Q2 2021 Dexcom Inc Earnings Call
Welcome to the <unk> second quarter, 1 in 'twenty 1 earnings release Conference call. My name is general and I'll be your operator.
For today's call at this time all participants are in a listen only mode. Later, we will conduct a question and answer sector. During the question and answer sector. In if you have a question. Please press Star then 1 on your Touchtone phone. Please note that this conference is being recorded I would now turn the call over to Don Crist in thing you may begin.
Thank you operator.
And welcome to <unk> second quarter 2021 earnings call.
Agenda. This afternoon includes comments on the company's recent performance and strategic initiatives from Kevin Sayer, <unk>, Chairman, President and CEO, Jeremy <unk>, Our Chief Financial Officer, and finally, an update from Quentin Blackford, our Chief operating officer.
Following our prepared remarks, we will open the call up for your questions at that time, we ask analysts to limit themselves to 1 question. So we can provide an opportunity for everyone participating today. Please note that there are also slides available related to our second quarter performance on the <unk> Investor Relations website on the events and presentations page with that.
Let's review, our Safe Harbor statement.
Some of the statements we will make in today's call may constitute forward looking statements. These statements reflect management's intentions beliefs and expectations about future events strategies competition products operating plans and performance all forward looking statements included in this presentation.
In our made as of the date hereof based on information currently available to <unk> com and are subject to various risks and uncertainties and actual results could differ materially from those anticipated in the forward looking statements the.
Factors that could cause actual results to differ materially from those expressed or implied by any of these forward looking statements are detailed in <unk> <unk>.
<unk> annual report on form 10-K, most recent quarterly report on form 10-Q, and other filings with the Securities and Exchange Commission income.
Debt as required by law, we assume no obligation to update any such forward looking statements. After the date of this presentation or to conform. These forward looking statements to actual results.
Additionally, during the call we.
We'll discuss certain financial measures that have not been prepared in accordance with GAAP with respect to our non-GAAP and cash based results in.
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.
Results prepared in accordance with GAAP. Please refer to our tables in our earnings release in 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.
Today, we reported.
Great results for our second quarter with 32% revenue growth for the quarter compared to the second quarter of 2020.
As well as solid execution on our key strategic initiatives that we will discuss throughout the call today.
The $143 million in absolute dollar revenue growth compared to the second quarter in 2020.
<unk> represents the highest quarterly increase index accounts history. We continue to believe that we are early in our story with the potential to drive a far greater impact on global health.
Our growth performance is closely related to the progress we've made to advance access on our CGM systems for people with diabetes.
And because there is often so.
So much misinformation spread about access to <unk> CGM in the field or the cost of our products from people with diabetes.
Let me point out several key points that our investors clinicians in current and potential customers should know we've advanced pharmacy access in the U S where more than 70% of our commercial customers have a monthly out.
Pocket cost of less than $60 per month in nearly 1 third of our customers have zero out of pocket costs for their chief <unk> sensors.
According to <unk>. This is last in the comparable out of pocket costs for our nearest competitor.
The latest research from diabetes market research firm Seagrove partners confirms our conclusion.
<unk> with <unk>, having the lowest customer co pays of the 3 largest CGM suppliers in the U S for customers on intensive insulin therapy, we've significantly expanded coverage for people with intensively managed type 2 diabetes.
With the overwhelming majority of these patients now having coverage from <unk> com CGM in the U S.
We also continue.
New to advocate for equitable access to our CGM supplies for populations that are often underserved as of July 2021. There are now 43 state Medicaid programs, providing coverage for <unk> com CGM, including a growing number of states providing access through the pharmacy channel for both type 1 in type 2 intensive users.
We.
Turning even more on those advocacy efforts in collaboration with several key nonprofit organizations that support the diabetes community.
In June we launched the global movement for time in range to broaden awareness of time in range in its benefits for people with diabetes in their health care providers and we hope that this collaboration effort will lead to future salute.
<unk> from previous CGM access.
Our teams have taken a leading role to drive the removal of administrative barriers that prevent people with diabetes from accessing the benefits in real time CGM.
Along these lines, we are pleased to see the update from CMS in the second quarter to remove the requirement of at least 4 daily finger sticks for Medicare customers.
Solutions this will simplify the CGM on boarding process for both customers and clinicians.
We've also made solid progress internationally building from a position of operational strength to advocate for broader reimbursement per day..6. This initiative is moving forward. According to plan with several geographies publicly announcing enhancements to their coverage.
C J M in the second quarter. Despite these developments in majority of people on mealtime insulin continued to manage their diabetes with finger sticks, even in the U S and a leader in CGM adoption. We continue to believe that the type 1 market remains less than 50% penetrated in the type 2 intensive market is less in 25% penetrated.
So there remains a great opportunity ahead of us even in the markets that we currently serve.
At the same time, we are generating a growing evidence base for the use of <unk> CGM at the ATT D. N. A day industry conferences in June we presented exciting research affirming the benefits of our product platform.
From including the alert 1 trial.
This randomized controlled trial was simultaneously published in the Landsat showing superior health outcomes associated with the use of <unk> CGM relative to our nearest competitors flash glucose monitor. These conferences also featured several presentations on the use of CGM for people with type 2 diabetes.
