DexCom, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing; fourth-quarter results are also provided in unaudited quarterly data. Amounts are in U.S. dollars.
Business context and reporting period
DexCom develops and commercializes continuous glucose monitoring (CGM) systems. Its principal products were the G4 PLATINUM and, following FDA approval in August 2015, the G5 Mobile. Revenue is generated from durable systems and recurring disposable sensor sales. Sensors represented approximately 70% of product revenue in both 2015 and 2014.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Total revenue | $402.0 million | $259.2 million |
| Product revenue | $400.7 million | $257.1 million |
| Gross profit | $278.4 million | $176.3 million |
| Gross margin | 69.3% | 68.0% |
| Research and development expense | $137.5 million | $69.4 million |
| Selling, general and administrative expense | $198.0 million | $128.4 million |
| Operating loss | $(57.1) million | $(21.5) million |
| Net loss | $(57.6) million | $(22.4) million |
| Basic and diluted loss per share | $(0.72) | $(0.30) |
| Cash from operating activities | $49.0 million | $23.6 million |
| Capital expenditures | $33.3 million | $16.2 million |
Revenue grew 55.1%, principally from higher sensor volumes as the installed customer base expanded, plus durable-system sales to new and existing customers. Gross margin improved. Operating expenses rose substantially, reflecting investment in growth and product development; net loss widened despite stronger sales.
| Q4 2015 unaudited results | Value |
|---|---|
| Revenue | $130.8 million |
| Gross profit | $91.2 million |
| Total operating expenses | $89.6 million |
| Net income | $1.5 million |
At year-end, cash and cash equivalents were $86.1 million and short-term marketable securities were $29.1 million, totaling $115.2 million. Working capital was $164.4 million. Total liabilities were $70.8 million; debt was $2.3 million, classified as current, with no long-term debt balance. The company reported compliance with its loan covenants.
Material changes, outlook and risks
- Expenses and non-cash items: R&D increased by $68.1 million, including a $36.5 million non-cash charge for shares issued under the Verily collaboration, as well as increased staffing and development costs. SG&A increased by $69.6 million, driven by headcount, marketing and infrastructure. Share-based compensation was $82.7 million, up from $50.0 million.
- Products and partnerships: DexCom launched G4 PLATINUM with Share in early 2015 and G5 Mobile in the U.S. and certain European markets later in the year. It entered a collaboration with Verily to develop next-generation CGM products, with up to $65 million in additional milestone payments and potential royalties. The Edwards in-hospital collaboration was substantially terminated in September 2015 with mutual release of claims and no payments due; DexCom retained rights to market its interstitial CGM technology in hospitals.
- Management outlook: DexCom expected continued losses while expanding commercialization, research and development, manufacturing and corporate infrastructure. Management believed available liquidity and projected operating cash flows would fund anticipated needs through at least December 31, 2016. The filing does not provide a clear quantified revenue or earnings forecast.
- Safety notification after year-end: On February 23, 2016, DexCom notified customers of a potential failure of audible alarms and alerts on G4 PLATINUM and G5 Mobile receivers, which could prevent detection of severe high- or low-glucose events. The company was working on a solution and advised customers to test alarms every few days.
- Key business risks: CGM reimbursement remained restrictive; there was no Medicare national coverage decision. Manufacturing scale-up and reliance on single-source suppliers could constrain supply. Two distributors generated approximately 29% of 2015 revenue, and the company had ongoing losses and an accumulated deficit of $555.4 million. Competition, regulatory approvals, product reliability, and execution of development partnerships also pose risks.
- Commitments: Purchase commitments totaled $49.3 million, due within one year. Operating lease commitments totaled $31.5 million at year-end; a February 2016 sublease added approximately $14.6 million in base rent through January 2022.
Ernst & Young issued an unqualified opinion on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective as of year-end.
Most important facts for investors to verify
- Whether revenue growth, particularly recurring sensor sales, continued while operating expenses and losses were managed.
- The resolution, scope and financial or customer effects of the receiver alarm-and-alert notification.
- Whether manufacturing capacity and key suppliers can support demand without quality or delivery disruptions.
- Progress on reimbursement coverage, including any changes to Medicare or private-payor policies and customer access.
- Verily collaboration milestones, costs, dilution, product-development progress and any future royalty obligations.
- Distributor concentration, liquidity needs, debt repayment and the company’s path toward sustained profitability.