31, 2023																			Balance, March 31, 2023	179,830,145			$	1,799	$	6,396,805		$	(1,719)		$	(3,339,177)		$	3,057,708
Exercise of common stock options	Exercise of common stock options	84,485	1		742				—			—				743			Exercise of common stock options	36,728			1		851			—			—			852
Issuance of common stock to fund the Company’s 2021 401(k) match		391,129	4		29,198				—			—				29,202
Issuance of common stock to fund the Company’s 2022 401(k) match																			Issuance of common stock to fund the Company’s 2022 401(k) match	335			—		23			—			—			23
Compensation expense related to issuance of stock options and restricted stock awards	Compensation expense related to issuance of stock options and restricted stock awards	183,095	2		58,930				—			—				58,932			Compensation expense related to issuance of stock options and restricted stock awards	134,002			1		61,724			—			—			61,725
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	326,131	3		15,526				—			—				15,529			Purchase of employee stock purchase plan shares	544,453			5		16,339			—			—			16,344
Net loss	Net loss	—	—		—				—			(166,063)				(166,063)			Net loss	—			—		—			—			(81,026)			(81,026)
Other comprehensive loss		—	—		—				(1,998)			—				(1,998)
Balance, June 30, 2022		176,801,434	$	1,769	$	6,204,742			$	(8,645)		$	(2,988,520)			$	3,209,346
Exercise of common stock options		73,441	1		940				—			—				941
Compensation expense related to issuance of stock options and restricted stock awards		378,658	4		49,529				—			—				49,533
Net loss		—	—		—				—			(148,761)				(148,761)
Other comprehensive loss		—	—		—				(2,425)			—				(2,425)
Balance, September 30, 2022		177,253,533	$	1,774	$	6,255,211			$	(11,070)		$	(3,137,281)			$	3,108,634
Other comprehensive income																			Other comprehensive income	—			—		—			996			—			996
Balance, June 30, 2023																			Balance, June 30, 2023	180,545,663			$	1,806	$	6,475,742		$	(723)		$	(3,420,203)		$	3,056,622

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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
Settlement 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 combinations, net of issuance costs		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
Settlement 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 Cash Flows

(Amounts in thousands - unaudited)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(495,761)	$	(375,014)	Net loss	$	(155,177)	$	(347,000)
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	Depreciation	73,541		64,267		Depreciation	54,325		48,498
Loss on disposal of property, plant and equipment		2,083		928
Unrealized loss on equity investments	Unrealized loss on equity investments	3,497		1,937		Unrealized loss on equity investments	10,099		4,247
Deferred tax benefit		(9,346)		(248,716)
Deferred tax expense (benefit)						Deferred tax expense (benefit)	672		(4,940)
Stock-based compensation	Stock-based compensation	160,906		197,180		Stock-based compensation	110,864		111,373
Post-combination expense for acceleration of unvested equity		—		80,960
Realized (gain) loss on preferred stock investment		10,000		(30,500)
Amortization of deferred financing costs, convertible note debt discount and issuance costs, and other liabilities		5,273		4,948
Amortization of premium on short-term investments		1,795		3,265
Realized gain on non-marketable investment						Realized gain on non-marketable investment	(5,358)		—
Gain on settlements of convertible notes, net						Gain on settlements of convertible notes, net	(10,324)		—
Amortization of acquired intangible assets	Amortization of acquired intangible assets	74,536		70,954		Amortization of acquired intangible assets	45,857		51,010
Impairment of long-lived assets	Impairment of long-lived assets	12,537		20,210		Impairment of long-lived assets	621		6,591
Asset acquisition IPR&D expense		—		85,337
Loss on sale of asset		13,244		—
Remeasurement of contingent consideration	Remeasurement of contingent consideration	(57,619)		10,986		Remeasurement of contingent consideration	(4,687)		(51,759)
Non-cash lease expense	Non-cash lease expense	24,452		18,347		Non-cash lease expense	13,777		17,281
Other						Other	3,965		5,079
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable, net	Accounts receivable, net	27,968		(14,038)		Accounts receivable, net	(20,492)		30,632
Inventory, net	Inventory, net	(9,705)		(1,091)		Inventory, net	(12,531)		(10,178)
Operating lease liabilities	Operating lease liabilities	(16,242)		(11,834)		Operating lease liabilities	(12,766)		(10,668)
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	(89,268)		64,344		Accounts payable and accrued liabilities	48,754		(79,339)
Other assets and liabilities		(7,487)		(20,134)
Net cash used in operating activities		(275,596)		(77,664)
Other assets						Other assets	(9,624)		(4,166)
Other liabilities						Other liabilities	4,234		(1,331)
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	62,209		(234,670)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of marketable securities	Purchases of marketable securities	(102,438)		(1,021,557)		Purchases of marketable securities	(50,656)		(79,110)
Maturities and sales of marketable securities	Maturities and sales of marketable securities	377,440		424,830		Maturities and sales of marketable securities	270,825		269,310
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(141,586)		(76,374)		Purchases of property, plant and equipment	(64,081)		(96,949)
Proceeds from sale of asset		25,000		—
Business combination, net of cash acquired and issuance costs		685		(415,549)
Asset acquisition		—		(58,073)
Business combination, net of cash acquired						Business combination, net of cash acquired	—		685
Investments in privately held companies	Investments in privately held companies	(26,827)		(13,555)		Investments in privately held companies	(6,173)		(26,667)
Other investing activities	Other investing activities	(49)		(244)		Other investing activities	(500)		(49)
Net cash provided by (used in) investing activities		132,225		(1,160,522)
Net cash provided by investing activities						Net cash provided by investing activities	149,415		67,220
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from accounts receivable securitization facility		50,000		—
Proceeds from exercise of common stock options	Proceeds from exercise of common stock options	5,966		13,372		Proceeds from exercise of common stock options	1,816		5,025
Proceeds in connection with the Company’s employee stock purchase plan	Proceeds in connection with the Company’s employee stock purchase plan	15,529		12,038		Proceeds in connection with the Company’s employee stock purchase plan	16,344		15,529
Proceeds from accounts receivable securitization facility						Proceeds from accounts receivable securitization facility	—		50,000
Proceeds from issuance of convertible notes						Proceeds from issuance of convertible notes	137,976		—
Other financing activities	Other financing activities	(5,113)		(4,742)		Other financing activities	(6,499)		(4,407)
Net cash provided by financing activities	Net cash provided by financing activities	66,382		20,668		Net cash provided by financing activities	149,637		66,147
Effects of exchange rate changes on cash and cash equivalents	Effects of exchange rate changes on cash and cash equivalents	(3,176)		—		Effects of exchange rate changes on cash and cash equivalents	609		(747)
Net decrease in cash, cash equivalents and restricted cash		(80,165)		(1,217,518)
Net increase (decrease) in cash, cash equivalents and restricted cash						Net increase (decrease) in cash, cash equivalents and restricted cash	361,870		(102,050)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	315,768		1,491,594		Cash, cash equivalents and restricted cash, beginning of period	242,790		315,768
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	235,603	$	274,076	Cash, cash equivalents and restricted cash, end of period	$	604,660	$	213,718

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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,
		2022		2021			2023		2022
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	$	23,659	$	21,110	Property, plant and equipment acquired but not paid	$	7,850	$	34,604
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	$	10,754	$	10,685	Interest paid	$	7,385	$	5,133
Reconciliation of cash, cash equivalents and restricted cash:	Reconciliation of cash, cash equivalents and restricted cash:					Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	Cash and cash equivalents	$	235,306	$	273,779	Cash and cash equivalents	$	604,363	$	213,421
Restricted cash — included in prepaid expenses and other current assets as of September 30, 2022, and other long-term assets, net as of September 30, 2021		297		297
Restricted cash — included in prepaid expenses and other current assets						Restricted cash — included in prepaid expenses and other current assets	297		297
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	235,603	$	274,076	Total cash, cash equivalents and restricted cash	$	604,660	$	213,718

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

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

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

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements, which include the accounts of ~~Exact Sciences Corporation~~the Company and those of its wholly owned subsidiaries and variable interest entities, are unaudited and have been prepared on a basis substantially consistent with the Company’s audited financial statements and notes as of and for the year ended December 31, ~~2021~~2022 included in the Company’s Annual Report on Form 10-K (the ~~“2021~~“2022 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 (“GAAP”) in the United States of America (“~~GAAP”~~U.S.”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair statement of its financial position, operating results and cash flows for the periods presented. The condensed consolidated balance sheet at December 31, ~~2021~~2022 has been derived from audited financial statements, but does not contain all of the footnote disclosures from the ~~2021~~2022 Form 10-K. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year. The statements should be read in conjunction with the audited financial statements and related notes included in the ~~2021~~2022 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 on Form 10-Q and the ~~2021~~2022 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 30, 2022 and through the date of the filing of this Quarterly Report on Form 10-Q. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, marketable and non-marketable investments, software, and the carrying value of the goodwill and other long-lived assets. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in additional material impacts to the Company’s consolidated financial statements in future reporting periods.

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

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

~~Table of Contents~~

~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Significant Accounting Policies

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, there were no changes to the Company’s significant accounting policies as described in the Company’s ~~2021~~2022 Form ~~10-K, except as described in the Collateralized Debt Instruments and Recently Adopted Accounting Pronouncements 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.10-K.

Recent Accounting Pronouncements

~~Recently Adopted Accounting Pronouncements~~

~~In October 2021,~~ The Company did not adopt any accounting standards updates (“ASU”) released by the Financial Accounting Standards Board (“FASB”) ~~issued Accounting Standards Update (“ASU”) No. 2021-08,~~ ~~Business Combinations (Topic 805)~~. This update requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification (“ASC”) 606. This differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. The amendments in this update should be applied prospectively, and are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company early adopted the amendments in this update during the ~~first quarter of fiscal year 2022. There was~~three and six months ended June 30, 2023. In addition, there are no ~~material~~ASUs not yet adopted that are expected to impact to the ~~Company’s condensed consolidated financial statements.~~

~~In June 2022, the FASB issued ASU No. 2022-03,~~ ~~Fair Value Measurement (Topic 820) – Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions~~. This update clarifies that a contractual restriction on the sale of an equity security is not part of the unit of account of the security and should not be considered in measuring fair value. The update also provides that an entity cannot recognize and measure a contractual sale restriction as a separate unit of account. The amendments in this update should be applied prospectively, and are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company early adopted the amendments in this update during the third quarter of fiscal year 2022. There was no material impact to the Company’s condensed consolidated financial statements.Company.

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)	2022	2021	(In thousands)	2023	2022
Shares issuable in connection with acquisitions		45	45
Shares issuable upon exercise of stock options		1,588	2,380
Shares issuable upon conversion of convertible notes				Shares issuable upon conversion of convertible notes	23,231	20,309
Shares issuable upon the release of restricted stock awards	Shares issuable upon the release of restricted stock awards	5,588	4,306	Shares issuable upon the release of restricted stock awards	6,590	5,772
Shares issuable upon the release of performance share units	Shares issuable upon the release of performance share units	1,018	863	Shares issuable upon the release of performance share units	1,569	992
Shares issuable upon conversion of convertible notes		20,309	20,309
Shares issuable upon exercise of stock options				Shares issuable upon exercise of stock options	1,366	1,683
Shares issuable in connection with acquisitions				Shares issuable in connection with acquisitions	—	45
		28,548	27,903		32,756	28,801

(2) REVENUE

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

~~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)	2022		2021		2022		2021		(In thousands)	2023		2022		2023		2022
Screening	Screening									Screening
Medicare Parts B & C	Medicare Parts B & C	$	140,366	$	116,088	$	389,373	$	329,034	Medicare Parts B & C	$	176,016	$	135,252	$	347,746	$	249,007
Commercial	Commercial	188,923		151,245		531,789		419,268		Commercial	245,748		181,186		478,781		342,866
Other	Other	31,470		13,045		100,013		36,341		Other	41,023		37,456		79,455		68,543
Total Screening	Total Screening	360,759		280,378		1,021,175		784,643		Total Screening	462,787		353,894		905,982		660,416
Precision Oncology	Precision Oncology									Precision Oncology
Medicare Parts B & C	Medicare Parts B & C	$	47,038	$	51,607	$	152,224	$	144,753	Medicare Parts B & C	$	47,588	$	52,621	$	94,969	$	105,186
Commercial	Commercial	42,660		42,844		134,658		136,800		Commercial	46,212		45,940		91,144		92,002
International	International	31,533		27,229		89,536		80,133		International	35,586		28,341		72,854		57,784
Other	Other	30,212		23,732		81,640		50,942		Other	27,788		27,093		53,639		51,643
Total Precision Oncology	Total Precision Oncology	151,443		145,412		458,058		412,628		Total Precision Oncology	157,174		153,995		312,606		306,615
COVID-19 Testing	COVID-19 Testing	$	10,871	$	30,589	$	52,051	$	96,004	COVID-19 Testing	$	2,132	$	13,751	$	5,955	$	41,180
Total	Total	$	523,073	$	456,379	$	1,531,284	$	1,293,275	Total	$	622,093	$	521,640	$	1,224,543	$	1,008,211

Screening revenue primarily includes laboratory service revenue from Cologuard and ~~PreventionGenetics~~Prevention Genetics, LLC (“PreventionGenetics”) tests while Precision Oncology revenue includes laboratory service revenue from global Oncotype products and therapy selection ~~products, including Oncomap~~TM ~~and Oncomap ExTra~~TM.products.

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. The Company recognized revenue from a change in transaction price of ~~$6.4~~$7.4 million and ~~$17.6~~$7.1 million for the three ~~and nine~~ months ended ~~September~~June 30, 2023 and 2022, respectively. The Company ~~recorded a downward adjustment to~~recognized revenue from a change in transaction price of ~~$0.2~~$19.1 million and ~~$13.2~~$11.3 million for the ~~three and nine~~six months ended ~~September~~June 30, ~~2021,~~2023 and 2022, respectively.

The ~~Company had~~Company’s deferred revenue, ~~of $2.3 million and $1.0 million as of September 30, 2022 and December 31, 2021, respectively. Deferred revenue~~which is reported in other current liabilities in the Company’s condensed consolidated balance ~~sheets.~~sheets, was not material as of June 30, 2023 and December 31, 2022.

Revenue recognized for the three and six months ended June 30, 2023 and 2022 that was included in the deferred revenue balance at the beginning of the period was not material.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Revenue recognized for the three months and nine months ended September 30, 2022, which was included in the deferred revenue balance at the beginning of each period, was not significant. Revenue recognized for the three months and nine months ended September 30, 2021, which was included in the deferred revenue balance at the beginning of each period, was $0.2 million and $24.6 million, respectively. Of the $24.6 million of revenue recognized for the nine months ended September 30, 2021, $24.3 million related to COVID-19 testing.