Including those not using mealtime insulin as well as use in women, who are pregnant used in the hospital setting and even conclusions applicable to health in wireless using CGM data, perhaps the most significant of these presentations was the long awaited readout of our mobile trial, which was also published in the journal of the American Medical Association mobile.
In a rigorous randomized controlled trial assessing the value of <unk> CGM compared to the current standard of care finger sticks for people with type 2 diabetes treated with basal insulin and importantly, the study looked at in a diverse user base representative in the U S population and then assess these people in the primary care in clinical environments with our traditional.
Additionally served.
So what did we see.
We saw a clinically significant <unk> reductions for uses of our decks com CGM systems.
And perhaps even more telling we saw a 16% in time in range increase for the CGM cohort, which is for additional hours per day spent in the target glucose range.
As in other results produced with decks com CGM in decks Com software, we designed the trial with the goal of changing the standard of care for these basal insulin users a group that we believe includes between 3 and 4 million people in the U S alone with these results we feel that mobile index com have the potential to do just that in our teams.
Look forward to driving better awareness in access based on the study outcomes and the Jama publication.
We also made great progress in the second quarter to advance the clinical and regulatory pathway for our next generation <unk> <unk> CGM system at ATT day in June we provided an update on the performance of G..7 drawn from our recent clinical trials.
Based on the data shown we expect that <unk> will continue the excellent clinical and real world performance and reliability that we have established with our <unk> brand and it will do so with several factors that we believe will enhance our customer experience, including a fully disposable sensor and transmitter are redesigned app experience in a market, leading 30 minute warm up.
Period.
RG 7 continues to progress according to our plans during the second quarter. We concluded our U S clinical trial that will support our IC JM filing in our teams have now shifted to processing the data in working toward preparing the regulatory filings.
In addition, we've recently submitted <unk> 7 for CE Mark approval.
As we.
As discussed we believe that this timing in place us on track to begin the G..7 launch by the end of 2021.
These are incredible achievements in advances from the quarter in a nice step forward to fulfill their promise per cent of by our CGM technology and this is just the beginning.
There are several additional areas of progress that Jeremy in Quentin will discussed based.
Obviously, great work of our teams in the past several months so with that said, let me turn it over to Jeremy for a review of our second quarter financial performance Jeremy. Thank you Kevin as a reminder, unless otherwise noted the financial metrics presented today will be discussed on a non-GAAP basis.
Reconciliations to GAAP can be found in today's earnings release as well as on.
On our IR website for.
For the second quarter of 2021, we reported worldwide revenue of $595 million compared to $452 million for the second quarter of 2020, representing growth of 32% on a reported basis in 30% on a constant currency basis as Kevin noted this represents a record for <unk>.
Absolute dollar growth in a quarter year over year U S revenue totaled $462 million in the second quarter compared to $367 million in the second quarter of 2020 representing growth of 26%.
Our momentum in market leadership position in the U S remained strong in we've been very encouraged with the continued interest in CGM in the marketplace.
In place with the combination of greater depth in our sales force solid results from our direct to consumer marketing campaigns in expanded ability to allow for patients and clinicians to trials in <unk> experience. We are beginning to see preliminary results in our effort to further expand our presence into primary care offices in position the company to extend our customer.
International business grew about 58% in the second quarter totaling $134 million, while the second quarter comp benefited from the impact of Covid on our second quarter 2020 results. We saw good sequential growth momentum as the business. Once again achieved a new high watermark. The international growth was broad based across all market.
Base, including core markets like Germany, The U K, Canada, Australia in the Nordic region.
Our shift to the pharmacy channel in sales initiatives in the U S. In our market expansion initiatives internationally are all progressing according to plan driving high volume growth in both regions volume growth for the second quarter came in around.
In the mid 40% range on a global basis.
Perhaps the greatest examples of the international effort during the quarter came from Canada, where we saw public announcements of provincial coverage for <unk> from 2 of the largest Canadian provinces, Quebec, where coverage of <unk> 6 was established for people with type 1 diabetes in British Columbia, which became the first Canadian.
Vince to cover <unk> for people with type 1 diabetes in intentionally managed type 2 diabetes.
These public announcements are representative of our broader strategy to advance access to our technology for people with diabetes, we are leveraging the increasing strength of our operations in driving a meaningful expansion to the total number of patients that we can address via reimburse pathways.
Our second quarter gross profit was $417.1 million or 71% of revenue compared to 64, 1% of revenue in the second quarter of 2020.
We're very proud of the effort that's gone in to these results. The 600 basis points of gross margin expansion is another great validation of the growing efficiencies that we've achieved.
Ways through product design in efficient manufacturing operations. It is these types of efforts that drive the strategic flexibility to expand our addressable market that I just referenced.
Operating expenses were $315.6 million for Q2, 2021 compared to $213 million for Q2.2020. These.
These results from <unk>.
<unk> previously noted in our discussion of our 2021 plans we have several areas of investment that we are pursuing which account for the increase in operating expenses as a percentage of sales relative to the second quarter of 2020. These include the costs associated with our expanded field sales force the pivotal trial in support of our USG 7 regulatory submission the G 7 manufacturing.
We fill up in global direct to consumer marketing our strategic.
<unk> investments have also included our efforts to efficiently scale in lower the cost to serve our customers as we envision a future in which we serve meaningfully more people than we do today, our global business services operations in Lithuania in the Philippines are key examples of those initiatives.
