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

Sean Christensen: Thank you, operator and welcome to Dexcom’s third 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 one question so we can provide an opportunity for everyone participating today. Please note that there are also slides available related to our third quarter performance on the Dexcom Investor Relations website on the Events and Presentations page. With that, let’s review our Safe Harbor statement.

A pharmacy worker placing wireless handheld personal diabetes managers against the light.

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 third 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: Thank you, Sean, and thank you, everyone, for joining us. Today we reported another great quarter for Dexcom with third quarter organic revenue growth of 26% compared to the third quarter of 2022. This year is proving to be one of the most exciting periods in our company’s history. Access is expanding faster than ever before and we are seeing new levels of enthusiasm for our differentiated products. This can be seen firsthand in our broader rollout of G7 in the US. Building upon our legacy of being the most accurate sensor G7’s focus on simplicity and affordability continues to attract new customers and prescribers to our platform. Similar to last quarter, the majority of G7 customers continue to be new to Dexcom and we took yet another step forward in expanding our prescribing base.

There are now nearly 18,000 physicians writing scripts for Dexcom, they were not prescribing our products before the G7 launch. This represents a notable increase in our prescribing community in only a short period of time as more clinicians recognize G7’s unique feature set, ease of use and market-leading levels of coverage. This combination has made it incredibly easy for physicians to prescribe Dexcom CGM and drive greater levels of engagement within their patient populations. Additionally, our new G7 software platform is enhancing our value proposition across all patient types. We’ve implemented new software updates almost monthly since launch with improvements to features like connectivity and alarm personalization. As one example, we have established new lines of communication in our app to simplify the process of engaging with our customers.

We are constantly working behind the scenes to improve the customer experience. And we will continue to operate with this type of focus to ensure that we have the most user-friendly and engaging products on the market. Our customers know that when you join the Dexcom ecosystem, you get all the benefits today and tomorrow associated with our leading innovation. Our latest product cycle has also coincided with the largest expansion of coverage in our company’s history. With significant reimbursement now established beyond intensive insulin use, there are more people with covered access to Dexcom CGM than ever before. As a reminder, Medicare coverage went live in mid-April for people with type 2 diabetes using basal insulin only, as well as certain non-insulin individuals that experience hypoglycemia.

Collectively, these two populations represent nearly seven million people on the US with approximately half being at Medicare age. Encouragingly, commercial coverage continues to build for this group. We’ve established market-leading levels of basal-only reimbursement as payers clearly recognize the potential for better outcomes driven by Dexcom. This further supports our industry low out-of-pocket cost for our customers. With a full quarter of broad coverage now under our belt, we continue to be very encouraged by early prescribing trends for this cohort. We know that last quarter that we experienced an immediate uptick in new patient starts once coverage went live and we have seen a clear continuation of this trend since that time. In fact, we delivered another record Medicare new patient start quarter in Q3 as physicians have quickly adjusted their prescribing patterns to match the new reimbursement landscape.

While early basal adoption trends look very similar to those we previously experienced, once broad coverage became available for intensely managed type 2 diabetes. We view this as a very positive sign of things to come. Importantly, when you combine this broader coverage with our leading center technology, we feel incredibly confident in our market position. Since the launch of G7 we have gained share across all reimburse channels and patient segments in the US and that trend continued this quarter. Even among non-reimburse channels we are seeing more and more interest in Dexcom CGM. We are also seeing similar dynamics across our international footprint. We have never been better positioned to compete globally from a product, access or capacity perspective and we once again, took international share this quarter as a result.

Our product portfolio continues to be a key contributor to this success. By having multiple products available, we can tailor our offerings to meet the unique needs of individual geographies and reimbursement structures. A great example of this was seen in Francis past quarter where DexCom ONE secured reimbursement for all people on intensive insulin therapy, which represents around half a million people and we have submitted our evidence to extend ad coverage to the basal population. In addition to advancing our product offerings, we’ve been continuously working to build greater commercial scale and flexibility to serve each market more effectively. As we discussed at our Investor Day, one way to drive scale is through the conversion of key international markets from distributor to direct operations.

