Q3 2019 Earnings Call
Welcome to the Jack's comments third quarter 20, <unk> earnings release Conference call. My name is right now the operator for today's call. At this time all participants are you, referring only nine we ever conducted a question when it first fashion.
The question and answer session. If you have a question. Please press Star then one and you touched turns out.
Not at this conference is killing recorded.
I'll now turn the call British shot at Christiansen shiny maybe.
Thank you operator, and welcome to Dexcoms third quarter 2019 earnings call. Our agenda begins a Kevin Sayer Dexcoms, Chairman, President and CEO , who will provide a summary of the quarter followed by a financial review and outlook from Quentin Blackford, our COO and CFO and then a strategic update from Steve Pacelli or is that.
<unk> Vice president of strategy in corporate development.
Following our prepared remarks, we'll 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 know that there are also slides available related to our third quarter performance on the Dexcom Investor Relations website under events and presentations page with that let's review our safe Harbor statement.
Some of the statements 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.
Factors that could cause actual results to differ materially from those expressed or implied by any of these forward looking statements are detailed in Dexcoms annual report on Form 10-K quarterly reports on Form 10-Q , and other filings with the Securities Exchange Commission, except as required by law, we assume no obligation to update any such forward looking stay.
Eight minutes 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 gap 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 gap.
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.
Thank you Sean and thank you everyone for joining us today.
The third quarter was another great period of growth for Dexcom.
There are many things that we can highlight today, but let me give you three key statistics that point to the strength of our business.
The third quarter represents our highest U.S. growth rate since the first quarter of 2016, when the business was much smaller.
The third quarter included the highest absolute dollar growth in the history of our company, increasing nearly 130 million over the third quarter of 2018.
We not only achieved profitability in the third quarter, but for the first time ever through nine months, we're profitable on both a GAAP and non-GAAP basis.
The explanation for this performance remains relatively simple.
More and more people are becoming aware of the value of Dexcoms real time CGM.
And with GE six we have the right product to meet their needs.
We often highlight access and awareness as a primary answers for the growth that we are experiencing but this is the result of years of word from the Dexcom team.
It is the result of many people embracing our core value to think big.
We think big in the way, we design our products the way we serve our patients.
Our approach to device integration and empowering user choice.
And the way we structure our business to meet the expectations of our patients.
Our employees and our shareholders.
Thinking big includes thinking about long term profitability.
As I stated earlier through the first nine months of the year, we find ourselves profitable on both the GAAP and non-GAAP basis and on our way to our first GAAP profitable year.
But even as we embrace this visionary mindset and is not come without challenges.
This explosive growth continues to leave supply levels much tighter than we expected as we ramp capacity and because of these supply constraints, our customer facing infrastructure has been stretch to its limits.
As Quintin will explain later our guidance considers these challenges.
I can assure you that as we think about dexcoms opportunities in diabetes and beyond we are continuing to think big.
In addition, as many you have recently seen we've had some key developments over the past few months.
In September we began selling GE six in Canada and have seen a great response to this launch.
In early October we officially began shipping GE six to our Medicare patients toward this and we are partnering with Walgreens to ensure that all Medicare patients can fill their prescriptions for dexcom CGM through any of Walgreens nationwide retail locations.
This provides a wonderful opportunity to improve upon the dexcom experience for our Medicare patients and is an important step in our long term moved to the pharmacy as our primary distribution channel.
As you can see we are innovating beyond great product design and focusing on the customer experience that we create around the product.
Whether this involves decks calm directly our work with our valued partners.
We are thinking with the interest of our patients in mind.
We continue to make excellent progress with our insulin delivery partners.
As tandem diabetes said on their call. They are on the verge of launching their advanced hybrid close loop with control like you system.
On top of that insulin is making great progress with our horizon close loop.
Index CABG six integration.
The combination of Insulet index Con will provide a unique and compelling user experience and form factor.
Our strategy for the intensive insulin delivery business is playing out according to our plan and in fact vastly exceeding our initial expectations.
As we look to the future we continue to gather data on markets to pursue outside of our core intensive insulin business.
We are investing in our new markets team to execute on this strategy and expect to increase investment there in the future time and time again, we're learning that our product has an incredible impact in these markets doctors all over the world are clamoring for real time CGM use in the hospital to improve patient outcomes and stuff.
