Q2 2020 DexCom Inc Earnings Call
Hi, Matt Thank you for your patience.
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Well, that's kind of second quarter 2020 earnings release Conference call. My name is H. anything out of your operator for this call.
Hi, all participants are not listen only mode later, well conduct question answer session.
Question. Please press Star then one and you touched on phone.
Please note this conference call. It stay Accordingly, now 10 holiday, Sean Christopher Sean you may begin.
Thank you operator, and welcome to Dexcom second quarter 2020 earnings call.
And to begin the tenant there that's sounds chairman President and CEO, who will provide a summary of the quarter followed my financial review and outlook from Quentin Blackford, our COO and CFO I'm going to strategic update for Steve Pacelli, Our executive Vice President of strategy a 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 note there also slides available related to our second quarter performance on the Dexcom Investor Relations website under events <unk> presentations page with that let's review our safe Harbor statement.
Uh Huh 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 out of the date hereof based on information currently available that's gone.
Subject to various risks uncertainties and actual results could differ materially from those anticipated any forward looking statements.
The factors that could cause actual results could differ materially from those expressed or implied by any of these forward looking statements are detailed in dotcom annual report on form 10-K, and other filings with the Securities 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 the 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 base result.
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 were superior to results prepared in accordance with GAAP.
Please refer to the tables in our earnings release and the slides accompanying our second 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.
We entered the second quarter with several areas of uncertainty is covered 19 quickly spread.
I'm incredibly proud of how the Dexcom teams have responded.
We established three pillars for our organization to ensure the safety of our employees to maintain service continuity for our customers who rely on energy six CGM systems and third to do our part to assist our communities as we address this novel virus.
We are executing well on all three of these measures and the results are indicated in our second quarter financial and operational performance.
Total revenue grew 35% on a constant currency basis in the second quarter, driven by our significant growth in new patient additions over the past year.
This represents more than $115 million of absolute dollar growth over the same period in 2019.
This growth include steady traction are tied to market, where we continue to see strong new patient additions as coverage expands.
As of the cause of the second quarter, the tied to patient population exceeds 20% of our total us patient base, reflecting our growing traction as market access expands.
Even with rising CGM awareness there remain many people who continue to rely on finger sticks to manage diabetes and we believe there remains a significant opportunity for growth ahead in our core type one in type two intensive markets as we discussed in April new patients were slaughtered the started the quarter as conditions transitioned to support their patients.
We had telemedicine.
We did see a nice recovery and new patient additions in late April and over the remainder of the quarter, especially in the U.S. with our sales and patient care teams doing a great job to ensure the both customers and clinicians were aware of the full set of dexcom tools to enable virtual or care.
The strength of our core business also reflects our focus on the service experience that we provide.
Whether through our pharmacy channel initiative, the scaling of our customer support organization or the user interface and tools, we build through our software solution, we're prioritizing the needs of our customers.
We are now two years into the launch of RG six system and the feedback that we continue to receive from our patients is incredible in fact net promoter scores for GE six have now reached all time highs. According to both third party industry analysis as well as our own internal measurements.
This includes the most recent DQ any industry survey of type, one and tied to intensive patients and which GE six received a net promoter score of 83.
Well ahead of our competitors in line with the initial results that we saw immediately after launch of GE six in 2018, our scores have been especially high among new Medicare customers, whether transition to our no fingerstick GE six system has been very well received by both type one and type two intensive users our customers are achieving these rigs.
I don't want paying out of pocket cost that is comparable are often less than the out of pocket cost of our largest competitor.
As we've mentioned before GE six has the lowest out of pocket cost for Medicare patients and we'll be at parity with any other CGM classified as a class two IC Jim by the FDA.
The pharmacy channel results are proven to be a wonderful option for many of our customers and remains our preferred long term channel.
For customers using pharmacy benefits now nearly 70% have an out of pocket cost less than $60 per month.
And 30% pay no out of pocket cost.
Notably this data is based upon the first five months of 2020 when patients are more likely to have deductible still outstanding as you can see our products continue to demonstrate their ability to perform in real world settings, and drive patient outcomes at affordable levels.
This includes the use of Dexcom CGM and additional populations beyond those within insulin intensive diabetes.
As we mentioned on the first quarter call on April 1st we received an allowance from the FDA to provide dexcom CGM to hospitals during the current crisis, allowing for remote monitoring on any of their hospitalized patients. Our primary goal on this initiative was and continues to be the assistance or frontline workers during the pandemic and the team.
Has been working continually with sites to get CGM implemented we've made great progress to date and training hospitals in the feedback we've received from the care teams has been great and example, near to US in San Diego scripts, how published a case study on their use of Dexcom GE six cents of started the coated pandemic and highlighted several encouraging coins.
The use of GE six was eagerly embraced by the hospitals and nursing teams with high rates of satisfaction among patients as well early data indicates a trend toward reducing incidence of low and high glucose values across all patients who use CGM and specific to cover 19 patients visits into the patients rooms have been decreased by <unk>.
30% to 50% during the length of stay saving valuable equipment and also reducing viral exposure for the hospital staff.
As we stated previously our hospital efforts were not a material driver of revenue in the second quarter and we do not expected to be for the current year, but the data that we are generating is invaluable as we assess the regulatory pathway forward for this important market whether it is the shift to telemedicine the hospital initiative or our efforts to expand access for the time.
Two population with our various partnerships our team continues to press forward in the midst of the challenges brought on by covered.
We've successfully doubled GE six capacity in the first half of the year, putting us in great position operationally to address the significant market opportunities ahead of us.
Gee six as a platform technology.
During the past 12 months, we've seen the launch of a very successful automated insulin delivery system at tandem significant progress have insulet and other automated insulin delivery partners introduction into the first bailing enable them the ice systems utilization on an app developed specifically for the type two diabetes program at United.
