DexCom Misses, Sees Broader Q1 Loss - Analyst Blog

DexCom, Inc. (DXCM) reported a broader loss of $12.5 million or 17 cents per share in the first quarter of 2014 compared with $11.1 million or 16 cents in the comparable quarter of 2013 as well as the Zacks Consensus Estimate of a loss of 8 cents.

The broader loss can be attributable to a significant increase in operating expenses in the quarter, mainly on account of a substantial rise in non-cash share-based compensation.

Revenues

DexCom's total revenues surged 59.1% to $47.1 million, topping the Zacks Consensus Estimate of $44.0 million, on a handsome 68.0% rise in product revenues to $46.7 million. However, a development grant and other revenues plunged 77.8% to $0.4 million in the quarter.  

Expenses and Margins

Product gross profit nearly doubled to $29.8 million while product gross margin surged 760 basis points (bps) to 63.3% in the first quarter of 2014. The company continues to expect improvement in gross margin in the year as volumes continue to rise, mainly consumable product sales.

Operating expenses in the quarter jumped 53.6% to $42.1 million, driven by increased share-based compensation due to an uptrend in share price. Dexcom's non-cash equity related charges soared 86.8% to $9.9 million for the quarter from $5.3 million in the first quarter of 2013.

Research and development (R&D) expenses spiked 55.9% to $14.5 million in the quarter. The increase is partially attributable to a $2.1 million increase in non-cash equity related expense.

The remaining increase in R&D expenses relates to continued investment in the product pipeline, focusing upon higher accuracy, better connectivity, patient convenience and lower cost.

In the quarter, Dexcom conducted a number of clinical studies related to future technology, new sensors, new algorithms, enhance labeling, failure connectivity and general product improvements. The company has a few pending submissions with the FDA, including DexCom SHARE, the DexCom G4 system for professional use, the SweetSpot cloud-based system.

Selling, general and administrative (SG&A) expenses went up 52.5% to $27.6 million in the quarter, driven by increased headcount for commercial infrastructure. The increase in both R&D and SG&A expenses led to a broader operating loss of $12.3 million compared with $10.9 million loss in the 2013-first quarter.

Financial Status

DexCom had cash and cash equivalents of $45.7 million as of Mar 31, 2014 compared with $43.2 million as of Dec 31, 2013. Total long-term debt went down to $6.3 million from $6.8 million as of Dec 31, 2013.

Our Take

CA-based DexCom is a medical device company focused on the design, development and commercialization of continuous glucose monitoring systems. The company relies significantly on its base of recurring revenue which reflects increasing usage rate with existing patients. Thus, higher patient base will bolster top-line for DexCom.

However, we are concerned about its widening losses and disappointed about its earnings miss in the first quarter. DexCom currently retains a Zacks Rank #4 (Sell).

Some better-ranked stocks in the medical instruments sector include Delcath Systems, Inc. (DCTH), Accuray Inc. (ARAY), and Natus Medical Inc. (BABY). While Delcath Systems sports a Zacks Rank #1 (Strong Buy), both Accuray and Natus Medical carry a Zacks Rank #2 (Buy).