The line workflows for health care professionals in this environment, we continue to believe that the opportunity for expanded use of Dexcom in pregnancy is significant and are aware of several independent studies in progress around the world that will demonstrate the importance of CGM in this patient population.
And finally with respect to type two non intensive diabetes and pre diabetes.
Data from CGM usage continues to point to promising outcomes.
Including potential long term cost reductions for this costly patient group.
The experience here reminds us of where we were many years ago. When we started our CGM first campaign for the intensive insulin market. While there may be many use cases for these patients. We believe that CGM will be the primary tool to drive improve outcomes in the tied to non intensive and pre diet.
These populations and we all know the size of these markets.
Overall 2019 continues to exceed our expectations based on the strong third quarter results were pleased again to be able to increase our revenue outlook as well as our full year operating margin and adjusted EBITDA targets.
I'll now turn the call over to question, who will provide detail on this outlook as well as a review of our financials.
Glenn 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 an IR website.
Today, we reported worldwide revenue of $396.3 million for the third quarter of 2019 compared to $266.7 million for the same quarter in 2018, representing growth of 49% on both a reported in constant currency basis.
Our momentum has continued driven by strong new patient additions in customer satisfaction with GE six.
As Kevin mentioned these factors drove absolute dollar growth of nearly $130 million versus the prior year, a new dexcom record and significantly above anything we've seen in the past.
The U.S. business grew 53% in the third quarter the fastest pace since early 2016 as the rapid adoption of CGM in the us across all of our major channels continues to exceed our expectations and has been the primary driver outperformance this year.
We continue to gain traction in our effort to prioritize customer access and our commercial business and believe that our efforts remove upfront barriers across all channels, including the pharmacy are contributing to new patient growth.
Our O US business continues to grow very well ahead of our internal expectations in the third quarter, we came up against our highest us growth comp in the past six years with 93% year over year growth in the third quarter of 2018.
Despite that we were still able to grow at 39% on a constant currency basis or 36% on reported basis, both of which represented a nice sequential uptick with solid increases across the board for both our direct and distributor markets.
Our third quarter gross profit was $246.9 million or 62.3% of sales compared to 63.2% of sales in the third quarter 2018.
The Q3 sequential improvement a 90 basis points was in line with our expectations that we noted on the second quarter call.
Well pricing remains consistent with our expectations and we are gaining the cost benefit of our new transmitter design. We did experience challenges with one of our automated GE six cents or production lines late in the third quarter, which temporarily lowered production levels.
This lower production output combined with the strong product demand have left inventory levels pipe as we head into the fourth quarter.
As a result, the remaining transition from GE five digi six for certain channels of our business will be slower than originally anticipated.
We still expect a strong sequential improvement in gross margin in the fourth quarter, but the magnitude will be less than original expectations.
We now expect full year gross margin approximately 63% slightly lower than prior guidance.
Operating expenses were $187.8 million for Q3, 2019 compared to $153.9 million in Q3 2018. This reflects an increase of 22% year over year.
The business continues to demonstrate excellent operating leverage with third quarter revenue growth once again exceeding the gross and operating expenses by more than two times.
As a result of our continued focus on operational discipline and commitment to process improvement robotics automation in our renewal location, we are achieving leverage while maintaining investments in research and development of our core business, while also increasing investments in new market opportunities.
Operating income was $59.1 million or 14.9% of revenue in the third quarter of 2019.
Compared to $14.7 million or 5.5% of revenue in the same quarter of 2018.
This reflects a year over year improvement of 940 basis points in operating margins for the quarter.
Adjusted EBITDA was $92.5 million or 23.3% of revenue for the third quarter of 2019 compared to $48 million or 18% of revenue for the third quarter of 2018.
As our operating margin and adjusted EBITDA margin indicate we're making great progress toward our profitability targets and we see these as strong indicators for the long term cash flow potential of the business.
Net income for the third quarter was $60.4 million or 65 cents per share.
Through the first nine months of the year, we're now GAAP profitable for the first time in our company's history and we are on track to deliver our first ever full year of GAAP profitability.
We remain in a strong cash position with greater than $1.4 billion of cash and cash equivalents on the balance sheet at the ended the third quarter.
Our immediate priority remains the expansion of our de CIX production capacity as well as capital investment in preparation for the eventual launch or do southern.
We also continue to have flexibility as we invest to lengthen our growth runway, including our investments in support of our new markets team.