Historically, these conversions have been followed by a notable uptick in performance, as we provide greater levels of support and focus to these markets once we oversee all facets of sales and distribution. Along those lines, we recently made the strategic decision to go direct in Japan. As a reminder, Japan became one of the first countries to establish broad reimbursement for anyone taking insulin late last year, representing more than one million lives. Despite this the market remains in its very early stages, and we will continue to work to drive much greater CGM adoption over time as we initiate direct sales in the second quarter of next year. Finally, at EASD this month, we added to our substantial base of distinctive clinical evidence with new data around long term Dexcom CGM outcomes and inheritance the impact of Dexcom ONE for type two, diabetes and performance within the pregnancy setting.

Study after study, we continue to demonstrate Dexcom’s position as a cornerstone within the evolving diabetes care, and metabolic help landscape. Across a wide range of customers and care settings our product plays a unique role in providing real-time information that can drive behavior change, greater patient accountability, and more informed therapy decisions. Like everyone else, we have also been interested to see the latest data behind new drug therapies. We believe these drugs playing important role in the care continuum and it is encouraging to see new solutions emerging and a growing appreciation around the need for better and earlier care. Data continues to demonstrate that clinicians prefer to use CGM together with these drugs to drive the best possible outcomes.

In fact, we shared claims data this quarter that showed prescribing trends for CGM increase once someone is initiated GLP-1 therapy as clinicians favor Dexcom for both its protective features and ability to support lifestyle management. As an update, we looked at trailing 12 month data through August 2023 would suggest this dynamic is even more pronounced among the newest generation of these drugs. The data clearly showed that CGM usage grows faster and GLP-1users, then those who are not on therapy. This further demonstrates the complementary nature of Dexcom CGM across all therapy regimes in diabetes. As we look forward, we continue to ensure that we advance our unique role within the ecosystem of care as we progress, our mission of empowering people to take control of health.

This will include launching new products such as our non-insulin product coming next summer, as well as advancing our ongoing clinical work across much broader populations. We are still very early in our story in terms of potential impact and the number of lives we can ultimately touch. Our future is incredibly bright. With that, I will turn it over to Jereme for a review of the third quarter financials. Jereme?

Jereme Sylvain: Thank you, Kevin. As a reminder, unless otherwise noted, the financial metrics presented today will be discussed on a non-GAAP basis. Reconciliation is to GAAP can be found in today’s earnings release as well as on our IR website. For the third quarter of 2023, we reported worldwide revenue of $975 million compared to $770 million for the third quarter of 2022, representing growth of 27% on a reported basis and 26% on an organic basis. As a reminder, our definition of organic revenue excludes currency, in addition to non-CGM revenue acquired or divested in the trailing, 12 months. US revenue totaled $714 million for the third quarter, compared to $573 million in the third quarter of 2022, representing growth of 24%.

Between the ongoing success of our G7 launch and significant expansion of coverage for Dexcom this year, our US business is really hitting its stride. This is particularly noticeable when looking at our new customer start trends which again outpaced our expectations for this quarter. This dynamic has now played out for several quarters in a row and we are seeing the direct result of that continued momentum. In the third quarter, we saw revenue growth accelerate compared to last quarter and we delivered our fastest quarterly growth rate in over two years. International revenue grew 33% totaling $261 million in the third quarter. International organic revenue growth was 30% for the third quarter. We continued to execute incredibly well in our international markets.

Our product portfolio strategy, ongoing access work and growing commercial traction helped us again gain share this quarter. We had a particularly strong quarter across our European footprint as we saw growth remained similar to the accelerated level we saw in the second quarter. An item of note is we did have slower growth coming from our non-CGM business as well as relatively flat performance in Japan, as we worked with our distributor partner to start the process of transitioning to direct sales. As a reminder, when we made our distributor acquisition in 2021, we also inherited a business that distributed products outside of the diabetes space. We recently made the decision to spin off this unit to focus entirely on our CGM and diabetes technologies in this region which we think will enhance our execution in the market.

We expect the deal to close in early 2024 and we want to thank our employees for their continued strong work through the transition in the space. Our third quarter gross profit was $630 million or 64.7% of revenue, compared to 64.2% of revenue in the third quarter of 2022. We are very proud of our gross margin performance in the quarter. This is another testament to the top tier work our operations team continues to deliver this year. Despite managing through a new product launch, we have improved yields on both the G6 and G7 platforms. In addition, Q3 gross margins benefited from a stronger than expected mix of G6 customers as our pump users eagerly await G7AID integration. When this transition starts in the coming weeks, we expect an acceleration in our base shift to G7.

