DexCom Q1 2023 Earnings Report

DexCom EPS Results

• Actual EPS: $0.17
• Consensus EPS: $0.15
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.08

DexCom Revenue Results

• Actual Revenue: $7.45 billion
• Expected Revenue: $720.52 million
• Beat/Miss: Beat by +$6.73 billion
• YoY Revenue Growth: +1,085.00%

DexCom Announcement Details

• Quarter: Q1 2023
• Date: 4/27/2023
• Time: After Market Closes
• Conference Call Date: Thursday, April 27, 2023
• Conference Call Time: 4:30PM ET

DexCom (NASDAQ:DXCM) is a medical device company that develops, manufactures and distributes continuous glucose monitoring (CGM) systems for people with diabetes. Its products are designed to provide near real-time glucose readings, trend information and alerts to help patients and clinicians manage insulin dosing and reduce hypoglycemia and hyperglycemia. The company’s offerings combine wearable glucose sensors, wireless transmitters and software applications that deliver data to smartphones, dedicated receivers and cloud-based platforms for remote monitoring.

Founded in 1999 and headquartered in San Diego, California, DexCom has focused its business on advancing CGM technology and expanding clinical use beyond traditional insulin-dependent populations. The company’s product portfolio includes commercially marketed systems—most notably its G6 and G7 families—which are intended to simplify sensor insertion, extend wearable life and improve ease of use. These systems are used in both personal and professional settings, including by patients at home and by clinicians who monitor glucose remotely.

DexCom’s CGM ecosystem emphasizes connectivity and interoperability. Its devices support mobile apps for real-time glucose display and data sharing with caregivers, and are designed to integrate with insulin delivery systems and other digital health platforms to enable automated or guided diabetes management workflows. The company also invests in software and data analytics to enhance actionable insights for users and providers.

Operating commercially in the United States and across multiple international markets, including Europe and parts of the Asia‑Pacific region, DexCom pursues expanded access through reimbursement initiatives, partnerships and regulatory approvals. The company has emphasized ongoing research and development aimed at improving sensor accuracy, user convenience and the broader clinical applications of continuous glucose monitoring. It is led by CEO Kevin Sayer and a management team focused on device innovation and global commercial growth.

DexCom Q1 2023 Earnings Call Transcript

Key Takeaways

• 19% organic revenue growth in Q1 2023, with total revenue of $741 million—US revenue rose 17% and international revenue grew 21% on strong new patient starts and initial G7 uptake.
• Full launch of the G7 continuous glucose monitoring system in the US drove high prescriber interest, with nearly 1,000 healthcare providers prescribing DexCom sensors for the first time.
• Rapid reimbursement milestones for G7 included Medicare coverage days after the Super Bowl ad, DME coverage matching G6 levels, and faster commercial pharmacy coverage than DexCom’s competitor.
• CMS expanded Medicare access to CGM for basal insulin–only and certain non–insulin Type 2 patients, opening a potential market of ~3 million additional US users based on strong mobile trial outcomes.
• Full-year 2023 guidance raised to $3.400 billion–$3.515 billion in revenue, with gross margins reaffirmed at 62–63%, operating margins near 16.5%, and adjusted EBITDA margins around 26%.

Presentation

[Operator]

Ladies and gentlemen, welcome to the Dexcom First Quarter 2023 Earnings Release Conference Call. My name is Abby, 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, during the question-and-answer session, if you would like to ask a question, please press star one on your touchtone phone. As a reminder, today's 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.

[Sean Christensen, VP of Finance and Investor Relations at Dexcom]

Thank you, Abby, and welcome to Dexcom's First Quarter 2023 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 1 question so we can provide an opportunity for everyone participating today. Please note that there are also slides available related to our first 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.

[Sean Christensen, VP of Finance and Investor Relations at Dexcom]

All forward-looking statements included in this presentation are made as of the date hereof based on information currently available to Dexcom and 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.

