Operator:

Welcome to the Dexcom Second Quarter 2024 Earnings Release Conference Call. My name is Abby and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, the conference is being recorded. I will now turn the call over to Sean Christensen. You may begin.

Kevin Sayer:

Thank you, Sean, and thank you, everyone, for joining us. Before we begin discussing Q2 results, let me state that overall category demand remains strong, and awareness of the value of CGM across the metabolic health spectrum continues to accelerate. This trend was evident at the recent American Diabetes Association Conference, which featured Dexcom's largest evidence to- date in the non-insulin type 2 space. Dexcom research demonstrated significant A1C reduction in multiple studies, as well as real-world evidence showing a time and range increase of greater than four hours per day for nearly 4,000 customers using Dexcom CGM at one year. We are leveraging several pathways of evidence generation to ensure that we are maximizing our market opportunity into the future, as our CGM systems become increasingly tailored to the unique needs of each customer. Despite the positive progress on these fronts, we saw three near-term trends emerge over the course of the second quarter that drove results below our expectations. First, as we have worked through our U.S. salesforce realignment expansion, we have seen our share of new customers fall short of our expectations, despite still strong absolute customer additions. Second, our U.S. revenue per customer has stepped down faster than expected based on two primary drivers, rebate eligibility and channel mix. With G7 coverage emerging faster than expected, we realized greater rebate eligibility relative to initial expectations and compared to 2023 levels. While we believe this enhanced G7 coverage has helped facilitate new customer starts as mentioned above, the pace of these starts did not allow us to offset the temporary impact from this rebate eligibility. We expect the impact of this rebate eligibility dynamic will reach its peak in the third quarter, and Jereme will provide specific color on the Q3 expectations shortly. Beyond the transitory G7 eligibility dynamic, we also saw revenue per customer impacted by U.S. channel mix dynamics. U.S. customer growth has remained strong in our pharmacy business as we expand our reach into primary care and type 2 diabetes more broadly. However, our growth in the DME channel has trailed our plan. The DME distributors remain important partners for us in our business, and we've not executed well this quarter against these partnerships. We need to refocus on those relationships. Finally, our international performance was also lighter than expectations in the quarter. While we delivered strong performance in some of our core markets, such as the U.K. and France, we saw category growth soften in certain geographies as type 1 penetration advances in these regions. We continue to see a significant runway ahead across our international footprint, particularly as we drive greater access for people with type 2 diabetes. To account for these trends and appropriately reflect our base assumption, we've lowered our full-year revenue guidance to 11% to 13% organic growth. We have higher expectations for our business than what we experienced this quarter. We believe we have an incredible product, an incredible future pipeline, and an unparalleled market opportunity. We also have a great team capable of leading this market. But I expect more from myself and more from my team going forward. So, what are we doing to enhance our competitive position and reestablish momentum? It starts with our product portfolio, which we continue to strengthen to put our field sales team in a great position with clinicians. In the second quarter, we expanded our direct-to-Apple Watch connectivity with G7, launching in the U.S. and several additional international markets with this feature that has been among our most requested for several years. We expanded the international launch of the Dexcom ONE+ system, now reaching 18 international markets with our smaller G7 form factor for our Dexcom ONE users. We've built upon the performance of G7, making it even better. This includes a continuation of our monthly cadence of software updates, which included the second-quarter additions of medication logging and the ability to ingest activity data into our G7 app. We've introduced a stronger adhesive to support our customers into the summer months, and we expanded the G7 Bluetooth connectivity range by more than 65%. We advanced Dexcom CGM leadership in the ID space with the launches of G7 integrations with Tandem's Mobi system and Insulet's Omnipod 5. We've strengthened our existing products while preparing for the most expansive product launch in our company's history with the upcoming August launch of Stelo. We are seeing the demand for CGM build in the non-insulin space and consumer use and believe that we've created a unique and engaging system to drive people to better metabolic health outcomes. Our team has worked hard to build a scalable service model for Stelo that will be great for our customers, including the e-commerce experience, seamless delivery through Amazon fulfillment, insightful product features, digital support options, and much more to come. We'll offer both single purchase opportunities as well as discounted subscriptions that bring the monthly cost below $100. Stelo will be a full launch on stelo.com, and we continue to expect approximately 1% of revenue contribution in 2024. We are committed to personalized approaches to metabolic health management through updates like these. This is what will enable us to capture greater share and maintain high rates of retention and utilization across our customer base. We feel that our expanded U.S. sales force positions us very well to reignite our growth opportunity now and well into the future. We have the ability to dive deep into the technological leadership that Dexcom provides for diabetes specialty practices. We have also expanded our reach and ability to highlight the simplicity of our platform and how it fits into a busy primary care practice. We have the advantage of better coverage and the lowest out-of-pocket cost for the insulin population, and soon to be enhanced by the simplicity of the Stelo OTC platform. As we take significant steps to broaden our addressable market well into the future with Stelo and our expanded U.S. sales force, we are also working hard to ensure simplified access to our systems in the markets we serve. In the second quarter, our team worked with the CDC to create new ICD-10 diagnostic codes for problematic hypoglycemia. These codes, which were published in May and go into effect in October, can simplify the process of documenting hypoglycemic events that qualify non-insulin users for CGM coverage. Our international market expansion efforts also progressed into the second quarter as we received coverage in France for people with Type 2 diabetes on basal insulin and began serving these customers in June. We also transitioned to direct sales in Japan at the outset of the quarter and look forward to taking control of our commercial efforts in that crucial market. To summarize, our second quarter performance and 2024 outlook are not up to our standards, and we look forward to better capitalizing on our opportunity as we move forward. With that, I'll turn it over to Jereme

Sean Christensen:

Thank you, Jereme. As a reminder, we ask our audience to limit themselves to only one question at this time and then re-enter the queue if necessary. Abby, please provide the Q&A instructions.

Robbie Marcus:

Thanks. I have a lot more than one, but I'll keep it to one. Guidance moving down about $400 million, so I appreciate a few million here or there, but, I mean, this is such a step change in the business and the outlook and the trends. You know, medtech companies split sales forces all the time and grow them. You've done it multiple times. I'm just kind of in shock at how big of a disruption and a downward guide it is on a sales force expansion. I feel like there has to be more going on. Maybe you could give us more color into, are basal patients using it less? Are you seeing GLP-1 fears pop up and Type 2 patients not starting on therapy as much? Are you seeing, Abbott and Medtronic take a lot more share? I feel like there's just, we need more explanation for the third and fourth quarter guidance cut behind it. Thanks a lot.

Jereme Sylvain:

Yes. So to give some context to the numbers, you're right, Robbie. At the top end of guidance, about a $300 million decline. In Kevin's prepared remarks, we talked about $50 million really impacting the second quarter. Those end up playing out to be a little bit larger as you expand those over the course of the year. So to give you some context, the new patient missing Q2, which we expected to drag out into Q3 as we kind of navigate through those changes, both in the U.S. and outside the U.S. We had some new patient misses there. That's about $125 million on the year of that impact. The channel mix and really the loss of share in DME, that's a big one for us, and that's about $100 million over the course of the year. Certainly impacted Q2, but we expect it to impact the rest of the year as well, as those essentially work into full quarters. And then the rebate eligibility happened, again, quicker than we would have expected. Again, eventually you get there. It happened quicker than we expected. That's about $75 million. So we have those up. That's about the $300 million that you see. Certainly not something we're happy about, but in full transparency, we needed to make sure what we saw as we closed out the second quarter, we're transparent about what the impact is for the balance of the year.

Larry Biegelsen:

Good afternoon. Thanks for taking the question. That was a super helpful review of the issues. Maybe, Kevin, if you could go through kind of what you're doing to address each of those issues, when you think they'll be resolved. It's not clear to me, for example, losing share in the DME channel, why that's happening and how you reverse that. Just lastly, you have an LRP out there for '25. Is that still valid? Thanks for taking the question.

Jereme Sylvain:

Yes. And then maybe below the hood a little bit in terms of how we allocate the investment dollars, Larry. We are reprioritizing and reallocating investments to where we know that it ultimately drives the most bang. So the team is working on that diligently in terms of refocusing where those dollars and those efforts go. So not given the specifics, just given the competitive nature of it, but rest assured there are changes being made underlying the business to ensure that we get back on top of our new patients.

Jeff Johnson:

Thank you. Good afternoon, guys. Kevin, maybe following up on your DME comments, you say you need to maybe work on some relationships there. Any color you can give there, and not to air dirty laundry, but I guess in one of our DME checks here recently, we kind of won off the conversation, but it heard that, maybe some of the comments you made about CMS changes and who would bear the brunt of any kind of reimbursement change in 2026 or 2027 would maybe be borne more by DME than you guys. Is it things like that that kind of strain some relationships? What else might have strained relationships? And have there been any kind of formulary changes or anything in DME where they have just wholeheartedly moved patients to Abbott, and it's going to be harder for you to get those patients back going forward? Thank you.

Jereme Sylvain:

No, that's it. And, Jeff, to your comment on if there's any CMS changes in terms of reimbursement down there, we certainly did not say that. I think that was maybe a competitor that said that. What we had said was we're partners, and so if there's any changes in CMS reimbursement as partners, we would look at it as partners. And that would be our expectation going forward. So that was not how we positioned it. But nevertheless, to the extent that those have caused frayed relationships, as Kevin alluded to, we would pay more attention to it irrespective.

Margaret Andrew:

I guess I just wanted to follow up and be clear on the dynamics on the guidance increase. The way you describe it maybe wasn't super clear, at least for me. Are you assuming and continuing to assume lower new patient ads for the rest of the year? Or was that kind of new patient missing Q2 alone driving $125 million of decrease for the year? And then, continuing on that thread, are you seeing any change in some of those new patient ad dynamics or rep productivity on a month-by-month basis that would maybe give you that confidence in recovery? If that is what you're assuming. Thanks.

Kevin Sayer:

No, I think that's good.

Travis Steed:

I guess maybe could you just kind of explain what is the rebate eligibility, what it is, what it means, kind of why it's temporary, why it happened? I think a lot of confusion on that aspect. And I don't know if something happened kind of late in the quarter. It was like you guys, I think, were comfortable with the consensus in June. So I just wanted to ask, does this all kind of come up late in the quarter?

Operator:

Your next question comes from the line of Matt Taylor with Jefferies. Your line is open.

Kevin Sayer:

Yes, I'll start. And again, Jereme, you can add more color. With respect to the rebates, this really caps in Q3. We'd estimated in our own models that we would have full rebate eligibility by the fourth quarter of this year. It just happened, again, a couple of quarters faster than we had planned. With respect to our field sales team and the disruption there, we believe we'll work through that in Q3 and early Q4. And by the time we start 2025, this group should be clicking on all cylinders. And things should go very well there. Another thing that Jereme talked about is reallocation and really examining where we're going to spend the dollars that we spend and the investments we're going to make to maximize the commercial effect of those. Those programs and those decisions are being made now. We'll roll into Q3 and into Q4. And we believe it'll set us up nicely for 2025. We're obviously not given 2025 guidance today. But we feel by the end of the year, the things that we've talked about today, we should have worked through, and we should have a very good idea as to where we're going in the future.

Operator:

Your next question comes from the line of Danielle Antalffy of UBS. Your line is open.

Kevin Sayer:

No, it made perfect sense to me. With respect to our overall pricing, our pricing within channels, when you look at the prices, remains relatively consistent. What has happened in this quarter and what has happened now is more and more people have become eligible for rebates, hence bringing our value per customer down. This was the price that we assumed we would be targeting at the end of the fourth quarter, and we'd be rolling into '25 with. In other periods, we haven't had anything as severe as we have today, obviously, but our new patient growth number would be so high and our volumes would be so high. If something like this happened, we grew through it. And so if a plan like this accelerated, our new patient numbers are so big, Danielle, that we managed through it. In this quarter, you combine the two of them, the increase in the rebates, which gets, again, to a net price very near what we'd expected and modeled. That doesn't mean the bottom of the price is falling out on an overall basis in the channel. It just means more people were subject to rebates than we had before, and we shifted patients from a more profitable DME channel over to that pharmacy. Through some, again, as I talked earlier, the three largest Medicare Advantage plans adopted pharmacy coverage this year. A lot of the Medicaid plans have gone to pharmacy coverage as well. So those plans moving there, necessitated a bit of that move and a bit of those rebates going up. So no, we don't believe we have a price falling out. We believe what we do continues to provide tremendous value to people and does a lot to improve health, save their lives, and all the things we've talked about forever. So this is still a very valuable component in somebody's health, and we'll continue to treat it as such.

Joanne Wuensch:

I'm going to pivot a little bit to Stelo. It was 1% of your '24 revenue at one level, and it's still 1% of your '24 revenue, which has been lowered by a couple hundred million. Does this indicate a change in your expectations for the year or anything that we should read into it? I'm just sort of a little curious about that and anything else that you can share as you think about that as building revenue. Thanks.

Operator:

Your next question comes from the line of Matthew O'Brien with Piper Sandler. Your line is open.

Jereme Sylvain:

Sure. Maybe I can start with maybe the next year question. I don't think we've necessarily guided to a number. What we really tried to do is say, here's our LRP. It's still in play. And when I say to the lower end, it's not necessarily the low end or a point estimate within there. It's really to give some context to, as we've already made plans and are looking at next year, we have some, there's confidence in meeting that low end number. And so really, that's really what the goal here is, rather than to set a guide number. Now, your question then coming back to, which is this year's growth, which the organic growth number, obviously 11% to 13% is lower than we've historically seen. Kevin's alluded to it a little bit in the script. This year, a little bit of what I would say is execution, where I think we need to execute better on new patients and execute better in various channels. And so that's something as a team, we have to get our arms around. This year was impacted by a quicker, as we mentioned, a quicker rebate dynamic than we expected. And that's a part of it. Obviously, we lapped that next year. And you can only rebate 100% of your units. So obviously, it stops at some point. And so that piece of it will be transitory. But I think the big key then is getting back to execution and execution on new patients and executing in the DME channel and making sure we have good partnerships there and executing on our channel mix. So that's really the work we have to do. And back to that point, that's one of the reasons we had a little bit of a lapse here. And to the extent that we can get back to it, that allows us to get back to what we hope is what our traditional performance has been.

Sam Eiber:

Hey, good afternoon. This is Sam on for Marie. Thanks for taking the questions here. Maybe I can ask on the DME channel. I recall when you guys were making that shift a few years ago, that volume mix would peak around 20%. I guess is the right way to think about it, closer to 15% now. And then as we think about more M.A. plans shifting to pharmacy, I mean, is there any risk that that could go even lower? Thanks for taking the questions.

Kevin Sayer:

I'd also add, though, there has been a shift in government payer activity from the DME channel to the pharmacy. That actually has happened. And we have to figure out how much that has impacted, our DME mix versus pharmacy mix as well.

Mathew Blackman:

Jeremy, I think I heard you mention that the new patient shortfall was something in the neighborhood of 70,000. Is there any way to tease that out? I'm sure it's challenging by indication. I mean, the DME share, while it sounds like it may be skewed more to basal patients, potentially, is that fair? And then what about on the sales force dislocation? Just any help on sort of the different pieces of the business?

Operator:

Your next question comes from the line of Jason Bedford with Raymond James. Your line is open.

Kevin Sayer:

Yes. This is Kevin. The Stelo guidance, the Q3 contribution is not overly large. Most of the Stelo revenue is fourth quarter weighted as we, again, plan to launch Stelo in later August. So that's how that one works. With respect to attrition, our retention and attrition by patient category remains similar to what we had in our plans. We know that our Type 1 patient with an automated insulin delivery system is certainly our stickiest and patient with the highest utilization factors as we go down the acuity curve to people on MDI or basal users or even those who are non-insulin users. Utilization goes down, but our retention numbers are still industry standard by a very large margin. And so we're still doing very well there.

Steve Lichtman:

Guys, I wanted to ask again about the sales force integration and just where you are today. Are you seeing signs of stabilization now? And what are you assuming on that front for the guide? And then can you remind us what opportunities you see with this larger sales force that obviously can turn this into a positive ultimately?

Operator:

Your next question comes from the line of Mike Polark with Wolf Research. Your line is open.

Jereme Sylvain:

Yes, if anything, usually you have these challenges when you launch a product given inventory levels of the old and inventory levels of the new. In all fairness to our partners last year, they did a pretty good job of balancing G6 and G7 inventory levels as they went through their transition. So we didn't have a whole lot in the prior year. This year it's pretty normal and we have inventory levels that generally range in between pretty normal levels. We keep an eye on what's in the channel and they always stay within this really relatively tight band, and we keep it in that band intentionally. And so we've been in that band now and we generally stay in that band. I don't recall a time we've been outside of that band, quite frankly. And so nothing to call out specifically. The bigger issue, and I get what you're getting at, the bigger issue would have been say last year during a window when you had a launch of G7, and folks were gearing up given not sure how much demand would come in. We didn't really have that last year. And again, kudos to everybody that was holding inventory. They did a nice job.

Shagun Singh:

Just to follow up on the sales force disruption here, you said it was more disruptive than historically because you changed roles. So can you elaborate on that? And then you talked about physicians, changed physicians people are calling on. So is this, are you referring to the PCP channel? And then you also refer to longer time to productivity. Can you give us a sense of how long does it take to get fully productive? It sounds like about two quarters or so because you said you expect them to be fully productive getting into 2025. So is that the case? And then just finally, can you give us an update on the extended wear? Thank you.

Operator:

Your next question comes from the line of Bill Plovanic with Canaccord Genuity. Your line is open.

Jereme Sylvain:

Yes. It's a good question. In the U.S., we don't think so. There's still quite a bit of one way and we're still seeing the growth patterns relatively steady there. If you look at the overall total market growth in the second quarter, I think what you can see is, if you add up all the various players, it's still a very robust growth. I think in our case, certainly in the DME channel, it was a share loss. And I think we just held our own in the retail channel this quarter. And so I don't necessarily know that I would say that. I think it's more about us getting in charge of really our go-to-market and making sure with our leading technology, we're getting our fair share there. As you zoom outside the U.S., as Kevin alluded to a little bit in his script, outside the U.S., it's really chunks of coverage and chunks of approval. And while we got a bit of a chunk here in France, Basel, there are some chunks we are waiting on. And so, it can slow a bit as an overall market. I think you see it when you compare, when you combine results globally, there is a bit of a slowdown outside the U.S. We don't think that it's a long-term issue because as chunks of approvals come in, you find that there's still certainly pent up demand. So really it's about coverage. And we are working on coverage in various different areas, both Type 2 intensive, certainly in Basel. And there's even some countries where we're still working on Type 1 coverage in some of the more emerging markets. So maybe outside the U.S. you see a temporal slowdown, but not in the U.S. I think the US is still a very robust market. We're still seeing Basel grow at the same rates that we expected as a total category. Still seeing the intensive insulin categories still growing well. And obviously with, non-insulin opportunities with Stelo and the OTC products, I think it's a market that can continue to grow for some time.

Operator:

Your next question comes from the line of Chris Pasquale with Nephron. Your line is open.

Jereme Sylvain:

Yes. So in terms of your rebate dynamic, I think we talked about it coming faster because it's come faster, certainly here in the Q2 and to a lesser extent in Q1. You'll lap it pretty darn early next year. So we're going to lap it pretty darn quick. Obviously, it's going to impact us at a more acute number. We expected it to be gradual over the course of this year into next year, which still would have been faster than G6. So to that point, it does it does help for next year's comps because we will lap it pretty darn quick. In terms of the question on OUS, one of the things we've done historically there is it's a market where we've taken share and obviously it's been growing. In this quarter, I would say we didn't take share and that's the best part of it. The other part then is in the chunks. And so there's two opportunities there. Certainly there's chunks of reimbursement, which would help accelerate it. But our expectation with the product launches we've had and the quality of product that we have is to take share. And so I think there's two opportunities. One's within our control, which is taking share. And then the other is within the industry's control, which is coverage. And we're going to execute on that, which we can control and certainly aid in helping the industry coverage as well.

Matt Miksic:

So there's a couple of things that I think investors are trying to pin down here and understand, given the announcement and the display changing trajectory here in the back half. The first is around the channel mix, indication mix, and their impact on pricing, maybe given that you're building out a field force that's growing into areas where you haven't traditionally called, as you talked about, potentially maybe the margin impact of that. But is that something where channel mixes and these pricing factors have sort of set off on a new trajectory that we now have to think about an equation of patient growth and price mix. What does that translate into growth over the next couple of years? Should we be thinking differently about that? And then I guess the other, just to cross it off the list, it doesn't sound like it's a factor is, it's just around competition. Is there any shift, given the places where you're going into new accounts and the PCP channel or elsewhere? Are you feeling like you're breaking into slightly tougher competitive challenges? It doesn't sound like it, but just if you could cross that off the list and provide any color on the first, that'd be terrific.

