A class action lawsuit was filed against DexCom, Inc. (DXCM) by Levi & Korsinsky on August 21, 2024. The plaintiffs (shareholders) alleged that they bought DXCM stock at artificially inflated prices between January 8, 2024, and July 25, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought DexCom stock during that period can click here to learn about joining the lawsuit.
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DexCom is a medical equipment manufacturer that focuses on the design, development, and commercialization of continuous glucose monitoring (CGM) systems.
The company’s tall claims about revenue expectations for Fiscal 2024, demand for its newly launched G7 CGM model, gross margin assumptions, and strategic initiatives are at the heart of the complaint.
DexCom’s Misleading Claims
According to the lawsuit, DexCom and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the Company’s sales force from SEC filings and related material.
For instance, at the beginning of the Class Period, the company issued its initial revenue guidance for full year Fiscal 2024. DexCom forecasted revenue in the range of $4.15 billion to $4.35 billion, representing an organic growth of between 16% to 21% compared to FY23.
On the same day at a Healthcare conference, the company’s CFO noted that gross margins were expected to come in better than the FY23 figures of 62% to 63%.
Furthermore, during the earnings call for Q4 FY23, the CFO noted that for FY24, the company projects non-GAAP gross profit margin to come in the range of 63% to 64%, operating margin of 20%, and adjusted EBITDA (earnings before interest tax depreciation and amortization) of about 29%. The CFO further pointed out that the gross margin guidance reflected the conversion from the G6 to the G7 CGM model.
Additionally, during the Q1 FY24 report, the CFO raised the midpoint of the revenue guidance to be between $4.20 billion to $4.35 billion. This represented an organic growth outlook of between 17% to 21% for Fiscal 2024. Further, the CFO reaffirmed the non-GAAP gross margin, operating margin, and adjusted EBITDA outlook.
However, subsequent events (discussed below) revealed that DexCom and its executives were misleading investors about the revenue growth prospects and gross margin expectations for Fiscal 2024 based on their flawed strategic initiatives.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about the company’s revenue and gross margin expectations.
The information became clear on July 25, 2024, when DexCom released its Q2 FY24 results. The company slashed its revenue guidance for FY24, citing that it was unable to meet the high standards expected from the execution of several key strategic initiatives.
Accordingly, DexCom lowered the revenue expectations to be between $4 billion and $4.05 billion (11% to 13% organic growth), while non-GAAP gross profit margin was pegged at 63%. In reaction to the news, DXCM stock plunged over 40.6% on July 26.
To conclude, DexCom allegedly misled investors about its revenue growth prospects for Fiscal 2024. Year-to-date, DXCM stock has declined nearly 46%, causing damage to shareholder returns.