While G7 currently has a higher unit cost profile than G6 and will over the near term, we expect this to become our highest margin product as we drive greater volumes and economies of scale over the course of 2024 and beyond. Operating expenses were $392 million for Q3 of 2023, compared to $333 million in Q3 of 2022. Our focus on cost management again stood out this quarter as we delivered over 300 basis points of operating expense leverage. This now marks the seventh straight quarter that we have generated at least 250 basis points of year-over-year operating expense leverage. We will continue to invest in the growth of the business while finding ways to be even more efficient. Operating income was $238.9, million or 24.5% of revenue in the third quarter of 2023, compared to $160.8 million or 20.9% of revenue in the same quarter of 2022.

This margin represents a new quarterly record for Dexcom. Adjusted EBITDA was $314.5 million or 32.3% of revenue for the third quarter, compared to $226.6 million or 29.4% of revenue for the third quarter of 2022. This margin also represents a new quarterly record for Dexcom. Net income in the third quarter was $203 million or $0.50 per share. We remain in a very strong financial position as we closed out the quarter with greater than $3.2 billion of cash and cash equivalents. Our ability to generate consistent and growing free cash flow is becoming more apparent every quarter and we delivered the highest free cash flow quarter in our company’s history in Q3. This provides us a lot of flexibility to be thoughtful and opportunistic in our capital allocation decisions.

Along those lines, we are excited to announce a $500 million share repurchase program today. Given our very strong underlying fundamentals and outlook, we see, this is a great time step into the market and buyback our stock. This program also provides the added benefit of more than offsetting any remaining dilution related to our 2023 convertible notes as the remainder of these are reaching maturity in the coming weeks. Turning to guidance, we are raising our full year 2023 revenue guidance to a range of $3.575 billion to $3.6 billion representing growth of 23% to 24% for the year. Our updated revenue guidance reflects an increase of over $60 million at the midpoint, compared to our previous guidance. It is more than $165 million higher than where we guided to start the year.

From a margin perspective, we are raising our full year non-GAAP gross margin guidance to approximately 64%. We are also increasing our non-GAAP operating and adjusted EBITDA margin guidance for the year to approximately 19% and 28% respectively. With that, I will pass it back to Kevin.

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

Sean Christensen : 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. Operator, please provide the Q&A instructions.

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

Robert Marcus: Oh, great. Thanks for taking the question and congrats on an absolutely fantastic quarter. There is a lot to talk about here but just keeping it to one question. What really showed just so much upside was the US number this quarter along with the profitability. So question really is, one, how much of that do we ascribe to the new basal indication with growth from both Medicare and commercial patients. And we started to see this in France and Japan and I hear that a lot of European countries might over the course of ‘24 start covering for basal. So the question is really how much is basal contributing today? And how big can it be over the coming years if all of Europe starts to bring on enhanced reimbursemen something that would have been unimaginable just 12 months ago. Thanks a lot.

Jereme Sylvain: Hey, thanks, Robbie. This is Jereme. Appreciate the comments. I can take that one and we address it from there. In terms of what the contribution was this quarter from basal, obviously we had a really strong quarter this quarter, record new patients once again and obviously raised the guide on the year. Now some of that does come from basal. There’s no question there as we continue to open up reimbursement. The new patients are coming along and Kevin mentioned it. We’re starting to see basal follow similar patterns to type two intensive, which, when you think about coming into this year, it’s about 40% to 45% adoption, but really the curve is starting to follow that. So we’re very excited about the opportunity there.

And so that’s in the US and certainly clearly that’s playing out here. In terms of OUS, it’s a great opportunity. One of the things we’ve seen outside the US is as access is created creates significant opportunities for growth. And you’ve seen our actions over the course of the past few years. We’ve created a lot of access for our products, and in turn our international markets have grown incredibly well and there’s a large population outside the US that that this would ultimately apply it to once you have basal coverage. So it could be an absolute – an absolute tailwind for us for years and years to come. It’s something obviously we’re very excited about. We don’t get ahead of ourselves, right? We have to get that coverage in place. But the bullishness you hear about the US experience is what we would expect to see as more and more coverage comes and so we leave very excited about the future holds.

Robert Marcus: Thanks a lot.

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

Margaret Kaczor : Hey, good afternoon, guys. Thanks for taking the question. Obviously a lot of talk in the quarter and I’m sure a lot of people get through that. But one of the things that I wanted to share, was any dialogue you may be having with clinical societies around where CGM fits within the treatment paradigm. Specifically focused on non-insulin users and I ask obviously there could be a change in guidelines with GLP’s right now. And so, can you use some of those discussions to pull forward CGM use as well? And again, if it’s not now when – it doesn’t even matter. Thanks.

