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DexCom Q4 2022 Earnings Call Transcript


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Participants

Corporate Executives

  • Sean Christensen
    Vice President of Finance and Investor Relations
  • Kevin Sayer
    Chairman, President & Chief Executive Officer
  • Jereme Sylvain
    Executive Vice President & Chief Financial Officer

Analysts

Presentation

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]

And I will now turn the call over to Sean Christensen, Vice President of Finance and Investor Relations. Sean, you may begin.

Sean Christensen
Vice President of Finance and Investor Relations at DexCom

Thank you, Abby, and welcome to DexCom's fourth quarter 2022 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. At that time, we ask analysts to limit themselves to one question, so we can provide an opportunity for everyone participating today.

Please note that there are also slides available related to our fourth quarter performance on the DexCom Investor Relations website on the Events and Presentations page.

With that, let's review our Safe Harbor statement. Some of the statements we will make in today's call may constitute forward-looking statements. These statements reflect management's intentions, beliefs and expectations about future events, strategies, competition, products, operating plans and performance. All forward-looking statements included in this presentation are made as of the date hereof based on information currently available to DexCom, are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in the forward-looking statements.

The factors that could cause actual results to differ materially from those expressed or implied by any of these forward-looking statements are detailed in DexCom's annual report on Form 10-K, most recent quarterly report on Form 10-Q and other filings with the Securities and Exchange Commission. Except as required by law, we assume no obligation to update any such forward-looking statements after the date of this presentation or to conform these forward-looking statements to actual results.

Additionally, during the call, we will discuss certain financial measures that have not been prepared in accordance with GAAP with respect to our non-GAAP and cash-based results. Unless otherwise noted, all references to financial metrics are presented on a non-GAAP basis. The presentation of this additional information should not be considered in isolation or as a substitute for results or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and the slides accompanying our fourth quarter earnings presentation for a reconciliation of these measures to their most directly comparable GAAP financial measure.

Now, I will turn it over to Kevin.

Kevin Sayer
Chairman, President & Chief Executive Officer at DexCom

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 global 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?

Jereme Sylvain
Executive Vice President & Chief Financial Officer at DexCom

Thank you, Kevin. As a reminder, unless otherwise noted, the financial metrics presented today will be discussed on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release as well as on our IR website.

For the fourth quarter of 2022, we reported worldwide revenue of $815 million compared to $698 million for the fourth quarter of 2021, representing growth of 20% on an organic basis. As a reminder, our definition of organic revenue excludes currency in addition to non-CGM revenue acquired in the trailing 12 months. U.S. revenue totaled $606 million for the fourth quarter compared to $517 million in the fourth quarter of 2021, representing growth of 17%. Our recent momentum in the U.S. continued into Q4 as we delivered another strong quarter of volume growth and solid new customer starts.

We were very encouraged by the prescribing trends we saw in the fourth quarter, and we closed the year with around 75% of our commercial scripts going through the pharmacy channel. This represents the endpoint of a multiyear channel journey. And we believe our current structure maximizes access for our users as the most covered CGM and supports greater customer choice in how they access the most accurate CGM.

International revenue grew 15%, totaling $209 million in the fourth quarter. International organic revenue growth was 27% for the fourth quarter. We continued to take share in international markets as the introduction of new products and access wins over the past year leave us in a wonderful position to compete for new users. For example, in response to the sizable U.K. coverage decision we received last August, our revenue growth has accelerated over the past two quarters in that region. Even though this was already one of our largest OUS markets, there has been a clear uptick in demand following this broad expansion of access.

Our fourth quarter gross profit was $544 million or 66.7% of revenue compared to 67.7% of revenue in the fourth quarter of 2021. Foreign currency was an 80 basis point negative impact on gross margin in the quarter. Operating expenses were $372 million for the fourth quarter of 2022 compared to $461 million in the fourth quarter of 2021. You may recall that in the fourth quarter of 2021, we recognized an $87 million expense associated with the contingent milestone under the 2018 collaboration and license agreement with Verily Life Sciences. Absent this, our operating expenses for the fourth quarter of 2022 would have been relatively flat year-over-year. This represents another quarter of very disciplined cost management as we generated 800 basis points of OpEx leverage.