Operator:

This concludes the question-and-answer session. I will turn the call to Kevin Sayer for closing remarks.

Operator:

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect. Speakers, please stand by for your debrief.

Operator:

Ladies and gentlemen, welcome to the Dexcom First Quarter 2024 Earnings Release Conference Call. My name is Abby, and I will be your operator for today's call. [Operator Instructions]

Sean Christensen:

Thank you, Abby, and welcome to Dexcom's First Quarter 2024 Earnings Call. Our agenda begins with Kevin Sayer, Dexcom's Chairman, President and CEO, who will summarize our recent highlights and ongoing strategic initiatives, followed by a financial review and outlook from Jereme Sylvain, our Chief Financial Officer. Following our prepared remarks, we will open the call up for your questions.

Kevin Sayer:

Thank you, Sean, and thank you, everyone, for joining us. Today, we reported another great quarter for Dexcom with first quarter organic revenue growth of 25% compared to the first quarter of 2023. Demand for Dexcom CGM remains very high as customers continue to recognize and value our leading product performance and differentiated user experience.

Operator:

[Operator Instructions] And we will take our first question from Danielle Antalffy with UBS.

Kevin Sayer:

Well, thank you for the question. And it's been every bit as exciting for us as has been -- as you can imagine, Danielle, we have had more media impressions and inquiries and buzz about Stelo from the outside than really anything we've ever done. It's been spectacular. We're very excited for it.

Jereme Sylvain:

Yes. You asked the question about the sales force. And Kevin certainly pointed to Stelo as a big part of the sales force and expanding the TAM. And so one of the reasons to expand is exactly, as Kevin said, there's a massive opportunity there. However, there's also a massive opportunity in our existing markets. G7 is a wonderful product. G6 is a wonderful product. There's coverage continuing to expand as well in those categories. And so expanding the sales force also allows us to cover more in that category.

Operator:

And we will take our next question from Robbie Marcus with JPMorgan.

Jereme Sylvain:

Yes. Sure, Robbie. Thanks for the question. The way to think about gross margin and is that of course over the course of the year, we talked -- when we set guidance that this was going to look a little bit like a more typical year. And in a more typical year, you generally see 300 to 400 basis points of expansion over the course of the year. And that's what I'd expect to see over the course of this year.

Operator:

We will take our next question from Larry Biegelsen with Wells Fargo.

Kevin Sayer:

I'll start with the end and go back to the website. That product is labeled for people not on insulin. It's not necessarily labeled just for people with diabetes. We designed the experience to focus more on those with type 2 diabetes because we believe there's a very, very strong unmet need and a product tailored to that solution, we think can do very well.

Jereme Sylvain:

Yes. And then to your question on utilization, Larry. It's going to be a little bit of everything. I think there's going to be some users that do use it full time. I think some folks will use it intermittently. That's based on our market research. Our market research is basically has -- for the most part, indicated, once folks are on this product, they want to use it. And I think we've run studies where there was a high either utilization while in study and a high request to continue utilization post study. That all being said, as we think about modeling, we want to make sure we're prudent in doing so. And so we have a variety of utilization patterns that we'll ultimately put out there.

Operator:

We will take our next question from Joanne Wuensch with Citibank.

Kevin Sayer:

Yes. First of all, there won't be any G6 15-day. We're not going to spend any more money on G6. I can assure you of that. One of the reasons we're launching Stelo with 15 days and our current G7 platform is to learn its performance in this type of environment. As we've talked earlier, we have a level of performance reliability and expectations of our customers. We wanted to make sure we delivered those, and we felt more comfortable at 10 days to start.

Operator:

We will take our next question from Jeff Johnson with Baird.

Kevin Sayer:

Yes. So, I take that one. Thanks, Jeff. I think when we talked about what we expected this year, we really talked about it in the context of basal adoption across the entire population. And we talked about exiting the year right around that 15% adoption across the basal population in the U.S. and the year moving over the course of the year to 23%. So about 8 points of penetration.

Operator:

And we will take our next question from Jayson Bedford with Raymond James.

Kevin Sayer:

No, we have full FDA approval for launch. It has been our experience over time at Dexcom. When we get a very rapid approval, we tend to become very impatient and we launch very quickly. And we've -- from time to time, actually put ourselves in a bind by going out as quickly as we have. We had a launch plan for this product anticipating an FDA approval when it was going to come, and we're going to stick to the launch plan that we have.

Operator:

We will take our next question from Margaret Andrew with William Blair.

Kevin Sayer:

Well, we haven't anybody reached out to buy it because we haven't offered it for sale, but we certainly have a lot of inquiries. And again, as you go to media impressions, articles, interviews and solicit things like that Stelo has been the biggest offering that we've had as far as news. And as our reps walk into primary care doctor offices, I just spent a bunch of time with several of our field team members. That's the question in the minute they walk in the door, when am I going to see Stelo.

Jereme Sylvain:

Yes. And Margaret, this is one of the reasons why when we -- last year, we think we talked a little bit about this, is we introduced a cash pay option on our G-Series. One of the reasons in doing so is, as Kevin alluded to, really across the spectrum of managing your diabetes. There's been more interest. And so those plans that do have pockets that do cover everybody with diabetes and the cash pay option have -- there has been some uptake there, certainly not a majority of our uptake and certainly not the materiality of our customer base, but the interest is there.

Operator:

We will take our next question from Matt Taylor with Jefferies.

Jereme Sylvain:

Yes. So it's a fair question. There are some plans out there that actually do cover really all folks with diabetes -- it's not a majority of plans, but these plans have seen early on the value of CGM as a lifestyle change, a preventative tool and something that ultimately yields results back to the system. And it's the same economics we've talked to you about before. And so some plans have done that. Again, it's not the majority.

Operator:

We will take our next question from Mathew Blackman with Stifel.

Kevin Sayer:

Yes.

Jereme Sylvain:

Yes. So it's -- here's my expectations. The way we're tracking, and again, it's going to depend on how things play out over the course of the year. But we are tracking to a point where G7 as a percentage of our overall sales will eventually move ahead of G6. And I expect that here over the coming quarters in 2024. So that is moving.

Operator:

And we will take our next question from Shagun Singh with RBC.

Kevin Sayer:

Stelo pricing, I'll start with, and then Jereme can jump into the other. Stelo pricing is going to be competitive. We've got a number of models we're considering. We said we'd bring you more information on that on the next call at ADA and that's when you'll hear more of it. But we'll be very competitive with other cash offerings when we launch Stelo.

Matthew O'Brien:

Jereme, it sounds like you have a little bit of a cold, so hope you feel better. When I look at the stock in the aftermarket, it's down about 8%. You just had your easiest top of the quarter -- or of the year, sorry. And then the rest of the year just assumes a pretty nice acceleration throughout the course of the year off of tougher comps. Even when you do it on a 2 year stack basis, it's still more than you just put up in Q1. I know Japan is going to be a little bit of a tailwind. You've got a broader sales force now, but those guys take time to kick in.

Jereme Sylvain:

Yes, sure. I'm happy to provide that, Matt, and thanks for the wishes on the cold. I was trying to impress you with my deep voice, I guess that didn't work. In terms of how the confidence on the year. One of the things that, as we go into a quarter, we try to set a base case. And the base case has risking around things like competitors, things like adoption in the basal base, things like what we would do in terms of channel mix and pricing internationally expansion. And while we said Japan was going to launch, you have to be mindful of that, talking about basal coverage and adoption outside the U.S.

Marie Thibault:

I wanted to ask a question here on Japan. It certainly sounds like you have really broad favorable coverage for all people with using insulin. So I want to understand where was penetration into that market with your distributor partner and what have been the barriers? What have really been the hurdles? And what are you going to do to -- try to attack those?

Operator:

And we will take our next question from Bill Plovanic with Canaccord Genuity.

Jereme Sylvain:

Yes, it's a question we've asked ourselves quite a bit. So I'm happy to give you our thoughts on it. From G6 to G7, we've seen a relatively consistent rate. There hasn't been much of a change in terms of retention utilization across those 2 products. And that's as expected as we upgrade folks from one to the other. Obviously, we think the G7 experience is wonderful, but so is the G6 experience, and we pride ourselves on the experiences that we offer. So that's been relatively consistent.

Operator:

And we will take our next question from Michael Polark with Wolfe Research.

Kevin Sayer:

Yes. As we look out over what we need to accomplish and where we needed more emphasis in the field, there are a couple of things happen. Number one, we realized as we had our reps who are calling on high prescribers also calling on a number of people who weren't prescribers are doing a bunch of -- going and finding new prescribers that we may not be paying enough attention to our high prescribers. And so as we've set things up, we do have a set of folks who spend more time in the endocrinology and high-prescribing diabetologists world than with primary care.

Operator:

We will take our next question from Steve Lichtman with Oppenheimer.

Kevin Sayer:

Yes. And thanks for the question. You're right. It's a big opportunity for us, but it is one that has taken a little bit more time. Obviously, the focus is on basal with a known quantity, but the hypoglycemia unawareness or the severe hypoglycemia event, I should say, those are harder to educate folks. And so to your point, One of the things that we've done and Teri and her team have really focused on is really creating the educational materials and then arming the sales force accordingly to get out there.

Joshua Jennings:

Kevin, you mentioned that you'll have numerous iterations of Stelo over the course of the first 24 months of launch. And I wanted to just see if there's any other color you can provide on those iterations and the mostly are going to be on the software side? Or is one of the iterations going to be an increase in the rate of sensors lasting the full 15 days? And how important is that expansion to the success of Stelo.

Operator:

And we will take our next question from Matt Miksic with Barclays.

Jereme Sylvain:

Yes. We think about resource allocation. There's obviously a combination of resources, which is what Kevin referred to as supply. And that's absolutely something we have the capacity to go after it. But in terms of resource allocation, then on the support, right?

Michael Kratky:

How are you thinking about the possibility of seeing additional pricing pressure for G7 as one of your competitors start to [ seeing ] AID integration, which has historically been part of your value proposition for payers.

Operator:

And there are no further questions at this time. I will now turn the call back to Mr. Kevin Sayer for closing remarks.

Operator:

Ladies and gentlemen, welcome to the Dexcom Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. My name is Abby and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and a-answer session. [Operator instructions] As a reminder, the conference is being recorded. I will now turn the call over to Sean Christensen, Vice President of Finance and Investor Relations. You may begin.

Kevin Sayer:

Thank you, Sean, and thank you everyone for joining us. 2023 was an incredible year for Dexcom, and I'd like to start by reviewing some of our key accomplishments. Total revenue grew by 24% on an organic basis, driven by another year of record customer starts. This translates into more than $700 million of organic revenue growth compared to last year as we built strong commercial momentum through recent coverage expansion and the performance of Dexcom's CGM systems. In 2023, we added over 600, 000 Dexcom users to our base and ended the year with approximately 2.3 million customers globally. Importantly, we delivered this level of growth again while enhancing scale and efficiency of our operations. The key milestone here was the opening of our Malaysia manufacturing facility around mid-year. Production at this site is ramping quickly, and the team is already delivering yields on par with our more established US facilities. This facility will help support our growth and cost ambitions for years to come. As a measure of our success for 2023, we not only generated $1 billion in Q4 revenue, we also delivered $1 billion in adjusted EBITDA for the year and generated record levels of free cash flow, which is up nearly 70% compared to 2022. By establishing a disciplined cost culture that focuses years in advance, we are striking the right balance of margin progression while still investing strategically in pathways to support our significant growth opportunities. From a strategic perspective, 2023 will go down as one of the most transformational years in our company's history. We launched G7 and Dexcom 1 into multiple new markets, significantly expanding our global access and advancing key technical and clinical work that will provide the foundation for the future of Dexcom. This started with the rollout of G7 in the US in February. G7 is the most accurate CGM ever launched, and the market's reception to G7 has been exceptional. Customers and clinicians have been thrilled with the new form factor, product performance, and ease of use, and payers wasted no time establishing coverage as they recognized the clear value proposition that G7 provides. We immediately started to see a change in prescribing patterns once this product reached the market, and this trend became even more pronounced as we completed the largest expansion of coverage in our company's history. In mid-April, Medicare coverage went live for people with type 2 diabetes using basal insulin only, as well as certain non-insulin using individuals with hypoglycemia risk. Between this decision and the broad commercial coverage that quickly followed for the basal markets, we have effectively doubled our reimbursed population in the US. This has completely changed the market landscape in the US. With broader coverage available and a new product that greatly simplifies the prescribing process, we have attracted a sizable new cohort of clinicians to our ecosystem. In fact, in 2023, we expanded our prescriber base by approximately 40%. And we're not stopping there. We have always known that the primary care channel would become increasingly important as our business evolves. Much of the work our commercial team has done in recent years has been tailored to this market. And we are now seeing the direct result of that effort as more than 70% of our new scripts are being written by primary care physicians. These relationships are not only critical to help us reach the millions of insulin-using individuals who have not yet started on CGM, but also the tens of millions with broader type 2 diabetes, pre-diabetes, and beyond. Based on the success of our team in 2023 and the magnitude of these future opportunities, we are excited to continue our investment in our U.S. salesforce this year. When we have a presence with prescribers, we win. Now it is up to us to continue to expand that prescriber pool. We are already seeing more clinicians want to incorporate Dexcom CGM earlier into patients' care plans as they recognize our unique ability to drive behavior change, sustainable outcomes, and greater accountability. This is why we are thrilled to be introducing our newest product, Stelo, later this summer. Stelo will be the first CGM designed specifically for people with type 2 diabetes who are not on insulin. Leveraging our leading sensor platform, we have built a custom software experience that is tailored to the needs of this population. Stelo will feature a 15-day wear time and launch as a cash paid product while we build our case with payers for broader coverage. With several trials currently underway, we will continue to add to the growing body of evidence demonstrating Dexcom's unique ability to drive greater health and economic outcomes for all people with diabetes. The launch of Stelo also presents a great opportunity to bolster our evidence with a large collection of real world data as we see the impact this product is having on our customers. We filed Stelo with the FDA in the fourth quarter of 2023, leaving us well on track for our highly anticipated launch this summer. As our product portfolio continues to grow, it provides a greater glimpse into the future potential of our company. We have built a platform technology that we can customize to provide creative solutions for different populations. Our redesigned software infrastructure is a key component to this as it enables much quicker iteration and greater connectivity. Connectivity has always been a distinct advantage for Dexcom and with our recent filing of direct to watch with the FDA and new G7 pump integrations, we are further advancing this leadership position. We will also continue innovating on our hardware technology with our current efforts focused on launching an extended wear sensor across all of our product offerings. As we look at this significant opportunity ahead of us, we are as excited as we've ever been. As I said at our Investor Day this past summer, we are just getting started. With that, I will now turn it over to Jereme for a view of the fourth quarter financials. Jereme?

Kevin Sayer:

Thanks, Jereme. I would now like to open up the call for Q &A. Sean?

Operator:

[Operator Instructions] And we will take our first question from Robbie Marcus with JPMorgan.

Kevin Sayer:

Thanks, Robbie. This is Kevin. I'll take the 15-day sensor timing, and then Jereme can talk about the numbers and the effect on operating margins going forward. As we said earlier this year, we're in the middle of clinical testing and scientific evaluation of some fundamental science changes to the sensor that will make it more reliable for that 15-day period. One of the reasons that we've done so well, two things, the accuracy of our sensor and the performance of our sensor over time. But combined with the fact, people expect to get a certain amount of days from a sensor and we deliver what we tell them we're going to do. And we want to make sure that 15-day experience is every bit as good as the 10-day experience that we offer now. So we're making a few slight changes on a science basis. We'll run a clinical study, file that, and we certainly would expect you to prove. But right now, we're still evaluating some of the technologies. And we really won't provide a lot of color until we're filed and we see we're on a path towards approval.

Operator:

And we will take our next question from Danielle Antalffy with UBS.

Kevin Sayer:

No, I appreciate that question. First and foremost, we can start with the core technology and then the fundamental beliefs we've had here as a company. The performance of our sensors has been unparalleled. We've got over many years, for example, and AID systems with great outcomes and patients who have done very well there. We built our platforms on connectivity. One of the features that I've talked with the engineers about and kind of complained about because it took a lot of time to engineer, we can connect up to three devices at the same time. This is the type of connectivity that our competitors have not put into their platforms, and is a feature that's very important to our patients, which is the reason, for example, why we just filed our direct-to-watch features with the FDA. One of the other things our competition thinks about as they look at us today, and they think this is where we're going to stay, we're not. We certainly have new pipeline efforts across all fronts on the technology side, better connectivity, communications, software investments. We've had to evolve from being literally a medical device software company to being a world-class software organization over the past couple of years, and it has been an evolution for us, and it's been a big investment. So we've looked at the areas to invest to make ourselves stronger and made investments there. Now that's on the technology side. Here's the other piece of this. We've spent hundreds of millions of dollars over the past three years getting fully automated factories up and running both here in the United States and our new factory in Malaysia that opened mid-year, and that is a tremendous facility. But we built out those automated lines there, and we've just turned ground on what will be our next world-class factory over in Ireland that would open in 2026. There's a huge investment that has to be made to play in the CGM business going forward, particularly at the scale and the performance that we see now. And we've made those investments and done those things and evolved as a company. So we think we're very well positioned, and we'll see where everybody else comes. But we're comfortable. Well, let me phrase that. We're never comfortable, but we believe we've done all the right things.

Larry Biegelsen:

Good afternoon. Thanks for taking the question. I wanted to focus on Stelo. You expect this product to add approximately, I think, 100 basis points to your growth in ‘24, which is almost $40 million in six months. So that's a pretty healthy number for only half a year. Kevin, what's informing your confidence in the launch? How big could this product be over time and what are the margin implications? Thank you.

Jereme Sylvain:

Yes, and then to your question on margin, we're not necessarily talking about it from a gross margin perspective. That'll come in time when we start to release more details around it, Larry. From an operating margin, yes, this is something we're going to invest in. And so when you think about it from an overall company margin, certainly as we invest in this and we invest in launching it, there will be some sales and marketing, but it's an investment we're going to make this year. And we're going to make that investment in this product because we believe in the future and we're going to do so and still expand operating margins as a company. So you can be safe that we're going to be very, very careful and measured about how we invest our dollars, but know that this is part of the investments we've set aside as an organization while still again improving profitability.

Mathew Blackman:

Oh, great. Appreciate you taking my question. And maybe for Kevin and Jereme, you obviously mentioned Salesforce and the PCP channel. Can you just remind us at least today what kind of PCP, Salesforce coverage you have? And then more importantly, sort of leaning into your comments, Kevin, about investing incrementally in that channel this year. What does that mean in terms of spend magnitude, spend timing? And how much more coverage you're expecting to add with these investments or any other way to frame what you're trying to accomplish? Thank you.

Operator:

And we will take our next question from Marie Thibault with BTIG.

Jereme Sylvain:

Sure. Thanks, Marie. And we'll give you some context. So the non-CGM business, that effectively is gone at this point. So that's why we've been comfortable pulling it out and talking about it to organic. So this quarter you can expect, we talked about the $30-ish million last year. The math on that, you can kind of do the allocation by quarter. That's out as of this point, for the most part. And so think about that in the quarter. Japan, certainly a similar type thing. We talked about it in Q4 being effectively nil. I'd expect a similar contribution in the first quarter. And then as we start to take that book of business so that business live in the second quarter, I expect it to start to contribute as we build that business back up over the course of the year. So those are really the international kind of timing. So Q1 will be the heaviest burden in terms of as we transition through that. As it pertains to Dexcom ONE on G7, great news is, I think we press release it a couple days ago, four countries have launched. And so that has come out, it is now out there today. Those four countries are our first foray and we're getting great feedback from early adopters within those countries. The expectation is we have a cadence of launches of Dexcom ONE on a G7 form factor, really over the course of the year. So I'd expect a lot more press releases around where and when we're launching that, but expect that to really take place over the course of the year, which gives us a lot of confidence again in Dexcom ONE being a really incredible growth driver for the long term.

Jeff Johnson:

Hey, guys. Good afternoon. Maybe I'll just keep it on that international point. I think this is the first quarter in a while we've seen international growth below the US growth. And if I look back the last few quarters, I think you've gone 40, 30, 23 here on the organic growth rate. Just help us understand kind of where that international versus US growth might settle out here in 2024. Would we expect them to be similar to each other? Does international continue to slow for any reason? And as I think about some of the competitive AID approvals that have happened over in Europe, especially with one year with a competitive CGM. Just how are you thinking about the stability of your maybe installed base on the AID side over there versus win rate for new AID systems there? Thank you.