That are driving great customer service, while leveraging our G&A spend.
Operating income was $101.5 million or 17, 1% of revenue in the second quarter of 2021 compared to $76.7 million or 17% of revenue in the same quarter of 2020, the 10 basis point year over year improvement was driven by strong improvements to our gross margin.
During scale, resulting from the design of our products in the manufacturing efficiencies that come there through.
These improvements more than offset the strategic investments that we've made during the year.
Adjusted EBITDA was $156.6 million or 26, 3% of revenue for the second quarter compared to $122.6 million.
Margin or 27, 1% of revenue for the second quarter of 2020.
Net income for the second quarter was $75.4 million or <unk> 76 per share.
We remain in a great financial position closing the second quarter with approximately $2.6 billion in cash in cash equivalents in great financial flexibility to drive our strategic.
Initiatives.
Turning to guidance, we continue to expect solid volume growth across all of our regions in the back half of the year with momentum driven by growing CGM awareness globally based on our second quarter performance. We are pleased to be in a position to once again raise our full year 2021 revenue guidance. We now expect 2021 revenue to be between.
<unk> 35 to $2.4 billion representing growth of 22% to 25% over 2020. This increase comes on top of our expectations for approximately $10 million of unfavorable currency impact in the back half relative to prior guidance.
This revenue increase is primarily a reflection of our continued growth momentum as well.
Well as the ongoing impact of our channel mix in international access expansion strategies.
We will see a greater revenue per patient impact to our existing base from our international access initiatives in the second half of the year, but we continue to expect the incremental volume driven by these efforts to offset those pressures in our base. This year alone more importantly, this will leave us in much better.
<unk> positioned in the years to come.
Turning to margins, we are increasing our full year 2021 targets. This includes non-GAAP results to be approximately at the following levels gross profit margins of approximately 67% operating margins of approximately 14% in adjusted EBITDA margins of approximately 24%.
With that I'll now turn the call over to Quentin for a scale in strategy update thank.
Thank you Jeremy as Kevin in Jeremy indicated we made great progress in our key strategic initiatives during the second quarter. It is hard not to be excited about the market potential for CGM. After seeing the depth of research using <unk> technology at the recent ATB in 88 industry conferences.
We saw well over a dozen presentations from <unk> insulin delivery partners highlighting the clinical utility of their decks Com integrated systems Index comes leadership in the field of interoperable solutions.
Outside of the mobile in alert publications that Kevin mentioned, we also saw several presentations from our decks com team members as well as independent investigators without.
Teams that are very promising for the continued growth in <unk> CGM.
In 1 study presented by our health Economics team, we looked at real world evidence documenting the cost savings for a significant number of patients with type 2 diabetes using G 6 including both the intensive insulin therapy and those who are not treated with mealtime insulin.
Without this were compelling with the magnitude of cost savings generated for the <unk> users being nearly identical to the cost savings we've seen in several of our other pilots.
This is yet another data point supporting the economic benefits associated with the better glucose control for our customers and we are excited to leverage its growing evidenced base into broader access for people with diabetes around the world.
The results.
We also continue to innovate our software solutions to enable differentiated user experiences that meet the needs of the diverse customer bases that we serve.
Most recently in mid July we received FDA clearance on a real time API software solution. This is to our knowledge 1 of the first if not the first real time API clearance in the medical device sector.
That enables integration with third party apps.
As many of you likely know prior to the clearance of our real time API, our various digital health partners were limited to the display of CGM data on a 3 hour delayed basis through a retrospective API.
With this new API partners, who are now invited by Dex com have the ability to integrate real time in <unk> com cgmp.
Into the respective apps and devices. This is another great win for our customers, who will now benefit from the ability to see real time glucose levels in a variety of new displays according to their needs at the time in the approval, we announced garmin in Teladoc <unk> for diabetes program is early users of the new API solution in.
In addition, well.
<unk> debt at Healthcare's level..2 are also utilizing our real time connectivity solutions in the integrated offerings. This is an exciting innovation for us in an example of how we are leveraging our leadership in software connectivity to advance our market position in the growing digital health landscape.
On the commercial front, we remained well positioned to drive growth in broader.
In our market penetration in several locations. In addition to the significant access expansion efforts that we began to implement last quarter to enable multiples of growth in our core markets. We are growing our presence in locations that are relatively new to our team. This includes Japan, where we've recently sent our first shipment of <unk> systems to our local distributor.
Although we have had a minor presence.
In Japan through the use of our chief for professional CGM.
<unk> systems represent the expanded use of our product to serve people with diabetes with our core ambulatory solution.
We are incredibly excited to bring our CGM technology to empower people with diabetes in Japan, and look forward to developing that as a nice growth market for <unk>.
In addition to the strong <unk> 70.
<unk> data showed in <unk> in the clinical and regulatory updates that Kevin provided our operations team is continuing according to plan in our <unk> 7 manufacturing development in scaling efforts.
We have automated lines producing G 7 product as we speak with a steady cadence of additional lines scheduled to be delivered through the back half of this year in throughout 2022.
In addition, the vendors in our supply chain, our scaling up <unk> 7 capabilities alongside us as we sit here today.
