DexCom, Inc. (NASDAQ:DXCM) Q1 2024 Earnings Call Transcript

DexCom, Inc. (NASDAQ:DXCM) Q1 2024 Earnings Call Transcript April 25, 2024

DexCom, Inc. beats earnings expectations. Reported EPS is $0.32, expectations were $0.27. DexCom, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, welcome to the Dexcom First Quarter 2024 Earnings Release Conference Call. My name is Abby, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. And later, we will conduct a question-and a-answer session. [Operator instructions] As a reminder, the conference is being recorded. And I will now turn the call over to Sean Christensen, Vice President of Finance and Investor Relations. Mr. Christensen, you may begin.

Sean Christensen: Thank you, Abby, and welcome to Dexcom's first quarter 2024 earnings call. Our agenda begins with Kevin Sayer, Dexcom's Chairman, President, and CEO, who will summarize our recent highlights and ongoing strategic initiatives, followed by a financial review and outlook from Jereme Sylvain, our Chief Financial Officer. Following our prepared remarks, we will open the call up for your questions. At that time, we ask analysts to limit themselves to one question so we can provide an opportunity for everyone participating today. Please note that there are also slides available related to our first quarter 2024 performance on the Dexcom Investor Relations website on the Events and Presentations page. With that, let's review our safe harbor statement.

Some of the statements we will make in today's call may constitute forward-looking statements. These statements reflect management's intentions, beliefs, and expectations about future events, strategies, competition, products, operating plans, and performance. All forward-looking statements included in this presentation are made as of the date hereof based on information currently available to Dexcom, are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in the forward-looking statements. The factors that could cause actual results to differ materially from those expressed or implied by any of these forward-looking statements are detailed in Dexcom's annual report on Form 10-K, most recent quarterly report on Form 10-Q, and other filings with the Securities and Exchange Commission.

Except as required by law, we assume no obligation to update any such forward-looking statements after the date of this presentation or to conform these forward-looking statements to actual results. Additionally, during the call, we will discuss certain financial measures that have not been prepared in accordance with GAAP with respect to our non-GAAP and cash-based results. Unless otherwise noted, all references to financial metrics are presented on a non-GAAP basis. The presentation of this additional information should not be considered in isolation or as a substitute for results or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and the slides accompanying our first quarter earnings presentation for reconciliation of these measures to their most directly comparable GAAP financial measure.

Now, I will turn it over to Kevin.

Kevin Sayer: Thank you, Sean, thank you everyone for joining us. Today, we reported another great quarter for Dexcom, with first quarter organic revenue growth of 25%, compared to the first quarter of 2023. Demand for Dexcom CGM remains very high as customers continue to recognize and value our leading product performance and differentiated user experience. While it has only been a year since the launch of G7 in the U.S., we have seen a significant shift in the landscape over that time. We have attracted tens of thousands of new prescribers to our ecosystem, meaningfully improved our presence within primary care, and experienced growing demand from people with diabetes who are benefiting from significant expansions in coverage over the last year.

Much of this momentum can be directly attributed to our product performance and innovative features. With the launch of G7, we extended our leadership in sensor accuracy, and took a significant step forward in ease of use. We also introduced a new software ecosystem which was designed to improve our user experience, and drive high levels of customer engagement and retention. Importantly, we have continued to enhance the G7 experience with ongoing improvements to both the hardware and software platforms. In fact, we have completed software updates almost monthly since the launch of G7, introducing new features, upgrading performance and connectivity and, most recently, establishing the ability to integrate insulin data into our app. These are great examples of how our new software architecture enables much faster innovation.

We are constantly working to advance the customer experience and reinforce Dexcom as the technology leader in this space. Along those lines, we were very excited to receive clearance by the FDA for our direct-to-watch feature for G7 in the first quarter. This approval will allow our customers to use their Apple Watch as a primary display rather than connecting through their mobile phone, providing even greater flexibility in how and where they interact with their glucose data. This added to our long list of industry firsts, as G7 is the first FDA-cleared CGM that can communicate directly from sensor to watch. To enable this, we built a robust connectivity infrastructure into the design of G7. With the ability to connect to three different Bluetooth devices at the same time, our customers can simultaneously connect to a phone, a pump or receiver, and a watch.