(3) MARKETABLE SECURITIES

The following table sets forth the Company’s cash, cash equivalents, and marketable securities at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	June 30, 2023		December 31, 2022
Cash and cash equivalents	Cash and cash equivalents					Cash and cash equivalents
Cash and money market	Cash and money market	$	173,968	$	247,335	Cash and money market	$	555,984	$	178,168
Cash equivalents	Cash equivalents	61,338		68,136		Cash equivalents	48,379		64,325
Total cash and cash equivalents	Total cash and cash equivalents	235,306		315,471		Total cash and cash equivalents	604,363		242,493
Marketable securities	Marketable securities					Marketable securities
Available-for-sale debt securities	Available-for-sale debt securities	$	428,421	$	711,669	Available-for-sale debt securities	$	168,753	$	384,415
Equity securities	Equity securities	5,387		3,336		Equity securities	2,596		5,149
Total marketable securities	Total marketable securities	433,808		715,005		Total marketable securities	171,349		389,564
Total cash, cash equivalents and marketable securities	Total cash, cash equivalents and marketable securities	$	669,114	$	1,030,476	Total cash, cash equivalents and marketable securities	$	775,712	$	632,057

Available-for-sale debt securities, including the classification within the condensed consolidated balance sheet at ~~September~~June 30, ~~2022,~~2023, 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
Commercial paper	Commercial paper	$	58,917	$	—	$	—	$	58,917	Commercial paper	$	45,038	$	—	$	—	$	45,038
U.S. government agency securities	U.S. government agency securities	2,421		—		—		2,421		U.S. government agency securities	3,341		—		—		3,341
Total cash equivalents	Total cash equivalents	61,338		—		—		61,338		Total cash equivalents	48,379		—		—		48,379
Marketable securities	Marketable securities									Marketable securities
Corporate bonds	Corporate bonds	$	116,627	$	—	$	(2,423)	$	114,204	Corporate bonds	$	62,832	$	2	$	(560)	$	62,274
U.S. government agency securities	U.S. government agency securities	248,351		—		(4,496)		243,855		U.S. government agency securities	61,176		—		(301)		60,875
Certificates of deposit		5,500		—		—		5,500
Asset backed securities										Asset backed securities	28,863		5		(531)		28,337
Commercial paper	Commercial paper	1,988		—		—		1,988		Commercial paper	17,267		—		—		17,267
Asset backed securities		63,872		—		(998)		62,874
Total marketable securities	Total marketable securities	436,338		—		(7,917)		428,421		Total marketable securities	170,138		7		(1,392)		168,753
Total available-for-sale securities	Total available-for-sale securities	$	497,676	$	—	$	(7,917)	$	489,759	Total available-for-sale securities	$	218,517	$	7	$	(1,392)	$	217,132

______________

(1)~~Gains~~There was no tax impact from the gains and losses in accumulated other comprehensive income (loss) (“AOCI”) ~~are reported before tax impact.~~.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Available-for-sale debt securities, including the classification within the condensed consolidated balance sheet at December 31, ~~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									Cash equivalents
Commercial paper										Commercial paper	$	63,021	$	—	$	—	$	63,021
U.S. government agency securities	U.S. government agency securities	$	3,543	$	—	$	—	$	3,543	U.S. government agency securities	1,304		—		—		1,304
Commercial paper		64,593		—		—		64,593
Total cash equivalents	Total cash equivalents	68,136		—		—		68,136		Total cash equivalents	64,325		—		—		64,325
Marketable securities	Marketable securities									Marketable securities
U.S. government agency securities	U.S. government agency securities	$	250,793	$	—	$	(873)	$	249,920	U.S. government agency securities	$	228,012	$	—	$	(2,789)	$	225,223
Corporate bonds										Corporate bonds	116,318		20		(1,667)		114,671
Asset backed securities	Asset backed securities	94,565		2		(107)		94,460		Asset backed securities	45,374		2		(855)		44,521
Commercial paper		6,996		—		—		6,996
Certificates of deposit		47,147		2		(10)		47,139
Corporate bonds		313,634		13		(493)		313,154
Total marketable securities	Total marketable securities	713,135		17		(1,483)		711,669		Total marketable securities	389,704		22		(5,311)		384,415
Total available-for-sale securities	Total available-for-sale securities	$	781,271	$	17	$	(1,483)	$	779,805	Total available-for-sale securities	$	454,029	$	22	$	(5,311)	$	448,740

______________

(1)~~Gains~~There was no tax impact from the gains and losses in ~~AOCI are reported before tax impact.~~AOCI.

The following table summarizes contractual underlying maturities of the Company’s available-for-sale debt securities at ~~September~~June 30, ~~2022:~~2023:


		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									Cash equivalents
Commercial paper	Commercial paper	$	58,917	$	58,917	$	—	$	—	Commercial paper	$	45,038	$	45,038	$	—	$	—
U.S. government agency securities	U.S. government agency securities	2,421		2,421		—		—		U.S. government agency securities	3,341		3,341		—		—
Total cash equivalents	Total cash equivalents	61,338		61,338		—		—		Total cash equivalents	48,379		48,379		—		—
Marketable securities	Marketable securities									Marketable securities
U.S. government agency securities	U.S. government agency securities	$	238,617	$	234,274	$	9,734	$	9,581	U.S. government agency securities	$	53,532	$	53,300	$	7,644	$	7,575
Corporate bonds	Corporate bonds	93,666		92,032		22,961		22,172		Corporate bonds	44,694		44,236		18,138		18,038
Certificates of deposit		5,500		5,500		—		—
Commercial Paper										Commercial Paper	17,267		17,267		—		—
Asset backed securities	Asset backed securities	—		—		63,872		62,874		Asset backed securities	1,080		1,076		27,783		27,261
Commercial paper		1,988		1,988		—		—
Total marketable securities	Total marketable securities	339,771		333,794		96,567		94,627		Total marketable securities	116,573		115,879		53,565		52,874
Total available-for-sale securities	Total available-for-sale securities	$	401,109	$	395,132	$	96,567	$	94,627	Total available-for-sale securities	$	164,952	$	164,258	$	53,565	$	52,874

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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, ~~2022,~~2023 aggregated by investment category and length of time those individual securities have been in a continuous unrealized loss position:


		Less than one year				One year or greater				Total					Less than one year				One year or greater				Total
(In thousands)	(In thousands)	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		(In thousands)	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Marketable securities	Marketable securities													Marketable securities
Corporate bonds	Corporate bonds	$	114,204	$	(2,423)	$	—	$	—	$	114,204	$	(2,423)	Corporate bonds	$	39,460	$	(178)	$	21,812	$	(382)	$	61,272	$	(560)
U.S. government agency securities														U.S. government agency securities	36,956		(223)		23,919		(78)		60,875		(301)
Asset backed securities	Asset backed securities	61,924		(998)		—		—		61,924		(998)		Asset backed securities	12,040		(62)		14,262		(469)		26,302		(531)
U.S. government agency securities		243,855		(4,496)		—		—		243,855		(4,496)
Total available-for-sale securities	Total available-for-sale securities	$	419,983	$	(7,917)	$	—	$	—	$	419,983	$	(7,917)	Total available-for-sale securities	$	88,456	$	(463)	$	59,993	$	(929)	$	148,449	$	(1,392)

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, ~~2022~~2023 and December 31, ~~2021,~~2022 because the change in market value for those securities in an unrealized loss position ~~has~~ resulted from fluctuating interest rates rather than a deterioration of the credit worthiness of the issuers.

The gains and losses recorded on available-for-sale debt securities and equity securities are included in investment income (loss), net in the Company’s condensed consolidated statements of operations. The gains and losses recorded were not ~~significant~~material for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

(4) INVENTORY

Inventory consisted of the following:


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	June 30, 2023		December 31, 2022
Raw materials	Raw materials	$	56,829	$	51,321	Raw materials	$	63,574	$	61,207
Semi-finished and finished goods	Semi-finished and finished goods	57,870		53,673		Semi-finished and finished goods	67,196		57,052
Total inventory	Total inventory	$	114,699	$	104,994	Total inventory	$	130,770	$	118,259

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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, 2022		December 31, 2021		(In thousands)	Estimated Useful Life	June 30, 2023		December 31, 2022
Property, plant and equipment	Property, plant and equipment						Property, plant and equipment
Land	Land	n/a	$	4,716	$	4,716	Land	n/a	$	4,716	$	4,716
Leasehold and building improvements	Leasehold and building improvements	(1)	179,025		147,083		Leasehold and building improvements	(1)	208,710		200,588
Land improvements	Land improvements	15 years	6,415		5,206		Land improvements	15 years	6,613		6,417
Buildings	Buildings	30 - 40 years	271,858		210,560		Buildings	30 - 40 years	290,692		288,941
Computer equipment and computer software	Computer equipment and computer software	3 years	132,416		109,119		Computer equipment and computer software	3 years	155,239		142,896
Laboratory equipment	Laboratory equipment	3 - 10 years	232,189		189,748		Laboratory equipment	3 - 10 years	261,187		246,344
Furniture and fixtures	Furniture and fixtures	3 - 10 years	33,641		28,293		Furniture and fixtures	3 - 10 years	36,072		34,047
Assets under construction	Assets under construction	n/a	93,687		100,339		Assets under construction	n/a	83,538		68,398
Property, plant and equipment, at cost	Property, plant and equipment, at cost		953,947		795,064		Property, plant and equipment, at cost		1,046,767		992,347
Accumulated depreciation	Accumulated depreciation		(283,441)		(214,816)		Accumulated depreciation		(360,165)		(307,591)
Property, plant and equipment, net	Property, plant and equipment, net		$	670,506	$	580,248	Property, plant and equipment, net		$	686,602	$	684,756

______________

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

Depreciation expense for the three months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ was ~~$25.0~~$27.5 million and ~~$22.3~~$25.5 million, respectively. Depreciation expense for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ was ~~$73.5~~$54.3 million and ~~$64.3~~$48.5 million, respectively.

At ~~September~~June 30, ~~2022,~~2023, the Company had ~~$93.7~~$83.5 million of assets under construction, which consisted of ~~$38.9~~$59.9 million in laboratory equipment, ~~$28.8~~$12.4 million in capitalized costs related to ~~buildings, $16.1~~software projects, $6.0 million in leasehold and building improvements, and ~~$9.9~~$5.2 million ~~in capitalized costs~~ related to ~~software projects.~~buildings. Depreciation will begin on these assets once they are placed into service upon 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, 2023:


(In thousands)	Weighted Average Remaining Life (Years)	Cost		Accumulated Amortization		Net Balance at June 30, 2023
Finite-lived intangible assets
Trade name	12.0	$	104,000	$	(24,278)	$	79,722
Customer relationships	7.5	4,000		(667)		3,333
Patents and licenses	4.2	11,542		(8,876)		2,666
Acquired developed technology (1)	7.3	861,650		(286,812)		574,838
Total finite-lived intangible assets		981,192		(320,633)		660,559
In-process research and development	n/a	1,250,000		—		1,250,000
Total intangible assets		$	2,231,192	$	(320,633)	$	1,910,559

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


(In thousands)	(In thousands)	Weighted Average Remaining Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Balance at September 30, 2022		(In thousands)	Weighted Average Remaining Life (Years)	Cost		Accumulated Amortization		Net balance at December 31, 2022
Finite-lived intangible assets	Finite-lived intangible assets								Finite-lived intangible assets
Trade name	Trade name	12.7	$	104,000	$	(18,840)	$	85,160	Trade name	12.5	$	104,000	$	(20,653)	$	83,347
Customer relationships	Customer relationships	8.3	4,000		(333)		3,667		Customer relationships	8.0	4,000		(444)		3,556
Patents and licenses	Patents and licenses	3.1	10,942		(7,805)		3,137		Patents and licenses	4.2	11,542		(8,152)		3,390
Acquired developed technology (1)	Acquired developed technology (1)	7.9	860,610		(224,884)		635,726		Acquired developed technology (1)	7.8	861,474		(245,527)		615,947
Total finite-lived intangible assets	Total finite-lived intangible assets		979,552		(251,862)		727,690		Total finite-lived intangible assets		981,016		(274,776)		706,240
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		$	2,229,552	$	(251,862)	$	1,977,690	Total intangible assets		$	2,231,016	$	(274,776)	$	1,956,240

______________

(1)The gross carrying amount includes an immaterial foreign currency translation adjustment related to the intangible ~~assets~~asset 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, 2021:~~

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

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

As of ~~September~~June 30, ~~2022,~~2023 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)
2022 (remaining three months)		$	22,913
2023		91,653
2023 (remaining six months)				2023 (remaining six months)	$	45,856
2024	2024	91,319		2024	91,379
2025	2025	90,271		2025	90,331
2026	2026	89,211		2026	89,271
2027				2027	89,271
Thereafter	Thereafter	342,323		Thereafter	254,451
		$	727,690		$	660,559

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

On August 2, 2022, the Company completed a sale of the developed technology intangible asset related to the Oncotype DX Genomic Prostate Score® test (“GPS test”) to MDxHealth SA (��MDxHealth”), which was measured using the income approach to determine the fair value. The gross value of the intangible asset was $59.0 million with accumulated amortization of $16.1 million as of the closing date, resulting in a carrying value of $42.9 million, which was derecognized from intangible assets, net in the condensed consolidated balance sheets upon completion of the divestiture. Refer to Note 16 for further information on this sale.

During the third quarter of 2022, the Company recorded a non-cash, pre-tax impairment loss of $2.0 million related to the supply agreement intangible asset that was initially recorded as part of the combination with Genomic Health due to the termination of the agreement, which reduced the carrying value to zero.lives.

During the second quarter of 2022, the Company recorded a non-cash, pre-tax impairment loss of $6.6 million related to the acquired developed technology intangible asset acquired as a result of the acquisition of Paradigm Diagnostics, Inc. due to lower than anticipated performance of the underlying product.

During the third quarter of 2021, the Company recorded a non-cash, pre-tax impairment loss of $20.2 million related to the supply agreement intangible asset that was initially recorded as part of the combination with Genomic Health 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 ~~charges~~is recorded ~~are included~~ in impairment of long-lived assets in the condensed consolidated statement of ~~operations.~~

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

operations for the three and six months ended June 30, 2022.

Goodwill

The change in the carrying amount of goodwill for the periods ended ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 is as follows:


(In thousands)
Balance, January 1, ~~2021~~2022	$	~~1,237,672~~
~~Thrive acquisition~~	~~948,105~~
~~Ashion acquisition~~	~~56,758~~
~~PreventionGenetics acquisition~~	~~92,637~~
~~Balance, December 31, 2021~~	2,335,172
OmicEra acquisition	10,809
PreventionGenetics acquisition adjustment	42 (58)
Effects of changes in foreign currency exchange rates (1)	~~(843)~~117
Balance, ~~September~~December 31, 2022	2,346,040
Effects of changes in foreign currency exchange rates (1)	208
Balance June 30, ~~2022~~2023	$	~~2,345,180~~2,346,248

______________

(1)Represents the impact of foreign currency translation related to the goodwill acquired as a result of the acquisition of OmicEra. Goodwill 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.

There were no impairment losses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

(7) FAIR VALUE MEASUREMENTS

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

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

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

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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 June 30, 2023 along with the level within the fair value hierarchy in which the fair value measurements, in their entirety, fall.


