Q2 2022 Dexcom Inc Earnings Call

July 28, 2022

Welcome to the <unk> Com second quarter 2022 earnings release Conference call. My name is Darryl 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 session. During the question and answer session. If you have a question. Please.

Zero one on your Touchtone phone as a reminder, this conference is being recorded I will now turn the call over to Sean Christensen, Sean you may begin.

Thank you operator, and welcome to <unk> second quarter 2022 earnings call. Our agenda begins with Kevin Sayer, <unk>, Chairman, President and CEO , who will summarize our recent highlights and ongoing strategic initiatives, followed by a financial review and outlook from Jeremy <unk>, Our Chief Financial Officer.

Following our prepared remarks, we will open the call up for your questions at that time, we ask analysts to limit themselves to one question. So we can provide an opportunity for everyone participating today. Please.

Please note that there are also slides available related to our second quarter performance on the <unk> Com 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 are made as of the date hereof based on information currently available to <unk> com are subject to various risks and uncertainties and actual results could differ materially from those anticipated in the forward looking statements.

That could cause actual results to differ materially from those expressed or implied by any of these forward looking statements are detailed in <unk> annual report on Form 10-K.

Recent quarterly report on Form 10-Q, and other filings with the Securities and Exchange Commission.

Except as required by law, we assume no obligation to update any such forward looking statements. After the date of this presentation or to conform. These forward looking statements to actual results. Additionally, during the call we will discuss certain financial measures that have not been prepared in accordance with GAAP with respect to our non-GAAP and cash based results unless otherwise noted all <unk>.

References to financial metrics are presented on a non-GAAP basis.

The presentation of this additional information should not be considered in isolation or as a substitute for results or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and the slides accompanying our second quarter earnings presentation for a reconciliation of these measures to their most directly comparable GAAP financial measures.

Now I'll turn it over to Kevin.

Thank you Sean and thank you everyone for joining us.

Today, we reported another strong quarter for <unk> com with second quarter organic revenue growth of 16% compared to the second quarter of 2021.

Momentum for global CGM adoption remains high and we once again achieved worldwide record new customer starts in the second quarter. Following some disruption early in the year related to the Omicron wave office access has continued to improve and we experienced a return to a more normalized customer journey, which helped us deliver this record.

Customer satisfaction also continues to reach new levels as our U S. Net promoter score hit another all time record in the second quarter, our customers value the differentiated experience at <unk> Com provides with consistent praise for our real world accuracy connectivity actionable features and customer support.

Product performance has been a hallmark predicts come throughout our history customers and caretakers alike rely upon the accuracy of <unk> CGM and can be confident in performance across all aspects of glucose management backed by numerous clinical trials and born out by real World experience.

We have long viewed software as an avenue to differentiate enabling unique user experiences supporting greater connectivity and enhancing our ability to move more seamlessly into new markets.

In support of this vision, we have invested significantly in building our software infrastructure in recent years and now spend more of our R&D budget on software than hardware.

A tangible example of this can be found on our rollout of <unk>.

This product Leverages, our <unk> hardware and will use RG seven platform in the future, but uses software to provide a different experience in our G series systems. This has allowed us to meaningfully expand our market presence in recent months entering new markets and winning tenders internationally that were previously not available to our G series product.

This is just the beginning of our journey on leveraging software to create products that meet the needs of our end users.

Our software infrastructure has also positioned us to be the partner of choice for technology companies looking to build new and innovative experiences around CGM data. Our list of real time API partners continues to grow as we are the only company that can provide partners real time CGM data in an FDA regulated solution.

Our software capabilities are also laying the foundation for our success beyond the intensively managed population.

For example, two partners focus on use of CGM for weight management, and metabolic health signals and levels helped have clinical trials underway that are leveraging our real time API capabilities. We are excited to see the outcome from these trials as they provide a glimpse into the future for CGM technology that could serve as a much broader end market.

And today.

The second quarter saw a number of strategic accomplishments in the international markets that continue to strengthen our competitive position.

Demand continues to grow for our portfolio of CGM systems, <unk> <unk> and we've made significant strides in both direct and distributor markets to broaden access to our technology, we launched <unk> com one of both Spain, and the UK and have secured reimbursement for key segments of the population opening large parts of these mark.

<unk> had previously lacked reimbursement for <unk> CGM.

We also announced a partnership with Roche to distribute <unk> in Italy. This relationship will allow us to leverage Roche is well established commercial infrastructure to bring <unk> to a much larger Italian market.

In Australia, the government recently committed to providing subsidize access to our <unk> system for all people living with type one diabetes, which is a significant improvement in coverage and a great win for Australians deserving access to CGM technology.