We will take what we have learned from these automated lines in San Diego in Mesa in using that quickly replicate in scale in our new manufacturing facility in Malaysia. As we've said before this effort will be critical to our ability to serve significant customer populations in.
We think can benefit from our CGM technology, giving us a clear runway to produce more than 200 million sensors per year in a much stronger presence in a key growth region for us our team is doing a great job to advance our efforts in what continues to be a challenging environment to navigate because of the impact of the pandemic globally.
We are currently building out the manufacturing facility.
While also scaling our supply chain, putting us on track to be ready for production in 2022.
As you can see from our 70% gross margin this quarter, we're making this progress on G..7 while also advancing our efforts towards operational excellence, resulting in even greater improvements in efficiencies to our <unk> 6 manufacturing procurement and distribution capabilities.
These overall as I think Kevin in Jeremy would agree we are very proud of the work of our teams to execute on the ambitious plans that we set forth in 2021.
That I will pass the call back to Kevin. Thanks, Clinton I agree with that message as we are all very pleased for the progress that we made during the quarter.
To be able to raise guidance across the board, including.
Adding another revenue raise was $65 million added to the midpoint of guidance is a great result for the company we're.
We're excited to continue that momentum into the second half of the year.
I would now like to open up the call for Q&A, Sean. Thank you Kevin as a reminder, we ask our audience to limit themselves to only 1 question at this time and then reenter.
The queue if necessary operator, please provide the Q&A instructions.
If anyone has a question grant in Star then 1 on your Touchtone phone. Once again, if you have a question Star then 1 on your Touchtone phone and our first question comes from Robbie Marcus Robbie You go ahead.
Oh, great I want to congratulate you guys on a really nice quarter.
If I can ask you know I think we're all interested in updated she set in approval timing. It sounds like you haven't filed in the U S. Yet and you had a great international number.
<unk> if you could provide just any any examples are tangible examples of how the expansion of benefit is already helping you in how it might continue to help you. The rest of this year in next year.
Well I'll start with G..7 and then I'll, let Quentin and.
Jeremy take over the benefit of expansion.
Now with re.
<unk> 7 we're very deliberate about what we disclose we have filed for CE Mark.
And we are on schedule for that we hit our goal there and we are now gathering the data from the U S. Pivotal study it was a much larger study than the data that was presented.
At.
A TDD however.
Respect tile was run under actually what we think are improved protocols from what we ran before so we have no reason to not expect great data, we believe the product will be very robust.
We will make sure that we deliver that file in a very pristine manner, we hear a lot of things about FDA delays and things of that.
In the treasure.
We don't want to create any delays, it's been our experience over time and we deliver what the FDA expects they moved very quickly in a very cooperative with US. We have no reason to believe the file we're preparing isn't going to meet those expectations. We're moving along those lines. So again with the CE Mark filing we're.
That in a track for in O U S. Launch later this year in we'll update you more in the U S. As time goes on Quinn, Yeah, Robbie with respect to your question or comments on the O U S business look there was strength really across the board in that entire portfolio of ours. So we're very encouraged by what we're seeing there primarily on the heels of awareness.
Just continuing to grow.
To be honest with you I don't think we've seen the benefit yet of the increased access that we spoke to really back in the first quarter and the team has made incredible progress in working with the payers in negotiating these contracts I'd say, we're through 90% or so of those all landing in favorable positions, where we've probably.
Probably increased or improved access for nearly 1 million patients in the first half of the year alone in the U S business, but the reality is that benefit is not going to show up until the back half of the year. So the strength in the second quarter I wouldn't attribute that to the increased taxes, just yet, but we're very excited about how we're positioned as we go into the back half of the year around those access efforts.
Great I appreciate the thought.
Yeah.
And our next question comes from Bob Hopkins I'd go ahead.
Oh, great. Thank you.
Just love you to comment on 2 quick things first Chris I think this is what you were referencing in terms of the access piece, but I just.
If there is any more detail in just how that.
The process of the price cuts in negotiating better access just how you feel that that's going in again I apologize. If that's kind of what you were referencing was that last question.
And then Kevin I'd Love you to just give a quick update on just a little more time has passed since the mobile trial, just curious as to kind.
Curious if you're hearing from in.
Insurance partners or other important parties in terms of the potential impact on that data on facilitating greater reimbursement for a broad range of patients going forward.
Sure. So I'll jump in that first 1 Bob we are talking in the exact same thing there in terms of the fact that we've negotiated or worked through the majority.
Kind of what negotiations through the course of the second quarter more than 90 per cent or so of them behind us all landing in favorable positions relative to improving the access for the patients reducing the administrative burdens that were there.
So the folks that you don't know technology, a whole lot easier so very bullish around where we're at in creating incremental access.
Any of those patients in how that sets up into the back half of the year the pricing assumptions have come right in line with what we expected as we were going into it no surprises there so from our perspective all of those very positive on that front.
And Bob with respect to the mobile study obviously, we're very excited about it just a little time has passed here we.
Also.
I have a bunch of other analyses on this data that are coming that will support our position on basal insulin reimbursement for these patients. It's time to get the word out now I think 1 of the big areas here is going to be CMS discussions down the line because a lot of these patients found in the Medicare bucket havent done any of that yet, but we are looking forward in where.
Preparing because this data is just really is very very strong.
Thank you.
And our next question come from Jess.
Hey, Jeff.
Yes, thanks, good afternoon guys.