Turning to guidance given the incredible growth that we've experienced in the first nine months of the year. We now anticipate 2019 total revenue of $1.425 billion to $1.450 billion, an increase of greater than $85 million at the midpoint of our prior and current guidance.
Respectively.
Importantly, and unlike prior guidance. This contemplates the production capability that we currently anticipate for the fourth quarter.
The revised revenue guidance implies annual growth of 38% to 41%, which has an impressive organic growth number for a company of our size.
As I mentioned previously we now expect full year gross margin of approximately 63% improving sequentially in the fourth quarter as we start to realize the benefits of a full quarter of our new low cost transmitter.
In light of are better than expected revenue growth. We now expect operating margins of approximately 9% in adjusted EBITDA margins of approximately 19.5%, reflecting increases of 200 basis points and 100 basis points, respectively from our prior guidance with that I will now turn the call over to Steve for strategic update.
Thanks, Greg.
Our great results in the third quarter are a validation of our strategic efforts and we remain well positioned to take advantage of our long term growth opportunity.
Some of you may have seen at September CSD conference in Barcelona, the full three year results of our common share study showed that dexcom CGM when paired with either insulin pumps or pens, driven average increase of more than 20% to timing range.
It is nearly five hours per day of improved quality control and other clear validation of Dexcom CGM as the first line defense for people with diabetes and that CGM connected devices are here to stay our insulin delivery partners continue to make progress on CGM enabled integrated systems.
As Kevin mentioned with the pending approval and launch of control our Q, we're thrilled to be bringing our first advanced hybrid closed loop technology to market and commend tandem on their progress to date and their dedication to bring this best in class platform to reality.
Next time is proud to provide the enabling CGM and algorithm technology for this platform together. These tools help keep the system and closed loop mode, 92% of the time during the pivotal study.
Similarly, Eli Lilly and Novo Nordisk and companion medical are all making progress in their efforts to commercialize connected smartphones.
We're seeing more and more interest from additional insulin delivery companies that recognize the value of connectivity to CGM and we will continue to be the demonstrated leader in these efforts.
As we expand the rollout of GE six we're simultaneously taking steps to prepare the wafer G seven which we still plan to launch on a limited basis in late 2020 and more broadly in 2021.
We intend to be very thoughtful on the rollout of G. Seven as we scale the infrastructure necessary to support the anticipated demand for this exciting new platform.
On our previous call, we announced the FDA submission of our GE six pro product and we were pleased to announce its approval in early October .
This is another strong example of the streamlined review process enabled by our IC GM designation, giving us the opportunity to quick reiterate products to serve the needs of different customer segments. As you six pro represents the first disposable professional CGM product that is indicated for either blinded or unblinded real time use.
And blinded mode. The product is available for all people ages, two and up in Unblinded mode. Jesus Pros indicated for all people with diabetes ages two up.
Both options provide valuable insights into the impact of activity food choices medications and other factors on people glucose levels.
It also provides clinicians a wonderful tool to introduced our patients to real time, CGM and to adjust or optimize treatment based on observable patterns and time and range.
We've spoken at length to share about our efforts to improve access for our patients whether advocating for coverage for type two intensive patients pushing for ways to reduce the upfront cost to our patients.
Negotiating for the removal of administrative hurdles for patients to start on CGM.
As you can see from various public and private data sources, we're making good progress with the long term transition of the us business to the pharmacy channel as we noted previously this is a complex task.
We have long standing relationships with our GMI distributors and many of our patients have grown accustomed to their process through the DMC channel with these challenges noted our field team is doing solid work and we look forward to continued expansion through the pharmacy channel.
Specific to formulary placement, we don't plan to comment on every contract win as this is a normal part of our business operations, while we will say as many of you have like we've seen is that we have good momentum here in our efforts.
The value of Dexcom CGM speaks for itself and payers and Pbms continue to demonstrate their understanding of what our product brings to the customer.
With that I will pass back to Kevin.
Thank you Steve.
It is hard to continue to put words around the growth that we have seen since the launch of GE six.
And the third quarter is certainly no exception.
Dexcom, we have the state admission to empower people to take control of diabetes.
As this quarter and clinical settings like commissary continued to demonstrate we have a product is enabling people to do just that.
It seems like everyday we hear stories of people gaining confidence with their health.
Building on patients living with less fair and overall quality of lives improving.
These are the stories of people being empowered.
To wrap up 2019 has proven to be a wonderful year, thus far and we remain excited for the long road ahead to the next kind of team, let's finish the year strong I would now like to open up the call for Q in a Sean. 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 operator, please provide the Q and instructions.