Our limited launch of <unk> seven in the U K continues to be met with significant enthusiasm from our customers who have provided consistently positive feedback on product size ease of use the shorter warm up time, the app experience and more many customer shared that they will often forget they were even wearing the G. Seven during the recession and indicators.

They can't wait to continue wearing the product full time in the future.

The period has proven to be incredibly valuable, allowing us to assess the functionality of the sensor an app in a real world setting and providing feedback on ways to refine our support system to make the broader rollout of streamlined as possible we.

We are excited to get <unk> seven in the hands of more customers and plan to expand our launch in the third quarter starting in the U K.

In the U S. Our five 10-K submission for <unk> seven remains under review at the FDA as part of this process, we are making a subtle change to the G. Seven software based on feedback from the FDA slightly delaying our expected timelines for clearance and U S launch, we expect FDA clearance in a limited launch later this year and a large commercial launch in.

In the U S in the first quarter 2023.

Encouragingly, our preliminary discussions with payers are progressing very well they understand why this product will mean for our customers and people with diabetes broadly, giving us increasing confidence in the ability to ramp up commercial coverage quickly.

Finally, we were very proud to showcase our expanded CGM portfolio at two of the largest diabetes conferences of the year <unk> in Barcelona in 88, New Orleans.

These events provide us an opportunity to connect with thought leaders across the diabetes space and we continue to see a clearer consensus on real time CGM being the standard of care in diabetes management, and a growing appreciation of the health and economic benefits of extending the use of this technology beyond the intensively managed population, including the broader type two part.

Emulation and used in the hospital between these two events there were dozens of presentations abstracts and posters highlighting success stories of CGM to date on what the future could hold for this technology.

I started attending diabetes conferences, almost 30 years ago.

Look back to even two or three years ago. These types of conversations around the broad potential of CGM were nonexistent now has become very apparent that CGM data will become the basis of where diabetes management and glucose control in the future is headed we're very.

We're excited about the opportunity to add for decks com and with that I'll turn it over to Jeremy for a review of the second quarter financials Jeremy.

Kevin as a reminder, unless otherwise noted the financial metrics presented today will be discussed on 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 2022, we reported worldwide revenue of $696 million.

Which included $12 million of unfavorable foreign currency impact this.

This is compared to $595 million for the second quarter of 2021, which represents growth of 16% on an organic basis.

We have slightly changed our definition of organic revenue based on feedback from our stakeholders to exclude currency and acquisition related revenue and the trailing 12 month period volume growth for the second quarter came in around the mid 30% range on a global basis.

U S revenue totaled $511 million for the second quarter compared to $462 million in the second quarter of 2021 representing growth of 11%.

Customer demand remains strong in the U S and our unit volume growth continued to grow at a very healthy clip this quarter relatively in line with recent quarters.

We have been launching a number of new tools for our salesforce in the U S that leverage technology to make each physician visit more efficient and effective.

These tools and form our team fought each doctor is prescribing. The makeup of their payer mix and even comparative out of pocket costs for each customer.

Data can make each visit more impactful and help us continue to address the competitive that still exist in the market.

We continue to see an ongoing impact revenue growth from our strategic shift to the pharmacy channel, but as discussed previously we believe this will ultimately set us up to serve meaningful more customers over time.

International revenue grew 39% totaling $185 million in the second quarter organic revenue growth was 34% for the second quarter.

Our positive momentum continued this quarter as the number of global initiatives, we implemented in the past year has significantly improved our competitive position in international markets in.

In addition to the <unk> com, one new market wins, Kevin highlighted before we also continued to drive greater reimbursement in our initial launch countries in eastern Europe This quarter.

While we previously announced that patient reimbursement in Bulgaria in Estonia, Latvia, and Lithuania have now established full or partial reimbursement for individuals with type one diabetes. This is a great example of how our CGM portfolio strategy can help us enter completely new markets and be a catalyst for access.

Through new product launches and reimbursement efforts over the past 18 months, we are happy to share that we have increased the reimbursed access to a product by more than 3 million customers and look forward to getting this much needed technology in the hands of as many people as possible our.

Our second quarter gross profit was $449 5 million or 64, 6% of revenue compared to 71% of revenue in the second quarter of 2021.

Given the initial launch of <unk> seven in the U K. This is the first quarter were $2 seven development costs started to flow through Cogs accounting for some of the expected year over year step down in gross margin. Additionally, there were greater than 50 basis points of impact from currency in the quarter. Our second quarter gross margin was a nice step up from the first quarter and Lee.

US on track to hit our margin targets for the full year.