Operating income was $172.1 million or 21.1% of revenue in the fourth quarter of 2022 compared to $12 million or 1.7% of revenue in the same quarter of 2021. Even excluding the Verily charge from 2021, this highlights incredibly strong operating expense leverage in our current year, which more than offsets our step backwards in gross margin. Adjusted EBITDA was $237.1 million or 29.1% of revenue for the fourth quarter compared to $67.3 million or 9.6% of revenue for the fourth quarter of 2021. Net income for the fourth quarter was $136.3 million or $0.34 per share.

We remain in a great financial position, closing the quarter with approximately $2.5 billion worth of cash and cash equivalents. This cash level provides organizational flexibility to support our organic growth opportunity and assess strategic uses of capital on an ongoing basis, such as the accelerated share repurchase program we executed in 2022 and ongoing development of our Malaysia manufacturing facility.

Turning to 2023 guidance. As we stated last month, we anticipate total revenue to be in a range of $3.35 billion to $3.49 billion, representing growth of 15% to 20%. This reflects another year of strong underlying volume growth, which will again exceed our revenue growth rate for the year. To help provide some insight into the makeup of our guidance this year, we recently provided some additional color around our expectations. First, earlier on this call, Kevin discussed our plans to support our initial G7 customers with a bridge program. We expect this program to impact our revenue per customer early in the year as we provide G7 access at an affordable cash rate as we build reimbursement. We expect this impact to narrow over the course of the year as broader coverage is secured.

Internationally, we estimate that around one-third of our new customer starts will come in through the Dexcom ONE platform. Therefore, this business will start to have a more material impact on numbers this year as that customer base builds. For the type 2 basal opportunity, we anticipate CMS reimbursement to be finalized for this population by mid-year and begin contributing to our results in the second half of 2023. We expect this population to contribute approximately 1% of our total revenue in 2023.

Turning to margins. We expect gross profit margin to be in a range of 62% to 63%. This assumed year-over-year decline is primarily related to the impact of the broader G7 launch. As with any launch, we will initially be running at lower production volumes, and it will take some time for our new manufacturing lines to scale. Importantly, this is a temporary dynamic, and we still expect G7 product costs to be less than G6 at scale.

Despite the step backwards in gross margin, we are guiding for operating margins to be relatively flat year-over-year at 16.5%, which reflects another 150 to 250 basis points of operating expense leverage in 2023. This is the result of ongoing cost initiatives at our organization, which continue to drive leverage even as we allocate greater investment to support our global commercial infrastructure and G7 launch. Finally, we expect adjusted EBITDA margins of approximately 26% in 2023.

With that, I will pass it back to Kevin.

Kevin Sayer
Chairman, President & Chief Executive Officer at DexCom

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?

Sean Christensen
Vice President of Finance and Investor Relations at DexCom

Thank you, Kevin. 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.

Questions and Answers

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]

We will take our first question from Jeff Johnson with Baird. Your line is open.

Jeffrey D. Johnson
Analyst at Robert W. Baird & Co.

Thank you. Good afternoon, guys. Let me ask you just a two-part question on G7, if I could. Kevin, on your website, you talk about adding more commercial coverage for G7 every day. I guess, could you give us a number of what percentage of covered lives or lives are covered currently in the commercial channel for G7 and where you expect that to go maybe over the next quarter or two?

And I think Libre 3 has now been in the pharmacy channel for about four months or so in the U.S. Obviously, your business looks like it's probably safe with the AID users in the Medicare channel. But for your stand-alone T1 users, have you seen any change in your attrition rate? Anything as we kind of look at that Libre 3 versus G6 dynamic that has changed in the last few months that Libre 3 has been out there? Thank you.

Jereme Sylvain
Executive Vice President & Chief Financial Officer at DexCom

Thanks, Jeff. Yeah, I appreciate that. This is Jereme. So, to your question on coverage, we're still in the throes of the commercial DME in the Medicare coverage. We talked about on G7 that 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.