[Sean Christensen, VP of Finance and Investor Relations at Dexcom]

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 our tables in our earnings release and the slides accompanying our first 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, and CEO at Dexcom]

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.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

It is simple to use and is supported by the most covered CGM brand. We expect its 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 when our commercial aired, and the customer and clinician outreach that followed was incredibly encouraging, as we expected it would be. The ad generated 3 times 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 represented on a platform of this size.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

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 in a G7 product that is incredibly simple to use. Millions of people with diabetes do 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 US 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 healthcare providers have prescribed G7 who previously were not prescribing Dexcom CGM.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

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 evidence.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

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 non-insulin 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 sized the basal-only type 2 population alone at around 3 million people in the U.S., with around half being of Medicare age.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

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 time and 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 our differentiated product where reimbursement exists, and we expect this dynamic to endure as 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.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

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 rollout also continues to go well, with good initial uptake and high customer satisfaction rates. The 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 eight new international markets as part of our strategic effort to get this product to as many people as possible. From a capacity perspective, we remain in great shape to support this broader rollout.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

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 mid-year, 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 and 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.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

With that, I will turn it over to Jereme for review of the first quarter financials. Jereme?

[Jereme Sylvain, EVP, CFO, and CAO 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 our IR website. For the first quarter of 2023, we reported worldwide revenue of $741 million, compared to $629 million for the first quarter of 2022, representing growth of 19% 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 $526 million for the first quarter, compared to $451 million for the first quarter of 2022, representing growth of 17%.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

We experienced another quarter of strong new customer starts in Q1 as we saw a continuation of steady demand for our G6, as well as an encouraging initial uptake of G7 with our launch in the final weeks of the quarter. As Kevin mentioned, we were able to progress our commercial pharmacy coverage for G7 faster than anticipated in the quarter. This caused the impact of our Bridge program to be around half of the $15 million level we expected as more customers were able to access G7 through reimbursed channels. The impact on revenue from this program should continue to shrink going forward given our established commercial coverage for G7. International revenue grew 21%, totaling $216 million in the first quarter. International organic revenue growth was 27% for the first quarter.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

For another quarter, we continued to gain share in international markets in Q1 as customers have been responding well to our broad access initiatives and new product launches. As anticipated, Dexcom ONE is having a growing impact on our results as this product has enabled us to enter new markets and compete much more broadly within existing markets. In the U.K., access to Dexcom ONE was recently simplified with the addition of the product's transmitter to the national formulary. With the entire system now covered by the Drug Tariff, this reduces the administrative steps for clinicians in a market where we already have considerable underlying momentum. We will continue to work on delivering these types of wins, making it easier and simpler for customers to get reimbursed access to Dexcom products.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

Our first quarter gross profit was $469.8 million or 63.4% of revenue compared to 63.3% of revenue in the first quarter of 2022. Our first quarter gross margin reflects the traditional step down relative to what we see in the fourth quarter as we serve a greater mix of pharmacy customers and less contribution from our DME users with high deductible health plans. This was a better than expected Q1 result for gross margin as we delivered incremental efficiencies in our G6 lines while managing production for our G7 launch. However, we continue to anticipate gross margins for the full year in line with our original guidance as we scale our global G7 production.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

Operating expenses were $391.2 million for Q1 of 2023, compared to $347.8 million in Q1 of 2022. Operating expense management continues to be an ongoing point of emphasis for our team as part of our broader cost efforts. It continues to be on display this quarter. In line with our expectations, we generated over 250 basis points of OpEx leverage in the first quarter, even as we allocated greater commercial investment to support our G7 launch. We are very proud of the efforts our team has made and continue to make on these efficiency initiatives. Operating income was $78.6 million or 10.6% of revenue in the first quarter of 2023, compared to $50.3 million or 8% of revenue in the same quarter of 2022.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

Adjusted EBITDA was $145.9 million or 19.7% of revenue for the first quarter, compared to $112.4 million or 17.9% of revenue for the first quarter of 2022. Net income for the first quarter was $68.5 million or $0.17 per share. We closed the quarter with approximately $2.6 billion worth of cash and cash equivalents, remaining in a great financial position. Our balance sheet provides us with significant flexibility to organically support our ongoing growth investments, including the build-out of our Malaysia manufacturing facility and continually assess our strategic uses of capital. As Kevin mentioned, we are expecting our Malaysia facility to start producing commercial product around mid-year, which we view as a pivotal moment in our global manufacturing journey.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

