01—Abstract
Summary
Summary of the 10-K filed February 25, 2015. Cited figures are marked; the original filing is the authoritative source.
DexCom's FY2014 10-K shows a company still in early commercialization but with rapidly accelerating top-line growth.
Total revenue rose 62% to $259.2 milliona in 2014 from $160.0 million in 2013, driven primarily by product revenue of $257.1 million (up from $157.1 million) as the G4 PLATINUM system gained traction in the installed base. Gross margin expanded meaningfully, with gross profit reaching $176.3 million (68% of revenue) versus $100.1 million (63%) a year earlier, reflecting the higher-margin G4 mix relative to the SEVEN PLUS. Operating loss narrowed to $21.5 million from $28.9 million, and net loss improved to $22.4 million, or $(0.30) per share, from $29.8 million, or $(0.42) per share.
Operating cash flow turned positive at $23.6 millionb, compared with $2.4 million in 2013. The filing also highlights important risks. Operating expenses rose sharply, with SG&A up 53% to $128.4 million and R&D up 55% to $69.4 million, largely driven by share-based compensation (which totaled $50.0 million in 2014 versus $24.6 million in 2013).
Revenue concentration is significant: distributors Byram and Edgepark accounted for roughly 18%c and 11% of 2014 revenue, and two customers represented 23% and 12% of receivables. Reimbursement remains a key constraint, as Medicare has not issued a national coverage decision, and the company's products rely on private payor policies, many of which are restrictive. Manufacturing depends on several single-source suppliers, and the company received an FDA warning letter in March 2014 concerning medical device reporting administration.
The company also disclosed a settlement with Abbott, a leadership transition to Kevin Sayer as CEO effective January 1, 2015, and an upcoming Share-enabled G4 PLATINUM launch in the U.S. in Q1 2015. Liquidity is adequate but not abundant.
Cash, cash equivalents and short-term marketable securities totaled $83.6 milliond at year-end, working capital was $105.3 million, and the accumulated deficit reached $497.8 million. The company states that resources are sufficient through at least December 31, 2015, while also noting it may need additional financing beyond that horizon, and it has $15.0 million of undrawn revolver capacity under its Silicon Valley Bank and Oxford Finance loan agreement.
02—Key points
Key Highlights
- Total revenue grew 62% to $259.2 million in 2014, led by product revenue of $257.1 million, up 64% year over year, as G4 PLATINUM adoption expanded.
- Gross profit rose to $176.3 million, a 68% gross margin versus 63% in 2013, reflecting the greater mix of the higher-margin G4 PLATINUM system.
- Net loss narrowed to $22.4 million ($0.30 per share) from $29.8 million ($0.42 per share), and operating cash flow turned positive at $23.6 million.
- Operating expenses grew 53% to $197.8 million, with SG&A at $128.4 million and R&D at $69.4 million; share-based compensation nearly doubled to $50.0 million.
- Revenue and receivables are concentrated: distributors Byram (18%) and Edgepark (11%) drove 2014 revenue, and two customers accounted for 35% of receivables.
- Medicare has not issued a national coverage decision for CGM, and private payor policies are often restrictive, limiting near-term reimbursement breadth.
- Liquidity of $83.6 million in cash and short-term securities plus $15.0 million of undrawn credit supports operations through at least December 31, 2015, but an accumulated deficit of $497.8 million and continued losses leave future funding needs open.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2014, Dexcom Inc lost $0.09.
- Revenue$257.1M100.0%
- Cost of revenue−$80.8M31.4%
- Gross profit$176.3M68.6%
- Operating costs−$197.8M76.9%
- Operating income−$21.5M8.4%
- Interest, other & tax−$900,0000.4%
- Net income−$22.4M8.7%
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 25, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $257.10M$160.00M | +60.7% |
| Cost of Revenue | $82.30M$59.90M | +37.4% |
| Gross Profit | $176.30M$100.10M | +76.1% |
| R&D Expenses | $69.40M$44.80M | +54.9% |
| SG&A Expenses | $128.40M$84.20M | +52.5% |
| Operating Expenses | $197.80M$129.00M | +53.3% |
| Operating Income | -$21.50M-$28.90M | +25.6% |
| Interest Expense | $800K$900K | −11.1% |
| Net Income | -$22.40M-$29.80M | +24.8% |
| EPS (Basic) | $-0.07$-0.10 | +28.6% |
| Shares Outstanding (Basic) | 300.80M284.40M | +5.8% |
05—Questions
Frequently Asked Questions
How strong was DexCom's revenue growth and what drove it?
Total revenue increased 62% to $259.2 million in 2014 from $160.0 million in 2013. Growth came almost entirely from product revenue, which rose to $257.1 million, driven by higher sales volume of durable receivers and disposable sensors as the installed base of G4 PLATINUM users expanded. Development grant revenue declined to $2.1 million as collaboration activity wound down.
Is DexCom approaching profitability?
The company is closer but not yet profitable. The operating loss narrowed to $21.5 million from $28.9 million, and the net loss fell to $22.4 million. Gross margin improved to 68%, and operating cash flow was positive at $23.6 million. However, management states that profitability depends on revenue growth outpacing a cost base that is still expanding rapidly, and the company has an accumulated deficit of $497.8 million.
What are the main risks to investors?
Key risks include dependence on the G4 PLATINUM system for nearly all product revenue, reliance on a few distributors and customers, uncertain and restrictive third-party reimbursement with no Medicare national coverage decision, single-source suppliers, and an FDA warning letter from March 2014 regarding MDR filing. The company also faces intense competition from Medtronic, Abbott, and the large glucose meter makers, and it has a history of stock price volatility, with a 2014 closing range of $29.68 to $64.42.
Does DexCom need additional capital?
Management believes existing cash, short-term securities of $83.6 million, working capital of $105.3 million, and expected operating cash generation will meet needs through at least December 31, 2015. Beyond that, the company may need to raise equity or debt, which could be dilutive. It has $15.0 million available under its revolving credit facility, but its loan agreement contains financial covenants that restrict borrowing and dividends.
What are the near-term catalysts and leadership changes?
The G4 PLATINUM with Share, which received FDA approval on January 23, 2015, is expected to launch in the U.S. in Q1 2015 and allows up to five followers to monitor glucose data remotely. Kevin Sayer assumed the CEO role on January 1, 2015, succeeding Terrance Gregg, who became Executive Chairman. Partner milestones include Animas' Vibe system, which received FDA approval in December 2014, and Tandem's pending FDA submission for its CGM-enabled insulin pump.
06—Continue