Kevin Sayer: Margaret, it’s Kevin, I’ll take that. We have had discussions with the societies on expanding coverage for people with type 2 diabetes not on insulin. And those discussions continue. We’ve seen a gradual uptick for lack of a better word in the guidelines as CGM use from all professionals societies over the last several years. And as we gather more data, as we see more data come in from studies we’re aware of over the next 12 months, we believe we can continue to build a better case. Every time we run a study or look at a study from this population in this group, people on CGM do better. It’s just simple. They have better outcomes. They’re more adherent to their meds. They have a feedback loop that they don’t have any other way.

We’re very excited about this opportunity. That’s why we’re going with the product where we’ve talked about filing before the end of the year and launching next year, our product is designed for people not on insulin. And we think it’s going to be a great product offering on this front going forward. So we’re looking forward to it, and I think we’ll be able to write this script the same way we’ve written the script in our industry so far.

Operator: Our next question comes from Larry Biegelsen with Wells Fargo. Please go ahead.

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

Jereme Sylvain: Yeah, so thanks for the question, Larry. So, in terms of where the guide goes, I think you’re right, it does imply a tad of a d-cell. Most of that I would say is related to really comps historically over time. And Larry you’ve tracked us for a while. So as we move more out of commercial, DME and into pharmacy, typically we have enough uptick into Q4 in those DME environments. As more and more of our of our folks go through the retail channel, you kind of lose some of that. So really you’re playing about it’s really about seasonality within the course of a year. So we’re not trying to imply anything. Really what we’re trying to say is, this is the trajectory we see it going with seasonality. This is our – again, our base case, as we start to look at guidance over the course of the year.

And so the trends – underlying trends if there’s nothing to say there. I mean the underlying trends in this business remains strong. I don’t think we’re trying to imply anything other than that. We do expect you kind of referenced Japan. There could be around the fringes until we go direct a little bit of a stable as opposed to necessarily growing story around Japan. And so that is around the fringe, but that represents a really small piece of the business on the international side. Really what you’re seeing is just us being mindful about seasonality in our base case and then certainly if we can outperform, we’ll do what we traditionally do, which is tried to do so.

Larry Biegelsen: Thank you.

Operator: Our next question comes from Danielle Antalffy with UBS. Please go ahead.

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

Jereme Sylvain: Yeah, really appreciate the congrats. Thanks. What we see is and Terry is here. So what I can do is, I can give you kind of what we’re seeing maybe numbers wise, but maybe Terry can kind of take you into the day-to-day interaction with patients. Numbers wise, we haven’t seen much of a change at this point. The population does has reorders relatively in the same capacity as in the past. And so that’s a good early indicator, but maybe Terry can take you through what she’s hearing and seeing in the field around the excitement around basal and who wants to use it.

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

Danielle Antalffy: Thank you.

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

Matt Taylor: Hey, thanks for taking the question and congrats on the results. I guess, I just wanted to ask you, Kevin you talked a bit more here about the combination therapy or benefit that CGM’s fee with GLP-1s. And I was wondering if you had thought about partnering with the pharma companies, or maybe running studies to show that over time. There is a benefit to using CGM with the drug. Things like that that might give investors even more confidence longer terms in the future of CGM in a good world.

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

Matt Taylor: Great. Thank you very much.

Operator: Our next question comes from Matthew O’Brien with Piper Sandler. Please go ahead.

Matthew O’Brien: Good afternoon. Thanks for taking the question. Can you maybe Jereme you mentioned this, but you talk about the G7 integration that’s upcoming here in the next few weeks. Is that is that literally sometime in November we’ll start to see that? And then, just talk about what that’s going to do in terms of trying to access new patients but also converting existing G6 users over to G7. Any kind of disruption that that could cause in Q4 for then early next year? Thanks.

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

Jake Leach : Yeah, sure. So, we are very excited about transitioning our G6 AID users over to G7 once those pump partners have compatibility. That’s coming very rapidly. And we really think it’s going to be important for those users to be able to access the benefits of G7. It’s the most accurate sensor. So having that driving those AID systems, we’re really looking forward to seeing that out in the marketplace. No real disruption. Those users will basically just switch over for tandem at the firmware update to the pumps and they’ll just switch over to G6 or to G7 once they get their G6 supplies are utilized, and they get the new prescription for G7. So, very much looking forward to that product be in the field.