Alphacare and the recent launch of do six pro to meet a very important market need.
We plan for numerous customer experience and product enhancement as well as new market opportunities for this platform over the next two years.
And many of these initiatives will be incorporated into the G. Seven platform going forward.
And finally onto G seven where we're pressing forward on several fronts.
As we said under last call cover 19 has affected our timelines on this project specifically pivotal studies would be delayed for at least six months due to uncertainty of the clinics and we're going to be fully ready for GE six conversion when we launch Sungy seven manufacturing scale activities have been delayed as some of our vendor shutdown for meaningful.
Periods of time, and let me remind you we are going to be fully ready for a G. Seven conversion when we launch and a very small amount of GE six equipment can be used for G. Seven.
Im not going to provide you a specific clinical trial filing and launch dates today.
In this competitive world, we have no interest and sharing our playbook with entire industry, there will not be limited lots or do seven in 2020.
Such a launch would not provide a meaningful financial impact on rushing to accommodate such a launch but ultimately the way our long term plans.
These I have a hardware sense or electronics has locked in the G. Seven algorithm is complete we have used our extra time to add some great enhancements to the system.
We are back in the clinics, where their process of finalizing clinical sites and timing for the us and I guess pivotal studies.
Our first fully automated G. Seven line is up in San Diego additional G. Seven automation equipment as arriving regularly in San Diego Mesa, and a third party contract manufacturers.
I'll now turn the call over to Quinn for a review of our financials. Thank you Kevin as a reminder, unless otherwise noted the financial metrics presenter today will be discussed on a non-GAAP basis reconciliations to GAAP can be found in today's earnings release as well as on our IR website.
For the second quarter of 2020, we reported worldwide revenue of $451.8 million compared to $336.4 million for the second quarter of 2019, representing an absolute dollar increase of more than $115 million and growth of 34% on reported basis and 35% on a constant currency.
Basis.
The strong growth continued despite some of the challenges posed early in the quarter by the pandemic with continued new patient growth, reflecting the overall momentum behind real time, CGM and both the type one and type two patient populations.
As Kevin noted we are meeting this shift toward real time, CGM with the product and GE six that customers love leading to our record net promoter score levels. Our us business remained very strong in the second quarter with growth of 38% over the second quarter of 2019.
This growth extended across all three of our primary us channels pharmacy, DMV and Medicare.
Pharmacy remains the fastest growing channel among the three and our teams continue to prioritize this as a key component of our long term strategy based on the benefits provided the dexcom clinicians and especially our customers.
The majority of National plans on Pvms are now covering dexcom via the pharmacy benefit with many incorporating a dual pharmacy in DMD benefit.
Our international business grew 22% in the second quarter on a constant currency basis with consistent growth across our direct and distributor markets.
We did see a greater impact to new patients and certain international markets. As a result of covered in the second quarter compared to the use unlike the first quarter the reduced access for in clinic visits for new patients did not allow us to offset or anticipated second quarter price impact with the same degree of volume gains.
However, we remain confident in our long term strategy as we saw improvement throughout the quarter with new patient growth recovering and our direct markets returning to strong growth in June.
As well as distributor orders beginning to rebound early in the third quarter.
We are creating streamline pathways for new patients to access dexcom CGM through different channels in our international markets.
Building from the successful launch of our Canadian ecommerce platform, which drove record new patient growth. Following its launch in 2019, we recently expanded the E commerce opportunity to our UK market and are encouraged by the similar early results.
Canada in the UK were amongst our highest growth markets in the second quarter.
Our second quarter gross profit was $289.7 million were 64.1% of revenue compared to 61.4% of revenue in the second quarter of 2019 gross.
Gross margin was sequentially consistent with our Q1 performance.
And consistent with the expectations that we noted on the Q1 call for a more muted improvement between Q1 in Q4 of 2020 as we continue to ramp cost associated with the introduction of RG seven mines.
Importantly, we now have our first G seven line in place and producing product for clinical trials.
The 270 basis point year over year margin improvement was driven primarily by product designed developments, most notably or lower cost transmitter.
Operating expenses were $213 million for Q2, 2020 compared to $200.3 million in Q2 2019.
This reflects an increase of 6% year over year, and a 1200 40 basis point reduction as a percentage of revenue from the second quarter of 2019.
As an organization we continue to made great strides as we invest in the initiatives that will drive Dexcoms long term growth will also remaining disciplined as an organization and this is evident in our second quarter results.
Just as cobot did impact our topline. It also had an impact on certain spending activities, which resulted in some of the operating margin improvement during the quarter and would therefore temporary nature.
As a result, we expect moderation in the year over year margin comparisons in the second half of the year as we invest in several key initiatives for the company, including the G. Seven clinical trials do seven manufacturing scale up our new market efforts and direct to consumer advertising that we began to accelerate late in the second quarter.
Operating income was $76.7 million or 17% of revenue in the second quarter of 2020 compared to $6.2 million or 1.8% of revenue in the same quarter of 2019.
This reflects a year over year improvement of more than 1500 basis points in operating margin for the quarter.
Adjusted EBITDA was $122.6 million or 27.1% of revenue for the second quarter compared to $45.9 million or 13.6% of revenue for the second quarter of 2019.
Net income for the second quarter was $77.1 million or 79 cents per share.
Over the past two years, we've made tremendous progress towards becoming a profitable company.
As a result, it is now becoming evident that we're going to be able to utilize the significant historic tax benefits that we have accrued over time and we are approaching a position. We're in the near future. We expect to release the valuation allowance that we have been required to place against many of our tax benefits in the past.
This is something that we have been in front of and planning for including the implementation of a global tax structure over the last couple of years that will allow us to continue to expand rapidly and efficiently on a global basis.