This plant will provide us significant new capacity and be a key element of our long-term growth and cost reduction plans. Turning to guidance, we are raising our full-year 2023 revenue guidance to a range of $3.4 billion-$3.515 billion. For margins, we are reaffirming our prior full-year guidance of gross profit margins in the range of 62%-63%, operating margins of approximately 16.5%, and adjusted EBITDA margins of approximately 26%. The increase of approximately $38 million at the midpoint of revenue guidance reflects our increased confidence in the business and the underlying market. This factors in our strong first quarter results as well as a benefit from CMS finalizing type 2 basal coverage earlier than originally anticipated. With that, I will turn it back to Kevin.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

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

[Sean Christensen, VP 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 reenter the queue if necessary. Abby, please provide the Q&A instructions.

[Operator]

Thank you. As a reminder, if you have a question, please press star one on your touch-tone phone. If you wish to be removed from the queue, press star one once again. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers, we will pause for just a moment to compile the Q&A roster. We'll take our first question from Robbie Marcus with J.P. Morgan. Your line is open.

[Robbie Marcus, Managing Director and Senior Analyst at JPMorgan]

Great. Thanks for taking the questions. Congrats on a great quarter. Maybe to start, the focus is all on the type 2 basal expansion that just started the beginning of last week. You know, maybe speak to the expectations and cadence of what's in guidance here, what you think the initial reception and awareness is, and how much you and your other CGM competitor have to do to educate the market. Then, you know, maybe on the back of the Super Bowl ad, what you think the patient awareness and also acceptance to wearing a CGM full-time is for type 2 basal. Thanks a lot.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

Sure. Hey, thanks, Robbie. This is Jereme. Appreciate that. You know, 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. You know, in terms of guidance, we had talked about basal prior to approval if it started in the middle of the year being about 1%. Our updated guidance has us, you know, higher than 1%, certainly, you know, more in that 1.5%-ish range, but not necessarily changing integers. Hopefully that gives you some context to where that's going. Certainly, we expect it to be a, you know, a market change in terms of what I would say is reimbursement for the longer term.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

In terms of adoption, you know, we're obviously just getting in those approvals and just getting in the reimbursement. It's gonna take a little bit of time for us to ultimately see how that cadence of adoption is. 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 kind of wear times longer term.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

Yeah. Thanks, Jereme. With respect to wear times, you know, our best point of reference is our MOBILE study that provided the really the most important data in securing this approval. Over 90% of the individuals who wore sensors during this study didn't want to give them up. They felt the information was very valuable, very useful, and provided them very much a scoreboard in how they can manage their diabetes going forward, so it doesn't progress. They could have much better outcomes. We're very confident with the full-time wear. From an educational perspective, we do have some work to do in the PCP community. We did a big sales force expansion last year in anticipation of going more broadly.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

We continue to evaluate our marketing and our full-on direct distribution efforts to see, you know, what adjustments need to be made to create more awareness. We work very hard with our channel partners and believe we are in a very good position with them to go take on this front. You know, it's about creating awareness. It's about making it easier for patients to get their product and use it. I've been out in the field a few times, and the one thing I'm definitely hearing as I speak with a lot of the primary care physicians who are going to serve this market is G7 is so much easier to use and so easy to use versus G6. They view this as a very real and a very strong opportunity for their patients to achieve better outcomes.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

We know we have the right product. We'll just work on creating awareness at the proper places to get it out there. We're comfortable that people will wear it all the time once they get started.

[Operator]

We'll take our next question from Jeff Johnson with Baird. Your line is open.

[Jeff Johnson, Senior Research Analyst at Baird]

Thank you. Good afternoon, guys. Kevin, I heard you talk about or Jereme, I guess probably it was you who talked about the Bridge program and kind of half the impact of that you thought originally in 1Q. Didn't hear anything on the cash pay program. You know, we're starting to see on GoodRx and on Amazon Pharmacy and that some of these price points roll out in the $170-$180 dollar range per month for your product. Just any updated thinking, what are the initial responses you're seeing to that cash pay program? How additive do you think that could be to revenue this year? How to think about the margin implications at those discounted prices? Thank you.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

Sure. Yeah, thanks for asking the question. We obviously updated the Bridge program. The Bridge program is where, you know, a significant amount of folks are taking advantage of it. That price point's a little bit lower at this point. And great news, of course, is the coverage is coming a little bit earlier, 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. 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. Longer term, again, Jeff, we're very excited about what this opportunity offers to folks.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

Longer term margins perspectives, 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 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.