Kevin Sayer
Chairman, President & Chief Executive Officer at DexCom

No. I would tell you what we're also hearing is a great deal of excitement from our user base for G7. So, with respect to your question regarding how our G6 users doing, they're very anxious to get G7 and very excited to go. So, we're feeling good about where we are right now.

Jeffrey D. Johnson
Analyst at Robert W. Baird & Co.

Understood. Thank you.

Operator

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

Lawrence Biegelsen
Analyst at Wells Fargo & Company

Good afternoon. Thanks for taking the question. Kevin, I wanted to ask about the ramp in the type 2 basal population. I think people were a little surprised you only expected 1% growth contribution in '23. I guess, that would be about $60 million on an annual run rate. At the last investor meeting, you said you expect $700 million in revenues in 2025 from sources other than insulin-intensive patients, and I think this was mostly type 2 basal. So, the question is, do you still expect $700 million by 2025 from these non-intensive sources? And how do you see the ramp in the type 2 basal population? Thanks.

Kevin Sayer
Chairman, President & Chief Executive Officer at DexCom

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, do you have anything else...

Jereme Sylvain
Executive Vice President & Chief Financial Officer at DexCom

Sure. Yeah. Larry, so the $60 million number you're referencing would assume, say, everybody started on July 1 and they went through the end of the year. The reality is that some folks will start in July, some folks will start in December. And so really, the exit velocity is much higher than that on a run rate perspective. If you were to blend it, average it over the course of the year, you're really only getting three months of revenue contribution. And so, you kind of do the math there, and the exit rate is a little bit higher than I think what you're implying. So, we are really, really bullish on it.

But it is a recurring revenue business. So, what we need to do is get those -- get that coverage out there, get the scripts in. And so, look, I understand the question. It's a big, big market with a big, big opportunity. We plan on playing in it, and we plan on playing it in a big way. But obviously, we want to be prudent around guidance. And certainly, if things go better than that, we'll always try to do so, we'll report back to everybody.

Operator

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

Margaret Kaczor
Analyst at William Blair & Company

Good afternoon, everyone. Thanks for taking the questions. I wanted to maybe take Larry's question a step further and just kind of talk about the potential pace of adoption within type 2 basal, maybe not just this year, but really more over an 18-month, 24-month period? And is it fair at all to compare it to, I guess, what a traditional type of insulin diabetic population is? Is it going to be easier, harder, I guess, to drive adoption or are there guardrails on penetration? And then just because you brought up metabolic health to non-insulin diabetics, 2025 is just around the corner. So, should we expect, I guess, a more meaningful impact from here as early as next year? Thanks.

Jereme Sylvain
Executive Vice President & Chief Financial Officer at DexCom

Yeah. So, let me start on the basal, 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.

Kevin Sayer
Chairman, President & Chief Executive Officer at DexCom

No. As we look out to the future, Margaret, particularly with our easy-to-use G7 platform that we're launching today, we believe our future is very bright as we deal with metabolic health. We've changed our mission statement to help people control their health, not just diabetes anymore.

We continue to see very positive results from several programs who are using sensors to assist people in these endeavors. And over time, and particularly with type 2 management and all the type 2 drug alternatives on the horizon, we believe CGM becomes a very important part of that health equation. And we're continuing to work on product offerings and business models. So, it will be differentiated from what we do today and geared towards that population. We're really excited about the opportunity. And it will continue to mature over 2023, and then we'll see what happens in 2024. We've got a lot of basal patients to reach first. So, let's go after them, and then we'll continue to move to the other areas as well.

Operator

And we will take our next question from Robbie Marcus with JPMorgan. Your line is open.

Robert Marcus
Analyst at J.P. Morgan

Oh, great, and congrats on a nice quarter. Wanted to ask about the European or OUS experience. And looks like you're gaining share, you're doing well. How much of that is being driven by G7? And what's the feedback there? And any head-to-head color you could give us versus Libre 3 in the markets where it participates? And then also sort of same question on Dexcom ONE and the impact you're seeing there. Thanks.

Kevin Sayer
Chairman, President & Chief Executive Officer at DexCom

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 half hour warm-up. A half hour warmup has eliminated 90 minutes of the longest two hours of somebody's life who'd 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.

