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DexCom Sees Narrower Q2 Loss; Revenues Top Estimates

Zacks Equity Research

DexCom, Inc. (DXCM) reported a narrower loss of $7.0 million or 10 cents per share in the second quarter of 2014 compared with $10.1 million or 14 cents in the comparable quarter of 2013. The loss was in line with the Zacks Consensus Estimate.

Dexcom, Inc - Earnings Surprise | FindTheBest

DexCom’s total revenues surged 64.2% to $58.8 million, topping the Zacks Consensus Estimate of $53.0 million. The upside was driven by a significant 63.9% rise in product revenues to $58.2 million and a 100% growth in development grant and other revenues to $0.6 million in the quarter.  

Expenses and Margins

Product gross profit spiked 81.2% to $39.5 million while product gross margin expanded 650 basis points (bps) to 67.9% in the second quarter of 2014.

Research and development (R&D) expenses rose 24.3% to $13.8 million in the quarter owing to additional payroll and consulting costs. Selling, general and administrative (SG&A) expenses went up 49.3% to $30.9 million in the quarter, driven by additional payroll costs and commissions.

Despite the increase in both R&D and SG&A expenses, operating loss narrowed to $4.8 million from the year-ago level of $9.9 million. As a result, operating (loss) margin reduced significantly by 1950 bps to 8.2% from 27.7% in the second quarter of 2013.

Financial Status

DexCom had cash and cash equivalents of $49.5 million as of Jun 30, 2014, up 14.6% from $43.2 million as of Dec 31, 2013. Total long-term debt went down 14.7% to $5.8 million from $6.8 million as of Dec 31, 2013. Consequently, the long-term-debt-to-capitalization ratio declined 200 bps to 5.5% from 7.5% as of Dec 31, 2013.

Our Take

We are encouraged by DexCom’s narrower loss in the second quarter as well as the revenue beat. However, the company needs to keep a check on its rising operating expenses mainly buoyed by additional payroll costs, consulting costs, commissions and share-based compensations.

Nevertheless, DexCom exited the quarter with an improved financial position as indicated by a higher cash balance and reduced long-term debt.

DexCom presently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the medical instruments sector include Accuray Inc. (ARAY), Alphatec Holdings, Inc. (ATEC) and RTI Surgical Inc. (RTIX). All these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on ARAY
Read the Full Research Report on DXCM
Read the Full Research Report on ATEC
Read the Full Research Report on RTIX

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