Business context and reporting period
Dexcom designs, develops and commercializes continuous glucose monitoring (CGM) systems. This unaudited Form 10-Q covers the three months ended March 31, 2024, compared with the same period in 2023. Dexcom launched G7 in 2023 and received FDA marketing clearance for Stelo in March 2024, a 15-day sensor designed for people with Type 2 diabetes who do not use insulin and the company’s first glucose biosensor that does not require a prescription.
Financial performance
Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data.
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $921.0 | $741.5 | +24% |
| Gross profit / margin | $561.9 / 61.0% | $462.6 / 62.4% | Profit +21%; margin down 1.4 percentage points |
| Operating income / margin | $101.1 / 11% | $47.2 / 6% | +114% |
| Net income | $146.4 | $48.6 | +201% |
| Diluted EPS | $0.36 | $0.12 | +$0.24 |
| Operating cash flow | $209.2 | $155.4 | +35% |
| Capital expenditures | $56.9 | $74.7 | Down $17.8 |
Revenue growth primarily reflected higher disposable-sensor sales volume as the worldwide customer base expanded; Dexcom reported adding approximately 600,000 users in 2023. U.S. and international revenue each grew 24%. Distributor sales represented 85% of revenue, compared with 83% a year earlier; direct sales were 15%, versus 17%. Disposable sensor and other revenue rose to approximately 93% of total revenue from 88%.
Gross margin declined primarily because of product and channel mix. Operating expenses increased 11% to $460.8 million: research and development rose 19% to $141.5 million, while selling, general and administrative expense rose 8% to $319.3 million. Higher interest and dividend income contributed to other income of $31.4 million, up from $17.3 million. Q1 2024 included a $13.9 million income tax benefit, versus $15.9 million of tax expense in Q1 2023; the benefit reflected discrete tax benefits, including share-based compensation and the Verily milestone payment. This tax effect materially contributed to net income growth.
Liquidity, cash flow and debt
At March 31, 2024, cash and cash equivalents were $851.2 million and short-term marketable securities were $2.046 billion, totaling approximately $2.90 billion, compared with $2.72 billion at December 31, 2023. Operating cash flow was $209.2 million. Cash flow from investing was $74.8 million, including net proceeds from marketable securities; financing provided $4.7 million.
Current assets were $4.621 billion and current liabilities $1.594 billion. The company reported a 2.90 working capital ratio and 2.43 quick ratio. Senior convertible notes had $2.458 billion of principal outstanding, with maturities in November 2025 and May 2028; their carrying value was $2.436 billion. The $200 million revolving credit facility had no borrowings and $192.4 million available after letters of credit. Dexcom reported compliance with its covenants and a debt-to-assets ratio of 0.38.
Outlook, risks and notable items
Dexcom provided no quantified revenue or earnings guidance in the filing. Management expects positive operating cash flow to continue and believes available cash, short-term investments, operating cash flow and credit availability will cover anticipated liquidity needs for at least the next 12 months. It expects significant capital spending over the next year to expand Mesa, Arizona capacity and develop manufacturing facilities and equipment in Malaysia; Ireland facility investment is anticipated over the next five years. Management also cited continued product development, international expansion and opportunities to broaden CGM use as strategic priorities. First-quarter sales are typically seasonally lower than the preceding fourth quarter because of U.S. insurance deductible resets and flexible spending account timing.
In March 2024, a jury in Abbott patent litigation found that Dexcom infringed one patent, found no infringement of two others (one of which it found invalid), and did not reach unanimity on another. It found no willful infringement and awarded no damages. Dexcom intends to challenge the infringement finding; it recorded no liability accrual, stating an unfavorable material outcome was not probable and any loss could not be reasonably estimated. Related patent disputes continue in multiple jurisdictions, and their outcomes remain uncertain.
In Q1, Dexcom issued 7.9 million treasury shares in connection with settlement of a portion of the 2023 warrants, including 6.0 million shares delivered to terminate warrants covering 10.3 million shares, and issued 1.5 million shares for a Verily sales-based milestone. These transactions, along with other warrant activity, are relevant to dilution and share-count trends. The filing reported no material changes to previously disclosed risk factors and no material changes to market-risk disclosures.
Important facts for investors to verify
- Whether revenue growth and user additions persist, including the contribution of G7, Stelo and international markets.
- How product and channel mix, manufacturing scale-up and capacity investments affect gross margin and capital expenditures.
- The sustainability of reported net income growth given the Q1 tax benefit and higher interest income.
- Convertible-note conversion, repayment and dilution exposure, plus warrant and equity issuance effects on share count.
- Developments and potential financial consequences in the Abbott litigation; no damages were awarded in the Q1 jury verdict, and the ultimate outcome is uncertain.
- Accrued rebates, which were $1.050 billion at quarter-end, and working-capital movements, including inventory growth to $589.1 million.