Robert Marcus
Analyst at J.P. Morgan

Great. Thanks a lot.

Operator

We will take our next question from Joanne Wuensch with Citibank. Your line is open.

Joanne Wuensch
Analyst at Smith Barney Citigroup

Good evening and thank you for taking the question. So, I'd like to spend just a minute on 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? Thank you.

Jereme Sylvain
Executive Vice President & Chief Financial Officer at DexCom

Sure. Hey, thanks, Joanne. Appreciate that. And you start off with, obviously, the fourth quarter. We had a really strong gross margin. I think it's a demonstration of what's to come with what our teams can do when you give them time with a new product launch. So, I think as you think about the year, the cadence for 2023, we do expect in the first half of the year margins to be a little bit lower. And that's because of, as Kevin referenced earlier, the bridge program. Certainly, that has an impact. But most importantly, it's the launch of G7. Volumes won't be at where they would have been, say, in a more mature launch, and we'll still be going through some of those early manufacturing scrap and yield challenges we always see.

But what we've proven time and time again is if you give our engineering and R&D team time with these lines, they continue to get yields better over time. And so, our expectation is as we start to exit the year in 2023, we start to come closer back to that long-term guide of 65% gross margins. And there's nothing longer term structurally that we don't believe, especially as G7 gets to scale, that gets us back to those long-term guides that we've originally provided. So, we'll continue to work towards that. Think about 2023 as the first half of the year as a little bit lower. As we ramp up those lines in the back half, you start to tackle some of that absorption of those fixed overheads.

Joanne Wuensch
Analyst at Smith Barney Citigroup

Terrific. Thank you.

Operator

We will take our next question from Matthew O'Brien with Piper Sandler. Your line is open.

Matthew O'Brien
Analyst at Piper Sandler Companies

Afternoon. Thanks for taking the question. Just on the bridging program, can you tease out a little bit more, maybe, Jereme, on expectations there? I think you had said $20 million to $30 million. You said you're trending better than that for Q1, which is great to hear. But I don't think you ever said how much the bridging program is going to cost you for the full year. It seems like it's going to be even better than expected overall versus maybe what you were thinking starting off '23.

But then also bridging is supposed to be more of a headwind on the gross margin side, too. And if it's less of a headwind, maybe that helps out the gross margin profile a little bit more, maybe sooner than expected. So, I'm just wondering like based on all these things on the bridging program specifically being better than expected, should we start to creep up a little bit more as far as our expectations for topline growth and then even gross margins for the full year? Thanks.

Jereme Sylvain
Executive Vice President & Chief Financial Officer at DexCom

Sure. Yeah. 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 your 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.

Matthew O'Brien
Analyst at Piper Sandler Companies

Got it. Thank you.

Operator

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

Marie Thibault
Analyst at BTIG Research

Hi, good afternoon. Thank you for taking the questions and 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 takes place [Phonetic]?

Kevin Sayer
Chairman, President & Chief Executive Officer at DexCom

Thanks for the question. It will be up to us to drive awareness in that community to make sure people are aware of that decision. There will certainly be those very familiar with Dexcom and with continuous glucose monitoring will be aware of it and will pick it up quickly. But it will be up to us to drive awareness in both communities, the physicians and users of the product to go and ask for it and to create that environment. So, we're not going to sit back and wait. We're going to have to push.

Marie Thibault
Analyst at BTIG Research

Okay. Thank you very much.

Operator

We'll take our next question from Travis Steed with Bank of America. Your line is open.

Travis Steed
Analyst at Bank of America

Hi, thanks for taking the question. So, U.S. growth the last couple of quarters has been around 17%. The second half of the year, I think, was record patient growth for both quarters. So, trying to think about ex the contra rather than [Phonetic] the bridge program. If we should be seeing an acceleration here in the first quarter and the U.S. growth specifically and how that builds over the course of the year?

And then on the Super Bowl ad, what kind of impact did you see on U.S. new patient starts last time you did that? Thank you.

Jereme Sylvain
Executive Vice President & Chief Financial Officer at DexCom

Sure. Yeah. 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.