If you have a question. Please press Star then one and you touched on selling fewer screen Extendicare. Please press the pound frankly, the hash key.
Well speakerphone remaining pick up against that first to progress we're in that base.
Again, if you have a question. Please press Star then one on your touched on sound.
Your first question comes from in your loan carefree rough FCB Leerink. Your line is open.
Hi, good afternoon, guys. Thanks, so much for taking the question. Congrats on what can only be described are phenomenal quarter I'll keep it to follow instructions and keep it to one question.
Kevin you mentioned capacity from capacity challenges and the line that went down during the quarter can you give some additional color on how that factors into your guidance for the remainder of the year and why you are concerned about meeting increasing demand going forward. Thanks, so much.
Thanks for the question Danielle.
Give a little history here.
We launched six.
A year ago, and we lost earlier than we plan to we've been chasing this ever since we started.
As you look at 2019, we've grown over $300 million and the first three quarters and $130 million and a last quarter.
And while we've experienced large growth percentages in the past we've never experienced anything like this.
We committed to doubling our capacity this year and by the time, we exit the year in all fairness, we will have double the capacity to build GSX product that we had before we're doing everything we can to put additional capacity in place to meet the demand for the fourth quarter.
As we talked about manufacturing line went down in September late in the third quarter end for sometime early in the fourth quarter. That's production, we can't we can't make up today, we do have some levers to pull and some things that might come onboard in December we can see some upside to making that I've been on our worst case, we have.
Sam and our guidance this year that we're not going to make that we're not going to plan on that and if we do there some upside there.
So by the time, we exit the year, we'll have doubled our GSX capacity and I can tell you we have more automated lines coming on.
Some in the first quarter more in the second quarter to the point by the timing it to the middle of 2020, we will have doubled our capacity again and be able to serve everybody. We're confident we have enough capacity to meet the numbers that we've given you. We believe we havent opportunity to do more.
If certain things go well and then we'll go from there.
Thank you next question comes from marker at quarterly William Blair Your line.
Okay.
Hi, guys and good afternoon. Thanks for taking my question.
Yes first one for me, it's a little bit tagging outside the Danielson comes in the marketplace demand.
Given the capacity constraints you have right Sam a lot of the growth that you're saying is actually close driven.
And that patients are educating the reaching out to you.
New trying to convince them. So that is that true and then should we assume that patient AD growth still growing at the same pace.
Or better than you that's revenue growth.
And wire line.
Change going forward. Thanks.
Let me start with adequate and Steve want to jump in they can with respect to new patients.
Q3 was very comparable to Q2.
We had a very good new patient third quarter.
And so that that has not been an issue with respect to patients reordering, we've not seen a change in reordering patterns from our patients their ordering what and when they can and when they're sharon's will reimburse for them. So theres no real difference here as to why we've experienced in the past in reality, what what we're experiencing we're working through is.
As getting product out to them as quickly as we can.
Sometimes they wait just an extra day for the products, sometimes it's as long as a week.
But we are getting product everybody, we'd like to get term sooner and we'd like to have more.
Our discretion hair.
But we're keeping up with everything and we are doing well.
The market visibility I would add is it the combination of both right I mean patients continue to become more and more aware of the technology and and find their way to device and clearly our commercial team continue to do just an outstanding job of upgrading opportunities as well so it's a bit of both in the new patient additions continues to outpace overall revenue growth. So it's a strong in.
Educated where the businesses had.
Okay.
Thank you.
Your next question comes from Jacks farms formal Dan.
Ben.
Thank you good afternoon guys.
I wanted to ask I know, Steve you said, you're not going to say a lot on formulary status, but we've seen a few positive most sizable payers for 2020 with regard to Dexcom placements I am wondering what's driving that favorable treatment into next year, maybe how does some of your tiering placements for next year compared to your lower price competitor and.
When are you still comfortable with 100 125 million pricing headwind next year as you give up some price to move into pharmacy or if these big wins, maybe push that expectation a little bit higher in trade off for volume. Thank you.
So I'll start off and then ill alternative equipment on the on the on the numbers.
Look I mean this is what we told you guys were executing on exactly what we told you we would do which is why there was somewhat tongue and cheek. The prepared remark that we're not going to press release that every time, we get a new pharmacy when but this is what we told you. We would do we've been telling you we would do this and Mark we're executing on our plans and.
