10-QPeriod: Q2 FY2014

DEXCOM INC Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 6, 2014For Securities:DXCM

Summary

DexCom Inc. (DXCM) reported strong revenue growth in its second quarter of 2014, primarily driven by increased sales of its G4 PLATINUM continuous glucose monitoring (CGM) system. Product revenues surged to $58.2 million, a significant increase from $35.5 million in the prior year's quarter, attributed to the successful commercial launch of the G4 PLATINUM in late 2012 and expanding market adoption. The company's gross profit also saw a substantial rise, reflecting both higher sales volume and a favorable shift in product mix towards the higher-margin G4 PLATINUM system. While research and development and selling, general, and administrative expenses increased, largely due to investments in future products and commercialization efforts, the overall financial performance indicates positive momentum. DexCom also highlighted progress in its manufacturing capabilities and its commitment to addressing regulatory requirements, including recent FDA interactions regarding reporting procedures. Financially, the company continues to invest heavily in growth, as evidenced by increased R&D and SG&A expenses. Despite an accumulated deficit, DexCom's liquidity position appears stable, with sufficient cash reserves expected to fund operations through at least mid-2015. The company's strategic focus remains on expanding its CGM market share, enhancing product offerings, and navigating the complex reimbursement landscape.

Financial Highlights

45 data points
Beta

Revenue

$58.20M

68.6% Gross Margin

Net Income

-$6.00M

-10.3% Net Margin

Total Assets

$139.70M

Cash & Equivalents

$49.50M

Free Cash Flow

$2.20M

Financial Statements
Beta
Revenue$58.20M
Cost of Revenue$18.70M
Gross Profit$39.90M
R&D Expenses$14.80M
SG&A Expenses$30.90M
Operating Expenses$45.70M
Operating Income-$5.80M
Interest Expense$200K
Net Income-$6.00M
Shares Outstanding (Basic)300.00M
Shares Outstanding (Diluted)301.20M

Key Highlights

  • 1Product revenues increased by 63.9% to $58.2 million for the three months ended June 30, 2014, compared to $35.5 million for the same period in 2013.
  • 2Gross profit increased by 81.2% to $39.5 million for the three months ended June 30, 2014, compared to $21.8 million in the prior year.
  • 3The G4 PLATINUM system, launched in late 2012, is a primary driver of increased sales volume and a more favorable product mix.
  • 4Research and development expenses increased by 33.3% to $14.8 million for the three months ended June 30, 2014, reflecting investment in future product development.
  • 5Selling, general, and administrative expenses increased by 49.3% to $30.9 million for the three months ended June 30, 2014, supporting revenue growth and commercialization efforts.
  • 6The company had $61.3 million in cash, cash equivalents, and short-term marketable securities as of June 30, 2014, with expectations of sufficient funding for operations through at least June 30, 2015.
  • 7DexCom settled patent infringement litigation with Abbott through a settlement and license agreement, including a royalty-free cross-license.

Frequently Asked Questions

The primary driver of DexCom's recent revenue growth is the increased sales volume of its G4 PLATINUM continuous glucose monitoring system, which was commercially launched in October 2012. The expanded indication for pediatric use and professional use of this system has also contributed to market penetration.

DexCom's main expenses include Research and Development (R&D) and Selling, General, and Administrative (SG&A) expenses. Both R&D and SG&A expenses increased significantly in the second quarter of 2014 compared to the prior year. R&D increased to support future product development, while SG&A rose to support revenue growth, commercialization efforts, and IT infrastructure.

As of June 30, 2014, DexCom had $61.3 million in cash, cash equivalents, and short-term marketable securities. The company expects these resources, along with projected cash from operations, to be sufficient to fund its activities through at least June 30, 2015. While DexCom has an accumulated deficit of $493.9 million, indicating it has not yet reached profitability, the strong revenue growth and improving gross margins suggest a positive operational trajectory.

Reimbursement from third-party payors remains a critical factor for DexCom's success. While seven of the largest private third-party payors have coverage policies for CGM devices, and DexCom has negotiated rates with six of them, these policies are often restrictive. The company is actively working to expand and liberalize coverage policies and notes that Medicare has not yet adopted a national coverage decision for CGM devices.