01—Abstract
Summary
Summary of the 10-K filed February 14, 2022. Cited figures are marked; the original filing is the authoritative source.
DexCom's FY2021 Form 10-K (filed February 14, 2022) shows a company with strong top-line momentum but a sharp decline in profitability.
Revenue rose 27% to $2.45 billiona, driven by disposable sensor volume growth across a widening worldwide customer base, and gross margin expanded to 68.6% from 66.4% on manufacturing efficiencies and economies of scale. However, operating income fell 11% to $265.8 million and net income fell 69% to $154.7 million. The decline reflects heavier spending on R&D, sales and marketing, and an $87.1 million charge tied to a regulatory milestone under the Verily collaboration.
The prior year's net income was inflated by a $285.5 millionb tax benefit from releasing a valuation allowance, so the comparison is distorted. Operating cash flow was $442.5 million, down 7%, and the company ended the year with $2.73 billion in cash and short-term marketable securities. The main risks investors should weigh are concentrated distributor exposure, pricing pressure from payors, and dependence on the G6 franchise until the G7 launches.
Four distributors each accounted for 10%c or more of revenue, and the top distributor alone represented 28%. Management flagged supply constraints at existing facilities, a new Malaysian plant still under construction, and COVID-19 disruptions to supply chains and clinical trials, including delays to the next-generation G7 program. Medicare expanded CGM coverage in December 2021, which could bring in lower-cost competitors.
Litigation with Abbott is active in multiple jurisdictions. Debt totals about $2.06 billiond in convertible notes, with the 2023 and 2025 maturities as key refinancing or conversion events. Management also noted that the company will adopt ASU 2020-06 in 2022, which will reclassify the notes entirely as liabilities.
Overall, the filing describes a company growing revenue quickly and maintaining strong liquidity. Investors will need to judge whether that growth can offset rising operating costs, the timing of the G7 launch, and the risks tied to a concentrated distribution network and a large convertible debt load.
02—Key points
Key Highlights
- Revenue grew 27% to $2,448.5 million, with disposable sensors and other revenue making up about 84% of the total, supporting a recurring-revenue model.
- Gross margin improved to 68.6% from 66.4%, reflecting manufacturing efficiencies and economies of scale.
- Operating income fell 11% to $265.8 million as R&D rose 44% and SG&A rose 31%, including $84.0 million in additional advertising and marketing spend.
- Net income declined 69% to $154.7 million, compared with $493.6 million in 2020, which benefited from a $285.5 million tax benefit from a valuation allowance release.
- An $87.1 million R&D charge was recorded for a regulatory milestone under the Verily collaboration, tied to the next-generation CGM product.
- Liquidity remained strong, with $2.73 billion in cash and short-term securities against $2.06 billion in principal of convertible notes due in 2023 and 2025.
- Revenue concentration is significant: four distributors each accounted for at least 10% of revenue, with the largest at 28%, and the company relies on single-source suppliers for key components.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, Dexcom Inc kept $0.09.
- Revenue$2.45B100.0%
- Cost of revenue−$768.0M31.4%
- Gross profit$1.68B68.6%
- Operating costs−$1.41B57.8%
- Operating income$265.8M10.9%
- Interest, other & tax−$48.9M2.0%
- Net income$216.9M8.9%
Where FY2021 revenue went
$2.45B- SG&A: $810.5M, 33% of revenue
- Cost of revenue: $768.0M, 31% of revenue
- R&D: $517.1M, 21% of revenue
- Net income: $216.9M, 8.9% of revenue
- Other operating costs: $87.1M, 3.6% of revenue
- Interest, other & tax: $48.9M, 2.0% of revenue
Kept 8.9% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 14, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $2.45B$1.93B | +27.1% |
| Cost of Revenue | $768.00M$646.60M | +18.8% |
| Gross Profit | $1.68B$1.28B | +31.3% |
| R&D Expenses | $517.10M$359.90M | +43.7% |
| SG&A Expenses | $810.50M$618.20M | +31.1% |
| Operating Expenses | $1.41B$980.60M | +44.3% |
| Operating Income | $265.80M$299.50M | −11.3% |
| Interest Expense | $18.80M$17.70M | +6.2% |
| Net Income | $216.90M$549.70M | −60.5% |
| EPS (Basic) | $0.56$1.46 | −61.6% |
| EPS (Diluted) | $0.53$1.33 | −60.2% |
| Shares Outstanding (Basic) | 386.90M377.50M | +2.5% |
| Shares Outstanding (Diluted) | 428.80M420.40M | +2.0% |
05—Questions
Frequently Asked Questions
Why did net income fall so sharply in 2021 despite strong revenue growth?
Net income fell 69% to $154.7 million mainly because 2020 included a $285.5 million tax benefit from releasing a valuation allowance on deferred tax assets. Operating income also declined 11%, as operating expenses rose 44% to $1.41 billion. The main drivers were higher R&D, a one-time $87.1 million Verily milestone charge, and increased advertising and sales force costs.
How concentrated is DexCom's revenue and distribution?
Revenue is concentrated among distributors. In 2021, Distributor A accounted for 28% of revenue, Distributor C for 21%, Distributor D for 18%, and Distributor B for 12%. Distributors represented 83% of total revenue, up from 75% in 2020. The filing notes that the loss or reduction of these relationships could materially affect results.
What are the key risks to the G6 franchise and future growth?
The filing identifies several risks: Medicare's December 2021 expansion of CGM coverage to all CGM types may bring lower-priced competitors; payors continue to push for lower prices; competitors such as Abbott's Libre and Medtronic are expanding; and the next-generation G7 launch depends on regulatory approval and has already faced COVID-related trial and supply delays. Management also noted that customers may delay purchases ahead of new product launches.
What is the company's debt position and how might it affect investors?
DexCom has $2.06 billion in principal of convertible senior notes: $850 million due December 2023 and $1.21 billion due November 2025. Conversion may be settled in cash, shares, or both. The company also has a $200 million revolving credit facility that was undrawn at year-end. Investors should watch for dilution from conversions, cash settlement requirements, and the effect of the 2022 accounting change that will treat the notes entirely as liabilities.
What operational and capacity plans does the company have?
DexCom is building a manufacturing facility in Penang, Malaysia, and expanding its Mesa, Arizona site, with significant capital spending expected over the next two years. Capital expenditures rose to $389.2 million in 2021 from $199.0 million in 2020. Management acknowledged past difficulties scaling production and said supply could still be constrained, so the pace of capacity expansion will be an important factor for future growth.
06—Continue