Operator:

And we will take our next question from Matt Taylor with Jefferies.

Kevin Sayer:

Now this Kevin I'll take that we don't really, we don't need a clinical trial for Stelo as far as getting that product approved. There is a lot of data on use of continuous glucose monitoring, particularly Dexcom systems in this type 2 diabetes world that will be published by investigators over the course of the next several months, and we'll reference to that and we'll talk to you about that. We know, we have a very good idea where this data comes out because we've seen in all our studies, patients have better outcomes, they're healthier, we end up saving the system money, and those are the outcomes that we're hoping to drive with Stelo over time. With respect to GLP-1s, again, the list of studies ongoing is very large, and there are studies where CGM is an element. Again, we expect those studies when they're published to demonstrate the same things that we've talked about before, that the use of the CGM with the GLP-1 provides a better result than a study without it, and those studies we've published over time, we don't control those investigators, but we expect good data over the course of the year.

Travis Steed:

Hey, thanks for the question. I just wanted to understand a little bit more, Kevin, that you could give some more clarity on how you think a reimbursement pathway for Stelo to look over the next couple of years, what you think is needed to open reimbursement up for that product, and how you think that would look if it would be done kind of in a more traditional way, or you think it would be done kind of a one -off, like the levels program with UnitedHealthcare.

Operator:

And we will take our next question from Joanne Wuensch with Citigroup.

Jereme Sylvain:

Sure. Yes, so we'll start with tax. I think this year we kind of dropped down to closer to that 26% range. Well, we don't necessarily guide year by year to tax. The goal is over the course of the next three to five years to get down into the low 20s. So I would expect it to continue to come down every year as we grow into the tax structure that we put in place. In terms of net interest income, some of that, it's one of those, it's a bit of a difficult one, but just given where interest rate is going to go over time, but it's pretty straightforward that our cash interest cost is pretty low, just given our converts. And so you can basically take a look at the cash on the balance sheet, multiply it by about 4%. And that gets you to about where you'd be for the year. Again, we'll have to keep you updated as interest rates change over time. But that's the way to think about it. And then from an operating margin perspective, we gave the 2025 LRP, that's a 21%. Your point is valid. If you take a look at our guide this year at 20% in our gross margin of 63% to 64%, if we hold true to our 65% gross margin in 2025, which is absolutely our belief, you're already there at a 21% off margin. So I absolutely understand the mathematics. It just means we're ahead. We're ahead of our LRP, but we're not necessarily willing to update it at this point. We'll come forward and we'll update it at some point in the future. But I think it's a good thing. We've done a lot of work around this, Joanne, around getting lean and making sure we drive leverage into the business. And the great news is, is we are ahead. And so that's a good spot to be in. And we'll continue to do so. One other maybe caveat is that I think it's important to note on the year I guess the question a little bit about the year and where we on the year. We're making some good investments this year in the organization, we're launching Stelo. And we talked about that being a significant investment in the business. We're certainly doing a lot of work around our salesforce and if you recall few years ago, we did some work around that we took step back on march, we are going to do all that and still step forward. We're going to go direct in Japan this year. That's another thing that we're making an investment in and then all the work Kevin referenced around the clinical work that we're doing around continuing to improve our product. We're going to make all those investments and still deliver an expansion of operating margin. So I think it just goes to show you we're building the levers in here that you can see that we're building and that you can rely on us longer term to continue to drive that through the business.

Matthew O'Brien:

Good afternoon. Thank you for taking my question. Looking at the domestic performance. There's been a clear acceleration in the back half of ‘23 on a two year stacked basis. And I'm wondering specifically if that's just basal that's helping there. It looks like it's as much as 200, maybe 250 basis points of the acceleration. Is that the primary contributor to the domestic acceleration? What should we think about in terms of basal contribution to the top line this year? And are we inflecting right now as far as basal adoption goes with CGM here in the States? Thanks.

Kevin Sayer:

Yes, I just add to Jereme's comments, Matt, if you look at the second half of the year, that's when G7 rolled out. There's a direct correlation to G7 launching and the acceleration of our growth. It really was an important event. And the other thing that just as a consequence of what you saw, again, this supports what we're doing in the U.S. with respect to our field sales expansion. We do need to spend more time with physicians who aren't as familiar with our technology as they would have been in the past. As I said on the call earlier, where we call on somebody, we win. We do very well. So we need more calls. We needed more feet on the street and more voice, given the acceleration that we saw and the good things that we saw happen over the second half of the year. So it all flows together nicely.

Malgaret Andrew:

Hey, good afternoon, guys. Thanks for taking the question. I wanted to maybe spin back to non-insulin. When we kind of run our market models, non-insulin adoption seems to have meaningfully increased probably for you as well it's certainly for the market the last couple of years. And again, our numbers probably aren't perfect, but maybe the market's not at a million users in the U.S. but could get there this year. That's a pretty sizable amount. So I guess one, are this meaningful patient adds to Dexcom already in 2023 and what drove that? And going back to the Stelo guidance of $40 million per year, we can obviously throw some assumptions around ASPs or patient adds. But regardless of what those inputs can be, it pretty quickly gets you to $200 million plus sales in 2025, which is a pretty meaningful chunk of the chain. So I guess, is that correct? Why could it be right or wrong and how much of that could be incremental to the initial LRP that you provided in ‘23. Thanks.

Operator:

We'll take our next question from Jayson Bedford with Raymond James.

Jereme Sylvain:

Hey Jayson. Yes, thanks for the question. Last year when we made the assumption on what the margin look like, the assumption was is the G6 to G7 transition. We had a range of assumptions. But the assumption was the G6 to G7 transition would take place perhaps a little bit earlier. And some of that had to do with timing of when the AID systems were available in the market and coverage and how that that goes over time. And so it took a little bit longer. And as a result, we outperformed on margin and it gets back to G6 cost less to make the G7 today. And it’s still majority of our user, our legacy base still sits on the G6 system. With the launch of Tandem and Control-IQ integrated with G7 and obviously the limited launch with the Omnipod 5 coming out here in the back half of Q1, and then obviously a launch sometime later in the year, we do believe that base starts to move over quicker. And so what you have there is as that takes place, Jayson, you have that shift from a lower cost to a higher cost product weighing in the start of the year. And hence that's why the margin goes where it goes. Now in the back half of the year, assuming that base transitions and our models show that over the course of the year that should, that equilibrium should balance then tilt in the favor of G7. It puts us in a position exiting the year where G7 should be and we'll have to give you updates on the base as the year progresses, but it should be lower than G6, but then at that point it should be accretive. And that would be the exit rate leading out of ‘24. And then of course, then bodes well as we move into 2025 and beyond. So that's the big driver. It's just, when does that base transition and when it does, when do we have that cost kind of equilibrium? So again, we thought it was going to happen in the back half in 2023. It didn't take place. We outperformed there in 2023 as a result, probably going to take place here in the first half of 2024.

Bill Plovanic:

Great, thanks for taking my question. Congratulations on the quarter. Just kind of a follow-up, just trying to get a color granularity, if possible, on, as you look at the growth in the business and kind of the Matt O'Brien's question, but the contribution from Basal, Hypo, Intensive and Type 1, just, is it kind of shifting to that order these days where it's more of the Basal and Hypo and the Intensive Type II is really the new patient growth, and then if so, how should we think about that cadence as you continue to move forward? Thanks.

Operator:

And we will take our next question from Michael Polark with Wolfe Research.

Kevin Sayer:

We would like to go as fast as possible. If it were on my time frame it'd be it'd be yesterday. Stelo at 15-day is a primer for that so we can learn and gather data from those users as they use it particularly with our current sensor configuration. As we go through the technology changes that we're making as we dial in on those features that we're going to put in the final product we'll get a pivotal trial started and we'll go but we're learning each and every day. We are not in a position like we were with G7 where we're submitting an entire new system with completely new hardware and new features and new manufacturing lines, new suppliers, new everything. This 15-day product we've built on the same platform our current G7 has built. So the time from finishing a pivotal to filing is not going to be near as intense and difficult as it was with the last product being such as security and Bluetooth and stuff. We worked through all those issues already. So right now it's really refining the science and getting the 15 days and getting that reliability and quality level that our patients expect from us. We don't view this as an extremely, I think ‘25 is a reasonable assumption, but I'm not going to give you an end date or as to when, because there's too many variables, but we're certainly headed down a path along that type of speed, and then we'll see where we land and give you more updates along the way. I just, filing things or starting things, what's important to us is getting things done, and those should be your milestones as well. So we'll keep you posted, but that's where we are.

Chris Pasquale:

Thanks, and congrats on the quarter. I want to ask a couple of questions about Dexcom ONE and the progress there. I think you had said you expected it to account for about 30% of international new patient starts in ‘23. Curious if that's where you ended up and what portion of new patient starts you expected to be in ‘24.

Operator:

We'll take our next question from Josh Jennings with TD Cowen.

Jereme Sylvain:

Yes, thanks, Josh. It's an area that in all candor it's gone and we knew this was going to be a bit of a challenge. It's a big opportunity, but it's going to take a little bit more time on awareness and getting in front of physicians and letting folks know that, hey, look, if you've had a hypo event, you do qualify. And by the way, here's how to document it. So it has been certainly slower than basal. It's not been a real all that material contributor in 2023. What we do know, however, is Teri, our Chief Commercial Officer and her team are very, very focused in getting the word out and making sure that folks understand if they are suffering with hypo events, this technology can help and it can help change that and that they do qualify and there is reimbursement out there. And so it's working on that messaging and making sure that we get out there and understand where those events are taking place. That is, believe it or not, it is a challenge in understanding how to identify when those have taken place so that we can get out in front of those folks. But we are working on it. We have good data around that. And then making sure, we're making those physicians that are then serving those patients aware of what the requirements are for documentation so that they can qualify for reimbursement. So there's some work to be done, but there's a team working very, very intently on it and making sure that we do arm our salesforce and then arm the community with the information needed to help it grow faster. I think it's a big opportunity for us, but I think it's an opportunity that's going to take a little bit longer to penetrate. So to your point, I think it's a driver a little bit here in 2024, certainly an opportunity in 2024, but I think it's going to continue to slow roll, but over the longer haul, we do think this is a contributor over time that can be meaningful.

Operator:

We will take our next question from Mike Kratky with Leerink Partners.

Jereme Sylvain:

Sure, yes. So in our long-term guide, we had talked about basal effectively being about six to seven points of adoption as a percentage of the total population here in the US. And I'll start with the US because internationally, there's a coverage as we work through coverage there, there's opportunities. But we had talked about that in our 2025 LRP. In our first couple of quarters, we saw it mirror that to your question, to your point, I should say, that it was mirroring the type 2 intensive, which was about a 9% to 10% penetration rate. Our guide, at least for 2024, assumes the middle between those two, 8%. We got a couple quarters under our belt. It's very, very positive. But we also want to make sure we're prudent when it comes to guidance. And so that's why we've assumed about an 8% penetration rate over the course of 2024. Obviously, if it mirrors that, which we saw in the back half of 2023, there's opportunities to outperform. And clearly, we're tracking ahead of our LRP, which I think is both positive signals, I think, for the business in total. But we, again, our guidance has been 8% as a percent of penetration. Hopefully that helps you.

Steve Lichtman:

Thank you. Good evening, guys. Kevin, you mentioned, to an earlier question, different business models for Stelo. How should we think what the go-to-market could look like? Does it have a Dexcom ONE more direct-to-patient feel? And do you need to make any significant investments in back office support as the denominator really expands as you go after this large non-insulin group?

Operator:

And we will take our final question from Matt Miksic with Barclays.

Jereme Sylvain:

Yes, so maybe what I'll talk about is how we're thinking about the cost of the product. And then I think from there we can kind of make some calls on how we think about margin from that perspective. And I'll maybe comment a little bit on the on the service model, which I think is also important because that'll help from the operating margin. So as you think about the G7, just the product itself, as of today, it costs more than G6. And so that'll eventually we expect over the course of this year flip. And as you kind of get your models kind of bent out into kind of laid out, we expect to get down to a $10 sensor, irrespective of whether it's 10 or 15 days as we exit the 2025 LRP into early 2026. So that gives you some kind of feel for where we'll get to the cost of each sensor. Now, each sensor, the hardware is about the same cost, whether it's Stelo, whether it's Dexcom ONE, or whether it's the G-Series. It's the support models, the software, the support, the R&D, the investment in it. And then of course the service models that ultimately then change it. And so as you think about all of the work that we put into the G-Series, the G -Series will have the highest reimbursement, but it'll also have the highest service model and then most investment in software and otherwise. Dexcom ONE is a little bit more of a different service model, and thus we are able to reduce the burden associated with some of the warranty and then the support cost that play into that. And then Stelo is in a 15-day form factor. And so that's helpful from a gross margin perspective as you think through that over time. So I think that's the way to think about the cost profile. We haven't launched the price of Stelo at this point, so we can't necessarily give you the specific margin at this point. Otherwise, it'd be pretty obvious how we're thinking about it. But over time, as that comes out, I think it'll help align the models. And I think there's real opportunities here as you think about a 15-day product starting with Stelo, but as that then makes its way through Dexcom ONE and the G-Series over time, again, more levers there where there's some real opportunities in those product lines to continue to drive profitability. So I think there's levers across all of these. I hope that gives you some context. I realize I'm not giving you a P&L for each one of them, but at least it gives you some context at the hardware costs, and we differentiate on the OpEx costs and service models, and then, of course, the days of wear on each one.

Kevin Sayer:

Thank you very much. It's very easy during these earnings calls to talk about percentages and margins and future technologies, financial guidance, competitors, a whole host of important and engaging topics. But as we wrap up today, I really want to focus on 2023, which is truly the most remarkable year in our history. Let's review these numbers again. $700 million in organic revenue growth, more than a $1 billion in EBITDA, 600, 000 new customers in our active user base, standing up a plant in Asia without missing a beat, and, of course, launching our G7 product all over the world. While best-in-class technology is foundational and fundamental to these types of accomplishment, it doesn't happen without exceptional people going above and beyond. So as we close out 2023, I want to thank our, I guess we are, we're now more than 10, 000 Dexcom employees around the world. Incredibly well done. Thanks everybody.

Operator:

Welcome to the Dexcom Third Quarter 2023 Earnings Release Conference Call. My name is Montieth [Ph] and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question answer session. [Operator Instructions] As a reminder, the conference is being recorded. I will now turn the call over to Sean Christensen, Vice President of Finance and Investor Relations. Mr. Christensen, you may begin.

Kevin Sayer:

Thank you, Sean, and thank you, everyone, for joining us. Today we reported another great quarter for Dexcom with third quarter organic revenue growth of 26% compared to the third quarter of 2022. This year is proving to be one of the most exciting periods in our company's history. Access is expanding faster than ever before and we are seeing new levels of enthusiasm for our differentiated products. This can be seen firsthand in our broader rollout of G7 in the US. Building upon our legacy of being the most accurate sensor G7’s focus on simplicity and affordability continues to attract new customers and prescribers to our platform. Similar to last quarter, the majority of G7 customers continue to be new to Dexcom and we took yet another step forward in expanding our prescribing base. There are now nearly 18,000 physicians writing scripts for Dexcom, they were not prescribing our products before the G7 launch. This represents a notable increase in our prescribing community in only a short period of time as more clinicians recognize G7's unique feature set, ease of use and market-leading levels of coverage. This combination has made it incredibly easy for physicians to prescribe Dexcom CGM and drive greater levels of engagement within their patient populations. Additionally, our new G7 software platform is enhancing our value proposition across all patient types. We've implemented new software updates almost monthly since launch with improvements to features like connectivity and alarm personalization. As one example, we have established new lines of communication in our app to simplify the process of engaging with our customers. We are constantly working behind the scenes to improve the customer experience. And we will continue to operate with this type of focus to ensure that we have the most user-friendly and engaging products on the market. Our customers know that when you join the Dexcom ecosystem, you get all the benefits today and tomorrow associated with our leading innovation. Our latest product cycle has also coincided with the largest expansion of coverage in our company's history. With significant reimbursement now established beyond intensive insulin use, there are more people with covered access to Dexcom CGM than ever before. As a reminder, Medicare coverage went live in mid-April for people with type 2 diabetes using basal insulin only, as well as certain non-insulin individuals that experience hypoglycemia. Collectively, these two populations represent nearly seven million people on the US with approximately half being at Medicare age. Encouragingly, commercial coverage continues to build for this group. We've established market-leading levels of basal-only reimbursement as payers clearly recognize the potential for better outcomes driven by Dexcom. This further supports our industry low out-of-pocket cost for our customers. With a full quarter of broad coverage now under our belt, we continue to be very encouraged by early prescribing trends for this cohort. We know that last quarter that we experienced an immediate uptick in new patient starts once coverage went live and we have seen a clear continuation of this trend since that time. In fact, we delivered another record Medicare new patient start quarter in Q3 as physicians have quickly adjusted their prescribing patterns to match the new reimbursement landscape. While early basal adoption trends look very similar to those we previously experienced, once broad coverage became available for intensely managed type 2 diabetes. We view this as a very positive sign of things to come. Importantly, when you combine this broader coverage with our leading center technology, we feel incredibly confident in our market position. Since the launch of G7 we have gained share across all reimburse channels and patient segments in the US and that trend continued this quarter. Even among non-reimburse channels we are seeing more and more interest in Dexcom CGM. We are also seeing similar dynamics across our international footprint. We have never been better positioned to compete globally from a product, access or capacity perspective and we once again, took international share this quarter as a result. Our product portfolio continues to be a key contributor to this success. By having multiple products available, we can tailor our offerings to meet the unique needs of individual geographies and reimbursement structures. A great example of this was seen in Francis past quarter where DexCom ONE secured reimbursement for all people on intensive insulin therapy, which represents around half a million people and we have submitted our evidence to extend ad coverage to the basal population. In addition to advancing our product offerings, we've been continuously working to build greater commercial scale and flexibility to serve each market more effectively. As we discussed at our Investor Day, one way to drive scale is through the conversion of key international markets from distributor to direct operations. Historically, these conversions have been followed by a notable uptick in performance, as we provide greater levels of support and focus to these markets once we oversee all facets of sales and distribution. Along those lines, we recently made the strategic decision to go direct in Japan. As a reminder, Japan became one of the first countries to establish broad reimbursement for anyone taking insulin late last year, representing more than one million lives. Despite this the market remains in its very early stages, and we will continue to work to drive much greater CGM adoption over time as we initiate direct sales in the second quarter of next year. Finally, at EASD this month, we added to our substantial base of distinctive clinical evidence with new data around long term Dexcom CGM outcomes and inheritance the impact of Dexcom ONE for type two, diabetes and performance within the pregnancy setting. Study after study, we continue to demonstrate Dexcom's position as a cornerstone within the evolving diabetes care, and metabolic help landscape. Across a wide range of customers and care settings our product plays a unique role in providing real-time information that can drive behavior change, greater patient accountability, and more informed therapy decisions. Like everyone else, we have also been interested to see the latest data behind new drug therapies. We believe these drugs playing important role in the care continuum and it is encouraging to see new solutions emerging and a growing appreciation around the need for better and earlier care. Data continues to demonstrate that clinicians prefer to use CGM together with these drugs to drive the best possible outcomes. In fact, we shared claims data this quarter that showed prescribing trends for CGM increase once someone is initiated GLP-1 therapy as clinicians favor Dexcom for both its protective features and ability to support lifestyle management. As an update, we looked at trailing 12 month data through August 2023 would suggest this dynamic is even more pronounced among the newest generation of these drugs. The data clearly showed that CGM usage grows faster and GLP-1users, then those who are not on therapy. This further demonstrates the complementary nature of Dexcom CGM across all therapy regimes in diabetes. As we look forward, we continue to ensure that we advance our unique role within the ecosystem of care as we progress, our mission of empowering people to take control of health. This will include launching new products such as our non-insulin product coming next summer, as well as advancing our ongoing clinical work across much broader populations. We are still very early in our story in terms of potential impact and the number of lives we can ultimately touch. Our future is incredibly bright. With that, I will turn it over to Jereme for a review of the third quarter financials. Jereme?

Kevin Sayer:

Thanks Jereme. I would now like to open up the call for Q&A. We also have Jake Leach, our Chief Operating Officer and Terry Lauver, our Chief Commercial Officer joining us for our question, answer session. Sean?