Respect to pricing can you comment yes, it's right in line with what we have always anticipated Jeff I don't at this point see any need to kind of revise the expectation we put out there I think that $100 million to $125 million of have headwinds is something that we'll continue to see throughout the course of next year, but we aren't changing our strategy here I think what's.
We had demonstrated as that are our plan is being effective it's working and the payers are seeing the value of our product and they understand it for the premium product that is in and we're opening doors. So no change there.
Your next question Tim earning.
With Cowen Your line is open.
Hi, Thanks for taking my questions.
37, how much progress have you made working on automating youre manufacturing processes over the past few months and as are still a significant amount of work to be done nailing down hearing that manufacturing process and then for G. Seven overall or the biggest steps in the development process you hope to accomplish over the next few months. Thank you.
Hi, This is Kevin I'll take that.
G. Seven is on schedule as we sit right now with the schedule that we put together on all fronts. We're now in the process of evaluating the final tweaks to the configuration to lock down the entire designed the majority of the design has locked down but we've gotta as always when we get to this point the sensor.
What's that exact sensor configuration going to be and then we've got some algorithm.
And some effort to do but none of that will slow down the clinical study.
With respect to the total automation as G seven plant Steve.
Very very.
Truthfully said, we're going to a limited launch in 2020 be careful highway launch in 2021, we don't want to put ourselves in a position we're talking about today, because we see that as a product that we can market to the world at great great great. Great success. So automated lines are in design.
They are being built the equipments not all in yet because the processes and completely done, but things like ordering molds, which have a long lead time and things of that nature are happening.
And you will see significant capital expenditures by us over the next several months as we get these lines up and running we have a great automation team we have good processes.
That we're counting on there will certainly be adjusted as the product becomes more much more mature the product was designed to be more manufacturable than GE. Six. So we think these processes could be simpler overtime.
And I'll just add one other thing we're not just asked in the guys to automate G. Seven.
At the same time, there automating the GE six factory as well as we have automated lines for the assembly of RG six product going up both in San Diego and in our Mesa facility. So we've got a lot on our plate manufacturing wise, we're confident with that with the progress we're making let the guys are doing and.
Expect a very successful launch in product.
Your next question comes from Decently risks with Morgan Stanley .
Good afternoon, and congrats on a great quarter.
Quintin just in terms of.
Just to fourth quarter guidance, you typically guide a fair amount of sequential deceleration in kind of in light of historical precedent in the fourth quarter, it's a little heavier than normal coming off a very very strong third quarter is there anything from a timing perspective or pull for perspective for the fourth quarter Thats worth calling out.
Yeah, Let me just talk through the fourth quarter for a second and give you a little bit of color on it. There is nothing significant in terms of timing that that I think changes the impact of either Q3 or Q4, but one thing to keep in mind is the U.S. business was a bit more choppy than the rest of our business. The sequential trend there can move around a little bit.
If you look historically international has typically been flat to slightly down in the fourth quarter and we continue to expect that's how it will play out.
This year I think the other thing to keep in mind is that as we continue to move more and more of the business toward a subscription based model. The historic seasonality is going to play a little bit differently in the current year than what we've seen throughout history. So we're trying to model that as well.
I think the other thing just to keep in mind is Q3 was truly a remarkable quarter for US we were up 18% sequentially from Q2, whereas historically, we've been up 8% to 10% so for us to look at that and in call. It a trend and anticipate that we're going to see at the same sequential increase into the fourth quarter. That's a bit premature we want to see this play out a little bit long.
Other than than just 90 days worth of experienced in the third quarter. So we're trying to be mindful of that.
I think the other thing just that that is worth noting and Kevin has hit on it we are capacity what the top into the capacity in our guidance range and if we can pull some of these incremental opportunities forward in terms of production lines than terrific, there's going to be opportunity to exceed what we set the expectation for worst case scenario as those lines come up in the barrier.
Early part of January and and were often running at that point, but we can get those brought forward than than there is potential upside.
And your next question comes from Robbie Marcus with JP Morgan Your line is open.
Thanks, and congrats on a great quarter I was wondering if you could just help parse out what the drivers of growth, where clearly breaking down the barriers of cost at the pharmacy is having a big impact, but anything to add on Medicare.
Versus pharmacy versus the EMEA would be really helpful.
Our big driver this quarter was the U.S. commercial business, our us commercial business non Medicare by us commercial patients and our US commercial revenues grew at a rate faster than any quarter, we've ever seen and that was the primary driver.