(In thousands)	Fair Value at June 30, 2023		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	$	555,984	$	555,984	$	—	$	—
Commercial paper	45,038		—		45,038		—
U.S. government agency securities	3,341		—		3,341		—
Restricted cash	297		297		—		—
Marketable securities
Corporate bonds	$	62,274	$	—	$	62,274	$	—
U.S. government agency securities	60,875		—		60,875		—
Asset backed securities	28,337		—		28,337		—
Commercial paper	17,267		—		17,267		—
Equity securities	2,596		2,596		—		—
Non-marketable securities	$	9,200	$	—	$	—	$	9,200
Liabilities
Contingent consideration	$	(302,141)	$	—	$	—	$	(302,141)
Total	$	483,068	$	558,877	$	217,132	$	(292,941)

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


(In thousands)	Fair Value at December 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents
Cash and money market	$	178,168	$	178,168	$	—	$	—
Commercial paper	63,021		—		63,021		—
U.S. government agency securities	1,304		—		1,304		—
Restricted cash	297		297		—		—
Marketable securities
U.S. government agency securities	$	225,223	$	—	$	225,223	$	—
Corporate bonds	114,671		—		114,671		—
Asset backed securities	44,521		—		44,521		—
Equity securities	5,149		5,149		—		—
Non-marketable securities	$	10,065	$	—	$	—	$	10,065
Liabilities
Contingent consideration	$	(306,927)	$	—	$	—	$	(306,927)
Total	$	335,492	$	183,614	$	448,740	$	(296,862)

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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 September 30, 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, 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 $ 173,968 $ 173,968 $ — $ —
Commercial paper 58,917 — 58,917 —
U.S. government agency securities 2,421 — 2,421 —
Restricted cash 297 297 — —
Marketable securities
Corporate bonds $ 114,204 $ — $ 114,204 $ —
Certificates of deposit 5,500 — 5,500 —
Commercial paper 1,988 — 1,988 —
U.S. government agency securities 243,855 — 243,855 —
Asset backed securities 62,874 — 62,874 —
Equity securities (1) 5,387 5,387 — —
Non-marketable securities $ 2,990 $ — $ — $ 2,990
Liabilities
Contingent consideration $ (305,925) $ — $ — $ (305,925)
Total $ 366,476 $ 179,652 $ 489,759 $ (302,935)

~~______________~~

~~(1)~~Inclusive of the American Depository Shares of MDxHealth received as part of the sale of the Company’s GPS test, which are restricted to a holding period of six months after the date of the sale of August 2, 2022. The shares have a fair value of $4.7 million as of September 30, 2022.

~~Table of Contents~~

~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

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

There have been no changes in valuation techniques or transfers between fair value measurement levels during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. 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 has elected the fair value option under the income approach to measure its non-marketable securities categorized as Level 3 measurements. Gains and losses recorded on non-marketable securities are included in investment income (loss), net in the condensed consolidated statement of operations. The following table provides a reconciliation of the beginning and ending balances of non-marketable securities valued using the fair value option:


(In thousands)	Non-Marketable Securities
Beginning balance, January 1, 2023	$	10,065
Purchases of non-marketable securities	5,000
Changes in fair value	(5,865)
Ending balance, June 30, 2023	$	9,200

Contingent Consideration Liabilities

The fair value of the contingent consideration liabilities as of ~~September~~June 30, ~~2022~~2023 was $302.1 million, of which $18.9 million was recorded in other current liabilities and $283.2 million was recorded in other long-term liabilities. The fair value of the contingent consideration liability as of December 31, ~~2021~~2022 was ~~$305.9~~$306.9 million, ~~and $359.0 million, respectively,~~ which was recorded in other long-term liabilities in the condensed consolidated balance sheets.

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


(In thousands)	Contingent Consideration
Beginning balance, January 1, ~~2022~~2023	$	~~359,021~~
~~Purchase price contingent consideration (1)~~	~~4,600~~306,927
Changes in fair value (1)	~~(57,619)~~(4,687)
Payments	~~(77)~~(99)
Ending balance, ~~September~~June 30, ~~2022~~2023	$	~~305,925~~302,141

______________

(1)The ~~increase~~change in fair value of the contingent consideration liability was a reduction of $25.1 million and $51.8 million for the three and six months ended June 30, 2022, respectively, which is ~~due to~~included in general and administrative expenses in the ~~contingent consideration associated with the acquisition~~condensed consolidated statement of ~~OmicEra. Refer to Note 16 for further information.~~operations.

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.

~~Table of Contents~~

~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

The fair value of the contingent consideration ~~liability~~liabilities recorded ~~related to regulatory and product development milestones associated with~~from the Company’s acquisitions of Thrive Earlier Detection Corporation (“Thrive”), Ashion Analytics, LLC (“Ashion”), and OmicEra ~~acquisitions~~related to regulatory and product development milestones was ~~$304.8~~$302.1 million and ~~$357.8~~$306.8 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The Company evaluates the fair value of the expected contingent consideration and the corresponding ~~liability~~liabilities related to the regulatory and product development 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 present-value factor. The passage of time in addition to changes in projected milestone achievement timing, present-value factor, the degree of achievement, if applicable, and probabilities of success may result in adjustments to the fair value measurement. The fair value of the contingent consideration liability recorded related to regulatory and product development milestones was determined using a weighted average probability of success of 91% as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, and a weighted average present-value factor of ~~7.1%~~6.1% and ~~2.3%~~6.2% as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The projected fiscal year of payment range is from 2024 to ~~2027.~~2029. Unobservable inputs were weighted by the relative fair value of the contingent consideration ~~liability.~~liabilities.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The fair value of the contingent consideration ~~earnout~~ liability related to certain revenue milestones associated with the Biomatrica, Inc. acquisition was ~~$1.2 million~~not material as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022. 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, ~~2022~~2023 and December 31, ~~2021,~~2022 the aggregate carrying amounts of the Company’s non-marketable equity securities without readily determinable fair values were ~~$39.5~~$34.2 million and ~~$25.3~~$39.8 million, respectively, which are classified as a component of other long-term assets, net in the Company’s condensed consolidated balance sheets. Since initial recognition of these investments, there have been no material upward or downward ~~adjustments~~adjustments. A realized gain of $5.4 million was recorded during the three and six months ended June 30, 2023 as a result of ~~observable price changes. During~~an investee being acquired in the second quarter of 2023. The Company will collect $9.3 million from the sale in the third quarter of ~~2022,~~2023, and the ~~Company determined that one~~transaction is classified as a non-cash investing activity as of ~~its investments was fully impaired and recorded a $10.0 million realized loss.~~June 30, 2023.

The Company has committed capital to venture capital investment funds (the “Funds”) of $17.5 million, of which ~~$14.2~~$12.5 million remained callable through 2033 as of ~~September~~June 30, ~~2022.~~2023. 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 ~~$3.4~~$5.1 million and ~~$1.5~~$3.9 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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 the Company’s foreign currency exchange rate exposure. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022 the Company had open foreign currency forward contracts with notional amounts of ~~$29.7~~$32.0 million and ~~$46.7~~$22.3 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, ~~2022~~2023 and December 31, ~~2021,~~2022 and there were no gains or losses recorded to adjust the fair value of the open foreign currency contract held as of ~~September~~June 30, ~~2022.~~2023. 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, ~~2022~~2023 and ~~2021.~~2022.

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

(8) LONG-TERM DEBT

Accounts Receivable Securitization Facility

On June 29, 2022, the Company, through a wholly-owned special purpose entity, Exact Receivables LLC (“Exact Receivables”) entered into an accounts receivable securitization program (the “Securitization Facility”) with PNC Bank, National Association (“PNC”), with a scheduled 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 domestic customer accounts receivable of certain wholly-owned subsidiaries of the Company. The amount available under the Securitization Facility fluctuates over time based on the total amount of 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 Securitization Facility through interest expense within the condensed consolidated statements of operations.

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 ofin their accounts ~~receivable~~receivables to Exact Receivables. The receivables are used to collateralize borrowings made under the 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.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

As of ~~September~~June 30, ~~2022,~~2023, the eligible borrowing base under the Securitization Facility was ~~$99.7~~$100.2 million of which the Company elected to collateralize $50.0 million. As of ~~September~~June 30, 2023 and December 31, 2022, the Company had an outstanding balance of $50.0 million, which is ~~recorded to~~included in debt, current portion and long-term debt, less current portion, respectively, 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 ~~4.59%~~6.71% at ~~September~~June 30, ~~2022.~~2023.

Revolving Loan Agreement

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

Borrowings under the Revolving Loan Agreement accrue interest at an annual rate equal to the sum of the daily Bloomberg Short-Term Bank Yield Index Rate plus the applicable margin of 0.60%. Loans under the Revolving Loan Agreement may be prepaid at any time without penalty. ~~The maturity date under the Revolving Loan Agreement was November 5, 2023.~~ In October 2022, the Revolving Loan Agreement was amended to extend the maturity date from November 5, 2023 to November 5, 2025. There were no other amendments to the Revolver.

The Company has agreed to various financial covenants under the Revolving Loan Agreement, and as of ~~September~~June 30, ~~2022,~~2023, the Company is in compliance with all covenants.

~~During the fourth quarter of~~In December 2021 and January 2023, PNC issued a ~~letter~~letters of credit of $2.9 million and $1.5 million, respectively, which reduced the amount available for cash advances under the line of credit to $145.6 million and $147.1 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022, respectively. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company has not drawn funds from, nor are any amounts outstanding under, the Revolving Loan Agreement.

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

(9) CONVERTIBLE NOTES

Convertible note obligations included in the condensed consolidated balance sheet consisted of the following as of ~~September~~June 30, ~~2022:~~2023:

Fair Value (1)
(In thousands) Principal Amount Unamortized Debt Discount and Issuance Costs Net Carrying Amount Amount Leveling
2028 Convertible notes - 0.375% $ 1,150,000 $ (16,545) $ 1,133,455 $ 733,999 2
2027 Convertible notes - 0.375% 747,500 (10,011) 737,489 521,987 2
2025 Convertible notes - 1.000% 315,005 (1,324) 313,681 281,142 2


							Fair Value (1)
(In thousands)	Principal Amount		Unamortized Debt Discount and Issuance Costs		Net Carrying Amount		Amount		Leveling
2030 Convertible Notes - 2.000%	$	572,993	$	(4,705)	$	568,288	$	792,484	2
2028 Convertible Notes - 0.375%	949,042		(11,768)		937,274		960,905		2
2027 Convertible Notes - 0.375%	563,822		(6,283)		557,539		608,212		2
2025 Convertible Notes - 1.000%	249,172		(706)		248,466		343,381		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, ~~2021:~~2022:

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


							Fair Value (1)
(In thousands)	Principal Amount		Unamortized Debt Discount and Issuance Costs		Net Carrying Amount		Amount		Leveling
2028 Convertible Notes - 0.375%	$	1,150,000	$	(15,775)	$	1,134,225	$	908,500	2
2027 Convertible Notes - 0.375%	747,500		(9,445)		738,055		612,950		2
2025 Convertible Notes - 1.000%	315,005		(1,179)		313,826		326,808		2

______________

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

Issuances and Settlements

In February 2023, the Company entered into a privately negotiated exchange and purchase agreement with a single holder of certain of the Company’s convertible notes due in 2027 (the “2027 Notes”) and 2028 (the “2028 Notes”). The Company issued the holder $500.0 million aggregate principal amount of 2.0% Convertible Notes due in 2030 (collectively, the “2030 Notes”) in exchange for $183.7 million of aggregate principal of 2027 Notes, $201.0 million of aggregate principal of 2028 Notes, and $138.0 million of cash. The extinguishment resulted in a gain on settlement of convertible notes of $17.7 million, which is included in interest expense in the condensed consolidated statement of operations for the six months ended June 30, 2023. The gain represents the difference between (i) the fair value of the consideration transferred and (ii) the carrying value of the debt at the time of exchange.

In March 2023, the Company entered into a privately negotiated exchange agreement with two holders of certain of the Company’s convertible notes due in 2025 (the “2025 Notes”). The Company issued the holder $73.0 million aggregate principal amount of 2030 Notes in exchange for $65.8 million of aggregate principal of 2025 Notes. The extinguishment resulted in a loss on settlement of convertible notes of $7.4 million, which is included in interest expense in the condensed consolidated statement of operations for the six months ended June 30, 2023. 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 exchange.

The net proceeds from the issuance of the 2030 Notes were approximately $133.0 million, after deducting commissions and offering expenses payable by the Company.

The 2030 Notes will mature on March 1, 2030 and bear interest at a rate of 2.0% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2023.

Summary of Conversion Features

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

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

It is the Company’s intent and policy to settle all conversions through combination settlement. The initial conversion rate is 13.26, 8.96, 8.21, and ~~8.21~~12.37 shares of common stock per $1,000 principal amount for the ~~convertible notes due in~~ 2025 ~~(“2025 Notes”),~~Notes, 2027 ~~(“2027 Notes”),~~Notes, 2028 Notes, and ~~2028 (“2028 Notes”),~~2030 Notes, respectively, which is equivalent to an initial conversion price of approximately $75.43, $111.66, $121.84, and ~~$121.84~~$80.83 per share of the Company’s common stock for the 2025 Notes, 2027 Notes, 2028 Notes, and ~~2028~~2030 Notes, respectively. The 2025 Notes, 2027 Notes, 2028 Notes, and ~~2028~~2030 Notes are potentially convertible into up to ~~4.2~~3.3 million, ~~6.7~~5.0 million, 7.8 million, and ~~9.4~~7.1 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)~~Indentures), 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 ~~$32.49~~$93.90 on ~~September~~June 30, ~~2022,~~2023, the if-converted values on the Notes do not exceed the principal amount.

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

Ranking of Convertible Notes

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

Issuance Costs

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


(In thousands)
~~January 2025~~2030 Convertible Notes	$	~~10,284~~4,938
~~June 2025~~2028 Convertible Notes	~~7,362~~24,453
2027 Convertible Notes	14,285
~~2028~~2025 Convertible Notes	~~24,453~~17,646

Interest Expense

Interest expense on the Notes 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)	2022		2021		2022		2021		(In thousands)	2023		2022		2023		2022
Debt issuance costs amortization	Debt issuance costs amortization	$	1,444	$	1,444	$	4,284	$	4,284	Debt issuance costs amortization	$	1,315	$	1,428	$	2,692	$	2,840
Debt discount amortization	Debt discount amortization	37		37		110		110		Debt discount amortization	25		37		56		73
Gain on settlements of convertible notes										Gain on settlements of convertible notes	—		—		(10,324)		—
Coupon interest expense	Coupon interest expense	2,566		2,566		7,699		7,699		Coupon interest expense	4,906		2,566		8,260		5,133
Total interest expense on convertible notes		$	4,047	$	4,047	$	12,093	$	12,093
Total interest expense (income) on convertible notes										Total interest expense (income) on convertible notes	$	6,246	$	4,031	$	684	$	8,046

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes the effective interest rates of the Notes:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
2030 Convertible Notes										2030 Convertible Notes	2.12	%	—	%	2.10	%	—	%
2028 Convertible Notes										2028 Convertible Notes	0.64	%	0.64	%	0.63	%	0.64	%
2027 Convertible Notes										2027 Convertible Notes	0.67	%	0.67	%	0.67	%	0.67	%
2025 Convertible Notes	2025 Convertible Notes	1.18	%	1.18	%	1.18	%	1.18	%	2025 Convertible Notes	1.18	%	1.18	%	1.18	%	1.18	%
2027 Convertible Notes		0.68	%	0.68	%	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 ~~2.30, 4.46,~~1.55, 3.71, 4.67, and ~~5.42~~6.67 years for the 2025 Notes, 2027 Notes, 2028 Notes, and ~~2028~~2030 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 single-digit royalties based on net revenues received using the technologies and may require minimum royalty amounts, milestone payments, or maintenance fees.

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Mayo Foundation for Medical Education and Research

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

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

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

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

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

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 ~~$1.5~~$1.2 million and $1.3 million for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The Company incurred charges of ~~$4.2~~$2.5 million and ~~$3.5~~$2.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, 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~~Johns Hopkins University (“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.

Translational Genomics Research Institute

In January 2021, the Company entered into a worldwide exclusive license to the proprietary Targeted Digital Sequencing (“TARDIS”) technology from Translational Genomics Research Institute (“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. Under the agreement, the Company is obligated to make milestone payments to TGen of $10.0 million and $35.0 million upon achieving cumulative product revenue 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 Company will record the sales milestones once achievement is deemed probable.