Operator:

Thank you. [Operator Instructions] We will take our first question from, Robbie Marcus with JP Morgan. Please go ahead.

Jereme Sylvain:

Hey, thanks, Robbie. This is Jereme. Appreciate the comments. I can take that one and we address it from there. In terms of what the contribution was this quarter from basal, obviously we had a really strong quarter this quarter, record new patients once again and obviously raised the guide on the year. Now some of that does come from basal. There's no question there as we continue to open up reimbursement. The new patients are coming along and Kevin mentioned it. We're starting to see basal follow similar patterns to type two intensive, which, when you think about coming into this year, it's about 40% to 45% adoption, but really the curve is starting to follow that. So we're very excited about the opportunity there. And so that's in the US and certainly clearly that's playing out here. In terms of OUS, it's a great opportunity. One of the things we've seen outside the US is as access is created creates significant opportunities for growth. And you've seen our actions over the course of the past few years. We've created a lot of access for our products, and in turn our international markets have grown incredibly well and there's a large population outside the US that that this would ultimately apply it to once you have basal coverage. So it could be an absolute - an absolute tailwind for us for years and years to come. It's something obviously we're very excited about. We don't get ahead of ourselves, right? We have to get that coverage in place. But the bullishness you hear about the US experience is what we would expect to see as more and more coverage comes and so we leave very excited about the future holds.

Operator:

Our next question comes from Margaret Kaczor Andrew with William Blair. Please go ahead.

Kevin Sayer:

Margaret, it’s Kevin, I'll take that. We have had discussions with the societies on expanding coverage for people with type 2 diabetes not on insulin. And those discussions continue. We've seen a gradual uptick for lack of a better word in the guidelines as CGM use from all professionals societies over the last several years. And as we gather more data, as we see more data come in from studies we’re aware of over the next 12 months, we believe we can continue to build a better case. Every time we run a study or look at a study from this population in this group, people on CGM do better. It's just simple. They have better outcomes. They're more adherent to their meds. They have a feedback loop that they don't have any other way. We're very excited about this opportunity. That's why we're going with the product where we've talked about filing before the end of the year and launching next year, our product is designed for people not on insulin. And we think it's going to be a great product offering on this front going forward. So we're looking forward to it, and I think we'll be able to write this script the same way we've written the script in our industry so far.

Larry Biegelsen:

Good afternoon. Thanks for taking the question and reiterate my congratulations on a really strong quarter here. Jereme, I wanted to ask about the guidance and any comments on next year, the math if I'm doing it correctly it implies Q4 growth slows by about 400 basis points. You don't get the same quarter-over-quarter of lift you typically see. And so, why is that in any - any reason why the, momentum for sales growth would slow next year and any -anything we should think about on the margins that should be implications from Japan. Thank you.

Larry Biegelsen:

Thank you.

Danielle Antalffy:

Hey, good afternoon guys. Thanks so much for taking the question. And I will also say, congrats on a really great quarter. I was just curious, so Jereme, you alluded to the fact that basal seems to be starting to ramp similar to how the influenza census. Type 2 did when you got coverage there. What about from a utilization perspective? Any color you can give on how these basal patients are adopting technology? Is it similar to what you saw in the novel study. I know it's early, but we should have had some reorders right now. So just curious what you're seeing. Thanks so much.

Terry Lauver:

Sure. Thanks, Jeremy and thanks, Danielle. The trends as Kevin referenced that we see in basal in terms of uptake and intention to prescribe from the physicians mirror what we've seen in other segments of the marketplace And the coverage has certainly a big driver of that, We track coverage very closely for Dexcom for the industry. And in basal as with the rest of the market, Dexcom continues to be the most covered CGM with the lowest out-of-pocket copay. We also have the benefit of being out in front of the payers and the healthcare providers with the mobile study demonstrating the benefit and the outcomes that Dexcom drives for this population. So we see a nice trajectory I think in line with what we would expect and we expect that to continue.

Operator:

Our next question comes from Matt Taylor with Jefferies. Please go ahead.

Kevin Sayer :

Well, certainly, we think about partnering with the drug companies, but they're doing so well. Right now, they're very busy. We do have relationships them and have had discussions. With respect to studies we certainly talk about some of those internally. We saw clinical evidence over at the EASD Meeting recently where that was a large topic of discussion that the team brought back and we're very aware of studies coming out over the first half of 2024 that are going to show some of these data for the use of these combo of these new drugs and CGM in combination and how that works for people. So we know there's evidence coming in investigator initiated studies. And we're looking at some of our own right now. I think today will continue to support it.

Operator:

Our next question comes from Matthew O'Brien with Piper Sandler. Please go ahead.

Kevin Sayer :

Yeah. Hey Matt. We have Jake here right now who's familiar with. So Jake, what do you think?

Matthew O'Brien:

Thank you.

Matthew Blackman:

Good afternoon, everybody. Thanks for taking my question. So we did a big CDM survey last month and one of the most interesting takeaways were very positive early expectations for the non-insulin opportunity. Docs expecting peak penetration over time so to approach the 50 plus percent range and with a pretty steep adoption curve. So it really does seems so much similar to the type 2 intensive roll out. Just hoping for any color on how that tracks versus your expectations for non-insulin assuming some reimbursement over time? Just any color there would be helpful. Thanks.

Jereme Sylvain:

Yeah. And Matt it's and thank you for that study. Obviously, we saw it as well. In terms of timing, I think one of the things that our obligation as a management team is to make sure as we start to see it as we launch products that are geared to this population, we keep you in line with what we see. So we can have a collective understanding about where that market is going over time. So be assured as we start to get more line of sight into and obviously, you can tell we're very bullish on the opportunity. We'll make sure we communicate that as quarters proceed.

Operator:

Our next question comes from Joanne Wuensch with Citibank. Please go ahead.

Kevin Sayer :

Yeah, thanks for that question. I'll take the, the portion on gross margin and then Jereme can talk about operating margin. So, with gross margin, we're really thrilled with the results this quarter. It's really a testament to how well our operations teams are executing across both G6 and G7. Our yields on the G7 scale up were a little ahead of where we planned which is a fantastic thing to in place to be. As we look at the transition from the AID patients from G6 to G7, one of the things that is implied in our guide there for gross margin for the year and into next year as we look in the long range, we are going to be switching those patients over G7, which G7 today is at a slightly lower gross margin just based on the where it is and its product life cycle. G6 is a higher margin product today. Over time, as we do switch our base all over to G7 and continue to scale that product, we have a very good path to getting to lower costs than G6 on that over time. But what we're trying to be on that guidance transparent around the margin - gross margin for the product just as we do that transition.

Joanne Wuensch:

Thank you very much.

Jeff Johnson:

Thank you. Good afternoon, guys. I will admit I missed most of the prepared comments. I jumped on right as Matt O'Brien was asking his question. But it was a G7 integration question for Matt and Jake from your answer, I just wanted to ask one follow-up question, I guess if I could. We’ve started to hear just in the last week or two that maybe there's a, maybe newer version of G7 that has to come along to fully integrate with control IQ. Just if you've been clear, if I what I'm hearing in the field or help me understand what I'm hearing in the field and that that newer version of G7 is only going to be available for the first couple months here in the DME channel and eventually in pharmacy as of January 1. So what's going on there? And is that anything at all from an investor perspective we need to think about worry about impact numbers at all? It doesn't sound like to me, but just would love the insight there. Thanks.

Jereme Sylvain:

Yeah. And Jeff, no, Marge and concerns. No question. This is really far for the course in what we do in terms of iterations over time. A lot of times you don't necessarily hear about it. We went through this with the G6, you'll remember it, We had a transmitter swap out which ultimately came through at a lower cost higher performance. I would expect more of these types of changes over time whether it's software, and hardware as we continue to make improvements to the platform over time as part of just continuous improvement.

Kevin Sayer :

No, there's nothing you're missing there. There's a product that'll be out in all channels. And so really I think what you're hearing is, is timing questions about when you burn through things. That's, I think more anecdotal than anything else. Everybody's going to be able to have access to this thing in short order. It might start through the DME, just because that's the channel that you can generally start through. But this product will be available everywhere.

Jeff Johnson:

Perfect. Thanks.

Travis Steed:

Congrats everybody on the good quarter. Maybe just talk about the buyback, the thought process for the buyback. How much of that’s related to the convert versus to seeing or stock at a attractive valuation and is buyback something we should think about - going forward now that you've got your free cash flow at a good level?

Travis Steed:

Great. Thank you.

Marie Thibault:

Hey. Great quarter. Thanks for taking the question. I hope you could just expand on the comment in the prepared remarks about a even more pronounced dynamic of complementarity between CGM use and the GLP-1s. Just curious to get more details on the magnitude of that and any thoughts on why that would be the more pronounced with the latest generation? Thanks.

Jereme Sylvain :

No, that's exactly it. You're asking kind of the why the reason, Marie, I mean, we have clinicians tell us all the time to administer drugs as potent as these are and ultimately to ensure that they are effective both while they're on the drug and while they're coming off the drug and how they ultimately engage going forward. There's a high correlation of interest in CGM and the more and more folks we speak to they're saying, why wouldn't you want to understand what's going on in the body has to how to better understand, one to titrate the drugs, but then how to change behaviors and get folks off the drugs over the long haul. So you're just seeing more and more of that and the script data proves it.

Operator:

Our next question comes from William Plovanic with Cannacord. Please go ahead.

Jake Leach:

Yeah, this is Jake. I'll take the first part about the product. So, yeah, we're extremely excited about it. We've already finished the clinical trial required for that submission for the end of this year, for the product. It's 15 day meets ICGM criteria. So, really, really excited about that. And the product is all about helping people really engage with their health. So it is a different - completely different software experience than what our G series and Dexcom ONE products are. I'm not going to get into all the specific features yet. But rest assured, our focus is to ensure that people will get the benefit of CGM and basically helping them connect the dots to their lifestyle. And it's really important tool help them learn about no matter what therapy they're on. And how their metabolic health can be improved. And so, really excited. Teams just finishing up validations on the product. We're looking forward to launching it next year.

Kevin Sayer:

And over time, we'll look for reimbursement. We've talked about this as a cash pay option to start and that's how we'll do it as far as the exact pricing that remains to be determined when we launch. We are not going to give that out yet. So we're excited as you can tell.

Jayson Bedford:

Thanks and good afternoon. So, two questions that require one word answers. What's the, what's the timeline on basal coverage in France? And then, maybe for Jereme, what’s the annual revenue contribution from that business they expect to sell off and looking the first half of ‘24.

Jayson Bedford:

Thank you.

Michael Polark:

Good afternoon. Thank you for taking the question. In the prepared remark, you mentioned you believe you have gained share across all reimbursement channels and segments and then added even in non-reimbursed channels. I'm curious, I'm in clearly we know about the innovation work here and the product launch and that might be the answer. But is there anything commercially you're doing different in the cash pay market today that’s influencing that comment?

Michael Polark:

Thank you.

Steve Lichtman:

Thank you. Congrats guys. Obviously a lot of focus on basal as expected, but you do of course have coverage now for non-insulin hypo at risk, which is sizable population in its own right? Can you talk about what you're hearing from physicians on the use of CGM there? And are you hearing anything in the field that changes your initial view on how big that opportunity can be in particular?

Steve Lichtman:

Thank you.

Josh Jennings:

Hi, thanks for taking the questions. I know you have a lot in front of you with type 2 basal and the cash pay product being launched next year. But you did mention that you're pursuing reimbursement, Kevin, for type two, and non-insulin using patients. I was just hoping to better understand the roadmap that the clinical development program and should the investors would be thinking two to three years for that potential reimbursement to come in or it’s three to five years? And then just on top of that, just what's giving you optimism that you can show a clinically meaningful and statistically reduction. If anyone seeing that type two non-insulin using population, I think you had some registry data and I know you had some registry data at ADA this year. But any other signals and drivers of your confidence. Thanks.

Josh Jennings:

Great. Thanks so much.

Matt Miksic:

Hey, good afternoon and congrats on the quarter and appreciate all the all the color today on the call. If I could follow up on a comment you made Kevin earlier about the number of new prescribers posts driven by the G7 launch and get some color if you could share it around, is that, that sort of getting further into the sort of simple, simplicity – simple user segment of the market? Is it linked to any way to the basal coverage? What you're assessment of what's been driving that? And, other than G7, just being great. But and then also, maybe the implications for share trends in the US if that continues? Thanks.

Matt Miksic:

That's great. Thank you for the color.

Mike Kratky:

Yeah, hi everyone. Thanks for taking our question, Just going back to basal only, what's the latest basal only commercial coverage you have in place? And how are you thinking about what the cadence and what's needed to bridge that gap to get more full coverage?

Jereme Sylvain:

Yeah, and then, your question was as how much - what more do we need to go. The answer is, it's not more. A lot of commercial payers were already really covering this. Now Terry referenced we have the most wide covered - coverage on basal. It's really now just - it's time. It takes time to get in front of payers, Medicaid payers, government payers. And so, it's, it's just canvassing, and by the way, this is not something that we didn't face with type 1, it's not something we didn't face with type 2 intensive. And so just give us time, but a majority of people walking around with using basal insulin now have access to CGM technology. It's a wonderful thing to the population.

Operator:

This concludes our question and answer session for today. I will now turn to call over to Mr. Kevin Sayer for closing remarks.

Operator:

Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect Thank you. Next calm. Third quarter twenty conference. You may now disconnect

Operator:

Ladies and gentlemen, welcome to the Dexcom Second Quarter 2023 Earnings Release Conference Call. My name is Abby and I will be your operator for today's call. [Operator Instructions] As a reminder, the conference is being recorded. And I will now turn the call over to Sean Christensen, Vice President of Finance and Investor Relations. Mr. Christensen you may begin.

Kevin Sayer:

Thank you, Sean, and thank you, everyone, for joining us. Today we reported another great quarter for Dexcom with second quarter organic revenue growth of 26% compared to the second quarter of 2022. Demand for Dexcom's CGM continues to grow as access to our product is expanding faster than at any time in our company's history. In the first half of 2023 alone, we broadened our product portfolio strategy, extended our geographic reach and meaningfully expanded reimbursed coverage for Dexcom CGM. As we sit at the midpoint of this pivotal year for our company, we have a lot to be excited about. In the U.S., our launch of G7 continues to gain momentum. Customers and clinicians alike are sharing consistently great feedback around G7's sevens ease of use, discrete form factor, faster warm up time and redesigned software platform. With this product, we've extended our leadership position in accuracy and product performance while taking a significant step forward in terms of simplicity. It has never been easier to use or prescribe a Dexcom CGM, and we are attracting new customers and prescribers to our ecosystem as a result. Similar to last quarter, we have seen a continuation of the trend that the majority of our G7 users have been new to Dexcom. Additionally, there are now 8,000 physicians writing scripts for G7 in the U.S that were previously not prescribing Dexcom. We designed G7 to hold broad market appeal, and these early prescribing trends are validating those efforts. Behind the scenes we continue to drive reimbursement for G7. As a reminder, we established Medicare and broad commercial DME coverage during the first quarter, while rapidly progressing our commercial pharmacy contracts. We further advanced this process in the second quarter as expected, and we are excited to share that all major PBMs now cover Dexcom G7. This occurred much faster than we originally anticipated and brings our total number of G7 covered lives nearly in line with our industry leading G6 levels. This further strengthens our position as the most covered CGM brand is we prioritize keeping out of pocket costs low for our customers. As a reminder, the majority of our customers are paying less than $20 a month out of pocket in the pharmacy channel, which is significantly less than our nearest competitor where the majority of customers are paying greater than $70 per month. We are also seeing G7 play a very important role for us as we move more broadly beyond intensive insulin management. We've taken a big step in that direction this year following the recent CMS decision to significantly expand coverage beyond intensive insulin use. As of mid April, Medicare coverage officially kicked in for people with type 2 diabetes using basal insulin only as well as certain non-insulin using individuals who have experienced hypoglycemia. This resulted in a true step change in coverage for the industry. As we estimate, these two populations represent around 6 million to 7 million people in the U.S with roughly half being of Medicare age. It has also been encouraging to see commercial payers quickly follow suit. We have already established greater than 60% commercial coverage for the basal population, which we view as a validation of Dexcom's value proposition by payers. We are thrilled to have this level of coverage established as quickly as it provides us much greater commercial flexibility to promote this opportunity. While still early, the initial response from the clinical community has been very encouraging. Physicians have wasted no time in prescribing Dexcom to their basal patients as they recognize a clear potential for better outcomes among this population. We have also seen excitement coming directly from members of the basal community who are interested in engaging with their glucose data to make more informed lifestyle decisions. As a result, we have seen a notable uptick in demand in our Medicare business. In fact, Q2 was our highest new patient quarter within the Medicare channel in the history of our company. Considering this was only a partial quarter of expanded coverage, we view this as a very positive sign of things to come. In our international business, our share gains accelerated in the second quarter as our ongoing access initiatives and product portfolio strategy have helped us reach many more people with diabetes across the globe. We expanded our international G7 launch in the second quarter into 6 new markets. G7 is being met with a lot of enthusiasm in our initial launch countries and we are excited to bring it to additional geographies in the coming months. This will include our launch of G7 into Canada where we recently received regulatory clearance. We have plenty of inventory on hand to support this broader rollout, particularly with our Malaysia facility now producing commercial product. Another key international lever for us has been our broader rollout of DexCom ONE. DexCom ONE has proven to accelerate our entrance into new markets, broaden access within existing geographies and even serve as a catalyst for reimbursement in certain regions. Perhaps most noteworthy this past quarter is that we officially launched DexCom ONE in Argentina, which marks our initial entrance into Latin America. We expect this to only be a starting point for us in that region as we continue to expand our global reach in coming years. Finally, we came away from the American Diabetes Association's 83rd Scientific Sessions as excited as ever about our future. This year's event added to the growing body of evidence demonstrating Dexcom CGM's ability to drive greater health and economic outcomes across the diabetes care continuum, particularly, we are seeing more data suggesting a clear use beyond the intensive insulin population and even outside of insulin use all together. For example, our team presented a real world study of more than 7,000 adults with type 2 diabetes who were not using insulin. After only 3 months, this cohort saw a 40% increase in time and range and a clinically meaningful improvement in A1c levels. Perhaps just as important was the high-level of engagement demonstrated as study participants wore Dexcom CGM more than 80% of the time. This was consistent with what we have seen in other broader type 2 studies, including the MOBILE trial where we saw high levels of utilization and a clear desire to continue to our Dexcom CGM full time. During ADA weekend we hosted an Investor Day where we shared our latest vision around the future of Dexcom. As part of the day we increased our LRP, provided new detail on the size of our recent access wins and shared our plan to launch a product specifically for people not on insulin. With this product we will leverage our G7 hardware, but provide a custom software experience tailored to this broader population. We expect to launch early next year with a 15-day wear time and cash pay option. This will simplify access out of the gate for users as we build the case with payers for broader coverage. Importantly, this new product also provides a glimpse into our future where we expect to utilize software to build tailored experiences and serve much larger populations. As we said at Investor Day we're just getting started. With that, I will turn it over to Jereme for a review of the second quarter financials. Jereme?

Kevin Sayer:

Thanks, Jereme. Our results this quarter read like a highlight reel. Q2 was our highest revenue quarter ever and represented the largest year-over-year dollar growth in our company's history. We again delivered record new customer starts worldwide and gained market share in nearly every major reimbursed geography. Our G7 launch continued to be marked by excellent execution across the board. We've now introduced this product into 13 international markets and quickly built broad reimbursement in the U.S. Through our commercial efforts we are bringing new physicians into our ecosystem, and our manufacturing initiatives are driving process improvements ahead of expectations. Additionally, our R&D team has already enabled five flawless upgrades to our completely redesigned G7 app. In addition, we are growing in a disciplined and sustainable manner. We have delivered over 450 basis points of operating expense leverage, doubled our earnings per share year-over-year and posted one of the largest free cash flow quarters in our company's history. I'm incredibly proud of our team for delivering this level of progress. When you experience results like these, it makes our stated vision much more tangible. We are truly on a mission to help people control their health through continued innovation and execution. With that I would now like to open the call up for Q&A. We will also have Jake Leach, our Chief Operating Officer join us for our question-and-answer session. Sean?

Operator:

Thank you. [Operator Instructions] And we will take our first question from Robbie Marcus -- I apologize, Danielle Antalffy with UBS. Your line is open.