Travis Steed
Analyst at Bank of America

Great. Thank you.

Operator

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

Jayson Bedford
Analyst at Raymond James

Hi, good afternoon. 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, kind of, what are the sources of the OpEx growth and maybe hit on any planned changes to the sales force in support of G7? Thanks.

Kevin Sayer
Chairman, President & Chief Executive Officer at DexCom

Thanks, Jayson. This is Kevin. I'll take it, rather big picture. We'll continue to invest in R&D. Our spend will grow some but not as rapidly as it has in other years. And quite honestly, as a percentage of revenue, it's probably come down a little bit. Same with -- on the G&A side, we'll continue to invest in infrastructure and build things out for our continued growth. But a lot of that investing has been done. Our biggest dollar investment, our biggest increases are going to be on the commercial side, and in all areas, create awareness in the sales force, marketing across the board, we'll be spending on the commercial side. Those expenditures will -- could adjust and move over the course of the year as we learn more. We've always been very adept at channeling those dollars where they can be the most effective. We're analyzing some of that now.

We certainly have a plan, but we've never been afraid to deviate from it if it makes more sense. And so, we're looking at all those things. A lot of international investment this year, quite honestly, as a percentage of our investment. International is getting a bigger piece of it than they have in the past because we really look at these opportunities. We've got G7 and several of these companies combined with the Dexcom ONE launch and all those covered lives we've added. We think there's great growth opportunities over there, but we've got to invest in that infrastructure.

Jereme Sylvain
Executive Vice President & Chief Financial Officer at DexCom

Yeah. 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.

Jayson Bedford
Analyst at Raymond James

Got it. Thank you.

Operator

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

Matthew Taylor
Analyst at Jefferies Financial Group

Hey, guys. Thanks for taking the question. 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?

Jereme Sylvain
Executive Vice President & Chief Financial Officer at DexCom

Yeah. I can start there. You're 100% right. I mean, obviously, there's the levers to get the actual cost of the product, and we've been very transparent about it. We want to get to basically $1 per day and a 10-day sensor or a $10 sensor. And then we want to go even beyond that. But that has always been kind of our public goal. Then, of course, as you move to a 15-day sensor, that cost is spread out over a longer period. So, we have intentions over the long haul of doing all of that.

Now the math, if you do that, would indicate there's some real opportunities in gross margin even beyond potential long-term guide. The one thing we want to be mindful of is we don't want to shortchange ourselves and other opportunities to either partner or otherwise over the long haul. So, while the long-term guide remains intact, there are certainly levers and opportunities for us to do well there. And so, I think you're hitting on all the right points.

That all being said, we really hold to that long-term 65% gross margin. That's what we'll work to. And if there's other opportunities to get fill you in on, some other things we're doing in the future, we'll certainly do so.

Matthew Taylor
Analyst at Jefferies Financial Group

Okay. Thanks, Jereme.

Operator

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

Mathew Blackman
Analyst at Stifel Institutional

Good afternoon, everybody. Thank you for taking my question. Jereme, just curious, I appreciate all the inputs that you gave us that roll up to the 15% to 20% guide. I'm just curious, have you contemplated in that 15% to 20% range any competitive pressures in the event that your competitor gets approved to integrate with a pump sometime in 2023? Thanks.

Jereme Sylvain
Executive Vice President & Chief Financial Officer at DexCom

Yeah. 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.

Mathew Blackman
Analyst at Stifel Institutional

Appreciate it. Thank you.

Operator

And we will take our next question from Chris -- pardon me, Chris Pasquale with Nephron. Your line is open.

Chris Pasquale
Analyst at Nephron Research

Thanks. 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?

Jereme Sylvain
Executive Vice President & Chief Financial Officer at DexCom

Yeah. So, we'll talk about 2022 since we gave kind of a guide there, which was around $200 million in the U.S. and around $50 million outside the U.S. And the full year of 2022 was generally in line with that. It was, I think, just south of $200 million in the U.S. and just south of $50 million outside the U.S. So basically right in line with that. So, I think you can feel good about what guidance we gave there.