Broad Institute, Inc.

In June 2023, the Company entered into an exclusive license agreement with Broad Institute, Inc. (“Broad Institute”) to utilize the Minor Allele Enriched Sequencing Through Recognition Oligonucleotides (“MAESTRO”) technology in the Company’s molecular residual disease (“MRD”) testing. The Company accounted for this transaction as an asset acquisition. In connection with the asset acquisition, the Company paid $0.5 million upfront in cash, which was recorded to research and development expense in the condensed consolidated statement of operations as the asset was deemed to be incomplete and had no alternative future use at the time of acquisition. Under the license agreement, the Company is obligated to make development milestone payments to Broad Institute of up to $6.5 million upon achievement of certain development milestones related to prospective MRD tests that use the MAESTRO technology. In addition, the Company is obligated to make sales-based milestone payments to Broad Institute that equate up to a mid-single-digit royalty upon the achievement of certain cumulative net sales targets of licensed products using the MAESTRO technology beginning at $500.0 million. The Company will record the development milestones once achieved and the sales milestones once achievement is deemed probable.

(11) PFIZER PROMOTION AGREEMENT

In August 2018, the Company entered into a Promotion Agreement (the “Original Promotion Agreement”) with Pfizer Inc. (“Pfizer”), which was amended and restated in October 2020 (the “Restated Promotion Agreement”). The Restated Promotion Agreement extended the relationship between the Company and Pfizer and restructured the manner in which the Company compensates Pfizer for promotion of the Cologuard test through a service fee, and provision of certain other sales and marketing services related to the Cologuard test. The Restated Promotion Agreement included fixed and performance-related

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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~~provided that the Company ~~will~~ pay Pfizer a total of $35.9 million in three installments, which occurred 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 provided a fee-for-service model that included certain fixed fees and performance-related bonuses. The performance-related bonuses were contingent upon the achievement of certain annual performance criteria with any applicable expense being recognized ratably upon achievement of the payment becoming probable. The Company incurred ~~charges~~a charge of $2.5 million and ~~$16.8~~$5.0 million for the service fee ~~for~~during the three and six months ended ~~September~~June 30, 2022, ~~and 2021,~~ respectively. The Company incurred charges of ~~$7.5~~$27.1 million and ~~$63.6 million for the service fee for the nine months ended September 30, 2022 and 2021, respectively. The Company incurred charges of $20.6 million and $30.2~~$65.5 million for promotion, sales and marketing services performed by Pfizer on behalf of the Company during the three and six months ended ~~September~~June 30, 2022, ~~and 2021,~~ respectively. ~~The Company incurred charges of $86.1 million and $88.0 million for promotion, sales and marketing~~All services ~~performed~~provided by Pfizer ~~on behalf~~under the November 2021 Amendment ended in the third quarter of ~~the Company~~2022, and there were no payments made or charges incurred during the ~~nine~~three and six months ended ~~September~~June 30, ~~2022 and 2021, respectively.~~2023.

(12) STOCKHOLDERS’ EQUITY

OmicEra 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 Acquisition Stock Issuance~~Changes in Accumulated Other Comprehensive Income (Loss)

~~In December 2021,~~The amounts recognized in AOCI for the ~~Company completed its acquisition of PreventionGenetics. In connection with~~six months ended June 30, 2023 were as follows:


(In thousands)	Cumulative Translation Adjustment		Unrealized Gain (Loss) on Securities (1)		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2022	$	53	$	(5,289)	$	(5,236)
Other comprehensive loss before reclassifications	609		1,051		1,660
Amounts reclassified from accumulated other comprehensive loss	—		2,853		2,853
Net current period change in accumulated other comprehensive loss	609		3,904		4,513
Balance at June 30, 2023	$	662	$	(1,385)	$	(723)

______________

(1)There was no tax impact from the ~~acquisition, which is further described~~amounts recognized in ~~Note 16,~~AOCI for the ~~Company issued 1.1 million shares of the Company's common stock that had a fair value of $84.2 million.~~

~~Ashion Acquisition Stock Issuance~~

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

~~Thrive Acquisition Stock Issuance~~

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

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

In January 2021, the Company acquired a worldwide exclusive license to the TARDIS technology from The Translational Genomics Research Institute (“TGen”), which is further described in Note 16. As part of the consideration transferred, the Company issued 0.2 million shares of the Company’s common stock that had a fair value of $27.3 million.three and six months ended June 30, 2023.

2726

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~Changes in Accumulated Other Comprehensive Income (Loss)~~

The ~~amount~~amounts recognized in AOCI for the ~~nine~~six months ended ~~September~~June 30, 2022 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)	Cumulative Translation Adjustment		Unrealized Gain (Loss) on Securities (1)		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2021	Balance at December 31, 2021	$	23	$	(1,466)	$	(1,443)	Balance at December 31, 2021	$	23	$	(1,466)	$	(1,443)
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	(3,176)		(6,597)		(9,773)		Other comprehensive loss before reclassifications	(747)		(6,551)		(7,298)
Amounts reclassified from accumulated other comprehensive loss		—		146		146
Amounts reclassified from accumulated other comprehensive income								Amounts reclassified from accumulated other comprehensive income	—		96		96
Net current period change in accumulated other comprehensive loss	Net current period change in accumulated other comprehensive loss	(3,176)		(6,451)		(9,627)		Net current period change in accumulated other comprehensive loss	(747)		(6,455)		(7,202)
Balance at September 30, 2022		$	(3,153)	$	(7,917)	$	(11,070)
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, 2022.

~~The amounts recognized in AOCI for the nine months ended September 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 (292) (292)
Amounts reclassified from accumulated other comprehensive income (271) (271)
Net current period change in accumulated other comprehensive income, before tax (563) (563)
Income tax benefit related to items of other comprehensive income 170 170
Balance at September 30, 2021 $ 133 $ 133

Amounts reclassified from AOCI for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were as follows:


		Affected Line Item in the Statements of Operations		Nine Months Ended September 30,							Affected Line Item in the Statements of Operations		Six Months Ended June 30,
Details about AOCI Components (In thousands)	Details about AOCI Components (In thousands)		2022			2021	Details about AOCI Components (In thousands)					2023			2022
Change in value of available-for-sale investments	Change in value of available-for-sale investments									Change in value of available-for-sale investments
Sales and maturities of available-for-sale investments	Sales and maturities of available-for-sale investments	Investment income (loss), net		$	146		$	(271)	Sales and maturities of available-for-sale investments		Investment income (loss), net		$	2,853		$	96
Total reclassifications	Total reclassifications			$	146		$	(271)	Total reclassifications				$	2,853		$	96

(13) STOCK-BASED COMPENSATION

Stock-Based Compensation Plans

The Company maintains the following plans for which awards were granted from or had ~~shares~~awards outstanding in ~~2022:~~2023: the 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”).

~~Table~~In February 2023, the Company adopted the Equity Award Death, Disability and Retirement Policy (the “Policy”) as further described in Item 9B of ~~Contents~~

~~EXACT SCIENCES CORPORATION~~

~~Notes~~the Company’s 2022 Form 10-K. The terms of the Policy will result in the recognition of expense on an accelerated basis for retirement-eligible participants for restricted stock units only. The Policy was considered a modification to ~~Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

outstanding awards with no impact to fair value. The accelerated stock-based compensation expense recorded as a result of the modification was not material and is being recognized over the period from the date of modification to the date in which each participant becomes retirement-eligible.

Stock-Based Compensation Expense

The Company records stock-based compensation expense in connection with ~~the amortization of~~its restricted stock and restricted stock unit awards, ~~(“RSUs”),~~performance share units, 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 ~~$49.5~~$61.7 million and ~~$63.6~~$58.9 million in stock-based compensation expense during the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The Company recorded ~~$160.9~~$110.9 million and ~~$283.3~~$111.4 million in stock-based compensation expense during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

As of ~~September~~June 30, ~~2022,~~2023, there was approximately ~~$416.1~~$447.2 million of expected total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under all equity compensation plans. The Company expects to recognize that cost over a weighted average period of ~~2.8~~2.7 years.

~~In connection with the acquisition~~

Table 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 30, 2021, the Company accelerated 34,167 shares of previously unvested stock options and 24,865 shares of previously unvested restricted stock awards and restricted stock units and recorded $4.5 million of non-cash stock-based compensation for the accelerated awards. During the nine months ended September 30, 2021, the Company accelerated 138,163 shares of previously unvested stock options and 58,171 shares of previously unvested restricted stock awards and restricted stock units and recorded $19.0 million of non-cash stock-based compensation for the accelerated awards. As further discussed in Note 16, the Company also recorded $86.2 million in stock-based compensation relatedContents

EXACT SCIENCES CORPORATION

Notes to ~~accelerated vesting of awards held by Thrive employees in connection with the acquisition.~~Condensed Consolidated Financial Statements

(Unaudited)

Stock Options

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

Options Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (1)
(Aggregate intrinsic value in thousands)
Outstanding, January 1, 2022 2,284,276 $ 34.65 5.5
Granted — —
Exercised (643,922) 9.30
Forfeited (52,465) 77.53
Outstanding, September 30, 2022 1,587,889 $ 43.60 5.1 $ 14,366
Vested and expected to vest, September 30, 2022 1,587,889 $ 43.60 5.1 $ 14,366
Exercisable, September 30, 2022 1,401,945 $ 37.53 4.8 $ 14,052


	Option Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (1)
(Aggregate intrinsic value in thousands)
Outstanding, January 1, 2023	1,517,876	$	44.82	4.7
Exercised	(124,988)	14.53
Forfeited	(27,289)	93.89
Outstanding, June 30, 2023	1,365,599	$	46.61	4.2	$	65,580
Vested and expected to vest, June 30, 2023	1,365,599	$	46.61	4.2	$	65,580
Exercisable, June 30, 2023	1,304,504	$	44.33	4.1	$	65,438

______________

(1)The total intrinsic value of options exercised during the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ was ~~$34.7~~$7.0 million and ~~$148.8~~$32.5 million, respectively, determined as of the date of exercise.

The Company received approximately ~~$6.0~~$1.8 million and ~~$13.4~~$5.0 million from stock option exercises during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, 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.

~~Table of Contents~~

~~EXACT SCIENCES CORPORATION~~

~~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, ~~2022~~2023 is as follows:


Restricted stock and restricted stock units		Shares	Weighted Average Grant Date Fair Value (1)
Outstanding, January 1, 2022		4,320,910	$	108.84
						Restricted Shares	Weighted Average Grant Date Fair Value (1)
Outstanding, January 1, 2023					Outstanding, January 1, 2023	5,254,709	$	89.29
Granted	Granted	3,784,503	70.28		Granted	3,191,777	60.94
Released (2)	Released (2)	(1,629,309)	95.46		Released (2)	(1,428,146)	91.65
Forfeited	Forfeited	(888,291)	90.88		Forfeited	(428,282)	74.85
Outstanding, September 30, 2022		5,587,813	$	87.97
Outstanding, June 30, 2023					Outstanding, June 30, 2023	6,590,058	$	73.30

______________

(1)The weighted average grant date fair value of the restricted stock units granted during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~$133.80.~~$74.52.

(2)The fair value of restricted stock units vested and converted to shares of the Company’s common stock was ~~$155.5~~$130.5 million and ~~$114.4~~$122.4 million during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

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,~~addition, certain of the ~~Company issued additional~~ performance-based equity awards ~~which~~ include a market ~~condition in the form~~condition.

Table 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%~~Contents

EXACT SCIENCES CORPORATION

Notes 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.Condensed Consolidated Financial Statements

(Unaudited)

A summary of performance share unit activity is as follows:


Performance share units		Shares (1)	Weighted Average Grant Date Fair Value (2)
Outstanding, January 1, 2022		878,114	$	107.18
						Performance Share Units (1)	Weighted Average Grant Date Fair Value (2)
Outstanding, January 1, 2023					Outstanding, January 1, 2023	967,846	$	102.58
Granted	Granted	805,782	89.43		Granted	749,459	79.17
Released (3)	Released (3)	(292,134)	93.22		Released (3)	(12,284)	78.32
Forfeited	Forfeited	(373,372)	91.91		Forfeited	(135,886)	87.32
Outstanding, September 30, 2022		1,018,390	$	102.74
Outstanding, June 30, 2023					Outstanding, June 30, 2023	1,569,135	$	92.46

______________

(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, ~~2022~~2023 was ~~229,129.~~671,610.

(2)The weighted average grant date fair value of the performance share units granted during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~$140.96.~~$92.05.

(3)The fair value of performance share units vested and converted to shares of the Company’s common stock was $1.0 million and $27.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022. There were no performance share units vested~~2023 and ~~converted to shares of the Company’s common stock during the nine months ended September 30, 2021.~~2022, respectively.

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~~EXACT SCIENCES CORPORATION~~

~~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,
2022 2021 2022 2021
ESPP Shares
Risk-free interest rates (1) (1) 1.49% - 2.73% 0.04% - 0.16%
Expected term (in years) (1) (1) 0.5 - 2 0.5 - 2
Expected volatility (1) (1) 50.94% - 60.34% 48.38% - 68.51%
Dividend yield (1) (1) —% —%

~~______________~~


	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
ESPP Shares
Risk-free interest rates	4.68%	1.49% - 2.73%	4.68%	1.49% - 2.73%
Expected term (in years)	1.25	0.5 - 2	1.25	0.5 - 2
Expected volatility	67.30%	50.94% - 60.34%	67.30%	50.94% - 60.34%
Dividend yield	—%	—%	—%	—%

~~(1)The Company did not issue stock purchase rights under its 2010 Employee Stock Purchase Plan during the period indicated.~~

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(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,
(In thousands) 2022 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 24,579 $ 19,835
Operating cash flows from finance leases 520 723
Finance cash flows from finance leases 3,588 3,805
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities (1) $ 25,471 $ 60,480
Right-of-use assets obtained in exchange for new finance lease liabilities 8,203 4,296
Weighted-average remaining lease term - operating leases (in years) 7.60 8.14
Weighted-average remaining lease term - finance leases (in years) 3.50 3.13
Weighted-average discount rate - operating leases 6.34 % 6.28 %
Weighted-average discount rate - finance leases 6.51 % 5.42 %

~~_____________~~


	Six Months Ended June 30,
(In thousands)	2023			2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	19,093		$	15,899
Operating cash flows from finance leases	342			56
Finance cash flows from finance leases	1,561			2,845
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities (1)	$	(5,375)		$	22,158
Right-of-use assets obtained in exchange for new finance lease liabilities	2,670			6,033
Weighted-average remaining lease term - operating leases (in years)	7.20			7.33
Weighted-average remaining lease term - finance leases (in years)	3.04			3.64
Weighted-average discount rate - operating leases	6.41		%	6.11		%
Weighted-average discount rate - finance leases	7.03		%	6.09		%

______________

(1)For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, this includes reductions of $8.6 million on the carrying value of the right-of-use assets ~~recorded as~~held due to a ~~result~~reduction of the expected lease modification discussed below of $8.1 million. For the nine months ended September 30, 2021, this includes right-of-use assets acquired as part of the business combinations described in Note 16 of $39.6 million.term.