As we set expectations for 2021, we will look to provide clarity around our annual tax rate expectations and leverage the benefits associated with the tax structure, we put in place in contemplation of such an event.
In early May we took advantage of.
Yeah.
Okay.
On the strength of the offering we closed the quarter and a great financial position with more than $2.5 billion cash utilizing a combination of the cash generated from the convertible note offerings as well as Dexcom stock.
We redeemed a majority of our 2022 convertible notes and the second quarter and will redeem the remainder later this week.
Our cash position leaves us in great shape to pursue the growth opportunities ahead of us, including supported the development of new markets opportunistic investment and capabilities that complement our growth and capital allocation into RG seven scale up and Malaysian manufacturing facility as we look to the second half of the year. The remains several areas of uncertainty as.
Right the continuation of the Kobin pandemic as global impact, including employment rates and uptake of our patient assistance program in the U.S.
Nevertheless, based on our experience in the second quarter the tools that our teams have developed port virtual patient care and the growing clinical awareness of the value of CGM, particularly in the current environment. We believe there is enough visibility to reinstate full year guidance.
We now expect 2020 revenue to be approximately $1.85 billion representing growth of 25% over 2019.
This represents an increase of $100 million from the midpoint of our initial 2020 guidance.
Resulting from the strength of the business in the first half of the year.
Our teams have responded well and continued to drive new patient adoption and ensure the satisfaction of our existing patients.
Given the recent uptick uncovered cases globally and in the US in particular, our guidance assumes approximately 75% to 80% of our original expectations for global new patients in the back half of the year, which was consistent with what we had experienced in late March and into April at the outset of the cobot outbreak globally.
Turning to margins, we now anticipate the following non-GAAP results to meet or exceed the following levels, which are ahead of what we established at the started the year, including increasing gross margin expectations to meet or exceed 65%, representing a steady improvement over 2019.
This includes cost associated with the initial development of our Malaysia manufacturing facility in support of the growth of our international business and is in line with our long term expectations for gross margins in the mid Sixty's.
We are now increasing operating margin expectations to meet or exceed 14%.
This revised guidance contemplates the increased second half spending associated with the initiatives that I previously mentioned, yet still demonstrating annually year over year improvement as we leverage our strong topline results.
Finally, we are increasing our expected adjusted EBITDA margins to meet or exceed 24% for the year.
Our team has done a great job to execute on our goal of double and GE six capacity in the first half of 2020, despite an extraordinarily difficult and unanticipated operating environment, putting the company in its best position since the launch of GE six to meet the many opportunities in front of us.
And we now look forward to replicating that momentum with the scale of RG seven mines.
With that I'll now turn the call over to Steve for a strategic update thanks, Greg.
We continue to made great strides in executing on our strategic priorities, even as we navigate the current environment would be but most care for the health of our employees. The continued service of our patients and assistance to our communities.
The doubling of GE six capacity in the first half of the year has placed us in a great position to creatively target new customers and extend the launch of GE six and several of our existing markets.
We are getting study traction among type to install an intensive customers building from our efforts to drive expanded access beyond Medicare and as a commercial payers as we've seen United healthcare and more recently, both of which now provide access to the pharmacy.
At the recent virtual AIDEA conference.
We presented encouraging data on a subset of our tied to intensive patients. After their first 12 weeks of usage of GE six the data demonstrated average agency reduction of 1.5% significant improvement to quality of life metrics and 95% customer satisfaction with two six coveted also brought to clear focus to the long term potential for CGM and the importance of.
A question we control.
We've spoken at length about the large market opportunities ahead for dexcom, including our focus on the broader type two market hospital use unused during pregnancy.
The factor all three of these populations have now received exemptions to allow for broader access to Dexcom CGM. During the pandemic provides validation for these new market expansions.
In early April DFT amid a special allowance to permit the use of CGM in the hospital setting.
In early May and we saw special ruling from seat mass to allow access to all people with diabetes, who were diagnosed with covenant team.
And earlier this month health, Canada issued an interim order for the use of GSX for all women with diabetes for pregnant during the pandemic and more and more data continue to emerge supporting these decisions and the value of CGM beyond the intensive insulin using population.
At EEI, our partners that are under our presented data comparing the impact of CGM versus non CGM use in their virtual diabetes clinic, while both cohorts of patients ultimately size significantly one suit decrease the group using dexcom juice XR reduction nearly two times as much as those not using CGM.
In addition earlier this month, United Healthcare announced the expansion of their level to digital health therapy to more than 230000 people with type two diabetes. This program, which utilizes GE six as a core components are great results in United's initial pilot work, including clinically significant improvements in reduction for those for the baseline agency greater than eight.
Get reductions to medication usage with some participants even achieving remission and wondered using medication.
We are pressing forward and support of our various partnerships to reach the whole type two population, including our work with United Healthcare Intermountain healthcare longer waldock on newer and others.
We're also excited about the launch of RG six professional products, which has several appealing use cases as we explore the full value of our CGM platform. We're also excited about the launch of RG six professional product, which has several appealing use cases as we explore the full value of our CGM platform.
The product provides a natural extension into the tied to non intensive market by leveraging the strong existing reimbursement framework for professional CGM with a tool that empowers clinicians.
Gee six pro gives doctors the flexibility to assess additions quest in Macau in real time for all patients with diabetes.
As a single use products GE six pro will also serve as a great introduction for a patient looking to experience the functionality of Dexcom CGM.
Gee six pro can also be prescribed for use in blended mode, where division does not seem to real time data to all people ages two years and have not just people with diabetes, providing all people with the opportunity to assess their glycaemic health our strategy of prioritizing interoperability and patient choice continues to leave us well position as the insulin delivery market shifts toward commercial.