Medicare drove growth continues to be good but in all fairness in the third quarter. We know there some pent up demand for patients to shift over to GE six we expect Medicare really take off next year.
As we rollout, our Walgreens and pharmacy delivery mechanism for the Medicare patients and make it much easier for them and get the mortgagee six international was also a great quarter.
The growth sequentially. There was very strong Clinton talked about the fact that we're comparing to a 93% growth quarter internationally last year, and we still grew 39%.
With that number so the international markets were good as well I really can't tell you whether its DMEA our pharmacy, that's driving it I think just that drive as awareness.
And people are becoming much more more aware of CGM and what it can do for them.
And having great experiences with the product that we have.
And your next question comes from powerhouse with King quite your line open.
Great. Thank you very much for taking the questions and congrats on a.
Terrific quarter, you talked a little bit or talked at length about some of the capacity from a manufacturing perspective, but if we look back at the some of the last two years and you think about some of the growth you had you've also been somewhat constrained just from a customer support perspective.
Given.
The surgeon growth from a new patient perspective, maybe help us understand just what other investments in infrastructure changes, you're making from a customer support perspective. Both currently now with the GE six I know you went to.
Oh us offshored some of that support you earlier this year, but also in prep for.
Seven in 2020, and then 2020 beyond that and then I'll hop back in queue. Thank you.
Yes, it will certainly the the operation that we've set up in moment Manila has turned into a real corporate asset of ours. I think you look at the performance that we're seeing there both from a quantitative or qualitative perspective quite honestly, we're operating at some of the highest levels that we've ever seen in the company's history in and that's allowing us to scale more aggressively than what.
We have historically and and and address some of the increasing demand that we see I.
I think another thing that we spent a tremendous amount of time looking for opportunities in the organization is just around what we call RPK or robotic automation and taking processes that are incredibly.
Labor intensive and finding those aspects of those processes and automating goes on so that the folks who are doing those things can focus really more on value added capabilities to the organization and serving the patients or even our commercial team in a in a much better way and I think encouragingly, we're seeing MPS scores start to reach.
Some of their highest levels here in recent weeks than what we've seen over the last 18 to 24 months, even before we started down the path.
Taking some of the things outside the the states and into the Philippines. So we're encouraged by what we're seeing we continue to make investments in those ways I think as we continue to head into the future. The more we can automate the the patient experience with us and eliminate the need for liveperson to be on the other end of every phone call. The greater we're going to have an ability to.
Scale and improve the patient experience along the way. So those are the things were focused on we're encouraged by what we're seeing but to be Baron truthful. It has been a challenge over the time that the growth has really put pressure on it and we're doing everything we can to stay out ahead of it I just add one other thing we have an opportunity with G. Seven to reset the bar as to how we interact.
But with patients and what distribution and reimbursement channels will pursue everything we're doing with GE sixs positioning us to put G. Seven as most accessible light to make sure patients can get right to it again, our Walgreens announcement with the Medicare patients to whereby Medicare patients will be able to go to Walgreens and get their monthly supplies rather.
An calling SMB on iPhone with us or our distributors is a major when I was on the phone with the physician just couple of weeks ago and he explained to me his frustration with we have three or four Medicare distributors on ourselves and all three of US ask all of US ask are different paperwork.
We think we can make as much more efficient for our patients with that move and Thats part of the innovation and thinking big guys, referring to we're going to make this easier and.
And so everything we're doing with GE six is going to fly right into G. Seven and we are preparing to.
It's become a comp components are several million patients not just several hundred thousand.
Your next question comes from Jason Bedford with Raymond James Your line.
Thanks, and good afternoon. So I guess, just given the us growth I think it begs the question around traction in people with insulin dependent type two diabetes. So can you just comment on on what you're seeing in this patient population and the impact of pharmacy has had on on penetrating this opportunity.
I'll take that Jason we are growing in that space, but in all fairness, we do not have the broad reimbursement for insulin using type two patients.
We sold as higher Medicare covers those patients and some of the payers have come along and some of them or not we think it and we'll continue to grow over time, but even with our pharmacy contracts. There are sometimes limitations as to what insulin using patients can have access to our technology. We are negotiating through that we are willing to give.
For example are willing to give price to have those patients covered if they will cover them. The Medicare patients do have coverage and thats, where a large portion of this population exists and we will be able to get get doesn't go after them better, but it's still is similar to our and it's still not.