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company’s right-of-use assets from operating leases are ~~$175.9~~$148.7 million and ~~$174.2~~$167.0 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, ~~2022,~~2023, the Company has outstanding operating lease obligations of ~~$211.7~~$198.4 million, of which ~~$27.1~~$29.9 million is reported in operating lease liabilities, current portion and ~~$184.6~~$168.5 million is reported in operating lease liabilities, less current portion in the Company’s condensed consolidated balance sheets. As of December 31, ~~2021,~~2022, the Company had outstanding operating lease obligations of ~~$201.9~~$210.8 million, of which ~~$19.7~~$28.4 million is reported in operating lease liabilities, current portion and ~~$182.2~~$182.4 million is reported in operating lease liabilities, less current portion in the Company’s condensed consolidated balance sheets.

~~Table of Contents~~

~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company’s right-of-use assets from finance leases are ~~$10.8~~$10.9 million and ~~$18.2~~$10.2 million, respectively, which are reported in other long-term assets, net in the Company’s condensed consolidated balance sheets. As of ~~September~~June 30, ~~2022,~~2023, the Company has outstanding finance lease obligations of ~~$11.1~~$11.5 million, of which ~~$3.1~~$3.8 million is reported in other current liabilities and ~~$8.0~~$7.7 million is reported in other long-term liabilities in the Company’s condensed consolidated balance sheets. As of December 31, ~~2021,~~2022, the Company had outstanding finance lease obligations of ~~$18.7~~$10.6 million, of which ~~$6.2~~$3.2 million is reported in other current liabilities and ~~$12.5~~$7.4 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 determined that this amendment was a lease modification, effective June 1, 2022. Under the lease 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 portion of the modified leases are to be accounted for as operating leases, and therefore derecognized the previous finance lease right-of-use asset of $10.3 million and the related finance lease liability of $10.8 million, and recognized an operating lease right-of-use asset of $8.1 million and the related operating lease liability of $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, that 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.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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”)~~matters 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~~has reached an agreement in principle with the United States, acting through the Department of Justice (“DOJ”) and on behalf of the Office of Inspector General of the Department of Health and Human Services, to resolve the previously disclosed civil investigation concerning Genomic Health’s compliance with the Medicare Date of Service billing ~~regulations. The~~regulations (the “DOS Rule Matter”). Under the terms of the agreement in principle, the Company has ~~been cooperating with these inquiries and has produced documents in response thereto.~~

~~During~~agreed to pay $32.5 million plus interest to accrue at the ~~second quarter~~rate of ~~2021, as part of ongoing discussions between~~3.875% per annum to resolve the ~~DOJ and the Company regarding~~United States’ alleged civil claims concerning the DOS Rule ~~Investigation,~~Matter, subject to negotiation of final terms, approval by the ~~DOJ presented an initial estimate~~parties and the execution of ~~civil damages in the amount of $48.2 million relating to alleged non-compliance~~a definitive settlement agreement. In connection with the Medicare Date of Service billing regulations from 2007 to 2020. The initial civil damages estimate 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,agreement in principle, the Company recorded an accrual of ~~approximately $10~~$32.5 million, plus legal fees, which is included within accrued expenses on the condensed consolidated balance sheet, as of ~~September~~June 30, ~~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 recorded2023. The accrual ~~of approximately $10 million as of September 30, 2022~~amount 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.

~~Table of Contents~~

~~EXACT SCIENCES CORPORATION~~

~~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~~did 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~~On June 28, 2023, the Company ~~intends~~and Dr. Rosen reached an agreement in principle to ~~vigorously defend itself against~~settle the claims Dr. ~~Rosen's claims~~Rosen asserted and ~~seek, among other things,~~to resolve the Company’s ~~attorneys'~~claim for attorney’s fees, expenses, and costs. The agreement in principle contemplates the Company making a payment of $13.8 million, plus legal fees and ~~costs incurred~~is subject to negotiation of final terms, approval by the parties and the execution of a definitive settlement agreement. In connection with the agreement in ~~defending this action. Although~~principle, the Company ~~denies Dr. Rosen's allegations~~recorded an accrual of $13.8 million, plus legal fees, which is included within accrued expenses on the condensed consolidated balance sheet, as of June 30, 2023. The accrual amount is based on several factors, conditions, and ~~believes that it has meritorious defenses to his False Claims Act claims, neither~~judgments, and the ~~outcome~~ultimate resolution of this matter could result in a material loss in excess of the ~~litigation nor can a reasonable estimate or an estimated range of loss associated with~~recorded accrual.

If the ~~litigation be determined at this time.~~

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

(15) WISCONSIN ECONOMIC DEVELOPMENT TAX CREDITS

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

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

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

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

As of ~~September 30, 2022,~~December 31, 2020, the Company ~~has~~had earned all $9.0 million of the refundable tax credits, and ~~has~~as of December 31, 2022, the Company had received payment of $9.0 million from the WEDC under the Original WEDC Agreement.

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

As of ~~September~~June 30, ~~2022,~~2023, the Company has earned ~~$9.0~~$11.0 million of the refundable tax credits under the Amended WEDC ~~Agreement.~~Agreement and received payment of $1.7 million from the WEDC. The unpaid portion is ~~$9.0~~$9.3 million, ~~as of September 30, 2022,~~ of which ~~$1.7~~$3.8 million is reported in prepaid expenses and other current assets and ~~$7.3~~$5.5 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.

~~Table of Contents~~

~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

During the three ~~and nine~~ months ended ~~September~~June 30, 2023 and 2022, the Company recorded $0.8 million and zero respectively, as a reduction to operational expenses for the credits earned for job creation. During the six months ended June 30, 2023 and 2022, the Company recorded $2.0 million and $1.0 million respectively, as a reduction to operational expenses for the credits earned for job creation.

(16) ACQUISITIONS AND DIVESTITURES

Business Combinations

OmicEra Diagnostics, GmbH

On May 2, 2022, the Company completed the acquisition (the “OmicEra Acquisition”) of all of the outstanding equity interests of OmicEra Diagnostics GmbH. The OmicEra Acquisition provided the Company a state-of-the-art proteomics lab based in Planegg, Germany. OmicEra combines its mass spectrometry-based proteome analysis technology with its in-house proteomics scientific expertise to discover more reliable and valuable protein biomarkers, which will expand the Company’s research and development capabilities. ~~The Company has included the financial results of OmicEra in the consolidated financial statements from the date of the combination.~~

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


~~(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 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 shares on the acquisition date, which was $55.78.

The purchase agreement requires the Company to pay a maximum of $6.0 million of additional cash consideration to OmicEra upon the achievement of certain earnout conditions related to the identification of protein biomarkers, as well as the growth of the proteomics research and development team. The fair value of the contingent consideration at the acquisition date was $4.6 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.

~~The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values including immaterial measurement period adjustments as follows:~~


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

~~Net operating liabilities~~	~~(3,987)~~
~~Net identifiable assets acquired~~	~~8,599~~

~~Goodwill~~	~~10,809~~
~~Net assets acquired~~	$	~~19,408~~

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

The Company recorded $10.0 million of identifiable intangible assets related to the developed technology associated with OmicEra’s proteome analysis platform. Developed technology represents purchased technology that had reached technological feasibility and for which 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, 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 16 years.

The calculation of the excess 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 of current and future products, and expected research and development synergies. The total goodwill related to this combination is not deductible for tax purposes.

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.~~

Acquisition-related costs were not material and have been recorded within 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.

~~PreventionGenetics LLC~~

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

Refer to the Company’s ~~2021~~2022 Form 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 ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, there were no ~~material~~ changes to the purchase price and purchase price allocation. The measurement period remains open pending the completion of valuation procedures related to certain acquired assets and liabilities assumed, primarily in connection with the intangible assets.

~~Ashion Analytics, LLC~~

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

Refer to the Company’s 2021 Form 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 nine months ended September 30, 2022, there were no changes to the purchase price allocation, and 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 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 Form 10-K for detailed disclosures on the combination, including the fair value of the consideration transferred, final purchase price allocation, and goodwill and intangible assets identified in the transaction.

~~Asset Acquisitions~~

~~PFS Genomics Inc.~~

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

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

~~TARDIS License Agreement~~

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

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

Divestitures

Oncotype DX Genomic Prostate Score Test

On August 2, 2022, pursuant to an asset purchase agreement with MDxHealth SA, the Company completed the sale of the intellectual property and know-how related to the Company’s Oncotype DX Genomic Prostate Score test, which will allow the Company to focus on the highest impact projects core to the Company’s vision.

~~The closing date fair value of the consideration received for the asset was approximately $29.6 million, which consisted of the following:~~


~~(In thousands)~~
~~Cash~~	$	~~25,000~~
~~MDxHealth American Depository Shares~~	~~4,631~~
~~Contingent consideration~~	—
~~Total consideration~~	$	~~29,631~~

The fair value of the 691,171 American Depository Shares received as part of the consideration transferred was determined on the basis of the average of the high and low market price of the MDxHealth’s shares on the date of divestiture, which was $6.70.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~The asset purchase agreement requires MDxHealth~~Refer to ~~pay~~ the ~~Company up to an additional $70.0 million of contingent consideration that would be earned and receivable in cash and/or equity based~~Company’s 2022 Form 10-K for detailed disclosures on the ~~achievement~~divestiture, including the fair value of ~~certain revenue milestones by MDxHealth between 2023 and 2025. The contingent~~the consideration ~~will be recognized as other operating income in the condensed consolidated statement of operations when it is probable a significant reversal of a gain would not occur.~~

~~The~~received, carrying value of the intangible asset sold, ~~which was previously~~and terms of the revenue-based contingent consideration included in ~~intangible assets, net on~~ the ~~condensed consolidated balance sheet, was $42.9 million as~~asset purchase agreement. As of June 30, 2023, the closing date. As a result of the sale, the Company recorded a loss of $13.2 million, which is included in other operating loss in the condensed consolidated statement of operations for the three and nine months ended September 30, 2022.

~~Further, the Company agreed to provide certain transitional services to MDxHealth through December 31, 2022 and lab testing services for a period of up to 24 months.~~

Transaction-related costs were not material and have been recorded within 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 divestiture.contingent consideration remains fully constrained.

(17) SEGMENT INFORMATION

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

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022		2023		2022
United States	United States	$	491,540	$	429,150	$	1,441,748	$	1,213,142	United States	$	586,507	$	493,299	$	1,151,689	$	950,427
Outside of United States	Outside of United States	31,533		27,229		89,536		80,133		Outside of United States	35,586		28,341		72,854		57,784
Total revenues	Total revenues	$	523,073	$	456,379	$	1,531,284	$	1,293,275	Total revenues	$	622,093	$	521,640	$	1,224,543	$	1,008,211

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

(18) INCOME TAXES

The Company recorded an income tax ~~benefit~~expense of ~~$3.1 million and $3.9~~$1.1 million for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021, respectively.~~a benefit of $1.8 million for the three months ended June 30, 2022. The Company recorded an income tax ~~benefit~~expense of ~~$6.9 million and $242.6~~$2.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021, respectively.~~a benefit of $3.8 million for the six months ended June 30, 2022. The Company’s income tax ~~benefit~~expense recorded during the three and six months ended ~~September~~June 30, ~~2022~~2023 is primarily related to the future limitations on and expiration of certain Federal and State deferred tax assets, offset by current foreign and state tax expense. The Company’s income tax benefit recorded during the nine months ended September 30, 2022 is primarily related to the future limitations on and expiration of certain Federal and State deferred tax assets, offset by current foreign and state tax expense. A deferred tax liability of ~~approximately $22.9~~$19.8 million and $19.7 million was recorded as of ~~September~~June 30, 2023 and December 31, 2022, respectively, 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.

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

The Company had ~~$26.0~~$31.1 million and ~~$21.8~~$28.3 million of unrecognized tax benefits at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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, ~~2022,~~2023, due to the carryforward of unutilized net operating losses and research and development credits, the Company is subject to U.S. federal income tax examinations for the tax years ~~2002~~2000 through ~~2022,~~2023, and to state income tax examinations for the tax years ~~2002~~2000 through ~~2022.~~2023. No interest or penalties related to income taxes have been accrued or recognized as of ~~September~~June 30, ~~2022.~~2023.

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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~~Company from management's perspective. We are providing an overview of our business and strategy including a discussion of our financial condition and results of operations. The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, which has been filed with the U.S. Securities and Exchange Commission (“SEC”) (the ~~“2021~~“2022 Form 10-K”).

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “would,” “could,” “seek,” “intend,” “plan,” “goal,” “project,” “estimate,” “anticipate” or other comparable terms. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q regarding our strategies, prospects, expectations, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding expected future operating results; expectations for development of new or improved products and services and their impact on patients; 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 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; the acceptance of our products and services by patients and healthcare providers; our ability to meet demand for our products and services; our reliance upon certain suppliers, including suppliers that are the sole source of certain products; 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; the results of our validation studies and clinical trials, including the risks that the results of future studies and trials may differ materially from the results of previously completed studies and trials; our ability to manage an international business and our expectations regarding our international expansion and opportunities;our ability to raise the capital necessary to support our operations or meet our payment obligations under our indebtedness; the potential effects of changing macroeconomic conditions, including the effects of inflation and interest rate and foreign currency exchange rate fluctuations and any such efforts to hedge such effects; our ability to efficiently and flexibly manage our business amid uncertainties related to the coronavirus (“COVID-19”) pandemic; 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; our ability to retain and hire key ~~personnel.~~personnel; and the impact of labor shortages, turnover, and labor cost increases. The risks included above are not exhaustive. Other important risks and uncertainties are described in the Risk Factors and in Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of the ~~2021~~2022 Form 10-K and subsequently filed Quarterly Reports on Form 10-Q. You are further cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

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Overview

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

During the second quarter of 2023, we achieved many critical milestones, including:

•being Great Place to Work certified for the fifth consecutive year,

•delivering more than 1 million completed tests to patients globally, including a record number of Cologuard® results,

~~Acquisitions and Divestitures~~•growing revenues to $622 million for the three months ended June 30, 2023, an increase of 19% compared to the three months ended June 30, 2022,

~~On August 2,~~•accelerating our path to profitability through prioritization efforts, leading to improved financial results including positive cash provided by operating activities of $100 million, an improvement of $161 million compared to the three months ended June 30, 2022, ~~we completed~~

•releasing positive top-line results from our pivotal BLUE-C study to support our next generation Cologuard test,

•securing reimbursement for the ~~sale of the intellectual property and know-how related to our~~ Oncotype DX ~~Genomic Prostate~~Breast Recurrence Score® test in Japan, and

•initiating collaborations with the Broad Institute, Inc. (“~~GPS test”~~Broad Institute”) to ~~MDxHealth SA ("MDxHealth"). We believe this will allow~~support our ~~team~~molecular residual disease (“MRD”) test platform and Baylor Scott & White Health to ~~focus on the highest impact projects core to~~support our vision. As a result of the transaction, certain members of our dedicated urology teams transitioned 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.

~~Refer to Note 16 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for full discussion of acquisitions and divestitures completed during the year.~~multi-cancer early-detection (“MCED”) program.

Our Screening Tests

~~Colorectal Cancer Screening~~Cologuard Test

Colorectal cancer is the second leading cause of cancer deaths in the United States (“U.S.”) and the leading cause of cancer deaths in the ~~United States~~U.S. among non-smokers. Each year in the ~~United States~~U.S., there are approximately ~~150,000~~153,000 new cases of colorectal cancer and approximately 53,000 deaths. It is widely accepted that colorectal cancer is among the most preventable, yet least prevented cancers.

Our ~~Cologuard®~~flagship screening product, the Cologuard test, is a patient-friendly, 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 hereditary cancer test, RiskguardTM, helps people understand their inherited risk of cancer, arming them with critical information to make better treatment decisions.