[Operator]

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

[Larry Biegelsen, Senior Analyst at Wells Fargo]

Good afternoon. Thanks for taking the question. Congrats on a nice start to the year here. Jereme, you know, two-part for me. I mean, the first quarter, was about 20% if you back out the bridging program, the guidance 17%-21%. You know, can you talk about the cadence through the year and, you know, is there any reason why growth wouldn't accelerate from Q1, you know, with G7 and the basal launches? Just separately, what was volume in the US, volume growth? You know, people are gonna compare and contrast your, call it, 18% growth in the US, adjusted for the bridging versus Abbott's 50%. Just any color on what you think is going on there. Thanks for taking the question.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

Sure. I'll start with the volume question first. While we're not necessarily disclosing volume specifically in quarters, going forward, what we can say is our patient base, if you, if you look at where we were exiting 2022, our patient base grew in the mid-30%. As we've talked about what that patient base looks like when we disclose patients, and we'll do that every year so folks have an understanding, that continues to play through. To give you some context to the first quarter, the first quarter was a record for new patients. Our unit volume growth continues to be very strong.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

As you compare the two, we feel very good about our unit volume growth relative to competitors, and we'll continue to feel good about that for the balance of the year. In terms of how to think about the cadence of the year, you know, I do think the cadence of the year will be a little bit heavier weighted into the back half relative to prior years. That's just given the timing of the basal approval and as that starts to get going. As you think about Q2, we do recognize where the street is today, and we realize that number will have to go up a little bit.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

As the overperformance you see in Q1, certainly record new patients, that will play through into Q2, and so you'll see some of the increase in guidance that is specifically related to some increase in expectations in Q2 performance. Hopefully that covers your questions.

[Operator]

We'll take our next question from Matt Taylor with Jefferies. Your line is open.

[Matt Taylor, Managing Director at Jefferies]

Hey, guys. Thanks for taking the question. I wanted to ask you, one, about just how quickly the coverage has been established in the DME and the pharmacy channels. I thought it was a interesting comment that you made that you could get more coverage in pharmacy than your competitor. You know, maybe you could compare that and talk about what that means for ultimately how much of the basal opportunity you think you can garner.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

Yeah, this is Kevin. I'll take that, and Jereme can add a bit afterwards. On the basal opportunity, remember Medicare still is processed as 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. We're very comfortable there.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

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. By getting all this coverage, you know, we've repeated the statistics several times, 30% of Dexcom users, commercial users who go to the pharmacy have 0 copay, and 70% have lower or at least equal to copay as our major competitor. Our goal is to get them through and to get them covered rather than rely on the bridging program forever. Our team is very successful in getting us through that. The bridging program is still out there, and it's still open. Many of the customers go to the drugstore and don't need it.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

We've got that pharmacy coverage in place, which creates an opportunity then for them to spend less. On a monthly basis, 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 for us to get in front of them again.

[Operator]

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

[Margaret Kaczor, Partner and Medical Technology Analyst at William Blair]

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

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

We are working on all fronts there, Margaret. Thank you for the question. We see tremendous benefit to CGM as type 2 diabetes treatment gets more sophisticated. I was with a physician recently, and he talked about CGM being the scorecard. How do you do this, and how do you aggressively treat type 2 diabetes without knowing the scorecard and what's going on? CGM offers a tremendous opportunity. It offers an opportunity to reduce or increase medications for individuals who aren't succeeding and bring A1Cs down significantly in combination with the therapies. We think it will become a vital part. We'll continue to gather data from programs like we have done in the past. We're contemplating studies, but nothing we're ready to publish or announce. We don't announce our studies early on.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

We like to wait till we get done. We are contemplating and seeing study proposals that could provide great data. The question is, do we wanna go do a 100,000 type 2 patient study and that takes 3 years? Not right now. We don't think we need that type of evidence. There is a very strong body of evidence in all of the type 2 individuals that we've seen that aren't on insulin that show CGM, again, provides a great benefit when you're using a Dexcom sensor, where you can rely on the accurate information and you can use it. Stay tuned on that, Margaret. We'll talk more about it in the future, but it is coming. We believe we play a vital role there in spite of all these advances that we're reading about.

