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DexCom (DXCM -42%), which is a major supplier of continuous glucose monitoring (CGM) systems for diabetes, is trading sharply lower today following earnings last night. The company beat on Q2 EPS but revenue was a bit light. However, the outlook was more troubling with downside Q3 revenue and a big drop in FY24 revenue guidance to $4.00-4.05 bln from $4.20-4.35 bln.

While overall category demand remained strong and awareness of the value of CGM continued to accelerate, DexCom cited three near-term trends that drove results/guidance below expectations:

• As DexCom has worked through a sales force realignment expansion, it has seen its share of new customers fall short of expectations, despite still strong absolute customer additions.
• Its US revenue per customer has stepped down faster than expected based on two primary drivers: rebate eligibility and channel mix.
  • With its G7 sensor coverage emerging faster than expected, DexCom realized greater rebate eligibility relative to initial expectations and compared to 2023 levels. This enhanced G7 coverage has helped with new customer starts but the quick pace of these starts did not allow DexCom to offset the temporary impact from this rebate eligibility. DexCom expects the impact of this rebate eligibility dynamic will reach its peak in Q3.
  • On the mix side, growth in its DME channel has trailed internal expectations. DexcCom concedes it needs to refocus on those DME relationships.
• Finally, its international performance was also lighter than expectations in Q2. While it delivered a strong performance in some of its core markets (UK and France), DexCom saw category growth soften in certain geographies

The company has been performing well with eight consecutive quarters of EPS upside and typically strong revenue upside in recent quarters. However, given the size of today's drop in the share price, it's clear that the guidance was a shock for investors. The company usually provides upside or in-line guidance. This was DexCom's first guide down in two years. Peers Tandem Diabetes (TNDM -2%) and Insulet (PODD +1%) were lower in sympathy but have recovered from their lows. What is interesting is that PODD guided Q2 revs above consensus this morning. It likely wanted to get its numbers out following the DexCom news.