Just staying on maybe the international.
Side for a second Jeremy you know last quarter, you talked about $50 million incremental headwind from Clinton's comments. It sounds like maybe those really haven't started to flow in yet. So do we think about that $50 million a headwind kind of a next 12 month number or is that how to think about it and then those initial 200 million headwinds that we kind of were expecting.
National ended this year, the first quarter kind of straight lined in right at about 50 did it straight line again in in the second quarter at about the 50 on the U S died in still thinking about the international than 50 over the next 12 months. Thanks guys.
Sure. So the full year, the full year guidance around pricing or channel mix headwinds is still the same in so the.
<unk> hundred million on what we call the original.
Shift in mix, primarily in the U S.
It is still the same in in the second quarter. It came in a little bit lighter than the first quarter, but generally in line.
I think we're seeing that stable when we talked about at the beginning youre being pretty stable throughout the course of the year.
To your point on the international incremental headwinds about the access for.
The choice.
<unk>.
That has started is back half loaded we certainly will have some of those in the first half of next year as we anniversary some of those contracts or the $250 million. We talked about was really the impact on 2021 in so youll see the $50 million in the back half of the year, there will be a little of that into 2022, we will get more into that in the future.
But that will happen over a 12 month period.
Thank you.
And our next question comes from Matthew O'brien go ahead Matthew.
Afternoon, Thanks for taking the question.
I know traditionally <unk> been pretty conservative with our.
Our outlook, but I think Jeremy you said that pricing concessions are going to be impactful in the back half, but as I look at the model in the back half of the year is easier comps in the first half in you just put up a monster Q2, especially in the U S. So is there something specifically you are trying to call out as far as incremental pressure in the back half of the year that we should.
Should be aware of thank you.
Yes, no. Thanks for the question certainly nothing that we're trying to call out I think when we thought about guidance, we certainly talked about the performance in the first half of the year in certainly thinking about that patient base in how that plays out for the balance of the year.
So that's contemplated in the guidance in look we raised the guidance $65 million at the midpoint.
$75 million when you exclude the impact of currency. So we have certainly raised it in pass through some of that for the balance of the year as we think about the back half of the year, we simply don't want to get ahead of ourselves.
We talked about the impact in you pointed out the international access, but theres still as Covid out there in the Delta variant is out there in so rather than increase it in get bullish in get ahead of ourselves.
Sales, we want to see how it plays through for the balance of the year. We do here in this is out there outside the U S where primary care physicians are taking their practice in and ultimately using their time to administer vaccinations, while we've done a great job navigating through those thus far this year.
We do want to be prudent in make sure that we are contemplating in look if we can deliver more.
More than that we certainly will and we will talk to it if we are able to.
Thank you.
Okay.
And our next question comes from Matthew Blackman go ahead Matthew.
Good afternoon, everyone. Thanks for taking my question Jeremy I, just I was curious about the second half cadence in whether we should be thinking.
Sort of a typical third quarter or fourth quarter cadence or where are we sort of at the point or approaching the point, where things like increasing pharmacy access may make the year somewhat less <unk> weighted as we've seen historically any help there would be appreciated. Thanks.
Yes, sure absolutely happy to take it so the way to think about Q3 in by default Youll back into Q4.
Thinking about Q3 generally is not that impacted.
Bye bye changing in shifts in dynamic in fact, I think for the past few years, we've generally seen it right around that 26% of full year revenue and we expect the same to happen. This year. So I think that'll help you at least think about Q3 in in the balance of the year, we do expect Q4 to have.
Or are awaiting you saw it in Q1 as a result of the move to the pharmacy, where the year gets a little bit less seasonal I think you would expect the same in Q4, where you don't have folks in the <unk> channel rushing to meet benefits. So I do think youll see as we've talked about before as we make move more in moving more and more moves to the pharmacy less less heavy weighting on Q.
Have less light weighting on Q1 in and start to move out of that seasonality, but hopefully it gives you some context on Q3 in the near term. We do expect Q3 to mirror that of prior periods, which is generally in that 26% seasonality.
In.
And our next question comes from Matt Taylor Head Matt.
Thank you.
So I wanted to ask 1 on the margins here.
I'll ask it is you showed significant progress Quentin you talked about a lot of the.
Scaling in automation activities, you're doing in these facilities has the.
Results that you've had so far in being able to raise guidance changed your view on the longer term potential from margins at all to the positive versus the <unk>.
Yes, what I would say is look our confidence level continues to increase in our ability to keep it in that mid <unk> range that we've guided to long term is there the opportunity.
In north of there over time, if so you can bet on it that we're going to flow that through and give that up if possible, but look we're in the midst of evaluating a lot of different potential business models. As you look at the whole type 2 non intensive space as it opens up we're looking at the international business continue to expand in a significant way pharmacy access continues.
To grow all of these things are going to continue to put a bit of pressure on the gross margin profile, but if you saw the way that we were able to take cost out of the product from a design perspective and improve the process efficiencies around manufacturing this year.
Your confidence level only increases in where we can keep that gross margin over time. So we're incredibly excited by what we're seeing.
A lot of that doesn't contemplate the fact that over time, you'll probably see us move into a 15 day where cycle on the product itself. In so there is significant benefits that come there also so again a bit back to Jeremy's point earlier. This is not in area that we're going to get ahead of ourselves, but we feel like we have the flexibility we need to to really get after the market opportunities that present themselves.