[Operator]

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

[Matthew O'Brien, Managing Director and Senior Research Analyst at Piper Sandler]

Afternoon. Thanks for taking my question. Jereme, can you talk a little bit more about the pricing commentary that you just made? I think you said volumes up in the first quarter in the 30s, but yet overall, and this is a domestic question, overall up, you know, 17%, 18% in total. That would mean pricing came down quite a bit. Is that a trend we should anticipate? With your competitor taking pricing up, are you really just trying to close the gap entirely here and just be done with this pricing, you know, delta between the two of you? Thanks.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

Appreciate the question. That's not what I was necessarily trying to. What 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 commenting on specific volume within the quarter. What I would say is the volume in the quarter was relatively. It was robust. It was another good quarter for us. It was on the backs of a record new patient add. I didn't wanna get into specifics on volumes. What I can tell you just in generalities around price and volumes are continuing to converge over time. That is us moving, you know, moving less from pharmacy. I'm sorry, from DME to pharmacy.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

That channel has started to stabilize quite a bit. There is still some annualization going on. 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. There the price is up, is moving how we would've expected. We weren't really trying to insinuate that there was an increasing delta between the two. Was just trying to give some context around a strong, robust underlying patient base for the quarter. Didn't wanna read too much into that and apologize if it gave you the wrong impression.

[Operator]

We'll take our next question from Danielle Antalffy with UBS. Your line is open.

[Danielle Antalffy, Senior Analyst at UBS]

Hey, good afternoon, everyone. Thanks so much for taking the question. Congratulations on a good start to the year. I'm gonna try to ask this question qualitatively, Kevin, 'cause I appreciate you guys are gonna give us an update in two months here at ADA. As we look at the basal opportunity, you know, we were kind of thinking of looking at intensive insulin intensive type 2 as a proxy there. 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 couldn't be true as well for basal?

[Danielle Antalffy, Senior Analyst at UBS]

Arguably, could basal ramp even faster, just given that we're significantly ahead of where we were in 2018 from a technology, from an awareness perspective? Anything you could say around that without, you know, front running the Analyst Day. Thanks so much.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

No, it's a good question, and it's one we discuss a lot internally. Remember, to start reimbursement is with Medicare patients only, and that's about half the population. It has always been our experience that we've got to drive reimbursement from the private payers as well, and then through the Medicaid programs also, to get extensive penetration. With type 2 intensive insulin therapy, we're now pretty much there across most of the payer landscape. A bit of work to do on the Medicaid side still, but we're there with Medicare and the private payers. You'll see reimbursement evolve early on, and we get more coverageAnd then I think we've got to generate these experiences with these users over time, Danielle. In a five-year period, I can definitely see that.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

Maybe it does go faster because we have such a large group of, you know, end users who are going to have reimbursement on the Medicare side. At the same time, they're not all seeing endocrinologists. We've got a broader base of education with respect to their healthcare providers that we have to cover as well. We'll factor all that in as we go. We'll talk more about it later. Those are all the factors we consider as we look at it.

[Operator]

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

[Jayson Bedford, Managing Director and Senior Analyst at Raymond James]

Good afternoon. Just 2 quick questions that require short answers. Jereme, you mentioned, I think 1Q was a record for new users. Just a little clarification there. It was a 1Q record, or are you saying that you added more new users in 1Q than you did in 4Q?

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

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

[Jayson Bedford, Managing Director and Senior Analyst at Raymond James]

Very clear. Thank you. Kevin, I was intrigued by your comment around actively talking to payers in Europe around basal reimbursement. I'm just kind of curious, is this something that you would expect in 2023? If not, is this something that could happen in 2024? Thanks.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

You know what? It will take time. It's not going to happen overnight. Our outcomes data that we've 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. I don't think we have enough yet, personally. The team may disagree with me, I think we need to develop more. Certainly it's on the table. It's certainly something we can now discuss, because when CMS approves a policy of this nature, the world takes note. We are now getting audiences to discuss that internationally, and we'll continue to push.