Dexcom is the only CGM system that gives customers these options. We have received great feedback since we launched our direct-to-watch software in the U.K. and Ireland, and look forward to extending it to additional markets shortly. Features like these add to our standing as the innovator in the CGM industry, strengthening our sensor platform as global access and awareness continue to expand. As a reminder, we recently crossed the one-year mark since the landmark CMS decision to expand coverage for all people using insulin and certain non-insulin using individuals that struggle with hypoglycemia. This decision paved the way for greater commercial coverage for these populations, further strengthening our position as the most covered CGM in the U.S. It also served to broaden our conversations with payers.

While payers have long recognized Dexcom's ability to help titrate insulin, there is now a growing appreciation for our ability to drive better outcomes through behavior change and customer engagement. There is also a growing awareness of these benefits in the clinical community. With much broader coverage now available, many physicians have started incorporating Dexcom CGM earlier into their customer care plans. They recognize lifestyle management as a cornerstone of the diabetes care and metabolic health landscapes, and see CGM as a core tool to drive behavior alongside new drug therapies, like GPL-1s. To that point, in the second quarter, we will be launching a medication logging module and activity integration tool with the G7 app to help those using Dexcom CGM with these therapies.

While this has helped us significantly expand our prescriber base over the past year, we are still only scratching the surface of this sizable opportunity. There are over 200,000 primary care physicians in the U.S. who treat tens of millions of people with diabetes. There remains a clear opportunity for us to deepen our presence within this channel as we work to drive even greater care for their patients. As a result, we announced an expansion of our salesforce this past quarter. We were blow away by the level of interest and the quality of talent that we were able to attract for these roles. By the end of the first quarter, we had already completed our hiring, and trained these new reps. This team is excited to hit the ground running, and we look forward to seeing them build momentum over the course of the year.

As part of this initiative, beginning in the second quarter, we are also taking steps to optimize the structure of our sales team to be most effective with our call points across endocrinologists and primary care physicians, as well as leading practitioners in maternal fetal medicine. We expect our new team and this upgraded structure to help us better capitalize on the significant opportunities ahead. Along those lines, we hit another significant milestone in our company's history, with the FDA's clearance of our newest product, Stelo, the first glucose biosensor approved for use without a prescription in the U.S. Recognizing a significant unmet need for the 25 million people with type 2 diabetes who are not on insulin or at risk of severe hypoglycemia, we developed Stelo as a more tailored solution for this population, and work closely with the FDA to simplify access to this product.

By removing the burden of a prescription, we expect Stelo to draw broad interest from both the clinical community and directly from members of the diabetes community who want to better understand their blood sugar. In our dialogue with the FDA, it became clear that iCGM accuracy remain critically important in establishing this new sensor category, both as a safety measure and to ensure that our customers are receiving reliable, actionable information. Stelo will leverage the industry-leading accuracy of our G7 sensor hardware while providing a custom software experience to more directly meet the needs of those not taking insulin. We're on track to launch Stelo this summer as a 15-day cash pay product, and will continue to build our case with payers for broader coverage.

Stelo will be fulfilled initially via a brand-new e-commerce website, and available in one-time purchases or subscription models. We look forward to providing greater detail on Stelo features, including pricing, immediately before launch, and we'll share further updates on our go-to-market strategy and ordering process at ADA and on our second quarter earnings call. In our international business, we also advanced some key strategic initiatives this past quarter. In February, we officially launched Dexcom ONE+ into eight European markets, which is our first step in moving our entire Dexcom ONE product line into the G7 form factor. This transition brings several of the G7 technological benefits to this customer base, such as the smaller form factor, shorter warm-up time, and improved accuracy, and further simplifies the prescribing process for physicians.

Moving to a shared hardware platform also benefits our cost structure over time as it allows us to drive greater volume to our G7 lines and more quickly reach scale. We also completed our transition to a direct sales model in Japan, enabling us to begin commercial operations at the start of the second quarter. As a reminder, this is one of the only markets in the world with coverage for all people using insulin, which represents over 1 million people. Despite this, market penetration remains in its early stages, and we see a significant opportunity to drive greater uptake in Dexcom CGM share. As a result, we believe Japan can become a key growth driver for us over time as we strengthen our presence in this market in the coming quarters. This is an incredibly exciting time for us.