Deliver a very attractive gross margin profile in this business.
Great. Thanks for the Collins in congrats on a good result.
Thanks, Matt.
And our next question comes from Margaret cash door go ahead Margaret.
Hey, good afternoon, guys. Thanks for taking my question.
And still that I wanted to follow up a little bit on the real time API guys got approval for in it seems like to me like it could be 1 in the next evolution for the business. So I was curious if you could talk to us how important it is today versus 3 years from now what it can facilitate both clinically and commercially in I guess just to round it.
It's been the reaction from the potential partners to the API so far.
Yeah, well, maybe I'll start with your reaction in reaction has been incredibly positive I think folks understand and desire to see the real time information coming into their tools in being able to put that into the hands of the patients. The more real time that information is the more reactive the patient.
Can be to that information and improve their outcomes over time in I think we're incredibly bullish in the sense that we believe we have the capability in our platform to build these tools off of and Thats exactly where we want to be we want to provide as much input to these tools as we possibly can and work with as many partners as is possible I think from the very beginning with.
What set a bit of a different approach to the value of information data and software in particular in what Youre seeing play out right now as part of that vision that we've had there in the approval of the realtime API, we've invested heavily in the ability to produce this capability.
We understand the importance of interoperability the <unk>.
We are always putting information in the hands of the patients.
<unk> com is in Youre going to continue to see us invest in that area and really use it as a differentiator.
<unk> of how that evolves into the future in.
Our opportunity to create value in that monetization of the data stream or the real time API. Those are all things, we'll evaluate over time.
Important is not our strategy today today, it's all about improving outcomes for patients that's going to show up in the way of incremental sensor sales over time in we're very happy with that approach, but it leaves us with some great flexibility.
Great. Thanks.
And our next question comes from Steve.
Please go ahead Travis.
Hi, congratulations on a good quarter.
I know you've talked about the <unk> 7 here in the back half in just curious if you could put some context on expectations for how we should think about that launch in which countries. If you're willing to share that in and you've also got probably $40 million to $50 million <unk> 6 centers that you are making a year and Jess.
Just curious what you're going to do with AG fixed capacity as G 7 launches.
That's a great question I'll take that 1.
We're not going to give you color on the specific countries because we don't want to for competitive reasons, we don't want to release the playbook, but we are on track for that in.
As we look going forward it.
Interesting question for us in 1 for us to debate, how do we use our <unk> capacity, while we're bringing up to 7 lines at the same time because the 2 don't don't intersect. We believe we will have a market for <unk> for quite some time.
While we're going to do a global launch in go very quickly there will be in places where G..7 isn't going to be available immediately.
<unk> you can take a while to catch up on the automated insulin delivery side, we're working with them now on June 7, but we've got we've still got some G..6 room to go there and there are some countries, where we arent yet or some geographies, where we need to get started where we can offer <unk> in those areas, while we sell a <unk> 7% in others. So we aren't we are planning this.
Part 1 of our areas are great debate.
And I think we'll manage as best we can we wont be bashful.
<unk> taken down <unk> 7 is ready to go in.
A home run in we think it's going to be.
And we've got several in all fairness Quentin and his operating team along with our R&D guys have developed some absolutely.
This is calculated manufacturing methods for <unk> 7 that can give us a tremendous amount of flexibility to expand there very very quickly.
And in very thoughtfully. So we'll monitor that very very closely that's what really good.
Question and something we think about a lot here.
Our next question comes from Danielle and tell fee go ahead Danielle.
Hi, good afternoon, everyone. Thanks for taking the question.
So everyone's congrats on a really strong quarter.
I'm not sure from your question is for but it's on the DTC initiative you guys had a very successful Super Bowl.
AD campaign.
If theres any way to quantify what youre seeing from a return perspective, yet I mean this quarter was in the exceptionally strong to me I'm wondering if we're seeing any benefit from that not sure. If you can even tell or if you can tell us, but if so we would love to hear even qualitative feedback there. Thanks so much.
Sure.
<unk> will take that question in.
I think theres, probably 2 data points that we can give you that will help you get your arms around the feedback were seeing first off Q2 was a record quarter for new patient adds so we're continuing to see record new patient adds no doubt in many ways driven by the work we're doing around DTC in sales force as well as samples.
So I think that's certainly a data point that's helpful. The other pieces is over the past 18 months, we've doubled the active prescribers of our product in.
And in no doubt as we get out in we get into the field in C. Endocrinologists, but also primary care physicians. The work we're doing around expanding that access has yielded really incredible benefits for the amount of prescribers.
Scrubbers that are out there that are 1 aware in 2 prescribing our product.
Those 2 things are just clear indications of the investments, we're making in the awareness in the DTC in the sales force is paying off and hopefully that gives you. Some context of course looking at the quarter's revenue performance also helps as well. So those are all data points I think really give you some color.
2 why do we think it's still in incredible investment in why we think the returns still are some of the best in the business.
And our next question comes from Jason Bedford Go ahead, Jason.
Thanks, just a quick 1.
I wanted to get back to the gross margin line of questioning what weighs on gross margin in the second half of the year to get to the 67 for the year is.