Our Precision Oncology Tests

Our Oncotype® portfolio delivers actionable genomic insights to inform prognosis and cancer treatment after a diagnosis. In breast cancer, the Oncotype DX Breast Recurrence Score® test is the only test shown to predict the likelihood of chemotherapy benefit as well as recurrence in invasive breast cancer. The Oncotype ~~DX®~~DX test is recognized as the standard of care and is included in all major breast cancer treatment guidelines. The ~~Oncomap™ ExTra~~OncoExTraTM test applies comprehensive tumor profiling, 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~~OncoExTra 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 now commercialize or plan to commercialize our Oncotype ~~DX Breast Recurrence Score test~~tests internationally through employees in Canada, Japan and eight European countries, as well as through exclusive distribution agreements. We have provided our Oncotype tests in more than 90 countries outside of the ~~United States.~~U.S. We do not offer our Cologuard test or COVID-19 testing outside of the ~~United States.~~U.S.

Pipeline Research and Development

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

•Colorectal Cancer Screening. We are seeking ~~opportunities~~ to improve ~~upon~~ our Cologuard test’s performance ~~characteristics.~~characteristics, focusing on reducing the false positive rate of the test. In ~~January 2022,~~June 2023, we and Mayo Foundation for Medical Education and Research (“Mayo”) presented atdata from the ~~American Society of Clinical Oncology Gastrointestinal Cancers Symposium findings from a~~prospective BLUE-C study, ~~including prospectively collected samples that showed~~the FDA registrational trial for our next-generation Cologuard test, showing overall sensitivity of ~~95%~~94% for colorectal cancer at specificity of ~~92%~~91%. ~~Subgroup analyses showed 83% sensitivity~~We plan to complete submission for ~~high-grade dysplasia,~~FDA approval by the ~~most dangerous pre-cancerous lesions, and 57% for all advanced pre-cancerous lesions. To establish the performance~~end of an enhanced multi-target stool DNA test, we expect to enroll up to 29,000 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.2023. We are also working to develop a blood-based screening test for colorectal ~~cancer.~~cancer as a second-line option for people who haven't been screened with more accurate methods.

•~~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. We are combining Thrive's expertise with our scientific capabilities, clinical organization, and commercial infrastructure to bring an accurate blood-based, multi-cancer early detection test to ~~patients.~~help detect many different types of cancer from a single blood draw. In September 2022, we ~~announced~~presented data at the European Society for Medical Oncology (“ESMO”) Congress from a biomarker validation study, which demonstrated the ability to detect cancer signals from 15 organ sites ~~including 11 with no screening option available today,~~ with a mean sensitivity of 61% and mean specificity of 98.2%. The multi-biomarker approach detected stage I and stage II cancers with a combined sensitivity of 38.7%. In June 2023, we announced a collaboration with Baylor Scott & White to utilize our MCED test within a subset of their clinics to generate real-world experience and evidence of our MCED approach. A larger case-control study is underway to further validate the results shared at ESMO and to determine the final design of the MCED test. We will then begin recruiting patients for the FDA registrational Study of All comeRs (“SOAR”) trial, ~~during 2023. We~~which we expect ~~that the SOAR trial will~~to be the largest prospective, interventional MCED trial ever conducted in the United States.

•~~Minimal Residual Disease (“MRD”)~~MRD Test Development. We plan to offer ~~both~~our OncoDetect™ test, a tumor-informed ~~and tumor-naive minimal residual disease~~MRD test to help detect small amounts of tumor DNA that may remain in patients’ blood after they have undergone initial cancer treatment. This test will help patients and oncologists understand the success of initial treatment and monitor for cancer recurrence. 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~~and a predefined biomarker panel is used. We are currently evaluating different technological approaches, ~~for both test types.~~including a tumor-agnostic platform, and have presented promising early data. In ~~January 2021,~~June 2023, we ~~acquired an~~entered into a sponsored research agreement and exclusive license agreement with Broad Institute to ~~The Translational Genomics Research Institute~~utilize their Minor Allele Enriched Sequencing Through Recognition Oligonucleotides (“~~TGen”~~MAESTRO”) ~~proprietary Targeted Digital Sequencing (“TARDIS”)~~diagnostic testing technology to ~~support development of~~further our ~~tumor-informed test. We have also published proof of concept data showing the~~ ability ~~of cancer-associated methylation markers~~ to ~~detect distantly recurrent colorectal cancer with promising performance.~~

•~~Hereditary Cancer Testing.~~ In December 2021, we acquired PreventionGenetics, LLC (“PreventionGenetics”), a DNA testing laboratory that provides more than 5,000 predefined genetic tests for nearly all clinically relevant genes, additional custom panels,develop and ~~comprehensive germline whole exome and whole genome sequencing~~launch impactful MRD tests. We intend to use PreventionGenetics' capabilities to expand the use of hereditary cancer testing in the U.S. and globally. In the third quarter of 2022, we made our hereditary cancer test, Riskguard, available to oncologists through an early-access program.

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~~advance our ~~product~~ pipeline, ~~by developing additional cancer screening and diagnostic tests,~~ we expect that our research and development expenditures will continue to ~~increase.~~be a significant portion of our operating expenditures.

~~Table of Contents~~

COVID-19 Testing Business

~~In late~~As of June 30, 2023, we have discontinued our COVID-19 testing operations. From March 2020 through June 2023, 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~~were responsible for employing trained personnel to collect specimens. Specimens ~~are~~were sent to our laboratory in Madison, Wisconsin, where we ~~run~~ran the assay in our laboratories and ~~provide~~provided test results to ordering providers. ~~As public health impacts of COVID-19 evolve, we intend to periodically reassess offering COVID-19 testing.~~

~~2022~~

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2023 Priorities

Our top priorities for ~~2022~~2023 are to (1) ~~impact more lives,~~provide outstanding experiences for patients and teams, (2) ~~advance new tests,~~deliver on the future of cancer diagnostics, and (3) ~~take care of the people we serve.~~live our mission.

~~Impact More Lives~~Provide Outstanding Experiences for Patients and Teams

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

~~Advance New Tests~~

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

~~Take Care of the People we Serve~~

~~We want to take even better care of everyone we serve.~~team members. We plan to improve customer relations by delivering simple and smooth workflows, providing communication that is clear and easy to understand, and providing results that are fast and accurate. ~~Our goal is~~We're working to ~~become~~deliver a ~~caring partner~~common technology platform for our cancer tests and improve our digital tools for providers and patients. We will also strive to ~~answer questions~~ensure that Exact Sciences remains a great place to work by taking care of our people.

Deliver on the Future of Cancer Diagnostics

In 2023, we will focus on advancing new tests in our highest priority programs including colorectal cancer screening, multi-cancer early detection, and molecular residual disease and recurrence testing. We plan to continue investing in ongoing and additional clinical trials to enhance existing products and bring new products to patients and providers.

Live our Mission

We are committed to improving lives through testing more people with our laboratory testing services in 2023. By testing more people, we will continue to expand our business in a cost-efficient manner allowing us to generate sustainable profits and increase shareholder value. Generating sustained profits will put us in a better position to continue investing in life-changing cancer diagnostics to help ~~people navigate what is a difficult time in their life.~~achieve our mission.

Recent Developments and Trends

~~Impacts~~We estimate there are up to 60 million Americans unscreened for colon cancer. Screening rates have been persistently low for decades, and this problem was recently intensified by the addition of ~~COVID-19~~nearly 20 million people to the screening population when the recommended screening age moved from 50 to 45. The capacity for screening colonoscopies in the U.S. is relatively fixed because they are dependent on the number of gastroenterologists available to perform the procedures. Health systems and ~~Current Inflationary Environment~~

~~COVID-19 has affected many segments~~health care providers are motivated to increase screening rates because they are measured as part of the ~~global economy, including~~HEDIS and Medicare Stars quality measure systems. More health systems are recognizing the ~~cancer~~opportunity to partner with Exact Sciences to address their screening ~~and diagnostics industry. The pandemic~~rates and related ~~precautionary measures have significantly impacted,~~quality measures. We aim to partner with them to implement Cologuard as an essential part of their screening toolkit and ~~may~~embed it in their workflows. We 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-19implement more electronic ordering interfaces connecting health systems to Exact Sciences. Our Cologuard test market share is unpredictable, may be cyclical, and long-lasting and may vary from location to location. As a result of the pandemic, we continue to provide COVID-19 testing. Our Screening and Precision Oncology businesses were negatively impacted by the pandemic but haveincreasing in large part recovered. Future outbreaks of COVID-19 and its variants could diminish patients’ and our sales representatives’ access to healthcare provider offices. Pandemic-related 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 costs incurred to generate revenue from our laboratory testing services, costs to attract and retain personnel, and other operating costs. The severity and duration of the current inflationary environment remains uncertain and may continue to impact our financial condition and results of operations. Additionally, fluctuations in foreign currency exchange rates can affect our financial position and results of operations. With the strengthening of the U.S. dollar against foreign currencies, the remeasurement of our foreign currency denominated transactions has resulted in decreased revenues. While the impact has not been material to our financial position to date and we make efforts to hedge our foreign currency exchange rate exposure, we cannot predict the extent to which currency fluctuations may affect our business and financial position in the future.

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~~Cologuard Promotion~~

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

Results of Operations

We have generated significant losses since inception and, as of ~~September~~June 30, ~~2022,~~2023, we had an accumulated deficit of approximately ~~$3.14~~$3.42 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.~~

Three Months Ended September 30,
Amounts in millions 2022 2021 Change
Screening $ 360.8 $ 280.4 $ 80.4
Precision Oncology 151.4 145.4 6.0
COVID-19 Testing 10.9 30.6 (19.7)
Total $ 523.1 $ 456.4 $ 66.7

Nine Months Ended September 30,
Amounts in millions 2022 2021 Change
Screening $ 1,021.2 $ 784.6 $ 236.5
Precision Oncology 458.1 412.6 45.4
COVID-19 Testing 52.1 96.0 (44.0)
Total $ 1,531.3 $ 1,293.3 $ 238.0

~~The increase in~~ Screening revenue ~~which~~ primarily includes laboratory service revenue from our Cologuard ~~test,~~and Prevention Genetics, LLC (“PreventionGenetics”) tests while our Precision Oncology revenue includes laboratory service revenue from global Oncotype products and therapy selection products.


	Three Months Ended June 30,
Amounts in millions	2023		2022		Change
Screening	$	462.8	$	353.9	$	108.9
Precision Oncology	157.2		154.0		3.2
COVID-19 Testing	2.1		13.7		(11.6)
Total	$	622.1	$	521.6	$	100.5


	Six Months Ended June 30,
Amounts in millions	2023		2022		Change
Screening	$	906.0	$	660.4	$	245.6
Precision Oncology	312.6		306.6		6.0
COVID-19 Testing	5.9		41.2		(35.3)
Total	$	1,224.5	$	1,008.2	$	216.3

The increase in Screening revenue was mainly due to an increase in the number of completed Cologuard tests and revenue generated from new products as a result of our acquisition of PreventionGenetics in the fourth quarter of 2021. Improved sales team productivity, more patients rescreening with our Cologuard test, and first-time users in the 45 to 49 age group contributed to thetests. The increase in completed Cologuard tests for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022. Relative recovery from the COVID-19 pandemic contributed~~2023 was due to improved sales team productivity, ~~for the three~~growth across all customer segments, and ~~nine months ended September 30,~~enhancements made to our patient compliance program in 2022. The increase in Precision Oncology revenue ~~which primarily includes laboratory service revenue from our global Oncotype products,~~ was mainly due to an increase in the number of completed Oncotype DX breast cancer tests, both domestically and internationally, and revenue generated from new products as a result of our acquisition of Ashion Analytics, LLC (“Ashion”) in the second quarter of 2021. Continued adoption by node-positive patients following the RxPONDER publication in the New England Journal of Medicine also contributed to the increase in completed Oncotype tests for the three and nine months ended September 30, 2022.internationally. The increase in completed Oncotype tests was partially offset by a decrease in revenues from our GPS test, which was divested on August 2, 2022. The decrease in COVID-19 testing revenue was a result of lower demand as the pandemic abates, which led to the discontinuation of our COVID-19 testing in the second quarter of 2023.

During the three and ~~nine~~six months ended ~~September~~June 30, 2023, revenue recognized from changes in transaction price was $7.4 million and $19.1 million, respectively. During the three and six months ended June 30, 2022, revenue recognized from changes in transaction price was ~~$6.4~~$7.1 million and ~~$17.6 million, respectively. During the three and nine months ended September 30, 2021, there was a downward adjustment to revenue from a change in transaction price of $0.2 million and $13.2~~$11.3 million, respectively. The increase to revenue from changes in ~~2022~~transaction price is a result of improvements made in our order to cash operations, specifically within our billing systems and processes.

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We expect continuing revenue growth for our Cologuard and Oncotype products subject to seasonal variability. ~~We would expect revenue from our COVID-19 testing to decline as the pandemic abates and alternative testing options become more widely available.~~ Our revenues are affected by the test volume of our products, patient adherence rates, payer mix, the levels of reimbursement, our order to cash operations, and payment patterns of payers and patients.

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Cost of sales (exclusive of amortization of acquired intangible assets). Cost of sales includes costs related to inventory production and usage, shipment of collection kits and tissue samples, royalties and the cost of services to process tests and provide results to healthcare providers. The increase in cost of sales for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 is primarily due to an increase in production costs and personnel expenses, which is primarily due to an increase in completed Cologuard and Oncotype 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.~~completed. Cost of sales (exclusive of amortization of acquired intangible assets) as a percentage of revenue was 25% and 26% for the three and six months ended June 30, 2023, respectively, as compared to 28% for the three and six months ended June 30, 2022. The decrease in cost of sales (exclusive of acquired intangible assets) as a percentage of revenue was due to improved efficiency in logistical arrangements and personnel as a result of increased volumes. We expect that cost of sales will generally continue to increase in future periods as a result of an increase in our existing laboratory testing services and as we launch our pipeline products. We also expect to see a corresponding increase in personnel and support services associated with this growth.


		Three Months Ended September 30,							Three Months Ended June 30,
Amounts in millions	Amounts in millions	2022		2021		Change		Amounts in millions	2023		2022		Change
Production costs	Production costs	$	87.3	$	63.9	$	23.4	Production costs	$	93.9	$	84.0	$	9.9
Personnel expenses	Personnel expenses	39.0		31.7		7.3		Personnel expenses	43.5		40.4		3.1
Facility and support services	Facility and support services	16.5		15.7		0.8		Facility and support services	13.1		14.9		(1.8)
Stock-based compensation	Stock-based compensation	4.5		4.3		0.2		Stock-based compensation	5.5		5.4		0.1
Other cost of sales expenses	Other cost of sales expenses	0.6		0.1		0.5		Other cost of sales expenses	1.0		(0.1)		1.1
Total cost of sales expense	Total cost of sales expense	$	147.9	$	115.7	$	32.2	Total cost of sales expense	$	157.0	$	144.6	$	12.4

Nine Months Ended September 30,
Amounts in millions 2022 2021 Change
Production costs $ 244.6 $ 188.8 $ 55.8
Personnel expenses 118.4 92.4 26.0
Facility and support services 48.7 44.9 3.8
Stock-based compensation 14.3 12.8 1.5
Other cost of sales expenses 1.2 0.8 0.4
Total cost of sales expense $ 427.2 $ 339.7 $ 87.5

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	Six Months Ended June 30,
Amounts in millions	2023		2022		Change
Production costs	$	186.6	$	157.3	$	29.3
Personnel expenses	88.6		79.4		9.2
Facility and support services	26.6		32.2		(5.6)
Stock-based compensation	10.3		9.7		0.6
Other cost of sales expenses	1.8		0.7		1.1
Total cost of sales expense	$	313.9	$	279.3	$	34.6

Research and development expenses. ~~Research~~The decrease in research and development expenses for the ~~nine~~three and six months ended ~~September~~June 30, ~~2021 included $52.3 million~~2023 is primarily due to a decrease in clinical trial related expenses related to our BLUE-C clinical trial after enrollment for the ~~acquisition of the exclusive license to TARDIS in January 2021 and $33.1 million incurred for the acquisition of PFS Genomics, Inc., which~~study was completed in ~~June 2021. These acquisitions were accounted for as asset acquisitions, as opposed to the May 2022 acquisition of OmicEra Diagnostics GmbH, which~~December 2022. The decrease was accounted for as a business combination, and are further described in Note 16 of our condensed consolidated financial statements in this Quarterly Report on Form 10-Q. When excluding the impact of these asset acquisitions, research and development expenses increasedoffset by ~~$15.4 million and $87.2 million for the three and nine months ended September 30, 2022 primarily due to~~ an increase in ~~BLUE-C and MCED clinical trial related expenses. In addition,~~ personnel expenses and facility and support services ~~increased~~ due to an increase in headcount and other resources needed to support our ongoing clinical trials, which was partially offset by favorable stock-based compensation expense primarily driven by a decrease in expense associated with equity awards issued in connection with the Thrive acquisition.trials. We expect that research and development expenses will generally continue to increase in future periods as we continue to invest to advance new tests.