Connected devices in early May we signed an agreement to collaborate with IP summit, adding another key partner to our existing partners in Eli Lilly Insula Novo Nordisk intend in diabetes.
Thank you Steve as a reminder, we ask our audience to limit themselves to only one question at the time and then reenter the queue if necessary.
Ian please provide the acuity instructions.
Thank you well now begin the question answer session. If you have a question Please press star and finance.
If you wish to BMS your Q. Please press the pound sign I'd hash key.
Thanks Speaker phone you may need to answer first to freshen. The numbers. Thanks again have a question. Please press Star then one on your touched on tongue.
And our first question comes from cash taxes from Baird. Your line is open.
Thank you. Good afternoon, guys can you hear me okay.
We can perfect.
Great. Thanks for all the information on the call congratulations on a quarter so Kevin Steven.
Hospital it in pregnancy gestational yield I guess, what I'd love to hear an update on is maybe that's halfway in timelines to maybe extending some of those reimbursements to more of a permanent nature on whether that Canada. The UK, where we've seen some of them movement on gestational over the last year.
Or even in the US just to get halfway in timelines on how we should think about when those to become more permanent contributors to the model. Thank you.
You bet I'll take that Jeff on the hospital side, we're really not just starting to gather data from the centers that use CGM when we started.
No Hospital initiative. It was just let's get the product out there and out of staff at the hospitals and also make patients healthier.
And we navigated through a series of of of things that we really didnt anticipate very well such as the IP systems at the hospital and things of that nature. So we're now starting to gather data.
We also have learned interestingly enough that allow the hospitals, even though we.
They are the same product had different protocols in different way they use CGM. Some of the centers were dependent on anybody with diabetes somebody with anybody with elevated glucose levels and others will take the approach we're not going into this until somebody's really sick. So we're going to learn more about the protocols or how is used and the start gathering data.
About the sensor and how it worked and also are going to try and gather data with respect to have these patients were treated from a drug side as well anecdotally what we've heard as our product performed in the hospital. The way we thought it would that its accuracy and performance really wasn't affected by the compound used to treat these patients and we should have very good picture.
Our awareness, we've not had any additional discussions with the agency.
In the hospital data, yet because we really havent had anything in a form that we could present that started astana path as far as next steps in the hospital will take.
We still have the ability to use the product in the system and with cover not going away I think we'll be able to gather more data and data we've been through this initial wave of learning.
We'll probably get better data and more data and now what we're looking for going forward and put together.
We will present that to the FDA and at the same time will present them with the plant as to what we think we need to do next best can be awhile.
And but we've we've got some time together more data on the gestational side and the pregnancy side, we have seen some countries opened up and say Hey, let's go do this.
UK in Canada that you pointed out we've had very detailed discussions with the FDA as to what we need to do on the pregnancy side to get that label and we're working on that we all know that product works very well and pregnancy. All you've got to do is going to social media NCL. The dexcom patients who have had a child that they never thought they would have.
Who have diabetes.
Our type one patients on gestational side, we think our opportunity and as outstanding not only from a manage those patients who have gestational diabetes as a predictor of those who may in fact get it.
And again, we are we're running studies that are studies being run by many others to determine what that model looks like.
I think our first step there Jeff is we need to get just a pregnancy indication with the FDA rather than a specific gestational line.
And then I head down the line.
To develop a product and a platform that fits into that market.
On a cost effective and a positive outcome basis, but we're very optimistic than it will.
And our next question.
Canaccord Your line is open.
Great. Thank you very much for taking the questions.
I just wanted to talk a little bit about about the quarter in maybe just kind of.
Understand any differences, you're seeing in underlying patient behavior or patient demand in states or geographies that that have high levels of of covert currently or any states or geographies that don't.
Just trying to understand how much of it impacts we sought to new patient starts with respect to.
Recovered in the quarter and how we should think about the potential for will rise in case volumes to potentially increase in the second happening.
Yes, we didnt quantify exactly what we believe the impact to be in the second quarter, but we tried did to give some color and it's the foundation for how we thought about the back half of the years well. If you look at the end of March and into April new patient starts when coal bid was really starting to ramp at that point in time was roughly 75% of kind of.
That normal range that we would have expected so about its about a 25% impact on a new patient starts at that point in time now I will say over the course of the quarter ended June we saw that rebound nicely back in line with previous expectations as.
Things started to come under a bit of control now we saw pick up a little bit.
In July as the Colby cases have increased a bit more that we're all aware of and we were very clear in our guidance that we're assuming roughly 75% the 80% of new patient starts throughout the back half of the year. That's the best data point, we have at this point in time so.
I would just take you back to that reference point of 75%, 80% roughly new patient starts throughout the month of April's kind of how we saw the impact in the quarter.
And next question comes from nine Becker of Cowen Your line is nothing.
Hi, Thank you for taking my question.
Can you talk a bit more about the recent launch of Unitedhealthcares level two program, how significant of a catalyst business for non intensive type two adoption the use and do you believe that Thats program together with Intermountain data that you shared suggest that CGM use will be more frequent frequent and sustained among non intensive type two patients over the long term and the intermittent use cases.
Historically discussed.
Yes, I think at certain was a Steve it's certainly evolving but I think these are all validating points for us right, but that certainly United healthcare serves more than 230000, non insulin taking type two patients and we would hope that over time that program is expanded pretty dramatically beyond where it is today.
We're in the midst of just continuing to capture data and prove out the value of this technology in the non intensive patient population. We know we have something there. We know it's important whether it becomes a real time all the time use case overtime. It very well could be we're seeing some very positive outcomes for people using it for a frankly a longer period of time Ben.