Kevin Sayer:

You bet. Danielle, this is Kevin. I'll take that. And it was a great international quarter. There are three things that have driven that international business for us. The first the plan we launched several quarters ago to increase access across the board and make our product more accessible on all these markets. And we've seen results of that in all the geographies, particularly in Germany. Second of all, you can't underestimate the effect of G7 in many of these markets. We've launched in 13 countries, as I said, in our prepared remarks. G7 is going very well. The third piece is the portfolio strategy where we have Dexcom ONE supporting expansion into geographies where we haven't been before, and broadening access into countries where we already exist. Those three strategic efforts have helped us tremendously. I don’t know, Jereme, if you've got anything you want to add to that?

Operator:

We'll take our next question from Robbie Marcus with JPMorgan. Your line is open.

Jereme Sylvain:

Sure, Robbie. Thanks. This is Jereme, I can take that. You're right, we did raise guidance and it really comes off of the strength you're seeing outside the U.S as well as some of the coverage and access wins we've had in the U.S. Of course, all of it buoyed in the background by the launch of G7, which as you know, most accurate sensor and one that we're really happy about. If you think about kind of geography wise, think about it, the first half of the year to a little bit reflect the second half of the year. And that's how the split would work, which I think you'll see that and as you kind of think about what that means, we have a little bit of a more challenging comp in the U.S in the back half of the year, at least related to the second quarter. So we've contemplated that. And we've also contemplated outside of the U.S continuing to do well. But just being mindful the fact that growing at a faster clip than we have in recent quarters, but being mindful about growing into markets as we're expanding. If you think about where it's coming from, what the driver is in the U.S around, basal, certainly some of it is there. While we're not just like giving a number around basal, basal is really now started to with the coverage we've been able to obtain. It's really starting to fold into the core business, but you can assume basal is there. And then you may ask the question, well, gee, there's -- is there opportunity? Look, we provided the guidance as what is that base case. We've increased our confidence in that base case, I think you can see that. And then of course, we'll look to outperform as time moves on.

Operator:

And we will take our next question from Jeff Johnson with Baird. Your line is open.

Jereme Sylvain:

Sure, Jeff. I think what I would say is in the U.S in the quarter, a relatively nominal contribution from basal in Q2. While we did have quite a few -- quite a robust patient add quarter and this all too well with coverage really kicking in April, starting with the DME channel. It takes 3 to 4 weeks to get access to product. And so ultimately the contribution start to build over the course of the year. So yes, there was contribution in the quarter, yes, it did help. But a lot of it was driven just by taking share in existing markets. And so we're really proud of that. In terms of France, our expectation is we have G7 out in France. We're launching Dexcom ONE in France here in the near future. We expect to have a very robust coverage model. I won't speak specifically [ph] there because we are going through that process. But we do expect broad coverage to compete with that of our competitor. And I think what we're proving is in markets where we have coverage, and you've seen in our international growth over the past nine quarters taking share, we expect to do quite well and take our fair share in that country once we go live.

Operator:

We will take our next question from Larry Biegelsen with Wells Fargo. Your line is open.

Jereme Sylvain:

Yes, sure. Larry, there's nothing that gives us pause about the back half of the year. I'll start with that. I think if we come into this quarter, record quarter and new patients, we have no lack of confidence in saying that. And so we do expect a good back half of the year. We raised the guidance at the midpoint by a little over $65 million. So I know you're kind of inferring at the top and doing the work there. Look, there's nothing that gets in the way. What we've done is we derisked the base case. You see we've done that where now the base case is 20% to 22% growth, a record patient growth quarter and in Q2, obviously bullish in the back half of the year. But again, basal is new. So we're just being prudent in how we go about that and making sure we provide that base case. Of course, if we can do better, we will do so and we will certainly pass it along to you. In terms of cadence and seasonality, I think our expectation is at least Q3 looks to operate in a similar seasonality as to last year. At least that's how we're looking at it now globally. So think about it that way on a global basis. And I would expect that to play out -- really expect that to play out for the balance of the year, relatively similar seasonality to the past 2 years.

Operator:

And we will take our next question from Joanne Wuensch with Citi. Your line is open.

Kevin Sayer:

Joanne, this is Kevin. We don't break those numbers out. But our growth comes from all of the above. Certainly Dexcom has once benefactor in those countries where we've launched it, but we haven't launched it in all of our international geographies yet. Our launch, as Jereme said earlier, we're about to launch in France. We just announced we're kicking off in Latin America here in Q3. And we've launched in a few other geographies, those geographies it's doing well. G7 has been a strong contributor, particularly in the U.K and Germany, where those launches are more mature. And our pump partners, particularly as automated in some delivery reimbursement has broadened in some of the geographies. That's helped us tremendously. Our direct efforts in Australia where we acquired our distributor that distributors performed extremely well and they've taken good share in the Australian New Zealand markets, in addition to that. So I mean, it's a blend of, of all the factors we talked about on the call.

Joanne Wuensch:

Thank you.

Matthew Miksic:

Hey, thanks. Thanks so much for taking the question. So just one follow-up on OUS growth and just a bit a quick question on, I just happen to see some of your -- more of your promotional efforts, sort of market development and brand awareness and ads that you're putting out in television and elsewhere. I'm just wondering, how you're thinking about the success of those -- what the duration of those campaigns run whether its U.S or internationally. And I'll just include the quick follow-up on some of the international growth questions that you're getting to try to parse out, the stricter is, if you could remind us also, if there's any stocking of new geographies that happen, or as you're really stepping into a new area, there's some elements of that, that we should also think about that may not repeat next quarter, or the quarter after. Thanks.

Kevin Sayer:

So I just think our promotional materials continue to evolve. And you'll see those evolve over the course of the year as we have more to offer, and we direct that message more towards different markets. I think our commercial efforts have been very successful. But in all fairness, we're looking at everything really with a very close eye right now as we plan for next year and the year after that. It's not just -- not just a one quarter shot for us.

Operator:

And we will take our next question from Travis Steed with Bank of America. Your line is open.

Jereme Sylvain:

Yes. So, Travis, it's interesting. So we're not going to give a specific number on basal anymore, just because it's now really folded into our business. There was a time when we said, hey, look, we have CMS coverage and we don't expect Medicare Advantage to come that fast, or we think commercial is going to take a little bit longer. And it's happened much, much faster. So now it's just really part of our core business. To your question, though, is it greater than 1.5%? Absolutely. It's part of the reason we raised the guidance. It's part of the performance in the quarter. And so you'd expect it to be higher than that. The way I would think about it is just now about any other patient really population where you ultimately want to analyze it, you'll think about attrition. So far we -- there's been no differences in terms of attrition from the basal population that started today to our core population. And I think you start to annualize that exit rate and that's the way I'd apply it and going forward. And then of course, new ads. So I think you're thinking about it the right way, Travis and then in terms of is it greater than 1.5%? Yes, it is.

Operator:

And we will take our next question from Matt Taylor with Jefferies. Your line is open.

Jereme Sylvain:

We’ve been pretty clear about our share position. If we haven’t been, let me reiterate it again. In all major geographies that are reimbursed, we’ve been gaining share and we gain share across most all of them this quarter. So we are doing very well. G7 has been accepted the way we wanted to. The majority of our G7 users are new users to Dexcom. We’ve seen greater increased awareness in the physician community now that they have this product with its simplicity combined with it being the best performing product on the market. So we're very clear there. Our pricing trends, you can see our margins remain strong. And our pricing is where we want it to be across channels. We're -- we've been pretty clear on all those things and there's really no other changes to report.

Operator:

And we will take our next question from Margaret Kaczor with William Blair. Your line is open.

Kevin Sayer:

Margaret, this is Kevin. I'll take it to start. And if the other guys have more to add, they can. I think as I've travelled about and spoken with physicians and stuff, we've learned a lot about basal, just launching. Just the journey of a basal patient, they've been on other meds for quite some time and that step to call on insulin is a big step. And it's a step that they've in many cases been afraid of for a long time. So providing this group with information necessary to truly manage their condition and to see that they're getting the right dose to see that what behaviors they need to use, to try not advance their type 2 diabetes is fast, we think there is a tremendous market here. And I think the reception and all fairness has probably been even warmer than I thought it was going to be, just as I've gone and spoken with people. We're also at a different point in time as far as CJM adoption and CGM awareness in general, as CGM is much more accepted than it was when we launched in other markets. Even from a distribution perspective, when we got Medicare approval the first time, I don't want to take you all back, but a Medicare patient couldn't use the phone app. When we got Medicare approval back in 2017, if they did, we had to give all the money back to CMS, we couldn't even get distributors to take our business. So that environment is all much, much more positive than has been before. The flip side of this is, it's new, there are a lot of them and there are still education to do and quite candidly, we're with a different physician group, because these people are usually primary care. While we've done everything we can or we think we've done a good job expanding into that market, we know there's more work to do there as well. So we're cautiously optimistic. We've seen great results so far. We've heard great things from the patients who use it. But it's just going to have to build over time. We considered all these things as we've looked at that market.

Matthew O'Brien:

Good afternoon. Thanks for taking my question. I would just love to hear a little bit more about G7 specifically. Those 8,000 new prescribing clinicians here in the state, can you talk about the composition of those between PCPs and then existing endos that are higher volume folks. And then internationally, I know, Jeremy, you said historically that G7 is a product where you're actually getting patients away from your competitor. Is the trajectory changing as far as the -- that dynamic as far as getting patients away from your competitor? Just looking at that international number in the quarter. Thank you.

Operator:

And we will take our next question from Mathew Blackman with Stifel. Your line is open.

Kevin Sayer:

Yes, this is Kevin. The challenges we're encountering and challenges we anticipated. The biggest challenge always is particularly in the Medicare environment is document -- getting the documents and getting to the proper distribution channel to serve these patients, because they pretty much all go through those who are not in Medicare, manage, go through the DME channel. And so document gathering, particularly in a PCP office where they don't see all people with diabetes all the time and the use of these documents is the biggest channel, but we anticipated that. And we've worked very closely with our distributors to streamline that process as best we can. They've done a very good job, helping us get our product out and help us continue to grow. As we talked earlier, our biggest Medicare new patient headquarter ever those folks all went through distributors. So that's a good metric for us, and shows that they're doing very well. I think it's been pretty much as planned. And we don't have a specific PCP sales force. Our reps have geographic territories, and they call on both specialty diabetes clinics and primary care physicians. So they truly have a business to run in their individual territories. And certainly we know who they call on, and where they spend the majority of their time, but it's their job to drive that business and bring those offices along. They do a really good job of that.

Kevin Sayer:

I think there was one -- you asked the question on type 1s, and we find them in the PCP offices. And the answer is yes, we do. We do and we find them as we go deeper and deeper into the primary care offices, we do find type 1s. Some of whom are not on CGM or in PCP offices where maybe CGM is a little bit less prescribed. And so there are opportunities there in those spaces to continue to drive awareness beyond Of course, the typical endocrinologist space.

Operator:

And we will pick our next question from Marie Thibault with BTIG. Your line is open.

Jake Leach:

Yes, this is Jake, I'll take that one. Yes, we're really excited about this new product that we're going to introduce, specifically for non-insulin users. And what it say about it is it's specifically designed for the needs of someone who isn't on insulin, but is trying to manage their glucose and trying to improve their health condition. And so the feature set is very unique to the needs of those users. It's not -- you're not managing insulin, you're not trying to avoid hypoglycemia. It's all about connecting the dots between diet, exercise and how those things impact glucose. CGM is the only tool that can provide you that real time feedback. And so we're really excited about how it's going to play into that space. And over time, we likely will expand the patient segment for that product, but we are initially focused on the type 2 insulin, non-insulin users.

Jereme Sylvain:

In price wise and most -- and Marie price wise in those things, there's a time in place, we'll ultimately talk about that. Today, probably not the best time obviously, it's information. We want to keep a little bit close to our vest until it gets a little closer to launch date. But very -- when I say we're very excited about it, it is an incredible exciting time around here at Dexcom.

Operator:

We will take our next question from Jayson Bedford with Raymond James. Your line is open.

Kevin Sayer:

Yes, thanks for the question. Yes. So it's important to note, right, that product is a 15-day product or non-insulin product. And we have completed a clinical study on the G7 platform, showing survivability out to 15 days with great performance. We met the ICG M criteria in that study. And so that study is going to be used for the submission of that product. So that's why we're confident in our ability to say we're going to launch that product next year.

Steven Lichtman:

Thank you. Hi, everyone. I wanted to ask about basal and broader type 2 opportunity outside of the U.S., particularly in the EU, certainly another big opportunity. Are the new pieces that you were putting in place with G7 and Dexcom ONE enough to really go after penetration of that patient population, or are there additional reimbursement efforts needed there as well.

Steven Lichtman:

Great, thanks.

Josh Jennings:

Hi, good afternoon. I was hoping to just better understand how you've had success kind of driving the average out of pocket costs for patients prescribed with G6, G7, down to $20. And is that something that you can market or have been marketing to patients or physicians? And is that been a driver of share gains in the US? Thanks for taking the question.

Josh Jennings:

Thank you.

Michael Polark:

Hi, good afternoon. Thank you for taking the question. My question is the non -- the product for a TOS not on insulin that's going to launch next year, the 15-day sensor. In 2024, is this largely, is the base case expectation that this is a cash pay model in '24. And then over a multi year period, there might be some uptake into traditional insurance channels or would you expect that next year? You will have kind of early at risk insurance coverage for this concept?

Operator:

And this concludes our question-and-answer session for today. I will now turn the call over to Mr. Kevin Sayer for closing remarks.

Kevin Sayer:

Again, thanks, everybody, for participating on our call today. Just in wrapping up, I want to acknowledge all the great efforts here at our company, our commercial team around the world has had an incredibly successful G7 launch, not only in getting product out the door, but driving access, make it available, everything that we've asked them to do, we've done faster than we planned. And we're just very appreciative that our operations team has not missed a beat from supply chain and microchips and G6 manufacturing in addition to G7 along the way, our engineering team, this product is performed the way we wanted it to. It's done very, very well. They continue to work on making it better. We talked earlier about our app performance software is not just an add on, it is difficult. And those five upgrades of the app in this quarter. Seamless and delivering people better features every time. You can go through the entire organization , even the bond Offering this quarter. Kudos for that team. It is a great time to be here. And as I said earlier, in my prepared remarks, we're just getting started. And that's how we feel about things. So thanks, everybody for participating on our call today and we look forward to talking to you again soon.

Operator:

Welcome to the DexCom First Quarter 2023 Earnings Release Conference Call. My name is Abby and I will be your operator for today's call. [Operator Instructions]. I will now turn the call over to Sean Christensen, Vice President of Finance and Investor Relations. Mr. Christensen you may begin.

Kevin Sayer:

Thank you, Sean, and thank you, everyone, for joining us. Today, we reported another excellent quarter for DexCom with first quarter organic revenue growth of 19% compared to the first quarter of 2022. Momentum for global CGM adoption remains very high. and we continue to see a growing appreciation for the differentiated experience that DexCom provides. It has been an exciting start to 2023. Our teams advanced some of our most important strategic initiatives in the first quarter that will continue to build on our foundation for growth in the years ahead. There is growing momentum behind the rollout of our G7 system as we initiated our full launch of G7 in the U.S. This launch represents years of hard work to bring to market a product based on feedback from our customers that meets their specific needs. . G7 is the most accurate CGM on the market. It is simple to use and is supported by the most covered CGM brand. We expect this differentiated feature set will add to our leading customer satisfaction metrics. We were thrilled with the opportunity to announce this launch on the biggest stage with our second ever Super Bowl commercial. Over 100 million people were watching the game on our commercial air and the customer clinician outreach that filled was incredibly encouraging as we expected it would be. The ad generated 3x as many impressions for DexCom as our 2021 Super Bowl commercial, exceeding our initial expectations on engagement and awareness. We also heard from members of the diabetes community who shared their DexCom magic moments and pride in feeling represent on a platform of this size. Awareness remains a critical element to driving broader access and adoption for CGM, and we designed this campaign to demonstrate the life-changing potential of our system and a G7 product is incredibly simple to use. Millions of people with diabetes to not use CGM, and this provided us an opportunity to both connect with them and advocate on their behalf. While we are still early in our U.S. launch of G7, we have been very encouraged by the initial response. We have seen a steady ramp of new users and the initial feedback from both customers and clinicians has been consistently great. We have also seen this product attracting new prescribers altogether. Already in the early weeks of this rollout, nearly 1,000 health care providers have prescribed G7 who previously were not prescribing DexCom CGM. Perhaps most encouraging is the progress we have made in building reimbursement for G7 in only a short period of time. Medicare coverage was established for G7 only days after our Super Bowl commercial, which coincided well with the timing of our launch and came in about a month earlier than anticipated. We also finalized our commercial DME contracts relatively quickly and G7 commercial DME coverage is now already on par with G6 levels. Commercial pharmacy coverage has also progressed rapidly. In our reimbursement discussions, payers are clearly recognizing the value proposition that exists with DexCom G7. As a result, we already have more commercial pharmacy coverage established for G7 today than our competitor does for their sensor platform. Payers continue to value our premium feature set, leading customer engagement metrics, best-in-class performance and proven outcomes backed by robust clinical edits. Overall, we have advanced coverage more quickly than anticipated, and we expect G7 to be covered by all major PBMs by the end of the second quarter. These coverage decisions for G7 also position us well as our industry takes a significant step forward in terms of access for CGM. In early March, CMS finalized their proposal to expand access to include people with type 2 diabetes using basal insulin only as well as certain noninsulin-using individuals that experience hypoglycemia. With coverage officially kicking in last week, this decision represented the largest single expansion of access to CGM in our industry's history. As a reminder, we size the basal-only type 2 population alone at around 3 million people in the U.S. with around half being of Medicare age. We are incredibly excited to start serving this population more broadly going forward as we see a significant opportunity to help these individuals live healthier lives. Our mobile trial demonstrated meaningful improvements in timing range, A1c levels and hypoglycemic events among this population wearing DexCom sensors, as sensor engagement proved to produce behavior changes within this cohort that supported greater glycemic control. We are in a great position to compete as this market develops as accuracy, performance and customer engagement will continue to be the defining features of delivering outcomes. Customers and clinicians have historically indicated a preference for a differentiated product where reimbursement exists, and we expect this dynamic to endures access continues to expand. Along those lines, we will continue to leverage our mobile data as well as the updated ADA standards of care to build broader coverage. We are in active discussions with private payers in the U.S. to establish basal reimbursement and will similarly advocate for broader coverage in international markets. Our international G7 roll at also continues to go well with good initial uptake and high customer satisfaction rates. Majority of our international G7 customers continue to be new to DexCom altogether, suggesting the new form factor and feature set is attracting both people new to CGM as well as those using competitive systems. We view this as a very positive sign as we broaden our rollout in the coming months. In the second quarter, we will be launching G7 in 8 new international markets as part of our strategic effort to get this product to as many peel as possible. From a capacity perspective, we remain in great shape to support this broader rollout. We are ramping up production quickly and have plenty of G7 inventory on hand to support our growth ambitions. Additionally, we expect our Malaysia plant to start producing commercial product around midyear, which will further support our G7 scale up. Finally, we look forward to seeing many of you in June at the American Diabetes Association's 83rd Annual Scientific Sessions in our hometown of San Diego, California. We are always excited to connect with thought leaders across the industry at this event, as we collectively work to map out the future of DexCom CGM technology in Diabetes Care & Beyond. In conjunction with the conference, we are planning an investor event where we will provide our latest vision around the future of DexCom and share incremental detail on many of our key strategic initiatives. We hope to see you there. With that, I will turn it over to Jereme for a review of the first quarter financials. Jereme?

Kevin Sayer:

Thanks, Jereme. I would now like to open up the call for Q&A. Sean?

Operator:

[Operator Instructions]. And we will take our first question from Robbie Marcus with JPMorgan.

Jereme Sylvain:

Thanks, Robbie. This is Jereme. Appreciate that. In terms of guidance, maybe I'll start there and then I can turn it over to Kevin in terms of thought process around wear times. In terms of guidance, we had talked about basal prior to approval if it started in the middle of the year being about 1%. And our updated guidance has us higher than 1%, certainly more in that 1.5-ish percent range, but not necessarily changing integer. So hopefully, that gives you some context to where that's going. Certainly, we expect it to be a market change in terms of what I would say is reimbursement for the longer term. In terms of adoption, we're obviously just getting in those approvals and just getting in the reimbursement. So it's going to take a little bit of time for us to ultimately see how that cadence of adoption is. But you've got our expectations. And over the long term, we expect adoption to be, quite frankly, very, very positive. Maybe I can turn it to Kevin in terms of awareness in the channel and in kind of where times longer term.