[Operator]

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

[Joanne Wuensch, Managing Director and Equity Research Analyst at Citigroup]

Good evening. Thank you for taking the question. 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 growth. I'm curious in how many countries Dexcom ONE is in currently. Thank you.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

Yeah, sure. It does include Dexcom ONE users, so this is the entire group. Dexcom ONE is now in, I want to say it's about 12 countries, 10-12 countries. I'm trying to do the math in my head across all of them. It's about 10-12. We're starting to really see some uptick in some of those smaller countries that we initially launched in. Of course, some of the bigger countries where we have coverage like the UK, we're also seeing some nice uptick as well.

[Operator]

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

[Cecilia Furlong, VP of Equity Research at Morgan Stanley]

Great. Good afternoon, and thank you for taking the questions. Just a quick follow-up on Dexcom ONE as well. I know you had talked about entering the year thinking about a third of new patient starts OUS stemming from Dexcom ONE. Just curious if you could talk about where you are right now, 1Q, and then as you think about geographic expansion contributions to that going forward through the year, just your expectations there as well.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

Yeah, sure. I can answer that. The expectation still is one-third of new patients. As you can see, you know, some of the encouraging things, for example, with the U.K. formulary decision to include transmitters, on there just makes it easier. The easier we can make it, the easier it's going to be. That's still our expectations. Right now, a majority of the Dexcom ONE product is sitting in the EU region. 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.

[Operator]

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

[Mathew Blackman, Managing Director and Equity Research Analyst at Stifel]

Good afternoon, everybody. Thanks for taking the question. Another international one for me. Just curious for an update on Japan now that you've got broader reimbursement with G6. Is there any way to just give us a sense of how much that business is annualizing at and how important a component it is in your 2023 outlook? Thanks.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

Yeah. This is Kevin. I'll take it. It's still a relatively small component in our 2023 outlook. We are working with our partner Terumo there, and with the broadened coverage, we'll obviously see an increase, but it is not a material part of our plan this year. We're looking forward over time to getting G7 launched over there. We think G7 provides us a, quite candidly, much stronger opportunity in the Japanese market with all of its great features. We've grown a bit in Japan, not as much as we'd like. As we look at the year, we're looking at ways to go faster. G7 will be one of those and be a bigger part of our 2024 plan than it is 2023, substantially.

[Operator]

We will take our next question from Marie Thibault with BTIG. Your line is open. Please check your mute button.

[Marie Thibault, Managing Director and Health Analyst at BTIG]

Apologies. I was on mute. Thanks for taking the questions. You started the call by describing how much prescribers seem to like the G7 format and that you had new prescribers coming on to Dexcom. I just wanted to clarify, are these competitive wins? Are these prescribers coming completely new to CGM? How much of the launch or the intro is complete as in how many of the potential prescribers have you been able to get G7 in front of? Thank you.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

Yeah, this is Kevin. I'll take that. We have a lot of prescribers to go for G7 because it's gonna 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. If they're new to Dexcom, it's one of two things.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

Either they're new to CGM in general or they've come after using competitors' products, both of which we view are good. 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 half hour warm-up, with the easy insertion, with the 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. You know, 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. Word of mouth has been very strong on this product.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

ur campaigns have obviously been aggressive, but the strength of the product has supported what we've said.

[Operator]

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

[Travis Steed, Managing Director and Equity Research Analyst at Bank of America]

Everybody, I guess I wanted to touch on margins. Gross margin in Q1 was actually above the full year guidance. I wanna understand the bridge on gross margin. 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, you know, long-term margin guide.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

Sure. Yeah. Thanks for the question. You're right. Q1 came ahead of expectations, and what we saw was we really saw continued efficiencies on our G6 lines that really played through in the quarter, which certainly is favorable. Given there's a large portion of our base, of course, that sits on those G6 lines, that played through. It was ahead of the full year. We do expect as more and more folks move to G7 over the course of the year as we're turning on Malaysia, ultimately ramping up our G7 launch, and therefore the throughputs on those lines. We will go through a bit of a margin dip as we make that transition. We still expect that over the course of the year.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