Than maybe we would have cited previously so there is that opportunity reimbursement is still in its infancy in the non insulin using patient population. So we're not only got approved the outcomes. We've got to get the product paid for so it's still not even the balance of this year not going to be a material piece of the business, but it's going to continue to grow over.
The coming years for sure.
Your next question comes from Batty markets and JP Morgan Your line is helping.
Thanks I appreciate the question congrats on a quarter on.
When I want to it.
Maybe spend a little bit on the guidance here.
Touched on new patient expectations.
Usually at the beginning of the year JP Morgan when you give guidance you give us a little flavor for how we should think about revenue per patient and the headwind expected their freight throughout the year as you shift into pharmacy and restructure some of your negotiations on price and international.
So I was wondering if you could give us a little bit more flavors were halfway through the year, what's baked into guidance and also if you could spend some time walking us through the.
Bottom line expectations, you put up a fantastic.
Adjusted EBITDA this quarter in out how much of that really.
Is the new baseline and if you could quantify how much was just spending that we should expect comeback party the year. Thanks.
Great suit with respect to the first part of that question around topline and and revenue per patient or maybe the pricing headwinds that we've talked about historically certainly we came into the year with an expectation that that was going to be somewhere around 125 to 150 million.
Likely being closer to that $150 million range I can tell you that based upon where we saw price come in in Q2. It was right in line with our expectation we have not changed our pricing assumption in our full year guidance at this point in time, we still expected to be around that $150 million range. So not anything significant in terms of a change there at this.
Strategy, we've put in place to step this down over time continues to play out exactly as we had expected. So that continues to be consistent with respect to the bottom line. We've made incredible progress from a profitability perspective really over the last call. It four or five quarters now with nearly 1500 basis points of improving the operating margin profile in Q2 will.
There's no question that.
Some of the spending was impacted in the quarter, particularly around efforts like DTC as we started to pull back some of that early in the quarter just with the uncertainty around how cobot. It was going to impact things over the course of the quarter and into the back part of the year I will tell you. We did start that backup in early Q3, so you're going to see incremental spending in the back half of the year around.
Things like DTC, the other thing to keep in mind, it's going to impact your spending trends that wont allow the same kind of improvement in Q2 to play through in the back half. The year is the fact that we're starting up the G. Seven trials, we've been very open and deliberate about the spend thats going to go into that we're putting forward quite a bit of resources around standing up there is manufacturing.
Capabilities and ensuring that capacity is going to be there right out of the gate. We do have the first line up there is incremental lines coming right behind it as we speak and building out that entire supply chain capability and then finally, we've already spent some time talking about it on the call today, but you look at opportunities like the hospital gestational those are signet.
They get revenue drivers for us into the future, we're going to make sure that we're spending in those areas to to ensure that we opened those up and and provide for growth into the future. So we are going to spend in the back part of the year Youre not going to see the same sort of improvement but at the same time, we're committed that overtime. We will continue to mature as an organization we're going to.
Step towards the long term goals of profitability that we've laid out and I think we've made great progress towards it but you're not going to see these sorts of improvement every single quarter. I think you need to look at it over a period of time.
And your next question, Jeff Maggert came from William Blair.
Hey, good afternoon, guys. Thanks for taking the question.
I wanted to follow up on pipe to mix this quarter than the 20% numbers increased try it seems like it's increasing so.
Can you guys give us any sense around where these patients are coming from our they top prescribers for dexcom for other tier one is there anything on patient profile.
Early adopters and long story short as we look at that key to grow even within the intent and population.
Going into the Bakken and this year in and connect does that push or pull there isn't getting easier at all thanks.
Well this Kevin I'll take that it is getting easier and I think the biggest catalyst and all this was when we got Medicare approval awhile ago, and now we're getting Medicare awareness.
With these insulin using patients because a large number of insulin using patients in this type two population are in fact Medicare patients.
So that has been a big catalyst for growth, particularly as we've gotten better at at serving and taking care of those patients I think the other catalyst as just the approvals we received from some of the large payers.
Steve pointed at United Healthcare Unencumbering type two patients.
10th events on recently again, giving more patients access to it as these patients having positive outcomes access is growing and their matching the CMS.
Approvals that we've already received so it's kind of across the board and is not coming just from our primary.
Prescribers are coming from everywhere. Many of these patients on even see endocrinologists, so they're finding out about dexcom and coming to us directly because of our marketing efforts and because what they've earned word of mouth and what they've seen from others. We've always felt this will be a greater use of our technology and its proving to be exactly that.
Your next question concept of Jason Bedford Raymond James.
Hi, good afternoon, thanks for taking the questions. So I guess just on the international business. It looks like that's probably the only place you could really pick out here.
Quitting Tim just summarize why the growth was lower than historical trends.
You seem to incur the trends in the direct market picked up in June and in distributor markets. In July can we assume that you expect a greater than seasonal impact in international sales in the second half.
Yes, it's a fair question I think it's a bit premature to to speak to that.
Fact in terms of playing out over the course of Q3 with respect to the distributor orders certainly we saw those orders start to come through and in the third quarter. I think the question becomes based upon what was happening with co bid in the broader environment today do we see that actually.
Rebound and double up in terms of the orders in Q3 hundred as everything just different push a bit our guidance would contemplate the fact that it that it pushes at this point in time just based upon the best information that we have if it if it were Dol come in and terrific I think we'd be very happy.
Just a little bit of color around that all US result, I think what you're seeing there is very comparable to what the broader marketplace and industry realized over the course of the quarter as well.
I think if you look at the the data points that have been put out there by our competitors thus far.
They saw a slowdown in growth in Q2 and their international business, just as we did sequentially absolute dollars step down from Q1 into Q2, which we certainly saw as well, but the broad market saw the same thing. So I don't think youre seeing anything that's unique to the dexcom.