Operator:

And we will take our next question from Jeff Johnson with Baird.

Jereme Sylvain:

Sure. Yes. Thanks for asking the question. So you obviously updated the Bridge program. The Bridge program is where a significant amount of folks are taking advantage of it. That price point is a little bit lower at this point. And great news, of course, is the coverage has come in a little bit earlier. And so certainly, we haven't had to have folks take as much advantage of it. In terms of those cash pay programs, we have seen some encouraging initial adoption, but it is relatively initial. So as you see those start to come through, longer term, we think it can be additive, and we believe it will be. In the shorter term, it's really not a material contributor, but longer term, again, Jeff, we're very excited about what this opportunity offers to folks. Longer-term margins perspective, we feel good about the pricing in those cash pay programs. We don't expect it to have a long-term drag on margins. . As you've seen in the quarter, we continue to do really, really well on designing cost out of our product, and we'll continue to work on doing that both with G6 and G7 to where these programs won't necessarily be dilutive to our long-term gross margin.

Lawrence Biegelsen:

Congrats on a nice start to the year here. Jereme, 2 parts for me. I mean, the first quarter was about 20% if you back out the bridging program the guidance, 17% to 21%. Can you talk about the cadence through the year? And is there any reason why growth wouldn't accelerate from Q1 with G7 and the basal launches -- and just separately, what was volume in the U.S. volume growth? People are going to compare and contrast your, call it, 18% growth in the U.S. adjusted for the bridging versus Abbott's 50%? Just any color on what you think is going on there.

Operator:

We will take our next question from Matt Taylor with Jefferies.

Kevin Sayer:

Yes. This is Kevin. I'll take that, and Jereme can add a bit afterwards. On the basal opportunity, remember, Medicare sales process is durable medical equipment, and we have very good relationships with our distributors and in that channel, and we worked very hard to position them to be successful with the basal patients. And so we're very comfortable there. With respect to our coverage, I think it's important to note our approach here. Our goal is to minimize the out-of-pocket cost of our customers. And by getting all this coverage, we've repeated the statistics several times, 30% of Dexcom users -- commercial users to go the pharmacy have 0 co-pay, and 70% have lower or at least equal to co-pay as our major competitor. Our goal is to get them through and to get them covered rather than rely on the bridging program forever. And our team is very successful and getting us through that. The bridging program is still out there, and it's still open, but many of the customers go to the drug store and don't need it. We've got that pharmacy coverage in place, which creates an opportunity then for them to spend less on a monthly basis, and it's very important to our users. That's why we've approached this coverage very aggressively. In all fairness, we've talked about G7 long enough, the payers were ready to have discussions. We were met with open arms. They're very excited at the opportunity to have this new product and in front of them again.

Margaret Kaczor:

Kevin, I don't want to get too far away from basal which clearly a huge driver in the short term and where a lot of focus is. But I guess, can you give us some of the context on the steps that you're taking today to drive adoption and to even earlier stage type 2 patients, whether GLP-1s or orals and -- is this going to require a clinical data? Are you guys working on that? Or are the partnership programs, I guess, at this point, sufficient upscale where coverage can broaden, I guess, without something like a mobile study?

Operator:

We will take our next question from Matthew O'Brien with Piper Sandler.

Jereme Sylvain:

Yes. I appreciate the question. And that's not what I was necessarily trying to and I was talking about is our underlying patient base is up in the mid-30s. And that was based on the patient base we gave you as part of our kind of pegs we give you once a year. I wasn't necessarily coming on specific volume within the quarter. But what I would say is the volume in the quarter was relatively -- it was robust. It was another good quarter for us, and it was on the backs of a record new patient add. So I didn't want to get into specifics on volumes. What I can tell you, just in generalities around price. Price and volumes do tend -- are continuing to converge over time. That is us moving less from pharmacy -- I'm sorry, from DME to pharmacy, that channel has started to stabilize quite a bit. There is still some annualization going on. So make no mistake, we are still going through that annualization plus we have the -- what we talked about earlier, which is the bridge program playing through. albeit to a lesser extent. So the prices up is moving how we would have expected. So I won't really trying to insinuate that there was an increasing delta between the 2. I was just trying to give some context around a strong, robust underlying patient base for the quarter. So I didn't want to read too much into that, and I apologize if you gave you the wrong impression.

Danielle Antalffy:

Congratulations on a good start to the year. Just that -- I'm going to try to ask this question qualitatively, Kevin, because I appreciate you guys are going to give us an update in 2 months here at ADA. But as we look at the basal opportunity, we were kind of thinking of looking at insulin intensive type 2 as a proxy there. And I guess my question for you is, it looks like insulin-intensive type 2 is ramping to 50%-plus penetration around 5 years after securing Medicare coverage I mean, is there any reason to think that could be true as well for basal and arguably could basal ramp even faster given that we are significantly ahead of where we were in 2018 from a technology, from an awareness perspective. Anything you could say around that without front-running the Analyst Day?

Operator:

We'll take our next question from Jayson Bedford with Raymond James.

Jereme Sylvain:

We've added more users in 1Q than we ever have in any quarter in DexCom's history.

Kevin Sayer:

It will take time. It's not going to happen overnight. Our outcomes data that we provided with the mobile study gives us a good first pass. I think as we see success with users in the United States and we see outcomes and possibly gather more economic data as we work some of these patients. It's going to require that type of evidence. So we don't have -- I don't think we have enough yet personally, the team may disagree with me, but I think we need to develop more. But certainly, it's on the table. And it's certainly something we can now discuss because when CMS approves the policy of this nature, the world takes note. And so we are now getting audiences to discuss that internationally, and we'll continue to push.

Joanne Wuensch:

Nice start to the year. I want to make sure I understood this new user comment. I'm going to assume that, that also includes DexCom ONE patients that are in there. that might be adding to the difference between the dollar growth and the user group. And then I'm curious in how many countries DexCom ONE is in currently?

Operator:

We'll take our next question from Cecilia Furlong with Morgan Stanley.

Jereme Sylvain:

Yes, sure. So I can answer that. The expectation still is 1/3 of new patients. And as you can see, some of the encouraging things, for example, with the U.K. formulary decision to include transmitters, on there just makes it easier. And so the way easier we can make it, the easier it's going to be. So that's still our expectations. And right now, a majority of the DexCom ONE product is sitting in the EU region. So when you think of geographies, think of the European region, including the U.K. in that as well, where I think you'll expect to see most of the growth associated with DexCom ONE and really most of the growth for the foreseeable future until we can launch in other jurisdictions meaningfully across the world.

Mathew Blackman:

Another international one for me, just curious for an update on Japan now that you've got a broader reimbursement with G6. Can you really just give us a sense of how much that business is annualizing at and how important a component it is in your 2023 outlook?

Operator:

And we will take our next question from Marie Kibble with BTIG.

Kevin Sayer:

Yes. This is Kevin. I'll take that. We have a lot of prescribers to go for G7 because it's going to be a very broadly used product, particularly as you look at the basal opportunity we have. ahead of us. We know we have new prescribers we have to gain and we structured our sales force and designed their workflow and goals for the year to, in fact, go after and to go educate those that we need to go to. A lot of the prescribers who are prescribing G7 could, in fact, be new to CGM. What we do know is they're new to DexCom and that's what's most important to us. So if they're new to DexCom, it's 1 of 2 things. Either they're new to CGM in general or they've come after using competitors' products, both of which we view are good. And with G7, again, the excitement in the doctor's office is the ease of use. It is just so easy to use and so easy for somebody to get started on G7 with a 0.5 hour warm up with the easy insertion with a small form factor that we have. If a patient chooses to use a receiver, that receiver experience is much better than what they've had before. We really are getting great feedback on the new receiver and the accuracy of the system. The system, what we're hearing back performs extremely well, and people are very happy with what they're seeing. So word of mouth has been very strong on this product. Our campaigns have obviously been aggressive, but the strength of the product has supported what we've said.

Travis Steed:

I guess, I wanted to touch on margins. Gross margin in Q1 was actually above the full year guidance. So I want to understand the bridge on gross margin? And then maybe talk a little bit about OpEx leverage while we're on the margin topic and maybe the potential to see upside longer term above that long-term margin guide.

Operator:

We will take our next question from Chris Pasquale with Nephron Research.

Jereme Sylvain:

Yes, it's a good question. It's really a function of timing. So I'll start with R&D. R&D, if you think about this time last year, we were wrapping up a lot of the work around G7 as well as wrapping up a lot of the work on prototype lines for development. And so what you saw running through the P&L was an elevated period of spend. And as you saw it go through the rest of the year, you saw R&D kind of come back down as those G7 costs started to either dissipate or move up into different areas of lines because you validate those lines as much anymore. And so you saw that change happening. Over the course of the year, I would not expect that type of leverage on R&D. We'll still continue to leverage it as a percentage of sales, but it won't be what you saw in this quarter. It's just the inverse for SG&A. So we -- obviously, last year, we did not have a Super Bowl commercial or a G7 launch in the first quarter. This year, we did in the U.S. And so you saw an elevated level of spend associated with that, which we expected in coming out with our long-term guide. It was all expected, but that's why you saw the change. The other part is you do see the Malaysia costs as we're building up that factory, we're getting closer to go-live and so we're ramping up costs. But until we go live, those costs sit in G&A. So what you'll see is the -- we'll start to actually leverage SG&A a little bit more as the year goes on. And conversely, we'll leverage R&D a little bit less, but it still ultimately leads to leverage by the end of the year across both of those lines.

Matthew Miksic:

Some follow-up here on the basal opportunity. So clinicians we speak to describe something like a fair amount of pent-up demand in this community of Medicare patients on -- basal patients. If you -- just wondering if you have any sense of how long -- that's the way you are also seeing the set up? Like how long do you think it will take to work through that pent-up interest in the community? And then just if I could also on pricing and margin for this category, given that we're talking about sort of mix factor for all these different types of channels that you manage. What is this -- how does this compare to your sort of core business or maybe some of your other channels in terms of margins and pricing and mix?

Jereme Sylvain:

Yes, I think that's exactly. I mean, at the end of the day, it depends on what the reimbursement would come through at that will ultimately determine margins. Thus far, the reimbursement has come in generally in line in a favorable manner. Over the long term, we'll keep an eye on what that reimbursement looks like. And then we'll have that conversation to make sure you guys understand where this is going. But all throughout this process, we'll be looking at -- we'll be looking at reimbursed, and we'll also be looking at how we deliver our products at what we to be a lower cost. And so that will be our way of helping manage through that as well.

Kyle Rose:

Great. Good evening, everyone. I guess I'll be the guy that asks what's next when you're in the early stages of a new product launch. But just wondered if you could set some expectations with respect to extending the days of use as well as adding back some of those software features that you pulled at the request of the FDA in the second half of last year, just help level set expectations for R&D on a go-forward basis here.

Operator:

We will take our final question from Steve Lichtman with Oppenheimer.

Jereme Sylvain:

Yes, it's a good question. Maybe I can start, and then certainly, Kevin can fill in. Obviously, massive market. And within that market, there's different use cases as you kind of go through the acuity, even the subacute within that market. So we are thinking about it from multiple different levels. from a combination of a few different areas. One, is it an area where we want to reimburse were we worried about hypo? Is there a software change we need to make to target maybe a hyperglycemic approach. So we're thinking about how to either fit form software and product feature and/or does the existing product makes sense, which, again, in many cases, we think it does. So we are working with payers and thinking about how we go after that market. In terms of price point and use cases, I think that's the 1 we're still working on because the acuity level may be different. There may be someone who's kind of moving more on the acute side that's going to want to use it very similar to a basal or an intensive user, where it's going to help maybe reverse the progression of the disease as opposed to someone that's maybe more diagnostic on the front end to help maybe curb changes earlier on. That's something we are working through. I think there's going to be a bunch of different use cases. So it's hard to model that price out because I think it's going to be different based on who exactly is using it and what stage of the disease state they're in. Kevin, any other thoughts?

Operator:

And ladies and gentlemen, that concludes our question-and-answer session for today. I will now turn the call back to Mr. Kevin Sayer for closing remarks.

Operator:

And ladies and gentlemen, this concludes today's conference, and we thank you for your participation. You may now disconnect.

Operator:

Ladies and gentlemen, welcome to the DexCom Fourth Quarter 2022 Earnings Release Conference Call. My name is Abby and I will be your operator for today's call. [Operator Instructions] As a reminder, the conference is being recorded. And I will now turn the call over to Sean Christensen, Vice President of Finance and Investor Relations. Sean, you may begin.

Kevin Sayer:

Thank you, Sean and thank you, everyone, for joining us. I'd like to start by reviewing some of DexCom's key accomplishments in 2022. Total revenue grew 20% on an organic basis driven by another year of record new customer starts. This translates into more than $475 million of organic revenue growth compared to last year as we saw another step forward for CGM awareness and DexCom brand loyalty. We added nearly 450,000 DexCom users to our base in 2022 and ended the year with close to 1.7 million customers globally. Our team did a great job generating this customer engagement and growth while simultaneously enhancing the scale and efficiency of our organization. Our operations team demonstrated world-class performance this year, ensuring adequate supply in a difficult macro environment and providing on-time delivery rates of greater than 99%. We drove over 500 basis points of operating expense leverage in 2022 despite broad inflationary pressure. This was not the result of reactionary cost cutting. Instead, it reflects decisions made years ago at our company to foster a culture of cost discipline as we grow. From a strategic perspective, we will look back at 2022 as a pivotal year for our company. We advanced several of our most important initiatives, including multiple new product launches, significant access wins, new market development and a further extension of our market-leading performance in connectivity. Everything we achieved this past year helps build a foundation for years of sustainable growth ahead. For example, in October, CMS published a proposed local coverage determination that would meaningfully expand access to CGM technology for the Medicare population. This proposal would broaden coverage to include people with type 2 diabetes using basal insulin only as well as certain non-insulin-using individuals that experience hypoglycemia. This result was led by the publication of DexCom's MOBILE study and furthered by a strong partnership with the diabetes community. We heard broad support and enthusiasm from key stakeholders during the comment period and expect the ruling to be finalized in the coming months. As a reminder, we size the basal-only type 2 population at 3 million people in the United States. Between this Medicare ruling and broader commercial coverage which we expect to follow shortly, this population has the potential to nearly double our addressable reimbursed market in the United States. Outside the United States, our team has been equally focused on building greater access. We drove many positive coverage decisions from Mobile payers over the course of 2022. These access wins were in response to the strong clinical evidence we continue to generate as well as the introduction of our portfolio strategy in many of these markets. 2022 was the first time that we brought multiple DexCom products to a single market and this strategy has enabled us to significantly extend our reach. By offering multiple products, we can provide a unique value proposition that meets the specific needs of our diverse base of customers, clinicians and payers. A great example is in the U.K., where DexCom ONE was added to the national formulary for all people with intensively managed diabetes. Collectively, our international access initiatives have helped us expand our reimbursed coverage by 3.5 million lives over the past 18 months. 2022 will also be remembered as the year of G7. We received both CE Mark and FDA regulatory clearance for G7 and initiated a full launch outside the United States. The feedback from our customers has been everything we'd hope for. We are hearing consistent praise for the new features, such as the 60% smaller form factor, shorter warm-up period and more engaging and consumer-friendly app. Perhaps the most encouraging is that 97% of initial users surveyed have found G7 easy to use. We designed this product to simplify the lives of our customers and we are thrilled to see that emphasis resonating. All of this leaves us incredibly excited to bring G7 to the U.S. In fact, we began shipping this week into our U.S. distribution channels to support our rollout. We have quickly ramped up production capacity to support the launch with our automated G7 lines already capable of producing more than 100,000 sensors a day. We want to get G7 into the hands of as many people as possible. So in conjunction with our launch, we've established a bridge program to simplify access for our early adopters. This program will provide new and existing customers access to G7 immediately and allow us to go to market in a broad and expedited manner. Behind the scenes, we continue to advance our discussions with payers to build reimbursement. Our conversations have progressed very well and we are well on track with our G7 coverage plans. More importantly, we are not going to be bashful about what we think of this product. G7 is the new gold standard in diabetes technology. This is the most accurate, easy-to-use and accessible CGM ever produced and we want to share this message with the world. As a result, we will be releasing our second-ever Super Bowl commercial this Sunday. We're again teaming up with one of our most recognizable DexCom warriors, Nick Jonas, to announce the G7 is here. This is a great opportunity to connect not only with our loyal G6 users but with the millions of people with diabetes that still do not use CGM. We want these individuals, their caregivers and their loved ones to know that DexCom can help them live healthier lives. With that, I'll turn it over to Jereme for a review of the fourth quarter financials. Jereme?

Kevin Sayer:

Thanks, Jereme. To summarize, we are incredibly excited about the opportunity ahead with G7 and we're rolling out product to our distributors as we speak and we're ready for a big launch in the U.S. I would now like to open up the call for Q&A. Sean?

Operator:

[Operator Instructions] We will take our first question from Jeff Johnson with Baird.

Jereme Sylvain:

Thanks, Jeff. Yes, I appreciate that. This is Jereme. So to your question on coverage, we're still in the throes of the commercial DME and the Medicare coverage. We talked about on G7 taking about 90 days. But on the pharmacy side, we're actually a little bit ahead of schedule. Kevin referenced, we're well on track to the point where I talked about, about a $30 million-ish hit in Q1 as a result of our bridge program. That number is more like $15 million now and that's because some of those pharmacy contracts are coming in earlier. So we are making great progress and we continue to get that every day. And the signs lead to more and more contracts coming over, maybe even ahead of schedule. In terms of the question then on competitive dynamics, maybe I can start and then Kevin will obviously have a few thoughts there. We had a record new patient start in Q4. If that gives you any context to we had another solid new patient quarter. So while we have seen competitive product out there, we continue to do very, very well with G6 to the point where we have seen incredible strength there. And that's, of course, on the heels of a G7 launch which as we referenced, is coming out here in the next coming days. Kevin, I don't know if you have anything else to add there.

Operator:

We will take our next question from Larry Beigelsen with Wells Fargo.

Kevin Sayer:

Well, Larry, our -- I'm going to talk for a bit. I'll turn it over to Jereme. Our initial estimates, it's 1% of our total revenues would come from that. And that's a reasonably sized number. We plan for July, second half of the year, approval and rolling it out from there. It may go faster than that but we've been conservative in our estimates and we will make every attempt to beat those. As we look out to 2025, that non-intensive insulin space is not just basal users. We believe our CGM product will be very valuable amongst a number of markets in the type 2 space and also in metabolic health. So it's not just basal users there. It's a lot more than that. And many of the basal users, as you well know, move up to be intensive insulin users as well. So we view that population as moving and shifting with us as they go. Jereme, you have anything else to add?

Operator:

We will take our next question from Margaret [ph] with William Blair.

Jereme Sylvain:

Yes. So let me start on the base and then I can turn it over to Kevin from that perspective. And so the ramp in basal is going to be a bit interesting. We'll give you kind of the way we think about it. Think about it as -- I generally start with type 2 intensive and you think about that ramp and you think about coverage and how that takes place. And if the coverage takes place over a similar time, you'd expect a relatively similar ramp. Now, I'd caveat that by saying there's more awareness today. And hence, the Super Bowl commercial is a good opportunity for us to continue to raise that awareness. However, the place in which the basal patients cede is a wider swath of physicians. And so we don't have an exact crystal ball here. If you're using prior analogs, the best analog is type 2 intensive would be about the adoption rate. But I think as time moves on, we'll be able to give you a little bit more color. But that's kind of our best crystal ball. And then maybe, Kevin, if you want to give just some general thoughts about metabolic health and the opportunities there.

Operator:

And we will take our next question from Robbie Marcus with JPMorgan.

Kevin Sayer:

I will start off. With respect to the sales and the revenue numbers, G7 and DexCom ONE are still early enough in their launch life cycle that while they're additive, they're not what's driving a lot of the adoption, a lot of the growth that we've seen in European markets. A lot of that's been what we've established with G6, the additional coverage that we've obtained, as I talked about in the prepared remarks, in 18 months, we've added 3.5 million more reimbursed lives. That being said, initial response to G7 has been everything we'd hoped for. People love the app. They love the receiver. Again, in many of these markets, the receiver is a very, very strong tool. My most recent conversation with the G7 user focused completely around the 0.5-hour warm-up. A 0.5-hour warmup has eliminated 90 minutes of the longest 2 hours of somebody's life who ever used the G6. And certainly, in the comparative front compared to the hour warm-up, again, it is a much better experience. The majority of our G6 users are new to DexCom. They're not DexCom upgrade -- I mean G7 users, I apologize. The majority of our G7 users are new to DexCom. Some of them come from the competition. Some of them have not used CGM before but they're all finding it very easy to use and having great experiences. So we're very happy with the product to this point in time. We've done very well.