Certainly not the majority of our business even majority of our Medicare patients at this point in time, it's a great growth opportunity for us.
Your next question comes from traffic Steed with Bank of America. Your line is helping.
Hi, congratulations on an outstanding quarter.
Phenomenon you laid out the various non core market opportunities on your analyst day, we've got a dedicated team looking at that and doing research there I'd love to hear what you've learned over the last year. If there's anything you can elaborate on in terms of different business models are any different views on the market thoughts there.
Yes, Kevin I'll, let Steve and Quinn and take a little more of that too because we've all had interesting experiences as this has evolved.
We've gone from we're going to have a complicated type two program today is in other programs to having payers around the thing too.
How is this model are going to go and the one learning that I've seen that that I'll share with you as.
It doesn't matter what the model is CGM is what drives it and I think theres going to be opportunities across the board directly repairs directly with the programmatic entities directly with employers.
Directly with with clinics to better manage these patients and you'll see CGM usage vary.
From model to model there are some here. Thank you need a specific number per year, but the most recent grew by Dr. Seuss at I, just put amount at all the time, because we get such good results.
We don't know how it's going to play out, but again look at the size of that market and look at the amount of $1 spent taking care of those patients look at the cost of drugs for those patients and their effectiveness.
We think theres a cost savings play here that might be even greater than what we're saving in the type one space and intensive insulin using space when all of sudden down if we can develop the right algorithms and get into the right.
Right groups, Steve Quint, you got on anything.
Had a disruptive.
Got it.
Okay.
Your next question comes from JP maker taker Jaffray. Your line is open.
Afternoon. Thanks for taking my questions is actually Matt opportunity, so and that look back at that business on the top line over the last five years, you guys, having grown less than 25% per year.
Andy in any of those last five in last two it's been much much faster than that so as we think forward a little bit.
I know you've got a little bit of capacity constraints of moments and it seems like you've got a lot of tailwinds here on the Medicare side in the pharmacists side. So is there anything specifically that can keep you from that level of growth.
As we look forward.
Yes, Matt.
More than anything else that business gets larger larger and you get into kind of the law of large numbers. The growth rate continues to come under pressure you know I think that.
You look at last year, we grew $300 million year over year in terms of absolute dollar growth. This year at the midpoint, we're talking about $400 million of absolute dollar growth yet the growth rate is arguably a little bit slower I'm still at elevated levels, but arguably slower so I think that.
As we continue to move into the future that the rate's going to just be pressured from the tougher and tougher comps that we have and larger base of business, but you hit the nail on the had theres a lot to be bullish about and we couldn't be more bullish around the opportunities that sit in front of us at within the core business itself. The alternative market opportunities I mean, these markets are enormous and I think what we learn.
Our and more and more everyday is that at the end of the day its CGM.
Buys that really opens up the opportunity to either impact cost improve a patient's wife, whatever it might be it comes right back to our device. So we couldn't be more bullish about the future, but the same time, we're not going to get ahead of ourselves, we're going to be thoughtful but.
But we're going to pursue every one of those growth opportunities as hard as we can.
And your next question comes from Matthew background with Stifel. Your line is open.
Hi, good afternoon, everyone.
You guys spent a lot of time answering questions about the pricing implications of pharmacy access I was hoping you could you talk a bit about the potential profitability implication is.
Increasing next running to the pharmacy. Thanks.
Yes, I think the pharmacy is a very very attractive business model for us.
Obviously, it reduces the burden that a patient and physician and even our back office staff here has to work through to get a patient onto the technology. So it's attractive from that perspective.
But it's also very attractive from a profitability perspective, we firmly believe that we can make more profit dollars per patient through the pharmacy channel then we can to the DMC channel so and much of that comes by way of reducing the back office effort and just reducing the amount of time that it takes to get that patient onto the the product and then it it clearly opens up.
Having easier access the opportunity to dress more of the market. So for all those reasons pharmacy is very attractive to us, but from a profitability perspective. It it's going to deliver profit dollars on a per patient basis that are higher than the DMC channel.
And your next question comes from Steven Lichtman Oppenheimer Seeping enlightening okay.
Thank you hi, guys get just following up on the very strong international performance were there any standouts in particular that stood out or was it across the board and what was that what are some of the big new opportunities you're focused on ahead.
Outside of the wet thanks.
