DXCM

DexCom, Inc. (DXCM)

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DexCom Inc. (DXCM)

Q2 2008 Earnings Call

August 5, 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

Tom Gunderson - Piper Jaffray

Sara Michelmore - Cowen & Company

Mimi Pham - JMP Securities

Bill Plovanic - Canaccord Adams

Steve Ogilvie - Thinkpanmure

Suraj Kalia - Sanders Morris Harris

Presentation

Operator

Good day, everyone, and welcome to today’s DexCom Second 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, sir.

Terry Gregg - President and Chief Executive Officer

Thank you, operator and thanks for joining us today for the second quarter update. Joining me today is Steve Pacelli, our Senior Vice President, Corporate Affairs, Jess Roper, Vice President, Chief Financial Officer and start off with Steve on a Safe Harbor review.

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

On the agenda today, customary order, financial review by Jess then I’ll go into the update for commercial and reimbursement and hospital partnership and insulin pump partnership, development and regulatory update, close it out with summary and conclusions and then we will have a Q&A. Jess?

Jess Roper Vice President, Chief Financial Officer

Great, thank you, Terry. DexCom reported product revenues of $1.9 million for the second quarter of 2008, compared to $863,000 for the same quarter in 2007, an increase of a 125%. Sequentially, product revenue increased by 6% in the first quarter of 2008. During Q2 we sold approximately 1,057 system starter kits. As of Q2 2008, we have upgraded approximately 600 first generation three-day customers to our second generation seven product. Sequentially, sensor revenues were up 15% from Q1. Total revenue for the second quarter of 2008 was $2 million 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 second quarter of 2008 totaled $3.4 million compared to $2.9 million for the same quarter in 2007. The increase was primarily due to higher sales volume and approximately $250,000 in development cost of sales. The increase in product cost of sales relating to additional product sales was offset by lower direct labor costs and increased manufacturing absorption.

Our gross margin loss for the second quarter of 2008 was $1.4 million compared to a loss of $2.0 in 2007. Research and development expense increased by about $800,000 and totaled $4.8 million for the second quarter of 2008 compared to $4 million in the same quarter of 2007. Major elements of R&D expense included increased facilities costs, clinical trial costs and consulting fees. Sequentially R&D costs remains flat from Q1.

Selling, general and administrative expense totaled $7.2 million in Q2 of 2008 compared to $5.5 million in 2007. The increase was primarily due to increased sales and marketing costs. Major components of the increased SG&A expense included approximately 550,000 higher share based compensation, 233,000 in increased trade show costs and 231,000 in additional sales commissions. Sequentially, SG&A expense increased by about 826,000 from Q1 due primarily to additional marketing and trade show related costs.

Net interest expense totaled 619,000 for the quarter compared to net interest income of 204,000 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 14.1 million for the second quarter of 2008 compared to a 11.3 million during the same quarter in 2007. The net loss for the quarter included 2.8 million in non-cash expenses centered primarily in share based compensation.

During the quarter we invested about 400,000 of capital equipment in facilities to support our business. We ended the quarter with 43 million in cash, marketable securities and restricted cash and had working capital of 34 million. Cash and security balances decreased by 13.3 million during the quarter. The increased consumption of cash during the quarter as compared to prior quarters was primarily due to increased sales activity and marketing cost, additional inventory and payment towards annual insurance premiums.

In anticipation of moving all of our manufacturing operations to our new facility and to meet forecasted sales we increased our inventory levels to about 2.8 million. This represented an increase of about $1 million from the prior quarter. We do not expect any significant increase in inventory in the near future.

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

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