Matthew O’Brien: Thank you.

Operator: Our next question comes from Matthew Blackman with Stifel. Please go ahead.

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

Kevin Sayer : You know what? I’ll take that one. And I appreciate the question and that’s long been our view. And in fact, one of the things I tell the guys here frequently is, well, it took us many years to build the intensive insulin marketing and get this technology adopted rapidly. I don’t believe the curve is going to be near that long in this type two world. Once people start using this product and we gear an experience towards what will be meaningful to them, because what is meaningful to them is different than the ones meaningful to our current patients again driven by the performance of our product, and they have accurate data. But once we get an experience that enhances their lives with respect to the performance of their medications for what exercise does, what they’re various nutrition does in their lives and can add other insights from other sensors we think we can create a tremendous healthcare experience in this market.

And we do think we can ultimately push towards reimbursement and possibly we encouraged to have a new product category, altogether for those individuals. We are pretty thrilled about it. I think it’s going to be a great, great opportunity.

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

Matthew Blackman: Thank you. Appreciate it everybody.

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

Joanne Wuensch: Thank you very much for taking the question and let me also say great quarter. One of the things that really stuck out to me this quarter was margins and operating margins, of course that you were tied but even your SG&A was well contained, does this create a new – I don’t know, go forward rate? Or how to how do I think about this? Because that’s for, that’s quite nice.

Kevin Sayer : Yeah, thanks for that question. I’ll take the, the portion on gross margin and then Jereme can talk about operating margin. So, with gross margin, we’re really thrilled with the results this quarter. It’s really a testament to how well our operations teams are executing across both G6 and G7. Our yields on the G7 scale up were a little ahead of where we planned which is a fantastic thing to in place to be. As we look at the transition from the AID patients from G6 to G7, one of the things that is implied in our guide there for gross margin for the year and into next year as we look in the long range, we are going to be switching those patients over G7, which G7 today is at a slightly lower gross margin just based on the where it is and its product life cycle.

G6 is a higher margin product today. Over time, as we do switch our base all over to G7 and continue to scale that product, we have a very good path to getting to lower costs than G6 on that over time. But what we’re trying to be on that guidance transparent around the margin – gross margin for the product just as we do that transition.

Jereme Sylvain : Yeah. And then to your question on operating margin and how our spend profile lays out, it’s certainly a great quarter and I think we’re really happy with it. At the end of the day, we raised our full year guidance to 19% on the Op margin perspective and that’s on the back of some of the work we’re doing around it. At Investor Day we talked about a cost to execute initiative and a lot of that was around driving profitability. So I think you can expect us to continue to look at driving operating margin over time. There will be ebbs and flows as we invest in the business for growth. And so, I think it’s reasonable to expect ebbs and flows, but I’ll kind of rewind back to where we started the year, right? When we are JPMorgan we issued guidance of around 16.5% operating margin and now we’re talking about exiting the year at 19%.

And that’s just all around the work of just being highly efficient around how we deliver service, how we deliver support, how we look to acquire customers. All of the things that we try to do. You can tell we are absolutely focused on making sure we do so in an efficient manner while continuing to reinvest in the business.

Joanne Wuensch: Thank you very much.

Operator: Our next question comes from Jeff Johnson with Baird. Please go ahead.

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

Kevin Sayer : Yeah, thanks. Thanks for the question, Jeff. So, yeah, as we continually scale the G7 platform, we’ve actually made several enhancements to the product both on the software side. But also on the hardware side items. And so we actually recently made an update to the Bluetooth capability on the product, both increasing the frequency that it can reconnect to a device, as well as the performance of the Bluetooth radio itself. So that product is compatible with the tandem pump and is already shipping globally, both here in the US and internationally. And we don’t expect there to be any issue with people being able to upgrade their tandem pumps to the G7 compatibility.

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

Jeff Johnson: The DME is only availability through the end of this year. Is that just to control kind of access initially or just anything I’m missing there?

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

Jereme Sylvain: Well, and that also accommodates a lot of our tandem pumpers because they get a lot of their products. Supplies through the DME channel to you Jeff. So, this has been well thought out.

Jeff Johnson: Perfect. Thanks.

Operator: Our next question comes from Travis Steed with Bank of America. Please go ahead.