Three Months Ended September 30,
Amounts in millions 2022 2021 Change
Direct research and development $ 32.3 $ 28.7 $ 3.6
Personnel expenses 34.6 25.1 9.5
Facility and support services 12.2 6.4 5.8
Stock-based compensation 7.7 12.2 (4.5)
Professional fees 1.1 1.7 (0.6)
Other research and development 2.9 1.3 1.6
Total research and development expenses $ 90.8 $ 75.4 $ 15.4


		Nine Months Ended September 30,							Three Months Ended June 30,
Amounts in millions	Amounts in millions	2022		2021		Change		Amounts in millions	2023		2022		Change
Personnel expenses								Personnel expenses	$	41.9	$	35.9	$	6.0
Direct research and development	Direct research and development	$	123.8	$	74.9	$	48.9	Direct research and development	33.9		42.8		(8.9)
Personnel expenses		106.0		69.7		36.3
Facility and support services	Facility and support services	32.8		18.8		14.0		Facility and support services	14.9		11.0		3.9
Stock-based compensation	Stock-based compensation	27.2		39.3		(12.1)		Stock-based compensation	10.7		9.9		0.8
Professional fees	Professional fees	3.1		4.7		(1.6)		Professional fees	1.7		4.4		(2.7)
Other research and development	Other research and development	6.2		4.5		1.7		Other research and development	1.0		2.1		(1.1)
Licensed technology acquisition		—		85.3		(85.3)
Total research and development expenses	Total research and development expenses	$	299.1	$	297.2	$	1.9	Total research and development expenses	$	104.1	$	106.1	$	(2.0)

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	Six Months Ended June 30,
Amounts in millions	2023		2022		Change
Personnel expenses	$	85.6	$	71.4	$	14.2
Direct research and development	59.5		86.9		(27.4)
Facility and support services	29.5		20.6		8.9
Stock-based compensation	20.5		19.5		1.0
Professional fees	3.1		6.6		(3.5)
Other research and development	1.3		3.3		(2.0)
Total research and development expenses	$	199.5	$	208.3	$	(8.8)

Sales and marketing expenses. The decrease in sales and marketing expenses for the three and six months ended ~~September~~June 30, ~~2022~~2023 was primarily due to a decrease in personnel expenses as a result of a decrease in headcount and in direct marketing costs and professional fees. The decrease in personnel expenses was due to minor restructuring of the sales force to reduce overlap and ~~legal~~increase productivity. The decrease in direct marketing costs and professional fees ~~incurred~~was related to our promotion agreement with Pfizer Inc. (“Pfizer”), which ~~was amended~~ended in the ~~fourth~~third quarter of ~~2021~~2022. In addition, there was a decrease in facility and support services due to fewer costs incurred on commercial related information technology projects. We expect sales and marketing expenses in 2023 to be remain below 2022 levels due to improved efficiency from our commercial organization. We expect sales and marketing expenses to continue decreasing as a percentage of revenue over time as our Cologuard and Oncotype testing services grow and we make new tests available.


	Three Months Ended June 30,
Amounts in millions	2023		2022		Change
Personnel expenses	$	100.8	$	114.4	$	(13.6)
Direct marketing costs	44.7		57.4		(12.7)
Stock-based compensation	18.6		18.0		0.6
Professional and legal fees	7.6		10.7		(3.1)
Facility and support services	4.0		15.2		(11.2)
Other sales and marketing expenses	0.8		0.2		0.6
Total sales and marketing expenses	$	176.5	$	215.9	$	(39.4)


	Six Months Ended June 30,
Amounts in millions	2023		2022		Change
Personnel expenses	$	211.1	$	237.3	$	(26.2)
Direct marketing costs	91.9		121.7		(29.8)
Stock-based compensation	31.4		33.1		(1.7)
Professional and legal fees	18.6		28.9		(10.3)
Facility and support services	8.6		25.7		(17.1)
Other sales and marketing expenses	1.9		1.4		0.5
Total sales and marketing expenses	$	363.5	$	448.1	$	(84.6)

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General and administrative expenses. The increase in general and administrative expenses for the three and six months ended June 30, 2023 is primarily due to an increase in professional and legal fees as a result of our civil investigative demand with the U.S. Department of Justice (“DOJ”) and a qui tam lawsuit as further ~~discussed~~described in Note 1114 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. ~~This was partially offset by an increase in personnel expenses and direct marketing spend.~~ The increase in sales and marketing expenses for the nine months ended September 30, 2022 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 sales representatives that were onboarded in the third quarter of 2021. This increase was partially offset by a decrease in professional and legal fees related to our promotion agreement with Pfizer. We expect sales and marketing expenses to increase in future periods to support growth of our Cologuard, Oncotype, and pipeline products, but expect it to decrease as a percentage of revenue over time.

Three Months Ended September 30,
Amounts in millions 2022 2021 Change
Personnel expenses $ 99.3 $ 92.3 $ 7.0
Direct marketing costs 53.8 48.0 5.8
Stock-based compensation 14.3 14.7 (0.4)
Facility and support services 11.7 16.7 (5.0)
Professional and legal fees 8.1 23.0 (14.9)
Other sales and marketing expenses 0.5 1.9 (1.4)
Total sales and marketing expenses $ 187.7 $ 196.6 $ (8.9)

Nine Months Ended September 30,
Amounts in millions 2022 2021 Change
Personnel expenses $ 336.6 $ 264.3 $ 72.3
Direct marketing costs 175.5 136.5 39.0
Stock-based compensation 47.3 41.6 5.7
Facility and support services 37.4 50.0 (12.6)
Professional and legal fees 37.1 81.5 (44.4)
Other sales and marketing expenses 1.9 3.7 (1.8)
Total sales and marketing expenses $ 635.8 $ 577.6 $ 58.2

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~~General and administrative expenses.~~ General and administrative expenses for the three and nine months ended September 30, 2021 included $10.2 million and $141.4 million in acquisition and integration related costs 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 nine months ended September 30, 2022. When excluding the impact of acquisition and integration related costs, personnel expenses increased due to an increase in headcount to support our 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 $5.9 million and $57.6 million~~a decrease in the gain recorded ~~during~~for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 as a result of the change in fair value of our outstanding contingent consideration as further described in Note 7 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. In addition, facility and support services increased to support the growth in our operations. 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	2022		2021		Change		Amounts in millions	2023		2022		Change
Personnel expenses	Personnel expenses	$	93.6	$	79.3	$	14.3	Personnel expenses	$	94.3	$	98.7	$	(4.4)
Professional and legal fees								Professional and legal fees	54.6		30.1		24.5
Facility and support services	Facility and support services	36.4		25.7		10.7		Facility and support services	44.5		34.9		9.6
Professional and legal fees		32.6		34.1		(1.5)
Stock-based compensation	Stock-based compensation	23.0		32.4		(9.4)		Stock-based compensation	26.9		25.6		1.3
Other general and administrative	Other general and administrative	6.4		15.0		(8.6)		Other general and administrative	17.7		(7.6)		25.3
Total general and administrative expenses	Total general and administrative expenses	$	192.0	$	186.5	$	5.5	Total general and administrative expenses	$	238.0	$	181.7	$	56.3


		Nine Months Ended September 30,							Six Months Ended June 30,
Amounts in millions	Amounts in millions	2022		2021		Change		Amounts in millions	2023		2022		Change
Personnel expenses	Personnel expenses	$	292.8	$	225.5	$	67.3	Personnel expenses	$	192.7	$	199.2	$	(6.5)
Professional and legal fees								Professional and legal fees	101.6		57.0		44.6
Facility and support services	Facility and support services	103.0		60.8		42.2		Facility and support services	87.3		66.6		20.7
Professional and legal fees		89.5		99.2		(9.7)
Stock-based compensation	Stock-based compensation	72.1		189.6		(117.5)		Stock-based compensation	48.7		49.1		(0.4)
Other general and administrative	Other general and administrative	(14.0)		46.8		(60.8)		Other general and administrative	25.0		(20.5)		45.5
Total general and administrative expenses	Total general and administrative expenses	$	543.4	$	621.9	$	(78.5)	Total general and administrative expenses	$	455.3	$	351.4	$	103.9

Amortization of acquired intangible assets. Amortization of acquired intangible assets decreased to ~~$23.5~~$22.9 million for the three months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$23.9~~$26.4 million for the three months ended ~~September~~June 30, ~~2021.~~2022. Amortization of acquired intangible assets decreased to $45.9 million for the six months ended June 30, 2023 compared to $51.0 million for the six months ended June 30, 2022. The decrease is primarily due to reduced amortization on the intangible ~~assets~~asset that ~~were~~was disposed of ~~related to~~as a result of the sale of the GPS test ~~which~~in August 2022. This was partially offset by amortization of the intangible ~~assets~~asset acquired as part of our ~~acquisitions~~acquisition of ~~PreventionGenetics in December 2021 and~~ OmicEra Diagnostics, GmbH in May 2022. Amortization of acquired intangible assets increased to $74.5 million for the nine months ended September 30, 2022, compared to $71.0 million for the nine months ended September 30, 2021. The increase in amortization of acquired intangible assets for the nine months ended September 30, 2022 was due to the amortization of intangible assets acquired as part of our acquisitions described above in addition to Ashion in April 2021.

Impairment of long-lived assets. Impairment of long-lived assets decreased to ~~$5.9 million and $12.5~~$0.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022, respectively,~~2023 compared to ~~$20.2~~$6.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The impairment ~~charges~~charge recorded for the three and six months ended June 30, 2023 related to building leases on certain of our domestic facilities. The intangible asset impairment charge recorded during the three and six months ended ~~September~~June 30, 2022 ~~included impairments~~related to the ~~supply agreement intangible asset acquired as part~~impairment of ~~the combination with Genomic Health, and a building lease in Redwood City, California. For the nine months ended September 30, 2022, we also recorded an impairment on~~ the acquired developed technology intangible asset acquired as part of the acquisition of Paradigm Diagnostics, Inc. (“Paradigm”). ~~The impairment charge recorded during the three and nine months ended September 30, 2021 related to the supply agreement intangible asset acquired as part of the combination with Genomic Health.~~

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~~Other operating loss.~~ Other operating loss increased to $13.2 million for the three and nine months ended September 30, 2022 compared to zero for the three and nine months ended September 30, 2021. The $13.2 million loss for the three and nine months ended September 30, 2022 represents the loss on the sale of our GPS test to MDxHealth, which is the difference between the carrying value of the asset sold as of the closing date and the consideration received from the sale. The sale of the GPS test is further discussed in Note 16 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Investment income (loss), net. For the three months ended ~~September~~June 30, ~~2022,~~2023, we had net investment ~~loss~~income of ~~$8.6~~$4.8 million compared to net investment loss of ~~$4.1~~$3.7 million for the three months ended ~~September~~June 30, ~~2021.~~2022. For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we had net investment ~~loss~~income of ~~$13.8~~$5.3 million compared to net investment ~~income~~loss of ~~$30.5~~$5.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The net investment income for the three and six months ended June 30, 2023 was primarily due to gains recorded on our marketable securities and investments in privately held companies. Net investment loss for the three and ~~nine~~six months ended ~~September~~June 30, 2022 was primarily due to losses recorded on our equity securities. ~~Net investment income for the nine months ended September 30, 2021 was primarily due to the realized gain~~

Table of $30.5 million that was recorded on our preferred stock investment in Thrive at closing in January 2021, which represented the adjustment to our historical investment to its fair value prior to our acquisition of Thrive. Our acquisition of Thrive is further described in Note 19 of our 2021 Form 10-K.Contents

Interest expense. Interest expense increased to ~~$5.2~~$7.8 million for the three months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$4.7~~$4.5 million for the three months ended ~~September~~June 30, ~~2021.~~2022. Interest expense recorded from our outstanding convertible notes totaled $6.2 million and $4.0 million during each of the three months ended ~~September~~June 30, 2023 and 2022, ~~and 2021.~~respectively. Interest expense ~~increased~~decreased to ~~$14.2~~$3.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$13.9~~$9.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. Interest expense for the six months ended June 30, 2023 was due to interest expense recorded on our outstanding convertible notes of $11.0 million offset by a net gain on settlement of convertible notes of $10.3 million. Interest expense recorded from our outstanding convertible notes totaled ~~$12.1~~$8.0 million during ~~each of~~ the ~~nine~~six months ended ~~September~~June 30, ~~2022 and 2021.~~2022. The convertible notes are further described in Note 9 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Income tax ~~benefit.~~benefit (expense). Income tax ~~benefit decreased to $3.1~~expense was $1.1 million for the three months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$3.9~~a benefit of $1.8 million for the three months ended ~~September~~June 30, ~~2021.~~2022. Income tax ~~benefit decreased to $6.9~~expense was $2.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$242.6~~a benefit of $3.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021. This decrease in~~2022. Income tax expense for the three and six months ended June 30, 2023 is primarily related to current foreign and state tax expense. The income tax benefit ~~is primarily due to an income tax benefit of $239.2 million~~ recorded during the ~~nine~~three and six months ended ~~September~~June 30, ~~2021 as a result~~2022 is primarily related to the future limitations on and expiration of ~~the change in the~~certain Federal and State deferred tax ~~asset valuation allowance resulting from the acquisition of Thrive.~~assets, offset by current foreign and state tax expense.

Liquidity and Capital Resources

Overview

We have incurred losses and negative cash flows from operations since our inception, and have historically financed our operations primarily through public offerings of our common stock and convertible debt and through revenue generated by the sale of our laboratory testing services. We expect our operating expenditures to continue to increase to support future growth of our laboratory testing services, as well as an increase in research and development and clinical trial costs to support the advancement of our pipeline products and bringing new tests to market. We expect that cash, ~~and~~ cash equivalents and marketable securities on hand at ~~September~~June 30, ~~2022,~~2023, 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 had its maturity date extended to November 2025 through an amended agreement in October 2022. 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 has issued ~~a letter~~letters of credit ~~of $2.9~~totaling $4.4 million, which ~~reduced~~reduces the amount available for cash advances under the line of credit to ~~$147.1~~$145.6 million. As of ~~September~~June 30, ~~2022,~~2023, 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~~time and is collateralized by our accounts receivables. As of ~~September~~June 30, ~~2022,~~2023, 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 Securitization Facility matures in June 2024 at which point we will need to repay the outstanding balance or refinance the Securitization Facility. Any refinancing is subject to market conditions and other factors, including evaluating other financing options available to us. If we do not refinance, we currently have the ability and resources to repay the balance in cash. 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.