It is in international pricing is the buildup in Malaysia, and just if you can comment on it seems like a large portion of these costs may be transitory.
<unk> there would be helpful.
Sure Yeah. So there's 2.
There's 2 that are the biggest is the first 1 is some of the international pricing Youre correct. In some of that plays through we will have a little bit of pressure in margin.
The other 1 is the launch of <unk> when we launched <unk> in those lines will be at full capacity in it will be at full yields just like when we launched <unk> 6 in.
Any color in the automation around <unk> 6 in took a little bit of time to work through some of the Kinks on these automated lines in while we still expect incredible output.
Right out the gate thats going to cost us a little bit more in so I think what youre seeing is some of the international access, but then when we launched <unk> in those lines start depreciate the cost of producing those in that shorter period are going to be.
We launched <unk> to your question is that transitory all the work that the team is doing around the capability of manufacturing at high capacity as well as high yields all of that will bounce back in play through in this quarter is any demonstration of how good. They are you can see the margins that you see this quarter have shown that this team does an incredible job.
Of yielding out these lines over time, and we expect that to turnaround with <unk> into the future, but there will be some time as we launched <unk> 7 as we get those lines up in running where there will be a little bit of wage is similar to what we had with <unk> that we're going to have to navigate through but again I think we're still super bullish on the capability and we're super proud of the team in really expecting that team to.
To do an incredible job as we launched <unk> 7.
And our next question comes from Wan in 1 go.
Go ahead Joanne.
Thank you and nice quarter too.
2 questions.
Or any stocking in the quarter either in the U S Army.
U S market and then you gave us sort of a blended volume price a number could you sort of parse it out for the U S. In for the international sales dynamic. Thank you.
Yes, so there was no stocking in the quarter nothing out of the normal.
Everybody was at normal levels in terms of your question.
<unk>.
On a blended number I'm not sure what you're referring to certainly we have a price dynamic of around the $250 million when we say price, it's really more channel.
We want to make sure we're very clear its really that shift in channel as well as the international <unk>.
Excess we also talked about unit volumes in I'm not sure if youre referencing that but our unit.
Volumes on the quarter the growth year over year, we're in the mid 40% range in so certainly a strong unit volume growth quarter. So hopefully that answers your question.
And if you have any other certainly follow up we can happy to be clear I have to clarify actually is from unit volume number that mid 40%, that's what I might call a blended number what is that number in the U S in international.
We don't break it out that's our global number but we can tell you that the growth on unit volume was strong in both the U S and outside the U S.
Okay. Thank you very much.
Okay.
And our next question comes from Steve Lichtman go ahead, Steve.
Thank you hi, guys Kevin.
Kevin you talked about momentum in intensive type 2.
Do you think U S penetration into that market can go over the next few years are there any hurdles to drive penetration are you feeling good now where awareness in payer coverage are to continue to drive penetration there.
We feel very good about coverage, we have there on the commercial.
<unk> side, it's it's up over 80% of the intensive type 2 patients are now covered for commercial payers plus the Medicare coverage. So we have that covers a number of these patients already so access for these patients is it going to be a problem. It's now all about awareness.
We went in double the size of our sales force.
At the beginning of this year. So we get access in more primary care physicians, who do see a lot of the insulin using type 2 patients.
And we've seen great results from that team we've had a huge increase in in a number of prescribers of our product over the course of this year. So that is a big win for us it's about getting to them in in explaining.
Tim when technology is available we think this market will be every bit as penetrated as type 1 at some point in time, we view it as a very strong opportunity.
Great. Thanks, Kevin.
Our next question comes from Anthony Petrone go ahead Anthony.
Great.
Great. Thanks, congratulations great quarter in hope everyone's doing well in a team maybe a quick 1 on Malaysia in <unk> 7 is it safe to assume G..7 will exclusively in manufactured out of there and if so what does that mean for the margin of that product and then maybe a quick update on in integrated device partnerships.
Control IQ in and eventually Omnipod 5 just how you see those partnerships in those product cycles evolving over the next 24 months.
Yeah, I'll speak to the Malaysia question, Kevin I'll jump on the last part of that with respect to Malaysia, It will not be exclusive.
You said it will not be exclusive to that location, we will start with G..7 here in the states both in San Diego in Mesa is a matter of fact lines are there as we speak in will continue to ramp up there in the back part of this year in into next year as well.
As Malaysia. It comes online in the buildings up out of the ground in we validated the clean room in the capability there will.
Good to build out the G 7 capability, there as well so.
We will have <unk> 7 in both locations over time, that's going to give us an opportunity to produce north of 200 million sensors altogether in when you think about the distribution of those sensors in where they are going both in the U S. In internationally speaking.
It makes a lot of sense to continue to have a capability here in the states as well.
We will be data, particularly when you start to look at the logistical distribution costs associated with moving in that product around in the volumes that we're talking so it will exist in both locations.
I do think over time, the lower cost profile will come out of that Malaysia business. That's a big part of the value proposition there, but that's going to let us serve a lot of those international markets very effectively in.
In Malaysia.
And with respect to the integrated systems. We're very excited for these opportunities are actually made it in in the field last week. There is a whole bunch of pent up demand for.
Omnipod 5 people, who are very ready for it they've been ready for it for a long time in we're looking forward to that day as well on the tandem side, we know they're working.
On new products and have new projects.