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

Jereme Sylvain: Yeah, so we think about the buybacks in multiple different ways. Certainly, we want to limit dilution and that’s something we always think about as we launch converts. One of the other things we do, when we launch converts is obviously they come at a lower cash cost. And so when we have the opportunity to take the incremental cash that we’re making through those and give that back to shareholders, we certainly do so. And then, look, at the end of the day well it’s not for us to comment on share price. That’s certainly for others. We are highly, highly, highly bullish on our business over the long term. And so when we see an opportunity to invest in our business, either in the form of investment and capabilities, or by purchasing stock back, we certainly want to take those opportunities,.

Whether or not we, we do these all the time, look, it’s been two consecutive years we’ve done that. So it’s something we’ll certainly always look at. You can tell we’re not shy about it, but we’ll always take a look at it and make sure that we’re opportunistic around it, as well as you know, representing the bullishness we have in our business.

Travis Steed: Great. Thank you.

Operator: Our next question comes from Marie Thibault with BTIG. Please go ahead.

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

Kevin Sayer: Well, this is Kevin. I’ll have Jeremy jump into because he’s more familiar with the underlying data than I am. But the underlying data as we research as much as we can indicates with the new compounds of the physicians are also prescribing CGM for the GLP-1 users as they add GLP-1 to diabetes therapies they’re already existing. They want to give these patients a scoreboard to let them know how they’re doing and they’re seeing very good results from the GLP-1s in combination with other therapies, they’re on. And then you add a sensor to it, you can see. Okay, I’ve taken this drug and look at my habits have changed. Look how my average glucose has changed over the course of a week or a month versus where it was before. And so we think we’re a vital tool in a very good tool and the underlying data that we’re seeing in prescriptions supports that. I don’t know Jereme if you have anything else to add.

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

Marie Thibault: Very good. Thank you.

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

Caitlin Cronin: Hi, this is Caitlin on for Bill Plovanic and yeah congrats on a great quarter. Just maybe I touch on the non-insulin product. I think you mentioned that it was going to come about next summer. Anymore color you can provide on the specific product features, you haven’t talked about before and any updates kind of on the price corner where you are with payer conversations. Thank you.

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

Terry Lauver : And Caitlin, hi, it’s Terry. Thanks for the question. This product, like, all of our products starts with unique insights into the needs of our customers. So, we’re really excited to bring a product to the market that is designed specifically for those who are not on insulin. This is a highly motivated group, but it has different needs, different health needs, different lifestyle needs, and different products and feature needs versus those who are on insulin. So we’ve designed the product specifically for that group understanding what additional medications they might be on. And we are excited to bring this to the market probably in summer of next year, is what we’re tracking to.

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

Operator: Our next question comes from Jayson Bedford with Raymond James. Please go ahead.

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

Jereme Sylvain : Yeah. So, easy answers, basal expected 2024 in France. Timing exactly will depend on the government bodies, but we expect it in the first half of 2024 and the approximate contribution from the business being spun off is $30 million annual run rate.

Jayson Bedford: Thank you.

Operator: Our next question comes from Michael Polark with Wolfe Research. Please go ahead.

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

Kevin Sayer: No, we do have a cash pay program right now with G7. But we’ve not done anything significant. I’ll go back mainly to our coverage. I mean, G7 coverage is coming to a rate much faster than anything we’ve done before. Not just on the basal side, but also on the intensive insulin side in every place else. So we’re widely covered and people find it very easy to get and very easy to pick it up in the channel that they choose to pursue. And we offer the cash pay program and that there are people taking advantage of it. They like G7. They liked the different form factor. The ease of use in the things that we offer. So we have seen an increase there. But it’s not something we’re pushing really hard.

Michael Polark: Thank you.

Operator: Our next question comes from Steve Lichtman with Oppenheimer and Company. Please go ahead.

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

Terry Lauver: Thanks Steve. It’s Terry. We’re only about six months since the implementation of that CMS decision. So it’s still an evolving landscape for the problematic hypoglycemia group. But we see a real opportunity to continue to build coverage with the payers to continue to educate them. And to build education with the HCP community keeping in mind that this is a population where historically we haven’t thought a lot about CGM use and utilization. But the data that we now have that supported the CMS decision and that we will continue to build to bring to the payers is really compelling. So we see a tremendous opportunity here and one that’s still quite niche – and with a lot of upside in the future.

Steve Lichtman: Thank you.