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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.

Cash, Cash Equivalents and Marketable Securities

As of ~~September~~June 30, ~~2022,~~2023, we had approximately ~~$235.3~~$604.4 million in unrestricted cash and cash equivalents and approximately ~~$433.8~~$171.3 million in marketable securities.

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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.

Cash Flows


		Nine Months Ended September 30,					Six Months Ended June 30,
Amounts In millions	Amounts In millions	2022		2021		Amounts In millions	2023		2022
Net cash used in operating activities		$	(275.6)	$	(77.7)
Net cash provided by (used in) investing activities		132.2		(1,160.5)
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	$	62.2	$	(234.7)
Net cash provided by investing activities						Net cash provided by investing activities	149.4		67.2
Net cash provided by financing activities	Net cash provided by financing activities	66.4		20.7		Net cash provided by financing activities	149.6		66.1

Operating activities

The cash ~~used in~~provided by operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2022 was primarily to fund our net loss. The increase in our net loss~~2023 was primarily due to an increase in ~~expenses incurred to process our tests and~~revenue, driven by an increase in ~~operating expenses incurred to support~~ the ~~growth~~number of completed Cologuard and Oncotype tests, which reduced our ~~operations as further discussed above.~~net loss. The increase in cash ~~used~~provided by operating activities for the six months ended June 30, 2023 was also due to a decrease in certain of our operating expenses as a result of cost saving measures implemented in the second half of 2022 and timing of payments on our accounts payable and accrued expenses, including payments made during the nine months ended September 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~~cost of sales to support the increase in completed Cologuard and Oncotype tests.

Investing activities

~~Cash~~The increase in cash provided by investing activities for the ~~nine~~six months ended ~~September~~June 30, 2023 compared to the six months ended June 30, 2022 was ~~primarily~~ due to a ~~net cash inflow from~~decrease in purchases ~~sales, maturities~~ of marketable securities of ~~$275.0~~$28.5 million ~~and $25.0 million from the sale of our GPS test~~as we invested more in ~~the third quarter, which was partially offset by~~money market funds due to market conditions, a decrease in purchases of property and equipment of ~~$141.6~~$32.9 million as a result of clinical lab and warehouse expansions that were completed in 2022, and a decrease in investments in privately held companies of $26.8 million. Cash used in investing activities for the nine months ended September 30, 2021 was primarily due to a net cash outflow from purchases, sales, and maturities of marketable securities of $596.7 million, 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, our TARDIS license asset acquisition of $25.0 million, purchases of property and equipment of $76.4 million, and investments in privately held companies of $13.6$20.5 million.

Financing activities

The increase in cash provided by financing activities during the ~~nine~~six months ended ~~September~~June 30, 2023 compared to the six months ended June 30, 2022 ~~consisted~~was due to proceeds of $138.0 million from the issuance of convertible notes in the first quarter of 2023 offset by proceeds of $50.0 million from our accounts receivable securitization facility ~~$15.5 million~~ in ~~connection with our employee stock purchase plan, and $6.0 million from~~ the ~~exercise~~second quarter of stock options, which was partially offset by cash outflows of $5.1 million for other financing activities. The cash provided by financing activities for the nine months ended September 30, 2021 consisted of proceeds of $13.4 million from the exercise of stock options and $12.0 million in connection with our employee stock purchase plan, which was partially offset by $4.7 million for other financing activities.

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2022.

Material Cash Requirements

A discussion of our material cash requirements as of December 31, ~~2021~~2022 was provided in the Management’s Discussion and Analysis of Financial Condition and Results of Operation of our ~~2021~~2022 Form 10-K.

In February 2023, we entered into a privately negotiated exchange and purchase agreement with a single holder of certain of our convertible notes due in 2027 (the “2027 Notes”) and 2028 (the “2028 Notes”). We issued the holder $500.0 million aggregate principal amount of 2.0% Convertible Notes due in 2030 in exchange for $183.7 million of aggregate principal of 2027 Notes, $201.0 million of aggregate principal of 2028 Notes, and $138.0 million of cash. In addition, in March 2023 we entered into a privately negotiated exchange agreement with two holders of certain of our convertible notes due in 2025 (the “2025 Notes”). We issued the holder $73.0 million aggregate principal amount of 2.0% Convertible Notes due in 2030 (collectively, the “2030 Notes”) in exchange for $65.8 million of aggregate principal of 2025 Notes. The 2030 Notes will mature on March 1, 2030 and bear interest at a rate of 2.0% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2023. The outstanding aggregate principal of all our convertible notes was $2.34 billion as of June 30, 2023. Refer to Note 9 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further information.

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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 (“DOS Rule Investigation”) and the Federal Anti-Kickback Statute and False Claims Act qui tam lawsuit (“Qui Tam Suit”), discussed further in Note 14 to our condensed consolidated financial statements. In the second quarter of 2023, we reached an agreement in principle to settle the DOS Rule Investigation for $32.5 million. In addition we reached an agreement in principle to settle the Qui Tam Suit that contemplates the Company making a payment of $13.8 million that is subject to negotiation of final terms, approval by the parties and the execution of a definitive settlement agreement. The agreed upon settlement amounts plus legal fees for the DOS Rule Investigation and Qui Tam Suit are accrued as of June 30, 2023.

Other than the ~~Securitization Facility and Revolver maturity date extension~~matters described above, there were no material changes outside the ordinary course of our business in our specified material cash requirements during the ~~nine~~three and six months ended ~~September~~June 30, ~~2022.~~2023.

As of ~~September~~June 30, ~~2022,~~2023, we had no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. 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.

For a discussion of our critical accounting policies and estimates, refer to our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our ~~2021~~2022 Form 10-K. There have been no material changes to our critical accounting policies and estimates since our ~~2021~~2022 Form 10-K.

Recent Accounting Pronouncements

See Note 1 of our condensed consolidated financial statements for the discussion of Recent Accounting Pronouncements.

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 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, ~~2022~~2023 and December 31, ~~2021~~2022 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 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.

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As of ~~September~~June 30, ~~2022,~~2023, we had $50.0 million in outstanding variable rate debt. Based on a hypothetical 100 basis point increase in market interest rates, annual interest expense on variable rate debt as of ~~September~~June 30, ~~2022~~2023 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 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.

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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. ~~With the strengthening of the U.S. dollar against certain foreign currencies this past year, the remeasurement of our international revenues has resulted in decreased revenues.~~

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, ~~2022,~~2023, we had open foreign currency forward contracts with notional amounts of ~~$29.7~~$32.0 million. Although the impact of currency fluctuations on our financial results has been immaterial in the past, there can be no guarantee that the impact of currency fluctuations related to our international activities will not be material in the future.

Item 4. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our principal executive officer and our principal financial officer concluded that, as of ~~September~~June 30, ~~2022,~~2023, our disclosure controls and procedures were effective. Disclosure controls and procedures enable us to record, process, summarize and report information required to be included in our Exchange Act filings within the required time period. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the periodic reports filed with the SEC is accumulated and communicated to our management, including our principal executive, financial and accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There have been no significant changes in internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2022~~2023 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 our condensed consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this report, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I, “Item 1A. Risk Factors” in the ~~2021~~2022 Form 10-K and in Part II, “Item 1A. Risk Factors” in our subsequently filed Quarterly Reports on Form 10-Q. There have been no material changes to the risk factors described in the ~~2021~~2022 Form 10-K and in subsequently filed Quarterly Reports on Form 10-Q.

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

~~On July 5, 2022, we issued 2,268 shares of restricted stock to Mayo Foundation for Medical Education and Research as part of the existing services and license agreement.~~

~~On September 26, 2022, we issued 6,448 shares of common stock to XMS Capital Partners in consideration for services performed related to the Oncotype DX Genomic Prostate Score test divestiture.~~

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 behalf solicited any offer to buy or sell securities by any form of general solicitation or advertising.~~

•~~At time of the divestiture, 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.~~Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~Not applicable.~~Frequency of Future Advisory Votes on Executive Compensation

At the Company’s 2023 annual meeting of shareholders, the Company’s shareholders voted on, among other matters, a proposal regarding the frequency of future advisory votes on executive compensation. As previously reported, the Company’s Board of Directors (the “Board”) views the Company’s current practice, an annual advisory vote on executive compensation, as the most appropriate option, and a majority of the votes cast on the frequency proposal supported the Board’s recommendation to hold an advisory vote on executive compensation on an annual basis. Accordingly, the Company will continue to hold an annual advisory vote on executive compensation until the next vote on the frequency of future advisory votes on executive compensation, which is expected to occur at the Company’s annual meeting of shareholders in 2029.

Rule 10b5-1 Trading Plans

The following table describes contracts, instructions or written plans for the purchase or sale of our securities adopted or terminated by our executive officers and directors during the second quarter of 2023, each of which is intended to satisfy the affirmative defense of Rule 10b5-1(c).

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Name and Title

Action

Date

Total Shares/Dollar Value of Common Stock to be Purchased or Sold(1)

Expiration Date(2)

Total Current Share, RSU and Option Holdings

Brian Baranick, General Manager, Precision Oncology

Adoption

May 24, 2023

Sale of up to $260,000

December 31, 2024

47,312(3)

Sarah Condella, Executive Vice President, Human Resources

Adoption

May 18, 2023

(i) Sale of up to 13,000 shares, (ii) gift of $200,000, and (iii) sale of shares received upon settlement of PSU(4)

April 30, 2024

171,164(5)

Kevin Conroy, Chairman, President, and Chief Executive Officer

Adoption

May 23, 2023

Sale of up to 288,915 shares

May 14, 2024

2,070,342(6)

D. Scott Coward, Director

Adoption

May 23, 2023

Sale of up to 3,550 shares

December 31, 2024

79,984(7)

Jeffrey Elliott, Executive Vice President and Chief Financial Officer

Adoption

May 23, 2023

Sale of up to 30,210 shares

May 22, 2024

178,980(8)

______________

(1)Purchases or sales may be executed in certain cases in multiple, smaller transactions.

(2)In each case, a trading plan may also expire on such earlier date as all transactions under the trading plan are completed.

(3)As of August 1, 2023, Mr. Baranick holds, directly and indirectly, 7,668 shares of common stock and, in the aggregate, an additional 39,644 vested and unvested options to purchase shares of common stock and restricted stock units, with each restricted stock unit representing a contingent right to receive one share of common stock.

(4)With respect to item (iii), sales, if any, to consist of 100% of the shares received upon settlement of Ms. Condella’s performance stock units for the three-year performance period ending December 31, 2023.

(5)As of August 1, 2023, Ms. Condella holds, directly and indirectly, 85,739 shares of common stock and, in the aggregate, an additional 85,425 vested and unvested options to purchase shares of common stock and restricted stock units, with each restricted stock unit representing a contingent right to receive one share of common stock.

(6)As of August 1, 2023, Mr. Conroy holds, directly and indirectly, 1,300,329 shares of common stock and, in the aggregate, an additional 770,013 vested and unvested options to purchase shares of common stock and restricted stock units, with each restricted stock unit representing a contingent right to receive one share of common stock.

(7)As of August 1, 2023, Mr. Coward holds, directly and indirectly, 43,681 shares of common stock and, in the aggregate, an additional 36,303 vested and unvested options to purchase shares of common stock and restricted stock units, with each restricted stock unit representing a contingent right to receive one share of common stock.

(8)As of August 1, 2023, Mr. Elliott holds, directly and indirectly, 31,217 shares of common stock and, in the aggregate, an additional 147,763 vested and unvested options to purchase shares of common stock and restricted stock units, with each restricted stock unit representing a contingent right to receive one share of common stock.

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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

Certificate of Amendment, dated July 23, 2020, to the Sixth Amended and Restated Certificate of Incorporation of the Registrant

8-K (Exhibit 3.1)

7/24/2020

001-35092

3.3

Certificate of Amendment, dated June 9, 2023, to the Sixth Amended and Restated Certificate of Incorporation of the Registrant

8-K (Exhibit 3.1)

6/12/2023

001-35092

3.4

Seventh Amended and Restated By-Laws of the Registrant

8-K (Exhibit ~~3.1)~~3.2)

~~1/28/2022~~6/12/2023

001-35092

10.1*

~~Employment~~Amendment No. 2 to Exact Sciences Corporation 2019 Omnibus Long-Term Incentive Plan

8-K (Exhibit 10.1)

6/12/2023

001-35092

10.2*

The Registrant’s 2019 Omnibus Long-Term Incentive Plan Form Stock Option Award Agreement ~~dated September 2, 2022, by and between Brian Baranick and the Registrant~~

10.3*

The Registrant’s 2019 Omnibus Long-Term Incentive Plan Form Restricted Stock Unit Award Agreement

10.4*

The Registrant’s 2019 Omnibus Long-Term Incentive Plan Form Restricted Stock Award Agreement

10.5*

The Registrant’s 2019 Omnibus Long-Term Incentive Plan Form Deferred Stock Unit Award Agreement

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, ~~2022~~2023 filed on ~~November 3, 2022,~~August 1, 2023, 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, ~~2022,~~2023, filed with the Securities and Exchange Commission on ~~November 3, 2022,~~August 1, 2023, is formatted in Inline Extensible Business Reporting Language (“iXBRL”)

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

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SIGNATURES

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


		EXACT SCIENCES CORPORATION

Date: ~~November 3, 2022~~August 1, 2023	By:	/s/ Kevin T. Conroy
		Kevin T. Conroy
		President and Chief Executive Officer (Principal Executive Officer)

Date: ~~November 3, 2022~~August 1, 2023	By:	/s/ Jeffrey T. Elliott
		Jeffrey T. Elliott
		Executive Vice President ~~Chief Financial Officer~~ and Chief ~~Operating~~Financial Officer (Principal Financial and Accounting Officer)

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(In thousands)	Fair Value at September 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	$	173,968	$	173,968	$	—	$	—
Commercial paper	58,917		—		58,917		—
U.S. government agency securities	2,421		—		2,421		—
Restricted cash	297		297		—		—
Marketable securities
Corporate bonds	$	114,204	$	—	$	114,204	$	—
Certificates of deposit	5,500		—		5,500		—
Commercial paper	1,988		—		1,988		—
U.S. government agency securities	243,855		—		243,855		—
Asset backed securities	62,874		—		62,874		—
Equity securities (1)	5,387		5,387		—		—
Non-marketable securities	$	2,990	$	—	$	—	$	2,990
Liabilities
Contingent consideration	$	(305,925)	$	—	$	—	$	(305,925)
Total	$	366,476	$	179,652	$	489,759	$	(302,935)


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


Options	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (1)
(Aggregate intrinsic value in thousands)
Outstanding, January 1, 2022	2,284,276	$	34.65	5.5
Granted	—	—
Exercised	(643,922)	9.30
Forfeited	(52,465)	77.53
Outstanding, September 30, 2022	1,587,889	$	43.60	5.1	$	14,366
Vested and expected to vest, September 30, 2022	1,587,889	$	43.60	5.1	$	14,366
Exercisable, September 30, 2022	1,401,945	$	37.53	4.8	$	14,052