We still do expect the year to fall in line with the 62%-63% gross margin. You are right, Q1 came in strong, and I think it just shows the capabilities of our teams when you give them time, what they can do in terms of designing cost out of product on manufacturing lines. We expect something similar like that to happen on G7 into those future years. In terms of margin profile, operating margin profile, you know, we gave the long-term guide certainly of getting to 20% margins by 2025. If you assume the year was at 65% gross margin, you know, we're starting to get pretty close to there even in 2023. That just goes to show you the leverage we're building into the business.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

While we're not in a position to change our long-term guide, to your question, do we think that there's opportunities to lever this business over the long haul? We do. We're putting the levers in place right now. That's part of what we're doing as an organization. We're very excited about that opportunity. I'm glad you've pointed it out. We do believe there's opportunity in this business longer term to continue to generate more profits and we'll continue to work on doing so.

[Operator]

We will take our next question from Chris Pasquale with Nephron Research. Your line is open.

[Chris Pasquale, Partner and Senior Analyst at Nephron Research]

Thanks. Appreciate it. Wanted to ask a couple questions about the middle of the income statement. SG&A grew quite a bit faster than sales this quarter. Just was there anything specific that drove that? R&D spending's been down year-over-year now 4 quarters in a row. Should we expect that trend to continue, or does it start to ramp back up as we go through this year?

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

Yeah. It's, it's a good question. It's really a function of timing. I'll start with R&D. You know, 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. What you saw running through the P&L was an elevated period of spend. 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 the line. We didn't need to necessarily validate those lines as much anymore. You saw that change happening. Over the course of the year, I would not expect that type of leverage on R&D.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

We'll still continue to leverage it as a % of sales, but it won't be what you saw in this quarter. It's just the inverse for SG&A. 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. You saw an elevated level of spend associated with that, which we expected in coming out with our long-term guides. It was all expected, 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, we're ramping up costs. Until we go live, those costs sit in G&A.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

What you'll see is 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. It still ultimately leads to leverage by the end of the year across both of those lines.

[Operator]

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

[Matt Miksic, Equity Research Analyst at Barclays]

Hey, great. Thanks so much, for taking the question. Some follow-up here on the basal opportunity. Clinicians we speak to describe something like, you know, a fair amount of pent-up demand in this community of Medicare, you know, patients and, basal patients. If you, you know, just wondering if you have any sense of how long, if that's the way you are also seeing the setup, like how long do you think it'll 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 the sort of mix factor for all these different types of, you know, channels that you manage. You know, how does this compare to your sort of core business or maybe some of your other channels in terms of, you know, margins and pricing and mix? Thanks.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

Yeah. I'll start, then I'll let Jereme go from there. We do see pent-up demand, we do see people very excited for this opportunity. As I said earlier, we worked very hard with our channel partners to prepare, so we're ready for that with our DME distributors to handle the influx of users that will come through that. With respect to pricing and the models, Jereme can go a little more specific, again, this is the same Medicare pricing that we have in our Medicare business for those who are on intensive insulin therapy. The only thing that would change is a larger portion of our patients could become Medicare patients and subject to Medicare reimbursement. On an overall basis, Medicare pricing is very favorable for us.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

We're in a very good position there with these patients. We're very excited to serve them. Jereme, you want to add to that?

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

Yeah, 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, you know, 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. You know, all throughout this process, we'll be looking at reimbursement. We'll also be looking at how we deliver our products at what would be a lower cost, and so that'll be our way of helping manage through that as well.

[Operator]

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

[Kyle Rose, Managing Director of Medical Technology at Canaccord Genuity]

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. No, just wondered if you could set some expectations with respect to, you know, extending the days of use as well as adding back some of those software features that you pulled, you know, 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. Thank you.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

Why don't I start on the software side? We've made significant investments in software. We'll be adding back, for example, the shut the alarms off feature for up to six hours in the U.S. certainly before the end of the year. That feature will be added back to the app, and we're looking for a steady stream of upgrades to the app over the course of time. What you're gonna see from our software team is, you know, continual upgrades and launches on a much more regular basis than we have in the past. Part of G7's engineering was to create a software platform that we could do more with and that we could upgrade much easier than we have done in the past.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

That feature will be back before the end of the year, and we're excited for that as our users. As far as what comes next, the number 1 initiative in our R&D group is to get those extra days of sensor wear out there. As we've talked about this publicly, you know, we've got some work to do on the patch. We have a new patch that we're gonna put into manufacturing, some new manufacturing processes there. We have a couple of other programs that we know can extend the life and make it better. What we struggle with, and the reason we started 10 days, is we want the appropriate reliability experience for our users and what they expect.