Joanne Wuensch:

So I'd like to spend just a minute on the gross margin and how you anticipate those ramping throughout the year. And then while I know we're sort of early to think -- be thinking about 2024, I do think people are looking at that as sort of a more normalized margin rate and if you could sort of shed any light on how to think about that.

Operator:

We will take our next question from Matthew O'Brien with Piper Sandler.

Jereme Sylvain:

Sure. Yes. I don't think we're at a point where we'd necessarily change our guidance. But let me take your question head on which is in isolation, what does this do? So certainly, what the bridging program, what this effectively means is we have contracts in place a little bit more ahead of when we ultimately expected. And so ASPs will be a little bit higher and that's as a result of most folks going through coverage as opposed to the bridging program. So that does a couple of things. Certainly, it does help revenue and it does help margin. That all being said, we're not changing guidance for the year. But I think what this does mean is, one, it's a great thing for patients who want to access the product. We talked about coverage being a key strategy. That's wonderful. It does help longer term for those margin profiles. And while I wouldn't necessarily guide you outside of our ranges, you are correct. It does help on revenue and gross margin on the full year. And the other question was how much for the full year. We expected a majority of it, almost all of the $20 million, $30 million, in the first quarter. We do expect a nominal amount in Q2. We haven't expected any of it beyond Q2. Really, a majority of your concern would be in Q1.

Marie Thibault:

Congrats on a strong quarter. Wanted to ask a little bit more on kind of the backlog around the Medicare decision making. I'm very curious how physicians and patients, how aware they are of that decision, whether we might see a bolus of patients sort of come on once that Medicare coverage took place.

Operator:

We'll take our next question from Travis Steed with Bank of America.

Jereme Sylvain:

Sure. Yes. So I'll start with how we're thinking about Q1. And the way we've generally thought about Q1 is in terms of full year contribution, absent any sort of bridging program, to be a very similar contributor as a percentage of total year revenue in the first quarter. So that's total company, not just U.S. total company. And then, you add the bridging program and then you pull it down from there. And that's generally how we think about the quarter which is just an indication of continued strong new patient growth. Clearly, we'll be working through driving new patients and driving growth over the course of the year. In terms of the Super Bowl and then how to think about the Super Bowl and how that contributes, last time we did it, there were hundreds and hundreds of thousands of inbound leads. Not all of those obviously translated into patients but there was a lot of interest. One of the challenges, though, if you rewind the clock a couple of years, is there wasn't as much coverage there. And so I think what we're hoping this time around is, one, the awareness is the most important thing. And the awareness, as that gets out there, will be very, very helpful. But as coverage starts to come through and we have this bridging program in place, it's a real opportunity to take advantage of it. We're not ready to give exact patient numbers out there other than to say that the return on capital is a very strong investment. And so, you should expect we do that math before we sign up for this. And we wouldn't be doing if we didn't expect a return on investment that was commensurate with what you and we would expect.

Jayson Bedford:

Just maybe an OpEx question. It looks like it's a bit bigger of a step up implied in '23. I know the Super Bowl ad is a contributor. But just wondering if you can comment on what are the sources of the OpEx growth and maybe hit on any planned changes to the sales force in support of G7.

Jereme Sylvain:

Yes. And just to kind of add to that one, Jayson, just to give you some context. We launched outside the U.S. with DexCom ONE and G7, call it, in the first couple of phases. But we have more phases to go. And so we're going to make the marketing push obviously with G7 in the U.S but there's also a second phase of G7 launchings outside the U.S. and a second and third phase of DexCom ONE outside the U.S. So sales and marketing is really where we want to put our investment and we'll get leverage elsewhere. But hopefully, that gives you kind of some context for how we're thinking about that spend in 2023.

Matt Taylor:

So I just want to get some thoughts on gross margin longer term. I know you touched on this year. And obviously, with the new product launch, there's some initial depression and then you get spring loaded with leverage over time. So help us think about G7 over the next couple of years. Does that expand? How can that impact gross margins with and without the potential for a longer wear label?

Operator:

We will take our next question from Mathew Blackman with Stifel.

Jereme Sylvain:

Yes. Thanks for the question, Matt. Yes, we do. We've considered all of that when providing that guidance. I mean, when we think about all the competitive pressures and then we think about all the opportunities ahead of us, we consider all that in the guidance. And you are right, there is the potential out there, at least according to some of the commentary, that there could be some potential pressure out there. I would say that we've contemplated it. At the same time, we feel very confident in our product offering and what it ultimately does, how it integrates and the safety features that people rely on our product for the accuracy, the ease of use. So I think we feel very confident about it. But yes, we did contemplate that in our guide.

ChrisPasquale:

Love the update on how you guys are thinking about price. You said in the past, your U.S. channel mix could start to stabilize once you hit 75% of the pharmacy. You're there now. But you also have D1 making a bigger portion of the OUS starts which I would imagine might pull down your international ASP a bit. So can you tell us what impact price had on revenue in '22 and then how you're thinking about the potential impact this year?

Operator:

And we will take our next question from Kyle Rose with Canaccord.

Kevin Sayer:

Yes. This is Kevin. I'll take that. Jereme gave us a bit of color earlier. 75% of our calls already by our U.S. sales force are in the PCP arena. And I think you'll continue to see that expand as our team spends more of their time addressing that marketplace, at the same time, not ignoring the places where we've been so successful in the past with the intensive management diabetes. So we will look at that structure in great detail. On a geographical basis, even within the U.S., there may be some places where we need to expand geographically versus large expansion across the entire country. We'll analyze that in great detail as we go. We're in the process of doing that now. We just brought on a new Chief Commercial Officer, as many of you will remember, in early January. And she's deep in the middle of that today as we manage those thoughts and the launch and everything else going on but we'll look at it very strongly.

SteveLichtman:

Question on DexCom ONE outlook. Can you talk about any major new geographic regions you expect to roll out the platform this year? And should we expect to see any movement in bringing DexCom ONE onto the G7 platform this year? Or is that a longer-term play?

Operator:

We will take our next question from Josh Jennings with Cowen.

Jereme Sylvain:

Yes. It's a good question. Look, I think the way to think about the ASP is it's really more about channel than it is about version. And so as you think about where folks and who folks -- who gets access, the general way to think about it is Medicare which is publicly out there, I think after the increase, it's around $250 a month. There's a delta there which goes to the distributor who ultimately fulfills that. So the net price to us is south of that. But ultimately, that would be our price in that range; that's publicly available. Generally, commercial DME is higher than that and pharmacy is lower than that number. And so that's the way to think about it. In terms of then how ASP moves over time, think about it less of generation of product and think about it more as where folks want to get their product. And so I think you're thinking about it the right way. As we talked about, 75% of our lives covered in commercial. 75% of those patients, those patients obviously then come through at a lower price point. If that drifts to, say, 80%, you could see that having a potential tick on there. Again, most of that is behind us but that's the way to think about the split there. And then in terms of pump partners and how folks ultimately access it, it really depends again consumer preference. You're right, Tandem is generally accessed through the DME and Insulet's generally access to the pharmacy. So it makes sense that folks get their CGMs through that channel. That all being said, it's ultimately consumer preference. And we believe the consumer experience through the pharmacy is great. We have some really great DME partners. They do a wonderful job fulfilling product through that DME channel. And so we believe that, that folks can be fulfilled either way.

Kevin Sayer:

No. Right now, there's one class of CGM products and reimbursement is consistent across the board.

Cecilia Furlong:

I was hoping to follow up. You talked, though, the last quarter just about rolling out cash pay models in the U.S. Just curious if you could provide more color as you're thinking about that opportunity today. And then for 2023, specifically, how we should think about potential incremental contributions from that?

Operator:

Next question from Matt Miksic with Barclays.

Kevin Sayer:

This is Kevin. I'll take that bigger picture. Jereme has been very familiar with the numbers but I'll give you a bit of my perspective. With respect to no competition in the pump integration point, we may pick up more, we may not. What I do know is everybody using those pumps integrated systems right now uses a DexCom. And they're achieving remarkable results with the technology we've developed over the years and we'll continue to receive such. It is our position that the experience that they're going to have with algorithms based upon DexCom's CGM that have been developed through the data and the performance of our sensor will continue to make us the leader in that space regardless of who the competing sensor is. And so we're very confident there that we will continue to have a very strong product offering going forward. With respect to the margin change over the course of the year, there's a couple of factors in there. Obviously, Jereme has talked about the bridging program in the first half of the year bringing margins down a bit because the revenue per patient will be a bit lower there when we start. But as we see that pick up, we'll pick that up on the revenue side. Then you have basal come in and Medicare reimbursement is strong; so that will help on pricing. The flip side of that is it's sometimes lost on folks, everything we do with G7 is different. All these lines are completely different. All the capacity is different. But the only thing that's the same is we're building in Arizona and we're building it in San Diego. And that's not going to be the same for a good portion of the year because we expect the factory in Malaysia to be up and running in the second half and producing product there. So you have a number of variables with respect to scrap, with respect to purchasing components, with respect to how these lines run as we get them up and running and functioning at full speed versus where they are today and then bringing on a new factory. We have tried to contemplate every one of those variables as we've started and we'll update you as to how things are going as time goes on. But whenever you do a product launch, particularly when this significant because when we did our last big G6 product launch, we had similar margin activity but it was on a much smaller scale because we're so much bigger than we were before, there's just more variables that we have to plan for. We've tried to be conservative and thoughtful in our guidance based on the performance we expect of our teams. We also expect our teams to be better than this too. We don't ever lower the bar for them, as they will tell you. But we've looked at all -- every one of those things and contemplating that and we meet on this literally every day to make sure we're covering all of our bases. This launch is really important to us as are our margins. But it's really important to get product out to all the users that want it.

Michael Polark:

I just wanted to follow up on first quarter to make sure I have my modeling square. Jereme, I heard in response to prior question using the full year guide, you're thinking about 1Q consistent with seasonal patterns. The last 3 years, I have 21% of full year revenue in the first quarter. If I use the midpoint of your range this year, that's $720 million. But then you made the comment about the bridge program down from there. So that would be another, say, $15 million or $20 million for the quarter. So I'd be at $700 million or $705 million. Have I put this together correctly? If not, can you help?

Operator:

And ladies and gentlemen, with no further questions at this time, I will turn the call back to Kevin Sayer for any additional or closing remarks.

Operator:

Thank you, ladies and gentlemen. This concludes today's conference call. We thank you for your participation.

Operator:

Hello, and welcome to the DexCom Third Quarter 2022 Earnings Release Conference Call. My name is Michelle, and I will be your operator for today's conference. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded. I will now turn the call over to Mr. Sean Christensen. Sir, you may begin.

Kevin Sayer:

Thank you, Sean, and thank you, everyone, for joining us today. Today, we reported another strong quarter for DexCom with third quarter organic revenue growth of 20% compared to the third quarter of 2021. Our teams executed incredibly well as we work to advance our strategic initiatives while preparing for the largest product launch in our company's history. In the U.S., we saw continued momentum after our strong second quarter new customer starts with ongoing loyalty among endocrinologists and growing traction with primary care physicians. We are finding these physicians eager to engage with our teams as they learn more about the clinical benefits and superior outcomes that DexCom CGM can provide their patients. While we expect these primary care relationships to be critical to our long-term customer aspirations, they also help us better serve the intensive insulin-using population in the U.S. today. The domestic core market still has a long runway of growth ahead as we expect the vast majority of the population to adopt CGM to help them better manage their health. Outside the U.S., our team continued to deliver customer access wins this quarter. One example, in August, the NHS announced the inclusion of DexCom ONE on prescription via the England, Wales, Scotland and Northern Ireland drug tariff for everyone with type 1 diabetes and type 2 intensively managed diabetes. This announcement meaningfully expanded access to DexCom within these markets as our previous reimbursement was generally limited to a smaller population of higher-risk individuals. Importantly, this is a clear example of how we can leverage our portfolio strategy to reach many more people with diabetes across the globe. Whether we use DexCom ONE to enter new geographies or to improve access within existing markets, there is a large opportunity to expand our reach. In many cases, these are segments of the market that have lacked product choice for customers. So providing DexCom's leading real-time CGM solution is being welcomed enthusiastically from customers and health systems alike. As many of you have seen, we were also very excited to initiate our full OUS launch of G7 following a successful limited launch. G7 is now available in the United Kingdom, Ireland, Germany, Austria and Hong Kong. We have been looking forward to this day for a long time as we view G7 is not only a major step forward for DexCom but for the entire diabetes technology market. This is a game-changing launch. As we often say, G7 takes everything about G6 and makes it better. It has a 60% smaller form factor, 30-minute warm-up time, 12-hour grace period to allow customers to choose a convenient time to change sensors, an improved app experience and more. All of this while building upon the product performance and accuracy that has earned the trust of our customers and clinicians. These advancements were specifically designed to improve the lives of our customers, and that is being recognized by our earliest G7 users. The feedback from our launch has been incredibly positive, which adds our confidence that this product will take DexCom to the next level. We are moving quickly to make this life-changing technology available broadly around the world, and we'll be rolling out G7 across a steady cadence of additional geographies over the next several months. In the U.S., we have responded to the FDA, and our G7 regulatory pathway is tracking in line with expectations we shared last quarter. We completed the necessary software changes in response to the feedback we received from the agency and subsequently validated the data to ensure the software is operating as designed. These efforts position us well to receive G7 clearance before the end of the year. This is a very exciting time for us. We believe this is the product of the future for DexCom, and we are working diligently to make that product accessible to a much broader population, not only the intensive insulin-using population but moving into people with type 2 diabetes on basal insulin only, noninsulin-using type 2s, gestational, hospital, metabolic health and beyond. Along those lines, there is a growing body of evidence demonstrating outcomes beyond the intensive insulin-using population, including a recently published study in Diabetes Technology and Therapies. This study assessed the benefits of DexCom CGM for a population of predominantly noninsulin-using type 2 individuals. Similar to our mobile study, it demonstrated meaningful reductions in A1C levels and improvements in time and range across the study group. Notably, the largest improvements in time and range came from the cohort being treated with one or less medication per day. This suggests that a sizable opportunity exists to help individuals earlier in their diabetes journey, potentially preventing escalation of the disease. This has meaningful long-term health implications for those starting on CGM and also holds promise to reduce the economic burden on our health system associated with progression of diabetes. CMS clearly recognized this potential in 2017 when they became one of the first global payers to cover CGM for people with intensively managed type 2 diabetes and they appear ready to lead yet again in customer care. In early October, CMS published a proposed local coverage determination that would again meaningfully expand CGM for the Medicare population. Once finalized, this proposal would expand Medicare coverage to include the basal-only population as well as noninsulin-using individuals that have experienced hypoglycemia. This proposal is in direct response to the clinical outcomes demonstrated in our MOBILE trial, where DexCom proved to meaningfully improve time and range for this population. Since publishing that data, we have been expecting a reimbursement decision and applaud CMS for taking the lead. Coverage for the basal-only population alone would allow us to help significantly more people in the U.S. as we size that population approximately 3 million individuals. This will be the first major reimbursement expansion beyond the intensively managed space and one that we expect to be the first of many. Historically, CMS has often led commercial payers on coverage decisions, and we anticipate the same dynamic to occur here. However, we're not stopping there. We will continue to advocate for the millions of additional individuals that could benefit from access to real-time CGM. There is a massive opportunity ahead for DexCom. With that, I'll turn it over to Jereme for a review of the third quarter financials. Jereme?

Kevin Sayer:

Thanks, Jereme. Our third quarter was characterized by sharp execution and delivering results in line with what we said we were going to do. We're committed to launching G7 internationally in the third quarter, and now we have G7 in five different countries with more following closely behind. We said that our growth rates in the U.S. would reaccelerate as the underlying trends in the business remain strong, and we delivered on an acceleration in the growth rate. We committed to advancing our G7 regulatory process in the U.S., and our efforts this quarter leaves us on track for a clearance before the end of the year. We said that the basal-only coverage would be a matter of when, not if. Now we have more clarity around when. We will continue to operate with this type of focus on execution going forward. Finally, as we move into Q&A, we have Jake Leach with us. We recently announced the promotion of Jake to the role of Chief Operating Officer, providing him with end-to-end responsibility for product. With almost two decades of experience at DexCom and serving most recently as our Chief Technology Officer, nobody knows G7 and our product road map better than Jake. I would now like to open up the call for Q&A. Sean?

Operator:

[Operator Instructions] The first question comes from Jeff Johnson with Baird. Your line is open. Please proceed.

Kevin Sayer:

Jeff, I may ask Jereme to help me on that. I'll take a first pass. We have learned in our U.S. markets getting access and getting reimbursement through these government agencies is absolutely critical and key to driving growth. As we've had wins in the UK, we've had wins in Spain. We've continued to have wins in Germany as we've shifted price to create more access. That's what's driving our growth. We're getting access to more people who can use our technology and use our better product. For right now, we haven't seen any macro trends that would make us feel that this isn't going to continue. As we get more access, we will continue to grow and do well. DexCom ONE is going to be a home run for us. G7 is doing very well out of the gate. We look very much forward to a great year internationally in 2023. I don't know, Jereme, if you want to add to that?

Operator:

Thank you, sir. The next question in the queue comes from Robbie Marcus with JPMorgan.

Kevin Sayer:

You know what, I'll start with the big picture things. We're starting commercial plans and talking about this now. This is such a big event for us and such a big win that we'd be stupid not to. So we are thinking about this now. Our product offerings, our distribution strategy and all those things, Robbie, as far as when it's exactly going to hit and go into your models, that's something we'll discuss later. We know the time frame for this can be anywhere from like four, five to nine months out as we work through this. But we're confident we're going to get through it. We're just thrilled with the ruling, and we are thrilled that we could be part of this. Our data from the MOBILE study was a large component in pushing this initiative across the finish line because we saw how well those people did. Jereme, if you want to get into more specifics on the numbers side, go ahead.

Operator:

Thank you, sir. The next question in the queue comes from Matthew Blackman with Stifel. Your line is open. Please proceed.

Jereme Sylvain:

Yes. I'll maybe draw you back to the MOBILE study, which the MOBILE study was really targeted at folks wearing it full time, which was the basis for CMS coverage. And so I think what we would see is as folks get on to therapy, we would expect a relatively similar utilization. There might be dips in between it for here and there, a day here or there, a day here and there as product is coming in. But for the most part, we expect full-time wear, and that's how we've seen folks get the most benefit. So I'd expect it from there. Clearly, this is a new market for us, but all the early work we've done around patient satisfaction, patient results, these folks have wanted to wear it. They wanted to wear it full time. And so we expect that to be the baseline going forward.

Margaret Kaczor:

Hi, good afternoon, guys. Thanks for taking the questions. I wanted to talk a little bit about U.S. growth. Obviously, you saw a really nice acceleration from Q2 to where we are in Q3. So can you provide any context around the growth in new patient adds, how that's trended going into Q3 and more specifically in Q4? And I know you'll love this, but going into 2023, all of this growth is coming in advance of G7 in basal. So why shouldn't we assume even more of an acceleration to occur for several quarters from now? Thanks.

Operator:

Thank you, sir. The next question in the queue comes from Matthew O'Brien with Piper Sandler. Your line is open, sir.

Jereme Sylvain:

Sure. Yes. Let me start with the - maybe the model expectation. We have Jake here. And I think it will be good for him to talk through the manufacturing. So in terms of how to model it out, Kevin alluded to it earlier. Generally, there's about a six to nine month period where look, there's a proposal, and things have to go through. And so as folks start to open up coverage, that's why we expect that coverage to really start in the back half. And again, this is a recurring revenue business. So there will be a contribution we expect in 2023. How material, we're going to size that up, and we'll make sure that we - as we size it up for you, we'll give you the context for how we're guiding to it in 2023 so you understand our assumptions. If things come earlier or things go faster or slower, we'll certainly give you that clarity so that you have it. But our expectation is there's a contribution. How material, it's going to take a little bit of time as that grows, but still a contribution and really momentum exiting 2023 into 2024. But in terms of capacity, maybe let me turn it over to Jake to give you some context there.

Operator:

Thank you. The next question in the queue comes from Joanne Wuensch with Citi. Your line is open.

Kevin Sayer:

Let's start over.