I'll speak to the quarter itself I mean, it's pretty simple and maybe Steve or dub can speak to the opportunities, but within the quarter. It was very widespread it was across our direct markets. It was across our distributor markets.
And it was across all of the regions. There there wasn't any one country in particular that.
Far and away led the pack there wasn't any one country that was far in a way behind the back either so.
It continues to be very broad based strength across each and every one of our markets and the teams are doing remarkable job with it.
I just add I spoke a bit about the Canadian launch in September and that launch was a great success and wind power Canadian team, if I had to pick one other geography that want to call out as the UK They had.
A month in December that far exceeded I mean September that far exceeded anything it ever done and we're pretty proud of their results. When we got an email hey, we just hit this mark and.
It's pretty exciting because we don't have widespread reimbursement in the UK theirs as regional and Theres a lot of cash pay we think as we grow in the UK. We can get widespread reimbursement and then this becomes a much greater market for us so kudos to the UK team as well yeah, I think that they only final AD for me would be.
You guys are building models don't build anything significant this year from Japan, but Kevin I just spent some time over in in Japan, and kind of detailed GSX for the first time GE fixes filed in Japan, We expect to launch a fair probably the first half of next year and there's some real excitement around that product. So we'll get you guys updated when the time comes but thats really.
Nonexistent market for us at this point.
And once again, if you have a question that started in one on your from your next question comes from Chris Scarless Guggenheim Your line is out.
Thanks, and congrats on the quarter guys.
Quitting the SNA leverage this quarter was was very impressive can you talk about the sustainability of that you didnt raise EBITDA guidance by quite as much as I thought you may have given the progress this quarter. So I'm just wondering if there was anything in terms of timing spend that may have shifted some dollars for threeq you into fourq.
No nothing specific around timing of of spend although I will tell you in the fourth quarter, we're going to start to see some incremental spend particularly around.
The development efforts of automating. These G. Seven lines you know, we we have that the product pretty well dialed in in terms of its design now it's all about designing these lines and conceptually we know what the lines need to look like what they need to produce now it's.
Tuning that work in making sure that we have them up ready to start to roll. So you've got that that cost coming through in the fourth quarter that you didnt necessarily having a third quarter.
To your point on a year to date basis, we've made incredible traction from a profitability perspective, Opex is levered over 1000 basis points and on a full year basis, we're going to see tremendous leverage from both an operating margin EBITDA margin, even though it might not have been raised in line with what you're expecting it's still tremendous improvements I think what would it take.
As you is that this business has the capability to perform at very appealing app.
Profitability.
Measures. If you will there is nothing structurally in the business model that keeps us from being able to do that I think what we want to be able to do is balance the investments that are going to open up all these new growth opportunities that we continue to become more convicted are real and so we're going to balance that over time, but we remain committed to those long term profitability goals, we've laid out we're making tremendous pro.
Aggress towards them and feel good about where we're at today so.
We're pleased with the progress has been made.
And there are no questions at this time.
Okay.
All right. This is Kevin I'm going to close up as I, usually do we want to thank everybody for participating on the call this quarter.
In closing I want to acknowledge the contribution of all of our team members to get at this point.
$130 million in growth in this quarter combined with our best financial results. However.
We've never delivered a quarter like this and we've asked our people to go above and beyond 2000.
19 to achieve these things, while our year to date revenue growth as their 50%.
I can assure you all that our volume growth of all product components far exceeds that number.
We've been running all year to keep up and while we see a light at the end of the tunnel, it's just not as quickly as we'd hope for.
Our commercial teams have hit on all cylinders has share.
International growth remained strong and a great opportunity going forward for us as global access and awareness continues to improve.
We also talked about the effectiveness of our us reimbursement team and positioning us for the future, enabling our shift to more efficient distribution channels with numerous contract wins and our relationships throughout our distribution channels have been nothing that strengthen over the course of the year.
And finally, our U.S sales team, both internal and external they've navigated through some very difficult situations with respect to our supply constraints. They remain engaged in effective there isn't a better group anywhere.
Many of our accomplishments this year can be measured by numbers all of the letters and emails of lives that we changed standing up a facility and a business in the Philippines over the past nine months, that's gone to a nearly 700% workforce of people is committed to this company as everybody here in the states and who demonstrate.
Commitment to patients that we've always had that have made dexcom. The company that is today, we look forward to continuing this success in the future. Thank you.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating in the now disconnect.
All right.