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How DexCom More Than Doubled Wall Street's Q2 Earnings Estimate

By Keith Speights – Jul 29, 2020 at 6:03AM

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Part of the answer could be something a nearsighted bingo announcer might say: G6.

Some stocks might be struggling in 2020, but not DexCom (DXCM -0.82%). As of earlier this month, it even ranked as the best-performing stock in the S&P 500 Index so far this year.

DexCom, which makes continuous glucose monitoring (CGM) systems for diabetes management, announced its second-quarter results after the market closed on Tuesday, and there was plenty of good news for investors. Here are the highlights.

Person holding a smartphone displaying blood sugar information

Blood sugar information on a smartphone. Image source: Getty Images.

By the numbers

DexCom reported second-quarter revenue of $451.8 million. This reflected a 34% increase from the prior-year period's revenue total of $336.4 million. The consensus among Wall Street analysts projected Q2 revenue of $415.74 million.

The company announced Q2 net income of $46.3 million, or $0.48 per share, based on generally accepted accounting principles (GAAP). This represented a huge improvement from the net loss of $10.5 million, or $0.12 per share, reported in the same quarter of 2019. 

DexCom posted adjusted net income of $77.1 million, or $0.79 per share, in the second quarter. This was a big increase from adjusted earnings of $7.8 million, or $0.08 per share, in the prior-year period. It also trounced the average analyst earnings estimate of $0.35 per share.

Behind the numbers

Demand continued to be exceptionally strong for DexCom's G6 CGM system. The company attributed its success to increased "awareness of real-time CGM."

An increase in sales was only one factor behind the tremendous bottom-line improvement, though. The company's gross profit margin rose to 62.8% in Q2 from 61.4% in the prior-year period. 

DexCom also held the line on spending. Total operating expenses increased by only 4.3% year over year to $216.3 million. When operating expenses rise at a much slower rate than revenue rises, higher earnings are usually a slam dunk.

Thanks to its strong performance in the second quarter and a convertible note offering, DexCom padded its already-impressive cash stockpile. The company reported cash, cash equivalents, and short-term marketable securities of over $2.5 billion, up from $1.53 billion at the end of 2019.

Looking ahead

DexCom reinstated its full-year 2020 guidance. It projects revenue will increase 25% year over year to around $1.85 billion. The company expects its adjusted gross profit margin will be at least 65% with an adjusted operating margin of at least 14%. The margin for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) is anticipated to be 24% or higher.

The COVID-19 pandemic doesn't appear to be a concern at all for DexCom's growth. Perhaps the only question for the healthcare stock is how increased competition from Abbott Laboratories' recently approved FreeStyle Libre 2 integrated CGM system will impact G6 sales.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.

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