I think over time, we remain as bullish as ever on the international opportunity. We've stated the fact that we're going to step down price overtime in the international space as well and when you have a quarter like Q2, where the ability for new patients to get into the clinic in come onto the product becomes a bit muted you see a bit more of a pronounced impact so.
Thats all part of a long term strategy that we believe in and are very bullish around so we're still very very optimistic and excited about that international business, but thats a bit of color that played out in Q2 and with respect to Q3, our view is that things probably push but but if we see a rebound and great there's upside to the number.
And next question comes the Chilean Lynch Keybanc your line is that.
Good afternoon, and nice quarter.
And the seems like a million year together now in June but.
But can you give us an idea.
Thanks for that you walked away from.
I'll be talking about up in the next 18 months.
Yes, I'll take that one I think again the walk away from 80 a is.
How important few Jan has become at all this almost every presentation. You went to every piece presentation we saw.
The performance of drugs at the performance of other systems is based on CGM data.
From next comps perspective, obviously, the drive of the automated insulin delivery systems was largely driven by Dexcom sensors.
Regardless of who the presenter was up at the pulpit.
Other than Medtronic, and we can see our sensor can drive great outcomes. There I think together the other takeaway is.
We're not stopping innovation and diabetes, everybody still pushing forward and we still think theres better ways.
To attack. This this is a big cost and healthcare problem in our country and around the world.
And I don't think anybody's guess flow down, but our biggest takeaway compare that to your first 88, Joanne where we had the bag for anybody even listened to us.
Now every place we go in and just our industry growth CGM has become the dominant technology here.
Across all of the diabetes treatments and we're looking forward to just continuing to be better.
And next question comes from add up right I understand there your line is nothing.
Hi, Good afternoon. This is Jason on from that next taking the question congrats on nice quarter here.
Kevin or Steve high level question on the non intensive side. Appreciate some of the comments you made but hoping you can discuss maybe how you see these models are programs evolving over the next few years.
The revenue model to be similar to what you see with intensely managed population or do you expect it take different forms with maybe some possible risk sharing our shared cost savings elements. Just anything you can offer their IC the contracts coming together over time now that you've been engaged with payers and other partners on various models. Thanks.
Yes, this Kevin I'll add a bit to Steve's comments earlier, we don't see one solution yet.
We are working with a number of partners on the pair from working with clinics were working with a lot of these.
Diabetes management systems, as well to provide CGM data that to figure out what the best model for these patients is.
We're not only working with these partners, but we're doing a lot of market research on our own and want to Steve's comments that.
It is becoming very evident and all the work that we do is type two patients are more than opened during CGM and learning what's going on with their bodies. They want to different experience than we offer today for the type one patients connecting to insulin pumps and.
And Bluetooth pans, and sophisticated predictive alerts and alarms and things like that we have today are not as important to that group, but what is important to that group has had they are healthy and that we can reduce their demands that we can reduce their costs that we can make their physician visits more productive and we can make changes in their help that save them.
These complications over the years, so I think what you'll see as we'll continue to pursue all these models at the same time, we're going to pursue the proper product configuration and reimbursement models for us I've been in numerous discussions where we ask that we get paid expert intensive patient per year, what should we.
What should be the reimbursement rate per night intensive type II because the fact is we aren't saving their lives.
And near term basis within alert and alarm, we are not giving them something that determines their drug dosing decision, but we are giving information to better manage their lives. So we think there may ultimately be a different class a product here and a different former reimbursement even a patients where them all the time, which is again. Another reason we're investing so much in scale here.
As we'd like these things everywhere I think the markets developing nicely and the constant thread coming from all these approaches this thing works.
And next question comes and Chevys, Steve have bank on their your line is nothing.
Hi, Thanks for taking the questions.
I wanted to touch the hospital channel, but Mark just love to hear aggregate approach to commercial aspect the longer term you don't really reps in the hospital do you need a partner. They are are you paying dividends to our Salesforce and also I don't if you're willing to say while the revenue generated off of this quarter. If that was a few million dollars or more than not.
The revenues in the hospital wouldn't have a significant impact on the financials that cost far exceeded the revenues. So we'll leave it at that.
With respect to the channel we've not made a decision there as far as how we'd pursue that we are early enough in this process that we're not ready to adopt to commercial model. We want to leave our options open we would explore partners, we would explore doing it ourselves but.
We'll figure out where the best use our dollars.
And we have made a decision there yet.
Your next question David Lewis from Morgan Stanley. Your line is open.
Good afternoon. Thanks for taking the question Quintin just quick follow up here for you on guidance. So in the second half year effective you assuming that new patients start rates are similar to sort of the trough of coated even though they're probably has been some improvement in your you're not assuming any distributors for to recoup in ex us markets and just kind of related.
That can you give us a centex you asked for this country specific or just broadly ex us as our sense is maybe a germany perform differently than Canada perform differently than the in France. So those two quick ones. Thank you.
Yes, I think in the prepared remarks, we were we were pretty clear with the fact that we saw cobot did impact certain countries, a little bit differently than others, UK and Canada performed incredibly well, particularly on the ecommerce platform that we had put in place.
Germany, certainly was impacted in our distributor markets were certainly impacted.
The distributor points again, I think it's too early to tell if thats going to double up in Q3 or a best is going to be simply something that pushes out over the course of of the remainder of the year I think at some point in time, it will catch up to itself.
And we'll be back on that same trajectory is just too hard to predict if that happens in the next six months or not in our guidance would would.
The bit based off the fact that it does not that has been pushed thats kind of how we thought about it. So and then your point on just the new patient starts in the back half the year like I said, we're trying to create some clarity for you guys in the back half of the year around what we're confident that we can deliver on how we're using the best data points that we have from our own experience and that 70.
5% to 80%.
