DexCom Q2: Surprising Earnings Miss With Hints Of Competitive Pressures

Core Viewpoint - DexCom reported disappointing Q2 earnings, missing estimates by 4% on the top end while slightly exceeding EPS expectations, indicating a puzzling slowdown in U.S. sales and anemic growth in international markets [2][3] Financial Performance - Q2 total revenues grew 15% year-over-year to approximately $1 billion, marking one of the worst quarterly sales growth performances in the last decade [3][4] - U.S. market revenue grew 19% year-over-year to $732 million, while international sales decelerated to 7% year-over-year, totaling $272 million [4][5] - Operating margin expanded by 1.3% to 19.5%, with net income increasing 24% to $143.5 million, or 35 cents per share, beating market expectations [7] Sales and Distribution Challenges - The company faced issues with sales through distribution channels, with distributor-originated sales growing 16% year-over-year to $860 million, accounting for 85% of total revenues [5] - Management cited ineffective relationships with DME distribution partners as a key issue impacting sales performance [5][11] - Increased pharmacy rebates due to faster-than-expected benefits coverage expansion also contributed to the sales slowdown [5] Outlook and Guidance - The company lowered its FY24 growth expectations, now projecting only 11% growth at the midpoint of its guidance range, down from previous projections [5][9] - Management anticipates Q3 sales to be between $975 million and $1 billion, significantly below market expectations of $1.15 billion [11] - DexCom's new product, Stelo, is expected to contribute approximately 1% to total revenues for FY24, but its impact may be diminished due to the overall downgraded outlook [11] Competitive Landscape - DexCom may be losing market share, as Abbott Labs reported a 20% sales growth in their competing Freestyle Libre CGM system, contrasting DexCom's outlook [6][9] Valuation and Future Expectations - The company's adjusted operating margins are now expected to expand by approximately 4%, down from earlier expectations of 6% [9] - DexCom's forward valuation multiple is estimated to be between 28-30x, suggesting a fair value of around $70 per share, which is 34% below its recent share price [10]