Operator: Our next question comes from Josh Jennings with TD Cowen. Please go ahead.

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

Kevin Sayer: Like, we have done numerous studies and every time we introduce CGM to this population, we see lower A1C, higher time and range and all the other vital signs of these patients get better. And so, we’re confident that we have a positive impact. I’ll add a couple of other things that we’ve heard in my own travels and travels with the group. One of the things everybody is concerned about is adherence to meds. With CGM, we can – patients can see what happens when they adhere to their meds. And when they taken it whichever type two therapy they’re on, they can see what happens if they take their metformin every morning or their SGLT two pill or even the effect of their GLP-1 injection every week, they can see what happens and that adherence the drugs leads to better, health on overall basis.

And let’s be clear. It’s not like diabetes growth to slow down anywhere. Diabetes still continues to grow rapidly in the constant diabetes care, as great as all of our technologies have been continues to increase. So, if we can be a cog in that wheel to whereby we add an element of cost, it’s not that significant when you look at the grand scheme of things, but can reduce many other costs and could reduce complications as they spend on other things and possibly slow down the train on some of the meds people have to move to. We think we have a great role to play here. And that’s how we look at it. I don’t think it’s going to take five years. I think this is more of two to three year journey, but you know what, that’s the gospel according to me.

I don’t have anything else to base that on, but you’ll see data continue to pile up in this segment particularly as we launch a cash pay product to start and then get some basic reimbursement from that from others for making our case. Obviously, building a case with CMS like we did for mobile on basal that was data produced by Dexcom. We’re pretty good at that. So we’ll keep pushing.

Josh Jennings: Great. Thanks so much.

Operator: Our next question comes from Matt Miksic was Barclays. Please go ahead.

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

Jereme Sylvain: Yeah, hey, Matt this is Jereme. I can take this. And by the way, it’s all intentional, right? We have a commercial team that’s done an incredible job of identifying areas to go and doctors to really certainly focus on where we can come in with the products demonstrate obviously it’s the most accurate, certainly, it’s easy to use. And with the coverage we have, I think it really demonstrates to the physicians and their prescribing patterns. Look, we can we have the lowest out of pockets for these patients and we can ultimately keep them on therapy and adherence for a much longer period. So, I think that in addition to obviously G7 and all the features it has inherent and it has allowed these physicians to make the change.

But it’s so wonderful product, wonderful coverage and absolutely intentionality by the sales team. I mean just it’s a great job by those – that team identifying who those targets are going out there and addressing it. So, it’s no coincidence and that 18,000 incremental prescribers, a significant amount in the PCP space and a lot of folks are switching. These PCPs are switching from who they prescribe today and moving over to Dexcom. So we’re really proud of it and obviously it was a 1,000 in the first quarter, 8,000 in the second quarter and another 9,000 this quarter. So it is the message is getting out and its meaningful.

Matt Miksic: That’s great. Thank you for the color.

Operator: Our next question comes from Mike Kratky with Leerink Partners. Please go ahead.

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

Terry Lauver: This is Terry. Happy to take that one. We track coverage very closely for Dexcom and for the industry and Dexcom is the most covered CGM with the lowest out of socket copay. That is true for the overall population in US commercial lives and it’s also true for the basal population. That I would say, keep in mind that we were out with the mobile study in front of the payers, even before the CMS decision came through. So we continue to look into lead in the coverage for this population.

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

Mike Kratky: Understood. Thanks very much.

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

Kevin Sayer: Thank you. This was truly a banner quarter for us. This was our first quarter with over $200 million in year-over-year quarterly growth. And the second consecutive quarter of record financial performance and market share gains on all fronts. Our G7 launch remains in its early stages. There is tremendous amount of minimum left in this launch with our plan upgrades to the system and also, our upcoming AID integrations. In addition to continuing to perform in these traditional metrics, our company’s growth is a world-class organization on a number of fronts continues to be recognized. Dexcom is recognized by Forbes as one of the top five organizations to work for in the State of California. By the way, three of the top five universities, so we’re one of two companies in that group.

We’re recognized by News Week as one of the 300 top green organizations acknowledging our great work our teams to advance our sustainability initiatives and we are considering this very thoroughly in all of our product development efforts going forward. Finally, we’ve been recognized by FAST Technologies as one of the brands that matters. Great honors for our company. I want to thank everybody here at Dexcom who makes these great things happen and thank everybody for your continued support. Thank you.

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

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Q3 2023

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