DXCM

DexCom, Inc. (DXCM)

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DexCom Inc. (DXCM)

Q3 2008 Earnings Call

November 11, 2008 4:30 pm ET

Executives

Terry Gregg - President and Chief Executive Officer

Steve Pacelli - Vice President, Corporate Affairs

Jess Roper - Vice President and Chief Financial Officer

Analysts

Bill Plovanic - Canaccord Adams

Ben Andrew - William Blair

Amy Sullivan - Piper Jaffray

Mimi Pham - JMP Securities

Sara Michelmore - Cowen & Company

Shawn Fitz - Stephens Incorporated

Presentation

Operator

Good day, everyone, and welcome to today’s DexCom [Third] Quarter Year 2008 Earnings Conference Call. Please be aware that today’s conference is being recorded.

At this time, I’d like to turn the conference over to Mr. Terry Gregg. Please go ahead.

Terry Gregg - President and Chief Executive Officer

Thank you, and welcome today to our third quarter investor conference call. Joining me today are Jess Roper, our Chief Financial Officer, and Steve Pacelli, our Senior Vice President of Corporate Affairs.

I will ask Steve to lead it off by addressing the Safe Harbor requirements.

Steve Pacelli - Vice President, Corporate Affairs

Thanks Terry. Some of the statements that we will make in today’s call may constitute forward-looking statements. These statements reflect management’s expectations about future events, operating plans, and performance, and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is detailed under risk factors and elsewhere in our annual report on Form 10-K, our quarterly reports on Form 10-Q, and our other reports filed with the SEC. We undertake no obligation to update publicly or revise these forward-looking statements for any reason. Terry?

Terry Gregg - President and Chief Executive Officer

Thanks Steve. As always we will go through a financial review by Jess. We will talk about the Edward's collaboration that we announced shortly before the start of this meeting, a commercial and reimbursement update, give a brief insight into our insulin pump partnership, a clinical and regulatory update followed by a summary and conclusions and then we will open it for Q&A. Jess?

Jess Roper - Vice President and Chief Financial Officer

Thank you, Terry. DexCom reported product revenues of $1.9 million for the third quarter of 2008 compared to $1.2 million for the same quarter in 2007, an increase of 53%. Sequentially, product revenues remain flat compared to the second quarter of 2008. During Q3, we sold approximately 777 system starter kits. Sequentially, sensor revenues were down 5% from Q2 as total kit revenues were up 5% from Q2. Total revenue for third quarter of 2008 was $1.9 million and included a small amount of development grant revenue associated with our joint development agreement with Animas Corporations entered into during Q1.

Cost of sales for the third quarter of 2008 totaled $3.8 million, compared to $3.1 million for the same quarter in 2007. The increase was primarily due to higher sales volume and approximately 260,000 in development cost of sales. The increase in product cost of sales relating to additional product sales was offset primarily by increased manufacturing absorption.

Our gross margin loss for the third quarter of 2008 was 1.9 million, which remained flat as compared to the same quarter in 2007. Research and development expense increased by $1.7 million and totaled 5.4 million for the third quarter of 2008 compared to 3.7 million for the same quarter of 2007. Major elements of increased R&D expense included additional external development costs, facilities costs, and supply cost. Sequentially R&D costs increased by about 600,000 from Q2 due primarily to additional external development cost less supplies, as we continue with our in-hospital efforts.

Selling, general and administrative expense totaled 6.2 million in Q3 of 2008 compared to $5.9 million in 2007. The increase was primarily due to increased general and administrative costs. Major components of increased SG&A expense included approximately 500,000 higher salaries, 200,000 in increased facilities cost offset by 350,000 in lower sales commissions. Sequentially, SG&A expense decreased by about 600,000 from Q2 primarily due to lower commissions and share based compensation.

Net interest expense totaled 700,000 for the quarter, compared to net interest income of approximately 120,000 for the same quarter in 2007. The increase in net interest expense was primarily due to lower average balances of our cash and marketable securities combined with lower yields earned on those balances. Our net loss increased to 14.7 million for the third quarter of 2008, compared to 11.4 million during the same quarter in 2007. The net loss for the quarter included 2.7 million in non-cash expenses centered primarily in share based compensation.

During the quarter we invested about 610,000 in capital equipment in facilities to support our business. We ended the quarter with 30 million in cash, marketable securities and restricted cash and had working capital of 22 million. Cash, marketable security and restricted cash decreased by 13 million during the quarter. Cash consumption during the quarter included our twice per year $1.5 million interest payment associated with our convertible debt.

I would like to now turn it back to our President and CEO, Terry Gregg.

Terry Gregg - President and Chief Executive Officer

Thanks Jess. This afternoon we announced (technical difficulty) I am not sure I cut you off. So let me just go back to the last area. We have previously discussed the growing clinical evidence that the close monitoring of glucose levels in critically ill patients both with and without diabetes can positively impact the patient care and outcomes from a morbidity and mortality standpoint.

Read the rest of this transcript for free on seekingalpha.com