Going forward, the expectation is in the G Series, that delta -- that price-volume delta starts to come down over time. What we would expect to see is -- and we're not going to give a specific number for 2023 since most of that migration is done, but we will have to lap the 2022 migration. And then if there's drift, say, 75 say drifts to 80, you wouldn't expect material moves there. But those are all things we've contemplated in those figures.

To your point, and I think you're hitting out the way we model the business, we model the business as a G Series and a Dexcom ONE. And I would suggest you do that going forward. And then to your point, Dexcom ONE modeled as a percentage of total business will allow you to then understand the contributions to ASP there, which is why it was important for us to give you our expectation of new patient starts in 2023 that a third of them outside the U.S. will be on Dexcom ONE. So, I think the way you're thinking about the model is exactly the way we model it internally, and that's the way I'd go about doing that for 2023 and beyond.

Operator

And we will take our next question from Kyle Rose with Canaccord. Your line is open.

Kyle Rose
Analyst at Canaccord Genuity Group

Great. Thank you very much. I wanted to ask an additional question just on the commercial strategy moving forward. I understand the DTC advertising, and you doubled the sales force a few years ago. But just as you prepare for basal approval in the U.S., how does the focus or the call point of the actual sales force need to change? Do you need to have make additional investments in people? Just help us understand how the targeting goes moving forward. Thank you.

Kevin Sayer
Chairman, President & Chief Executive Officer at DexCom

Yeah. 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.

Operator

We will take our next question from Steve Lichtman with Oppenheimer. Your line is open.

Steven Lichtman
Analyst at Oppenheimer & Co. Inc.

Thank you. Evening, guys. 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?

Jereme Sylvain
Executive Vice President & Chief Financial Officer at DexCom

Yeah. It's a fair question. Let me just say, we're not necessarily going to give the playbook as to what countries we are going into. Now we have launched recently in Croatia, Romania and Greece for Dexcom ONE. That is out there now. So hopefully, that gives you some context, but we will be launching in more countries. But rather than give the playbook publicly, we'll let our commercial team execute that and give you that feedback. But just know, we will go into more countries. So hopefully, that gives you at least some context. We will go.

In terms of the movement from Dexcom ONE to the G7 form factor, we are absolutely going to be moving to that factor. It's going to take a little bit of time, and the reason it's going to take a little bit of time is, as we get economies of scale on G6, which we have today across the existing user base as well as Dexcom ONE as well as a lot of opportunity from new users on G7, we want to make sure we prioritize G7 and that form factor for those patients coming on to therapy on the G Series. Make no mistake, though, as soon as possible, right after that, we will be moving Dexcom ONE to that G7 form factor. Stay tuned. We'll have some updates as the years progress on. But you're thinking about it the right way. We will move there in relatively short order.

Steven Lichtman
Analyst at Oppenheimer & Co. Inc.

Thanks, Jereme.

Operator

We will take our next question from Josh Jennings with Cowen. Your line is open.

Joshua Jennings
Analyst at Cowen and Company

Hi. Good afternoon. I was hoping to follow up on the pricing question. And I'm not sure if you've given a recent update just on how investors should think about the average reimbursement Dexcom receives in the U.S. for a G6 or a G Series patient.

And then just a follow-up on that is, will that change with the G7 introduction for one? And then two, is it important the share shifts in the pump market just considering the reimbursement Dexcom gets to the DME channel with the Tandem pump versus the pharmacy channel with the Insulet pump? Thanks for taking the questions. Thank you.

Jereme Sylvain
Executive Vice President & Chief Financial Officer at DexCom

Yeah. 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 as 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 splits there.

And then in terms of pump partners and how folks ultimately access it, it really depends again on 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.

Joshua Jennings
Analyst at Cowen and Company

Great. If I could sneak in just a quick follow-up. Just thinking about your CGM platform attached to pumps, is there a premium reimbursement that Dexcom receives in that scenario versus standalone? Or is it all consistent across the board, is it just depends on the channel, as you said? Thank you. Sorry about that.

Kevin Sayer
Chairman, President & Chief Executive Officer at DexCom

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

Operator

We will take our next question from Cecilia Furlong with Morgan Stanley. Your line is open.