New patient starts will be realized early in the second quarter as co bid was kind of starting that to really gained some traction we've seen cobot numbers, increasing here recently and the third quarter as well and so thats. The best data point that we have so that's how we went about putting the numbers together, obviously, if we can navigate through that more effectively or to a better degree than there is going.
The opportunity in the guidance number, but we don't want to get ahead of ourselves at this point.
And our next question comes from Larry Biegelsen from Wells Fargo.
Hey, good afternoon, guys. Thanks for taking the question Kevin as you mentioned upfront Medicare is not enforcing the clinical criteria for CGM during the pandemic. It's unclear. If this applies to all type one and type two patients are just those affected by coded how broadly this physicians interpreted this rule and what impact have you seen in the market.
And do you expect CMS to continue to allow this exception.
Through next year, thanks for taking the question.
You bet, we do not believe it's had an exceptional impact on our business.
As far as bringing more Medicare patients at the table.
And and but they are coming.
On a broad scale basis as we look at the Medicare ruling we would be very pleased if we could get the criteria for Medicare patients.
Much more condensed and much more realistic and we actually met on that this morning, and one other things pointing that yet again to me is Medicare requires our patience to document that they do forefinger six today before they go to CGM and our patients only reimburse for three fingersticks today by CMS. So there are large and consistencies there and this is up.
Product that has tremendous impact with these patients here with certainly bear goal to have these coverage criteria and missteps that patients have to go through to get CGM simplified and more broadly more broadly applied across all of diabetes, but thats something were working on now and I can anticipate where CMS is going to go.
It certainly makes sense that we do that.
And your next question comes from Janney.
We'll see some SPD, leaving your line.
Hi, good afternoon, guys. Thanks, so much for taking the question congrats on another very strong corridor.
Just a quick question on.
Thank you mentioned is now 20%. Thank you sort of your installed base correct me if around maybe you said new patient adds but how has that changed versus a year ago period, just trying to get offensive of how that might be growing.
Yet no it certainly increasing nicely, particularly as we continue to focus in that particular area. The 20% is up did the installed base. So we didn't give a sense in terms of the overall growth in that particular area, but we've talked about our focus there and opening up those channels that I think the fact that we're now talking about it.
Just indicates the progress that we're making there so that's the extent of the detailed we've given around it.
And our next question comes to Matthew Akman from Stifel. Your line is nothing.
Good afternoon, everyone. Thanks for the question and quite thanks to the color on new patients start headwind just hoping you can extend those comments. The installed base was notable change in attrition or utilization rates during the quarter or our first half of $20, a making any changes how you're thinking about those same attrition utilization risk.
In this new guidance. Thanks.
Great question, we didn't really see anything over the course of Q2.
But to be fair I think it's probably a bit early to really understand whether or not we will see an impact and therefore, we have contemplated something in our guidance in the back part of the year around our patient assistance program more or attrition and keep in mind, we announced.
During the second quarter that we'd be putting in place a patient assistance program, but that was going to be effective until the third quarter. Our view is that if a patient we're going to a trip they would likely fall into that program. So when we talk about guidance in the back half of the year, you've got a couple of things playing out there you got the new patient starts that we've been very clear 75 deeper.
Our sense.
It's how we modeled it but then we also are assuming that we're going to see some impact on attrition in they're going to fall into this patient assistance program, which is going to mean quite a bit less revenue to us obviously than what we might have normally receive from them. So that's playing out in the back part as well.
Your next question comes from Chris This quality from Guggenheim.
Thanks, Colin two quick modeling questions first just any numbers you could put around the expense shift in the back half year to leverage was really impressive be creative better sense for how much of that was one time and then can you give us any broad strokes on what you're thinking in terms of the tax rate, which is to reporting one from an income statement perspective. Thanks.
Yes, we're not going to talk to the tax rate, just yet and I think we need to get to the point, where we flip that valuation allowance. We don't know exactly when that's going to be just yet, but we know that it's coming here in the in the near future in the last thing I want to do is like I said put a couple of hundred million dollars gained through the the financial statements that surprises everybody in the particular period I think.
It's important to know we're out in front of this we anticipated we've put a tax structure in place that's going to allow us to have a very efficient global tax structuring and grow globally in a very efficient way with a very attractive tax rate. So we've been well in front of this for quite some time in to the point is just to start to put it on your radar.
With respect to the other question sorry remind me what the other question was.
Opex in the back part of the year. So there wasn't a significant impact that moved the needle meaningfully in the second quarter, I mean call it roughly $10 million or so of spend that likely would have shown up in the quarter. It had we not been impacted but I think importantly, the back half of the years, we're going to see a significant ramp.
In the overall spend profile, particularly with G. Seven clinical trials getting going G. Seven scale really taking off and then turning on the DTC spigot.
For the first time and a significant way I think one of the things that maybe is not as appreciated by folks is that historically, we've always been constrained from an inventory position, we exited Q2 and a strong as inventory position that we've been end with respect to GE six in our company's history that allows us to start to open up opportunities like DTC in a significant way.
That we believe can drive growth into the future, so youre going to see that play out.
Spending is going to be significantly higher in the back half when you do your modeling, it's going to be almost a $100 million of spend higher in the back half, we recognize that and realize it but those things that I just indicated are going to be the areas that we primarily focused on in our spending.
And as you imagine reenter the queue. Please press star in line and your Touchtone phone. This top line to me and the Q1 moment.
Lend money.
And driving me CEO line is helping some dampening capital.
Hi.
Misra.
Everyone's okay, I, just want to pick your brain little bit more around the reimbursement for some of this.
Less intensive insulin management patients stever, Kevin can you help out to think about what to index Coms control in terms of what you think you need to do to establish that.
Use case in payment.
