01—Abstract
Summary
Summary of the 10-K filed February 13, 2020. Cited figures are marked; the original filing is the authoritative source.
DexCom's FY2019 10-K shows a company in a strong growth and profitability inflection.
Total revenue rose 43% to $1,476.0 milliona (from $1,031.6 million), driven mainly by disposable sensor volume growth as the G6 system gained adoption, and the company posted its first full-year net income in the period presented: $101.1 million, versus a net loss of $127.1 million in 2018. The 2018 result was distorted by a one-time $217.7 million Verily collaboration charge, so year-over-year operating income swing (from a $186.3 million loss to $142.3 million of operating income) is partly non-recurring. Gross margin compressed modestly to 63% from 64%, reflecting channel strategy shifts, product mix, and capacity expansion costs, while operating cash flow more than doubled to $314.5 million.
The balance sheet remains liquidity-rich but more leveraged. Cash, equivalents and short-term marketable securities totaled $1,533.3 millionb at year-end, against $1,250.0 million of 0.75% convertible senior notes (2022 and 2023 maturities). Interest expense rose to $60.3 million, including non-cash accretion, and the company has a $200.0 million undrawn revolving credit facility.
Distributor concentration is notable: three distributors accounted for roughly 39% of 2019 revenue, and the U.S. represented 79% of sales. Key risks investors should weigh include reimbursement and pricing pressure from private payors and consolidation, intense competition from Abbott (FreeStyle Libre) and Medtronic, ongoing patent litigation with AgaMatrix/WaveForm, manufacturing scale-up constraints, and regulatory dependence on FDA classification of the G6 as a Class II iCGM. Dilution from convertible notes is mitigated by hedge and warrant transactions tied to the 2023 notes, though warrant strikes ($198.38c) sit within the trading range the company disclosed.
02—Key points
Key Highlights
- Revenue grew 43% to $1,476.0M, with disposable sensors representing about 78% of total revenue, supporting the recurring-revenue model.
- First full-year net income in the presented period: $101.1M (EPS $1.10 diluted) versus a $127.1M net loss in 2018, which included a one-time $217.7M Verily charge.
- Operating income of $142.3M compared with a $186.3M operating loss in 2018; SG&A fell to 35% of revenue from 42%.
- Gross margin of 63% (down from 64%) reflects channel evolution, product mix, and scale-up investments in the Mesa, Arizona facility.
- Cash and short-term securities of $1,533.3M against $1,250.0M of convertible notes; $195.6M available under the undrawn revolver.
- Interest expense more than doubled to $60.3M, driven by non-cash accretion on the 2023 notes; 2022 and 2023 notes are convertible into stock and cash at holder option under certain conditions.
- Operating cash flow rose to $314.5M from $123.2M, while capital expenditures increased to $180.0M to expand manufacturing capacity.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Dexcom Inc kept $0.07.
- Revenue$1.48B100.0%
- Cost of revenue−$544.5M36.9%
- Gross profit$931.5M63.1%
- Operating costs−$789.2M53.5%
- Operating income$142.3M9.6%
- Interest, other & tax−$41.2M2.8%
- Net income$101.1M6.8%
Where FY2019 revenue went
$1.48B- Cost of revenue: $544.5M, 37% of revenue
- SG&A: $515.7M, 35% of revenue
- R&D: $273.5M, 19% of revenue
- Net income: $101.1M, 6.8% of revenue
- Interest, other & tax: $41.2M, 2.8% of revenue
Kept 6.8% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 13, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $1.48B$1.03B | +43.1% |
| Cost of Revenue | $544.50M$367.70M | +48.1% |
| Gross Profit | $931.50M$663.90M | +40.3% |
| R&D Expenses | $273.50M$199.70M | +37.0% |
| SG&A Expenses | $515.70M$432.80M | +19.2% |
| Operating Expenses | $789.20M$850.20M | −7.2% |
| Operating Income | $142.30M-$186.30M | +176.4% |
| Interest Expense | $60.30M$22.70M | +165.6% |
| Net Income | $101.10M-$127.10M | +179.5% |
| EPS (Basic) | $0.28$-0.36 | +177.1% |
| EPS (Diluted) | $0.28$-0.36 | +176.4% |
| Shares Outstanding (Basic) | 364.40M352.80M | +3.3% |
| Shares Outstanding (Diluted) | 369.20M352.80M | +4.6% |
05—Questions
Frequently Asked Questions
Is DexCom now consistently profitable, and how much of the 2019 improvement is structural?
The company reported net income of $101.1M in 2019 after losses in 2016 through 2018. Part of the year-over-year improvement is non-recurring: 2018 included a $217.7M one-time collaborative R&D charge tied to the Verily agreement. Excluding that charge, 2018 would have been a much smaller loss, so the underlying operating leverage from revenue growth (SG&A falling as a share of revenue) is the more meaningful driver to assess going forward.
What are the main balance sheet risks from the convertible notes?
DexCom has $1.25B of 0.75% convertible notes due 2022 ($400M) and 2023 ($850M). Both are convertible under certain conditions, and the 2023 notes were convertible from January 2020 as the stock price test was met in Q4 2019. Settlement can require cash, which could strain liquidity, and reclassification to current liabilities could reduce working capital if conversion conditions persist. The company holds cash and securities that exceed the notes' principal and has a call/hedge structure intended to limit dilution, but the notes remain a material obligation.
How concentrated is DexCom's distribution and reimbursement exposure?
Three distributors (Byram, Cardinal Health and AmerisourceBergen) generated approximately 12%, 17% and 10% of 2019 revenue, and the U.S. accounted for about 79% of sales. Reimbursement depends on Medicare's Therapeutic CGM classification and on contracts with the seven largest private payors, many of which impose restrictive coverage criteria. Loss of a major distributor or adverse coverage changes would have a material effect on revenue.
What competitive and litigation threats could affect growth?
Competition comes from Abbott (FreeStyle Libre flash monitoring), Medtronic (Guardian Connect and integrated pump systems), and other single-point glucose meter makers. DexCom also faces ongoing patent litigation with AgaMatrix/WaveForm, and the outcome of pending appeals is not yet estimable. Regulatory classification risk is also relevant, as the FDA could reclassify the Class II G6 device, which would increase costs and delay approvals.
06—Continue