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

By upgrading the patch and a couple other changes, we're quite confident we can be there, and you'll see that life extended here, in the not too distant future. It is our number one priority, and our team's making very good progress.

[Operator]

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

[Steve Lichtman, Managing Director and Senior Equity Research Analyst at Oppenheimer]

Thank you. Guys, I was wondering on, as we think about the LCD, obviously a lot of focus understandably on basal only. I was wondering how you're thinking about the opportunity within the non-insulin using patients. You know, I understand it's gonna be a subset based on the LCD and hypoglycemia risk, but the overall numbers are very high. Just curious how you're thinking about that, and are you approaching commercial pay there as well?

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

Yeah. You know, it's a good question. Maybe I can start, and then, you know, certainly Kevin can fill in. You know, obviously, massive market. Within that market, there's different use cases as you kind of go through the acuity, even the sub-acuity 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 wanna reimburse where we're 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 form, fit form software and product feature and/or does the existing product make sense, which again, in many cases we think it does.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

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 one 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 gonna wanna 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.

[Jereme Sylvain, EVP, CFO, and CAO at Dexcom]

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 gonna be different based on who exactly is using it and what stage of disease state they're in. Kevin, any other thoughts?

[Kevin Sayer, Chairman, President, and CEO at Dexcom]

No, Jereme, I think you've hit it very well. It is a different market, and it will be a different use case, and it's up to us to determine the proper value equation for that somebody is getting what they expect to be paying for. The problem isn't as severe as somebody who's integrated with an AID system. On the other hand, the results can save the system as much if not more money over time. We're looking at that balance and looking at how best to position our technology in that market. We're very excited to address it in the future.

[Operator]

Ladies and gentlemen, that concludes our question and answer session for today. I will now turn the call back to Mr. Sean Christensen for closing remarks.

[Sean Christensen, VP of Finance and Investor Relations at Dexcom]

Listen, I wanna thank everybody for listening today. This was a great quarter for us. Record new patients, a great beat on the top line, continued leverage on our, on the operating expense line. In general, you know, based on what we know, given the fact it's the first quarter of the year, we couldn't be happier here, and it's gonna be a great year for Dexcom. Thanks for listening. Have a great day.

[Operator]

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

Participants

Executives

• Jereme Sylvain, EVP, CFO, and CAO
• Kevin Sayer, Chairman, President, and CEO

Analysts

• Cecilia Furlong, VP of Equity Research at Morgan Stanley
• Chris Pasquale, Partner and Senior Analyst at Nephron Research
• Danielle Antalffy, Senior Analyst at UBS
• Jayson Bedford, Managing Director and Senior Analyst at Raymond James
• Jeff Johnson, Senior Research Analyst at Baird
• Joanne Wuensch, Managing Director and Equity Research Analyst at Citigroup
• Kyle Rose, Managing Director of Medical Technology at Canaccord Genuity
• Larry Biegelsen, Senior Analyst at Wells Fargo
• Margaret Kaczor, Partner and Medical Technology Analyst at William Blair
• Marie Thibault, Managing Director and Health Analyst at BTIG
• Mathew Blackman, Managing Director and Equity Research Analyst at Stifel
• Matt Miksic, Equity Research Analyst at Barclays
• Matt Taylor, Managing Director at Jefferies
• Matthew O'Brien, Managing Director and Senior Research Analyst at Piper Sandler
• Robbie Marcus, Managing Director and Senior Analyst at JPMorgan
• Sean Christensen, VP of Finance and Investor Relations at Dexcom
• Steve Lichtman, Managing Director and Senior Equity Research Analyst at Oppenheimer
• Travis Steed, Managing Director and Equity Research Analyst at Bank of America