There will be a lot to learn with the launch of Stelo, and we are thrilled to once again pioneer the CGM industry with a new subset of users. We look forward to sharing more updates with you as we begin this journey. With that, I will turn it over to Jeremy for a review of the first quarter financials. Jeremy?

Jereme Sylvain: Thank you, Kevin. As a reminder, unless otherwise noted, the financial metrics presented today will be discussed on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release as well as on our IR website. For the first quarter of 2024, we reported worldwide revenue of $921 million, compared to $741 million for the first quarter of 2023, representing growth of 24% on a reported basis and 25% on an organic basis. As a reminder, our definition of organic revenue excludes the impact of foreign exchange in addition to our non-CGM revenue acquired or divested in the trailing 12 months. U.S. revenue totaled $653 million for the first quarter, compared to $526 million in the first quarter of 2023, representing growth of 24%.

Our recent momentum in the U.S. continued this quarter as we again benefited from the largest expansion of reimbursed coverage in our company's history. This led to another quarter of significant new customer demand in the U.S. and contributed to our record new start quarter globally. As Kevin mentioned, we are excited to build on this momentum with our expanded sales force and look forward to seeing the new team ramp up in the months ahead. International revenue grew 24%, totaling $268 million in the first quarter. International organic revenue growth was 26% for the first quarter. We executed very well across our international footprint and again took market share this quarter, benefiting from our targeted access expansion and product portfolio strategy.

We delivered a particularly strong quarter in our core European markets, which more than offset the pause in growth from Japan as we finalized its transition to direct sales. Our first quarter gross profit was $569 million or 61.8% of revenue compared to 63.4% of revenue in the first quarter of 2023. This gross margin result was in line with our expectations as G7 continues to become a larger part of our product mix. As a reminder, G7 carries a lower margin than G6 today, though we expect this to change in the coming quarters as we drive more volume through our G7 lines in the U.S. and Malaysia. Between the continued G7 demand, our pump integrations, and moving Dexcom ONE to the G7 platform, we continue to see more of our base moving to the G7 form factor.

Operating expenses were $428.9 million for Q1 of 2024 compared to $391.2 million in Q1 of 2023. This quarter was another demonstration of our ability to generate significant operating leverage as we grow. In fact, we grew our revenue at more than double the rate of operating expenses in the first quarter, resulting in more than 600 basis points of OpEx leverage compared to the first quarter of 2023. Operating income was $140.2 million, or 15.2% of revenue in the first quarter of 2024 compared to $78.6 million or 10.6% of revenue in the same quarter of 2023. Adjusted EBITDA was $220.9 million or 24% of revenue for the first quarter, compared to $145.9 million or 19.7% of revenue for the first quarter of 2023. Net income for the first quarter was $128.2 million or $0.32 per share.

We remain in a great financial position, closing the quarter with approximately $2.9 billion of cash and cash equivalents on the back of nearly doubling our free cash flow year-over-year. This provides us significant flexibility to both support our organic growth opportunities, and access any strategy uses of capital. From a capacity perspective, we remain in a great position with Malaysia quickly scaling, and we are further diversifying our footprint with the build-out of our Ireland facility. This leaves us well-positioned to support our near-term growth opportunities, including the highly anticipated launch of Stelo this summer. Turning to guidance, we are raising the midpoint of our revenue guidance with an updated range of $4.20 billion to $4.35 billion, representing organic growth of 17% to 21% for the year.

For margins, we are reaffirming our prior full-year guidance of non-GAAP gross profit margin in a range of 63% to 64%, non-GAAP operating margin of approximately 20%, and adjusted EBITDA margin of approximately 29%. With that, we can open up the call for Q&A. Sean?

Sean Christensen: Thank you, Jereme. As a reminder, we ask our audience to limit themselves to only one question at this time, and then re-enter the queue if necessary. Abby, please provide the Q&A instructions.

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