Thanks, obviously first and foremost that's to build as Kevin mentioned to build the right products for this patient population. We think the products are going to be different they're not going to have all that there won't be nearly as I want to nearly as robust because that the performance of the underlying center will be the same but having some of the bells and whistles that renewed for the intensive informed population just on apply to type twos.
Software experienced needs to be different.
So those types of things are within our control or even frankly within the control some of our partners that we've talked about right Longo offers a patient experience to their patients United that the level two program as as an experience that we've developed together with United, but it's really a United healthcare.
Patient experience so.
We're not going to theres not going to be a one size fits all here we're going to.
For our own tools, we do offer and tools today, and we're going to enable multiple players in this business to offer the appropriate tools to this patient population because we know it's such a massive opportunity that it behooves us to to make our sensors available to anybody who is a viable company.
And your next question comes with Steven Lichtman from Oppenheimer. Your line is open.
Thank you Hi, guys pointed you could provide some more color on the E. Commerce initiatives that you mentioned are expanding internationally.
Yes, what ways it helped.
In Canada, and now UK during Colgate in terms of driving new patient and and getting started on on CGM.
Well, certainly I think from an access perspective. It just makes it very easy for the patient to be able to find our product available right to on the web.
In their particular country and.
In many ways become something we can scale relatively easily as we choose new countries to take it into and I think that.
When folks are searching are trying to learn about the product and then they have the ability to purchase it.
Right there at their fingertips in in a web platform. It just makes it naturally easier to come onto the technology and I think you see well played out in Canada in terms of record number of new patients. Shortly after we launched at the early success in the UK.
Clearly speaks to the benefit of that the ecommerce platform as well. So I think it's something that we can scale overtime as we take into new countries and it clearly has the benefits with it I think you heard in the prepared remarks, nearly 70% of all of our patients come onto our product for the first time do some sort of either virtual training our.
Line training capability, our in App capability. So the ecommerce platform kind of lends itself very naturally into to that ability to come under the product.
And next question comes to Matt Taylor. Thank you.
Yes. Your line is open.
Thanks, This is actually in for Matt.
Maybe a question on the.
Tcs can you talk little bit about.
Pack that might have on second half growth what's to focus in terms of the patient segments geographically.
Are you able to take advantage of lower at rates to go a little bit more aggressive on that thanks.
Yes, Kevin I'll take that with respect to the AD rates in the spending I don't get too involved and Alan anymore, I leave that to that to the other guys but.
Our team has very targeted with respect to the ads that we develop where we run them when we run them and we have tremendous systems in place. The monitor the leads that come in from those ads, we have again a team in place that if.
Do you watch our at an email us Alon information, we get back to those patients very quickly. They don't wait for several data, it's a matter of hours and we get back to those patients and let them know we are here and we will help them educated aligned get there.
Insurance information their doctor information everything that patient might need.
We do track that spending and where we spend that we tractor results from it and then we invest in those places where we think.
And we'll be better, but we are seeing eye.
Working from home now we see.
It's come adds wherever we we watch television allow more than we used to and I think they've been very successful on our team is is really get at this.
And I would you say from a return on investment perspective, Theres not a better investment that we can make inside these four walls today have been direct to consumer spending.
It's amazing the capability that the team has put together in the targeted effort there.
To drive results.
Thank you ladies and gentlemen, this concludes.
Today's session I'll now turn the call back over to Kevin Sayer for final remarks.
Thank you very much operator, and thanks, everybody again for being on our call today, we saw a headline come across our phones, while we're sitting here what pandemic dexcom.
Rocks here I, just want to tell everybody that we did have a great quarter, but we were affected by this like everybody else our commercial teams.
As a completely changed the way they work and I had a town hall meeting with our team in the Philippines last week in the stories of of some people who literally kept themselves locked up in the city for two months away from their families to help our patients are incredibly inspiring we've all been affected by this and working from homes and.
And it's safe to say like everybody else, we've never experienced anything are planned for anything like this.
But what an amazing six month as companies had in this environment I just want to list a few accomplishments over the last six months and closing today.
And we completed a financing that gives us a balance sheet strength necessary to accomplish all of our long term goals.
We achieved an absolute worldwide worldwide absolute dollars sales growth increase of 240 million us dollars.
During this caddick time are tied to business on the intensive insulin side is demonstrating strength and the outcomes. We always said we'd have with these patients we've waited a long time to execute on this plan and we finally got into the hospital, we think that will be a great market for us our financial performances exceeding all of our plans on the bottom line providing.
Yes, with operating cash to reinvest in our business as we talked about money that we need to spend over the next six months of the year.
RG six satisfaction scores or an all time highs again during this period of chaos.
We have a great products supported by a very dedicated team.
Let's not forget our pipeline G. Seven progress has excellent as I said earlier in the call. The groups working on this project are hitting on all cylinders and there is nothing more exciting index common.
Than the sense of urgency related to a platform change like this as such a monumental effort. We are re doing everything that we do now.
To bring this incredible product to market G. Seven is not the only thing at our pipeline.
We're spending numerous hours talking about these eight nine and 10 and whatever else comes in the future, but we're also making sure. We don't ignore GE six we have numerous product improvements and patient experience improvements with GE six.
That will be out over the next couple of years, we don't ever sit still.
I just completed a series of virtual presentations.
For various groups here at Dexcom and one of the questions. I was asked to answer as why is that company been so successful on I narrowed my answer down.
To a very simple statement.
We provide a solution to a very serious problem and we do it better than anybody else ever has.
As we look to the future. We can continue to do that only we can do a much better than we do it today and we believe we can solve many more problems in the same manner, it's going to Thrilla healthcare community and more importantly, we're going to save.
Patients caregivers healthcare professional and payers time money and we're going to continue to save lives. Thank you everybody.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
All right.
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