Kevin Sayer:

I'm not going to get into numbers, and we'll get into models later, Joanne. I can tell you again, I'll reiterate our comments on the call. There are many geographies where CGM is accepted where we have been isolated to higher-risk patients, patients on pumps or severe hypoglycemia. And we were reimbursed more, but we were narrowly viewed. In many of these geographies now with DexCom ONE with our lower-cost offering, but with real-time CGM and the accuracy and other features we deliver, we're now able to go compete for those customers. That will be a very important level of business for us, particularly in Europe going forward and other countries and other places where we need to launch it. That will be a layer - I mean, our core business, our core G Series product is going to be our primary source of revenue for a while. But over time, you will see all these elements grow bigger and take a bigger piece of the pie. And Jereme, you build the models. You - why don't you add a little more?

Operator:

Thank you. The next question in the queue comes from Jayson Bedford with Raymond James. Your line is open.

Jereme Sylvain:

Sure. Yes. So we were in the unit volume in the mid- to upper 30s globally. In terms of the performance, the U.S. was slightly below that but still in the mid-30s, and OUS was slightly above that in the upper 30s and so really just continued strong momentum in that patient cohort or that underlying patient volume.

Nathan Treybeck:

Good evening. This is Nathan Treybeck on for Larry. In terms of your comments around G7 U.S. launch timing by year-end, is there anything that still needs to be done? And then how soon after the approval do you expect a full launch? And how should we think about the ramp? Is there any reason why it should be different than the G6? Thanks.

Operator:

The next question in the queue comes from [Matt Tyler] with Jefferies. Your line is open.

Kevin Sayer:

Yes, this is Kevin. I'll take that at a high level. Certainly, our G Series product, our G7 is going to be our flagship product, we roll it out. And that will be - we're very comfortable with that being a home run. There will be some countries where G6 is so new. It's not going to be prudent to go rush G7 into those geographies. We can let that customer base grow while we expand others. So we look at G6 and G7 in a very similar light as far as their features, the connectivity and all the things that they do. With DexCom ONE currently on a G6 platform, we have areas where we need to grow, and we need to get there fast. And that product will remain on the G6 platform. We're not ready to move it to G7 anyway. We're going to use our existing G7 capacity to sell G7s in the beginning and strengthen ourselves in our current business and where we are doing very well now with our partners and everybody else ultimately DexCom ONE will shift to that platform. And we'll roll out that way. So as you look at DexCom ONE, we've said many times that product is for two major purposes. The first one is to go into new geographies where we can do an online e-commerce type business and launch it as we have in those first four countries, in countries where CGM is reimbursed. But again, we have this situation where there are two types of CGMs they will pay for the - that for the high-risk patient and connectivity and with those features that we've always had on the G Series. And then the other area, we are using DexCom ONE as a vehicle to get into those markets and utilize our capacity to go sell sensors and serve customers there and give them a better experience than they've ever had before. And that is the plan for right now.

Marie Thibault:

Thank you so much for taking the question. Wanted to ask one here on your comments on cash pay in the U.S. Unless I'm mistaken, I believe that's a recent shift or a new shift for DexCom strategy? Would love to hear a little bit more about how that's being rolled out and how patients and providers are hearing about that cash pay option? Thanks so much.

Operator:

Thank you, sir. The next question in the queue comes from Kyle Rose with Canaccord.

Jereme Sylvain :

Yes. So the best way - good question. The best way to think about it is in the first quarter in which we turn on lines, you generally have a dip in gross margin. And that's the initial set up the yields. We'll give you guys a little bit more line of sight into cadence as we get into 2023 guidance. But as you turn on those lines, the first sets, the yields are a little bit lower. You're absorbing in depreciation, and then as those yields start to improve, you start to get a better gross margin run on those. So I think the expectation is, is you'll have some blips there in the periods in which we launch into certain countries, specifically U.S. And then as more and more folks transition off of G6 to G7 and those increase, you're going to see those margins improve. Longer term, G7, we can make at a lower cost than G6. And so it's just this transitory. We'll help you out on the modeling as we get into 2023 guidance, but as you're trying to get your head around what the cadence looks like when we turn online, that's the expectation of when you'll have the dip and then a recovery after that.

Steven Lichtman:

Thank you. Hi, guys. As we think about some of these new opportunities from the LCD, I'm wondering in the near term how things are progressing on the intensive type 2 side. With - given the comments you made in terms of primary care doc progress as well as the work you've done on coverage, can you update us on where you guys - do you think the market is in terms of penetration intensive type 2s? And are the pieces in place for that just to continue to expand meaningfully in the coming couple of - 2 years?

Operator:

Thank you, sir. The next question in the queue comes from Matt Miksic with Barclays.

Jereme Sylvain:

Yes, sure. So the line - the way you think about the lines and this is the way we've set it up is DexCom ONE physical form factor cost to manufacture, not necessarily cost to support and how we service it, but really the physical product. DexCom ONE is very similar to G6. There are other features that G6 has, but hardware is very similar. And it's very similar in G7. G7 lines and eventually DexCom ONE will migrate to a G7 line. And so as you think about these products, then it becomes a question of price point and then how we ultimately service the patient there. So that's the way to think about it. Over time, as we go into certain markets depending on price point, it's got much less to do with what I would say is the physical product itself. We grow into those markets over time through economies of scale. And so that's one of the reasons we believe with DexCom ONE, there's a real great opportunity here. The economies of scale for us are massive. And by going into those markets, we certainly can grow into that profitability profile. So as you think down the middle of the P& L, certainly, as you go into DexCom ONE, there could be a slight margin differentiation, but those economies of scales help offset it. We also look at the service model, and we're able to manage the service model in a different way. So the ultimate operating margin contribution is the same. So that's how we think about it. And so as you're modeling it through, that's how I would think about it.

Operator:

Thank you, sir. The next question in the queue comes from Joshua Jennings with Cowen.

Jereme Sylvain:

Sure, I'll start with the contribution. And let me turn it over to Jake, who is our maestro on product development and understanding products. In terms of contribution, look, we're very excited about both Tandem and Insulet products. And as they launch more and more products that we are obviously integrated with, we expect it to contribute. Now quantifying that and having those contributions, it's a little bit difficult to do given some products - some folks were already on DexCom CGM who bring in a pump, and some folks pull over. So as time moves on, we'll be able to really tease that apart. But I think what we would say is we're still bullish on the opportunity of folks ultimately using our product with these incredible pump partners. I'll leave it at that just because it gets hard to contribute. Again, we'll be able to retrospectively give feedback as time moves on. But let me give it to Jake in terms of the connectivity and the timelines on G7.

Operator:

Thank you, sir. We have no further questions at this time. I will turn the call over to Mr. Sayer for closing remarks.

Operator:

Thank you, ladies and gentlemen. This will conclude today's teleconference. Thank you for participating. You may now disconnect.

Operator:

Welcome to the DexCom Second Quarter 2022 Earnings Release Conference Call. My name is Daryl, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to Sean Christensen. Sean, you may begin.

Kevin Sayer:

Thank you, Sean, and thank you everyone for joining us. Today we reported another strong quarter for DexCom with second quarter organic revenue growth of 16% compared to the second quarter of 2021. Momentum for global CGM adoption remains high and we once again achieved a worldwide record new customer starts in the second quarter. Following some disruption early in the year related to the Omicron wave, office access has continued to improve and we experienced a return to a more normalized customer journey, which helped us deliver this record. Customer satisfaction also continues to reach new levels as our U.S. net promoter score hit another all-time record in the second quarter. Our own customers value the differentiated experience at DexCom provides with consistent praise for our real-world accuracy, connectivity, actionable features and customer support. Product performance has been a hallmark for DexCom throughout our history, customers and caretakers alike rely upon the accuracy of DexCom’s CGM and can be confident performance across all aspects of glucose management backed by numerous clinical trials and borne out by real-world experience. We have long viewed software as an avenue to differentiate enabling unique user experiences, supporting greater connectivity and enhancing our ability to move more seamlessly into new markets. In support of this vision, we have invested significantly in building our software infrastructure in recent years and now spend more of our R&D budget on software than hardware, a tangible example of this can be found in our rollout of DexCom ONE. This product leverages our G6 hardware and we will use our G7 platform in the future. By using software to provide a different experience in our G series systems, this has allowed us to meaningfully expand our market presence in recent months. Entering new markets and winning tenders internationally that were previously not available to our G Series product, this is just the beginning of our journey of leveraging software to create products that meet the needs of our end users. Our software infrastructure is also positioned us to be the partner of choice for technology companies are looking to build new and innovative experiences around CGM data. Our list of real-time API partners continues to grow, as we are the only company that can provide partners real-time CGM data in an FDA regulated solution, our software capabilities are also laying the foundation for our success beyond the intensively managed population. For example, two partners focused on the use of CGM for weight management and metabolic health signals and levels helped have clinical trials underway that are leveraging our real-time API capabilities. We are excited to see the outcome from these trials as they provide a glimpse into the future for CGM technology that could serve as a much broader end market than today. The second quarter saw a number of strategic accomplishments in the international markets that continue to strengthen our competitive position. The excitement continues to grow for our portfolio of CGM systems G6, G7 and DexCom ONE, and we have made significant strides in both direct and distributor markets to broaden access to our technology. We launched DexCom ONE in both Spain and the U.K., and have secured reimbursement for key segments of the population. Opening large parts of these markets have previously lagged reimbursement for DexCom CGM. We also announced a partnership with Roche to distribute DexCom ONE in Italy. This relationship will allow us to leverage Russia’s well-established commercial infrastructure to bring DexCom ONE to a much larger Italian market. In Australia, the government recently committed to providing subsidized access to our G6 system for all people living with Type 1 diabetes, which is a significant improvement in coverage and a great win for Australians deserving access to CGM technology. Our limited launch of G7 in the U.K. continues to be met with significant enthusiasm from our customers, who provided consistently positive feedback on product size, ease-of-use, the shorter warm up time, the app experience and more. Many customers shared that they would often forget they were even wearing the G7 during the recession and indicated they can’t wait to continue wearing the product full-time in the future. The period has proven to be incredibly valuable, allowing us to assess the functionality of the sensor, adapting a real-world setting, and providing feedback on ways to refine our support system to make the broader rollout as streamlined as possible. We are excited to get G7 in the hands of more customers and plan to expand our launch in the third quarter starting in the U.K. In the U.S., our 510(k) submission for G7 remains under review at the FDA. As part of this process, we are making a subtle change to the G7 software based on feedback from the FDA slightly delaying our expected timelines for clearance and U.S. launch. We expect FDA clearance and limited launch later this year and a large commercial launch in the U.S. in the first quarter of 2023. Encouragingly, our preliminary discussions with payers have progressed very well. They understand what this product will mean for our customers and people with diabetes broadly, giving us increasing confidence in the ability to ramp up commercial coverage quickly. Finally, we were very proud to showcase our expanded CGM portfolio two of the largest diabetes conferences of the year TBD in Barcelona and ADA in New Orleans. These events provide us an opportunity to connect with thought leaders across the diabetes space and we continue to see a clear consensus on real-time CGM being the standard-of-care in diabetes management and a growing appreciation of the health and economic benefits of extending the use of this technology beyond the intensively managed population, including the broader Type 2 population and use in the hospital. Between these two events, there were dozens of presentations, abstracts and posters highlighting success stories of CGM to-date on what the future hold for this technology. I started attending diabetes conferences almost 30 years ago. As I look back even two years or three years ago, these types of conversations around the broad potential of CGM were non-existent. Now it’s become very apparent that CGM data will become the basis of where diabetes management and glucose control in the future is headed. We are very excited about the opportunity to add to DexCom. And with that, I will turn it over to Jereme for a review of the second quarter financials. Jereme?

Kevin Sayer:

Thanks, Jeremy. As I look at this quarter, our underlying fundamentals remain incredibly strong. We experienced another quarter of solid volume growth, achieved worldwide record new customer starts, recorded our highest ever customer satisfaction rating. These results were before any material contribution from G7, which we expect to improve the customer experience in every way. We advanced our CGM portfolio outside the United States with a wider rollout of DexCom ONE, helping us reach more reimbursed lives and serving more new customers. For G7, the feedback from our limited launch in the U.K. has been fantastic, leaving us incredibly excited for a broader global launch in the coming weeks. And in the U.S., we now have clear visibility to the finish line on G7 clearance and our preliminary payer discussions are setting the stage for a big launch early next year. Despite all the macroeconomic challenges that exist today, runaway inflation, supply chain challenges, FX headwinds, we reiterated our margin guidance, continue to have no delivery delays across our business and remain committed to driving additional operating leverage in the coming years. And finally, we announced a $700 million share repurchase plan today. This will allow us to offset the dilutive impact of our 2023 convertible notes and also provides us an opportunity to send a clear message. We are betting on ourselves and the mass opportunity ahead of us. We are optimistic as we have ever been about our future. With that, I’d now like to open up the call for Q&A. Sean?

Operator:

[Operator Instructions] And our first question comes from Robbie Marcus from JPMorgan. Go ahead, Robbie.

Kevin Sayer:

Robbie, this is Kevin, I will take the G7 questions. The software revisions relate to the management of the alerts and alarms in the U.S. app. FDA had some questions about some of the things that we have done and put in it. We discussed several options that we had, we decided the best option at this time was to revise the software and file it differently and we have added a few other features to it as well based on our discussions with them. We are in the middle of revising the software for that and have to run it through the complete validation and verification process and resubmit. We are not done with it yet, but we are working very quickly to get done with that and that’s really our big major issue we talked through everything else. We did have a strong level of confidence and we still do in our relationships and our discussions with the FDA and G7. The one thing we figured out as we have been through this process is we changed absolutely everything. We changed the algorithm. We changed the insertion techniques. We changed every manufacturing procedure that we have and completely rewrote the entire app and the software experience, which is a lot for them to digest and a lot for us to submit. If I look at learnings for us over time, I think we will probably do things a little more incrementally going forward, rather as big as this one was and we can get things through faster. But we are in a good spot. We have a lot of clarity as to where we need to go going forward and I will let Robbie handle the growth issues regarding G6, because we are still doing extremely well with that product, not Robbie, Jereme, go ahead.

Operator:

And our next question comes from Jeff Johnson from Baird. Go ahead, Jeff.

Kevin Sayer:

We do have great certainty on the other components of the filing with the FDA. We have talked through all the other questions and things that we have discussed and we are very, very comfortable with that. So really, the outstanding major item is revision and filing of the revised software after we validated and verified all of that. So we are very, very comfortable with that. And yes, what I did say is we are anticipating a limited launch in the fourth quarter in the U.S. and then the full-on rollout in -- early in the year in 2023. One of the things I said in my prepared remarks is we are very bullish about the progress we have made with the payers as far as getting the G7 reimbursed, because they can see how important it’s going to be for our patient base. So, on the one hand, while we have the delay in the approval and the launch that, look, none of us -- we don’t like to be faster. The other thing we are seeing on the other side is a lot of cooperation in the payer community and just in the channel in getting this thing positioned for reimbursement very quickly after approval, so we can get the launch out and not too different of a time frame on a reimbursed basis from what we expected in the beginning. So those two factors together, again, add to where we think we are.

Margaret Kaczor:

Hey. Good afternoon, guys. Thanks for taking the question. Yeah. I wanted to maybe dive a little bit further into kind of this new patient add growth just because it’s important as we get into 2023 as well. But any details that you can give in terms of how it looks like within T1, T2 intensive and others, and if there have been any changes, I guess, in the last six months, 12 months? Are things getting harder or easier and what kind of efforts do you guys put in place to reaccelerate more meaningfully those new patient adds? Thanks.

Operator:

And our next question comes from Joanne Winch from Citigroup. Go ahead, Joanne.

Jereme Sylvain:

Thanks, Joanne. Yeah, I can take the question. So in terms of basal, we continue to make progress there. So as you think about where we are having the conversations, the conversations are both on the government in the U.S., CMS, as well as the U.S. commercial providers. We are having conversations with both and our access team has submitted the data. They have submitted both clinical data, economic data, as well as clinician recommendations and so we are going through those conversations. So it’s been submitted, discussions are ongoing. Timing is hard to peg in all of these, but we are continuing to advance it forward in terms of conversations. So that’s basal, we will certainly be -- as that progresses forward, we will continue to give you line of sight as to how that goes. In terms of other areas, so existing coverage in areas around prior authorizations or otherwise, we haven’t seen a lot of that. Now there are occasionally plans that have a prior authorization pop up or pull out, our goal is to all of the renegotiations that take place to limit those prior authorizations. And as we continue to show how CGM can improve patient outcomes, it’s becoming very clear that prior authorizations, we see payers starting to pull those down over time, a better way to put it. And so we continue to expect to see and keep pushing that, we have not seen a material change in any form or factor. In fact, for the most part, we see them coming down and we will expect to see that over time in the intensive space.

Matthew O'Brien:

Great. Thanks for taking the question. Can we just -- as I look at the stock down 18% in the aftermarket, that $6 billion in lost market cap, even a little bit more than that. So I think it would be helpful, I don’t know if the reduction of the topline guidance from 2020 down to 2019 or maybe it’s a little bit more is largely because of G7. But I am thinking it’s like a $60 million headwind, maybe something like that this year versus not getting the approval. So is it about $100 million of incremental pressure you are going to see next year and not having the approval earlier this year that you can’t get all the marketing activities up and going next year? Just how do we frame up some of this modest delay, it seems like on the payer side, things are better, but just frame up what this modest delay may do to the topline as we look forward?

Operator:

And our next question comes from Jayson Bedford from Raymond James. Go ahead. Jason.

Kevin Sayer:

Yeah. This is Kevin. I will start. Yes. It was record new patients OUS and in our U.S. markets as well, both teams had new patient add records during this quarter. With respect to the rollout of G7 in Europe, what we had indicated was our first rollout will be in the U.K. and we expect we will add other geographies before the end of the year.

Travis Steed:

Hey. Thanks for taking the question. One quick clarification, the pricing mix versus volume growth this quarter and then as you look ahead to next year, well, we start to see volume and revenue growth to start to match up a bit more. And I am thinking about the basal opportunity, is that an opportunity where you are going to have to lower price to get the volume or is the basal pricing probably pretty similar to the intensive market? Thank you.

Operator:

And our next question comes from Marie Thibault from BTIG. Go ahead, Marie.

Kevin Sayer:

One of the best features of the limited launch in the U.K. has been getting feedback on the software and people absolutely love the app. From the very beginning, when you start, it is much easier to fire it up and get on the system and understand what CGM is going to do for you and how it’s going to work. So for a new user, this is a much, much easier experience and much, much easier start. The other thing that’s very obvious in the software is another feature that our patients love, it’s a 30-minute warm up that actually ends up being about 25 minutes once you put the sensor on. I was speaking with a patient just last week and I asked her what is your favorite and what is your worst thing about G6 and the 2-hour warm-up is very frequently comes up -- was what came up and so this half hour warm-up is going to be a feature. But the software itself in addition to the typical graph in the sense of reading in the arrows, we also have clarity data built into the app that gives you feedback about how you are doing over one day, three days, seven days or even a month. So someone can go down and look and see exactly how they are doing and what their trends are, how much time they are spending in range. So it’s much more of a full experience for somebody in their diabetes care and our patients like it tremendously. We will be ready to go on Android and iOS and launch. We are not going to hold either of them back. The other thing with the app, it’s not really on the app, but it’s a feature of this product that’s been very well accepted as well. I didn’t talk much about. We have a new receiver coming. The patients absolutely have loved and are using it very well. And while I figured when we went to the phone in the beginning, everybody would immediately migrate to the phone, there’s a very large percentage of our customers who use that receiver. They will be greatly enhanced in their experience by going to the next receiver with us. And on the good news front as well, that new receiver while a better experience is a much lower cost offering. So I will get stuck there on the app.

Mathew Blackman:

Good afternoon, everybody. Thanks for taking my question. International growth did step up even though you had a tougher comp. Is that the broader G7 rollout, DexCom ONE, some combination of those two? And I am also really curious about Germany, in particular, where I think you are going head-to-head versus the newest sensor from your competitors, just any commentary about geographic performance within that international number? Thanks.

Operator:

And our next question comes from Josh Jennings from Cowen. Go ahead, Josh.

Jereme Sylvain:

We already have the software approved for CE Mark in Europe and we do not plan immediately on implementing the changes that we are putting into the U.S. app. We will consider that over time. We will -- we have the app and the software configured to whereby we can launch the product with what we are doing in Europe to sell it and support it there. And if we feel the need to in some period of time, we can implement those changes into the other software and upgrade patient’s apps on the phone, but not immediately, no.