I think the best thing.
I can talk about with tandem is just a recent story.
I got a note on my computer somebody wanted to give me a Facebook message in it was personally told me. It spent 22 years on Medtronic systems.
And is now 10 in my <unk>.
Control IQ index com in his never.
Never been healthier never handle Oreo in C never had better he said in my whole life has changed because this system is amazing. So we believe the integrated systems driven by decks com sensors are game changers people get accurate sensors information that can take these sophisticated algorithms in.
And make proper decisions, we're very bullish and optimistic on the.
These opportunities going forward very excited.
Thank you.
Our next question comes from Ravi Misra go ahead Robby.
Hi, Thanks for taking my questions just on the decks Com API can you talk a little bit about how you chose some of the partners.
In both if I understand the long ago.
Of course, but with Garmin and then just more on that.
Walk us through kind of how you envision this being separate or integrated with clarity in the future.
Just curious why this is for industry, rather than kind of providers itself.
Yes. This is Kevin.
That clarity piece with a live API the patient's CLS around in the decks com app in the background. So the data will go straight to clarity in it will be be there as is now the better question is will we ever have a clarity type system for those who don't have the same needs as intensive insulin users in I think over time Youll see us migrate.
Our tools so that platform. Hence you heard these guys talk about software investments over the last half of the year in as we look at 2022, we see the same we are quickly becoming a software company. In addition to our sensor company in it is very exciting there keeping you want to weigh in in terms of the partners. I mean, you think about the Teladoc Levonne goes you know diabetes.
These program in the United Health.
Well Doug in Garmin. These are partners that we've had established relationships with in the past.
There is a little bit of integration work that goes into providing the real time API in the connection into their systems. These are the easy ones out of the gate that really sync up with in get the program's going.
But I think the important thing is we want to be a foundation that we can provide this sort of information into many programs out there and really improve the outcomes for the patients themselves in I don't think we can be better positioned to be able to do that right now so incredibly thrilled with where it's at and expect more partners to be lining up.
Our next question comes from Murray Tivo go ahead Murray.
Thank you congrats in a nice quarter in thanks for the time today.
Just a quick follow up I think on the comments around the sales force I know that you doubled the sales force. This year. So just wanted to get an update on where they are in their productivity ramp I know, we typically think of at least 6 to 9 months.
With book to get to a more normal productivity levels. So I'd love to hear kind of a status update on that thank you.
I think youre right on target it does take about 6 to 9 months for everybody to get up to speed. The 1 thing we are seeing if I can just give you 1 trend, though as we.
Try and expand our coverage into the.
In to the PCP.
Where we haven't been before there's a lot of work.
We haven't been there in as we knock on doors. It's taken these guys a while to get appointments once they get in we're finding the physicians who are not in a whole lot about the ex com.
And if anything we've totally validated our assumptions in this expansion we had to.
Get out there we had to get more feet on the street in more phases to be as competitive as we wanted to in to achieve our goals.
Thank you.
And our next question comes from Brian I made.
Go ahead, Hi, this is actually Kyle rose.
From Canaccord.
Officers.
Just wanted to obviously you've made some big investments on the commercial side this year.
Quint.
DTC doubling the sales force in the Trialing.
I understand if you had to call. It maybe 1 of those is a bigger driver rather than the other.
Which 1 would it be just trying to understand how far.
In accord.
Realizing some of the productivity gains from the sales force and we might really be seen from the primary care channel.
Yes, I can take that so at first.
These all really needed to be done in conjunction but the immediate 1 that you get returns on is obviously awareness in awareness comes in many forms in factors, but clearly through DTC.
Far in I think at this point they all go hand in hand, because youre, making folks aware youre getting out into the physician's office Youre, making the physician aware certainly through your rep.
Through the through the Hello decks Com program people are getting the opportunity to trial. It in so we all we did them altogether. So maybe early out the gate DTC was the immediate shot in the arm, but at this.
Point Theyre, all really contributing in conjunction and so that's the way we think about it.
Over the longer haul you think that's feet on the street are going to be incredibly important as these physicians need to have relationships with folks in conjunction with all the other offerings that we provide we have to validate that over time, Kevin referenced it was we get in front of these doctors were educating them but.
I would think about it is DTC was the immediate is the immediate more quick return, but I think at this point theyre all contributing equally.
And we have no more questions at this time I would like to turn it back to Kevin Sayer for closing comments.
Thank you very much and thank you everybody.
I waited for participating in in listening to our earnings report today.
In summary, this was a quarter of tremendous accomplishment just under $600 million in revenue for this quarter with our highest ever absolute revenue dollar increase when compared to the previous year's quarter our worldwide field in access expansion efforts are working.
Everybody equally in the way, we planned positioning us very well for the rest of 2021 in beyond 70% gross margins. During a period of continued planned annual revenue per patient reductions to increase global access for all diabetes customers near record operating income.
During a period of increased investment in what I believe is the most robust.
Is that pipeline we've ever had.
These are in progress continues very important measurable milestones have been achieved on schedule. This quarter and there is nothing like being around here as we approach the deadline is just energizing.
In other projects here made great progress as well and finally, we are laying the groundwork for our future.
Product growth, where they're repeatable fact based clinical evidence.
This technology will have a major impact in health care all over the world.
Thanks, everybody and have a great day.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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