Cecilia Furlong
Analyst at Morgan Stanley

Good afternoon and thank you for taking the question. I was hoping to follow up. You talked during 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? And thank you for taking the question.

Kevin Sayer
Chairman, President & Chief Executive Officer at DexCom

You bet. This is Kevin. I'll take it. Big picture, our cash pay program for G7 to start with is going to be our bridging program. And people will be able to pay cash for G7 that way. Ultimately, as we get access and coverage of G7, when people's co-pays will be significantly lower than the bridging program cost, we'll phase that out and have a cash pay program on G7 that individuals will be able to access.

We continue our cash pay program on G6, but that is not a major portion of our revenues. It's just a piece of them. We do this to create access primarily where people's insurance doesn't cover it, and they can't get access through the federal or the other governmental channels as well. It's not a huge percentage of our revenues. We need to continue to be cognizant of it and address those patients' needs. And that's why we have it there.

Operator

We will take our next question from Matt Miksic with Barclays. Your line is open.

Matt Miksic
Analyst at Barclays

Thanks so much. Just -- if I could, just two quick follow-ups on some of the topics that were covered earlier. So, on ramping production for G7, you talked about gross margins and the impact and improving on scrap rates and all that. And just wondering, by the end of the year, we're sort of hitting what you say about your manufacturing and sort of representative margins maybe in the facilities that you have.

And the other was just on the comment you had on contemplation or competition on the pump integration front this year. And if that were not to come, I'm just wondering, not to put you in a tough spot or anything like that or pressure the margin, the guidance range. But if that were not to come, does that -- is that sort of a slight tailwind to the top-end of your guided range or how to think about that? Thanks.

Kevin Sayer
Chairman, President & Chief Executive Officer at DexCom

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.

Matt Miksic
Analyst at Barclays

Thanks for the color.

Operator

And we will take our last question from Michael Polark with Wolfe Research. Your line is open.

Michael Polark
Analyst at Wolfe Research

Good evening. Thank you. 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 three 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? Thank you so much.

Jereme Sylvain
Executive Vice President & Chief Financial Officer at DexCom

Sure. Yeah. I mean you're not far directionally off. I mean you are right. We do expect the Q1 contribution and really the sequential decline from Q4 into Q1 to be very similar to what you've seen in the past. And so that will help you get a little bit closer as you think about sequential decline as well from Q4 into Q1. That will put you into a ballpark.

And then from there, you're right. We updated our number. It's about $15 million now as a result of the bridging program as opposed to the $20 million to $30 million. But that will get you in the ballpark. You're not far off, but there's probably a little bit of tweaking to do around the edges there. But use that 21% contribution, but think also 10% sequential. Those little rounding differences ultimately matter in there. Hopefully, that gives you the context you need though.

Michael Polark
Analyst at Wolfe Research

Yeah. Thank you.

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.

Kevin Sayer
Chairman, President & Chief Executive Officer at DexCom

Thank you very much, and thanks, everybody, for joining us today. We spent a lot of time in our fourth quarter call talking about 2023. I want to just step back again and thank all of our great people here at this Company for their hard work in a year where we delivered on our revenue targets, we controlled our costs. At the same time, we've advanced our technologies, our infrastructure, and we've advanced coverage and accessibility for our product all over the world to enhance people's lives.

But we are very excited for this launch. This is my fourth major launch here at Dexcom. And every single time, it's taken our Company to another level. The first time was G4, and that was when accuracy really came to bear. And we truly established what accuracy standard should be for CGM, and we will remain the most accurate system in the world. G7 is going to be a better experience than G6. Every time we try to make the product easier to use, and this is the biggest ease-of-use advancement we've ever had as we look at the responses from our users so far. And as always, we will make this product as accessible as we can. Dexcom has always been the most accessible brand CGM as far as coverage, and we will continue to do so. That's our commitment to drive that very hard for our end users.

It is going to be a busy and great 2023. I am very confident we'll be sitting here a year from now and I'll be able to say the same things. Thanks, everybody, and have a great day.

Operator

[Operator Closing Remarks]

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