Operating expenses were $347 6 million for Q2 of 2022 compared to $315 million in Q2 of 2021.

Similar to last quarter, we generated meaningful operating expense leverage despite incremental investment to support the G. Seven launch.

We saw opex as a percentage of sales this quarter dropped by 310 basis points year over year as we continue to leverage our R&D and G&A expense lines operating income was $101 9 million or 14, 6% of revenue in the second quarter of 2022, compared to 101 5 million or <unk>.

Seven 1% of revenue in the same quarter of 2021 is.

As a tough year over year gross margin comp was partially offset by operating leverage in the quarter.

Adjusted EBITDA was $175 5 million or 25, 2% of revenue for the second quarter compared to $156 6 million or 26, 3% of revenue for the second quarter of 2021.

Net income for the second quarter was $69 5 million or <unk> 17 per share.

We remain in a great financial position closing the quarter with approximately $2 $8 billion worth of cash and cash equivalents. This provides us the flexibility to continue to invest in our organic growth opportunities, including the ongoing buildout. This year of our Malaysia manufacturing facility.

And to assess any compelling strategic investments that present themselves along those lines, we announced today $700 million share repurchase program, which will allow us to offset the dilutive impact from our 2023 convertible notes. We are always assessing the best uses of our capital and given the recent market pressure. We view this as a great time to invest.

In our own business as we remain incredibly bullish on the sizable opportunity ahead for <unk> com.

Turning to guidance, we are updating our full year 2022 revenue guidance to a range of $2 86 to $2 nine.

I'm 1 billion for.

For margins, we are reaffirming our prior full year guidance of gross profit margins of approximately 65% operating margins of approximately 16% and adjusted EBITDA margins of approximately 25%.

This guidance factors in a significant uptick in currency headwinds relative to the expectations, we shared a quarter ago.

We now expect around $40 million of foreign currency headwinds for the full year relative to our prior estimate of around 15% to $20 million with that I will pass it back to Kevin. Thanks.

Thanks, Jeremy as I look at this quarter, our underlying fundamentals remain incredibly strong.

We experienced another quarter of solid volume growth achieved worldwide record new customer starts recorded our highest ever customer satisfaction rating.

These results were before any material contribution from G. Seven.

We expect to improve the customer experience in every way.

We advanced our CGM portfolio outside the United States with a wider rollout of <unk>, helping us reach more reimbursed lives and serving more new customers for.

<unk> seven the feedback from our limited launch in the UK has been fantastic, leaving us incredibly excited for a broader global launch in the coming weeks and in the U S. We now have clear visibility to the finish line on June seven clearance.

Preliminary payer discussions are setting the stage for a big launch early next year. Despite.

Despite all the macroeconomic challenges that exist today runaway inflation supply chain challenges FX headwinds, we reiterated our margin guidance continue to have no delivery delays across our business and remain committed to driving additional operating leverage in the coming years.

And finally, we announced a $700 million share repurchase plan today. This will allow us to offset the dilutive impact of our 2023 convertible notes and also provides us an opportunity to send a clear message. We're betting on ourselves in the mass opportunity ahead of us we're optimistic as we've ever been about our future.

With that I'd 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 one question at this time and then reenter the queue if necessary operator, please provide the Q&A instructions.

And if anyone has a question you can price zero on your Touchtone phone once again.

It's zero one on <unk>.

Touchtone phone.

And our first question comes from Robbie Marcus from Jpmorgan go ahead Robby.

Great. Thanks for taking the question.

It was when you file that in <unk>.

Last year you had a.

A pretty high degree of confidence in.

The completeness of the filing.

So one wondering if we could get a little more on what it is with the software what you have to change and how different it is going to be from the European version.

Gives you that level of confidence in how to think about U S sales growth until we get a G. Seven launch thanks.

Robbie This is Kevin I'll take the the G seven questions.

Software revisions relate to the management of the alerts and alarms and the USAF.

To add some questions about some of the things that we've done and put in it.

We discuss several options that we had we decided the best option at this time was to revise the software.

And pilot differently and we've added a few other.

Features to it.

As well based on our discussions with them. We're in the middle of revising the software for that and have to run it through that complete validation and verification process and resubmit.

We're not done with it yet, but we're working very quickly to get done with that and Thats really our big major issue, we've talked through everything else. We did have a strong level of confidence and we still do and our relationships our discussions with the <unk> seven.

The one thing we figure it out as we've gone through this process as we changed absolutely everything we changed the algorithm we change the insertion techniques, we can change every manufacturing.

Procedure that we have and completely rewrote the entire app in the software experience, which is a lot for them to digest a lot for us to submit.

If I look at learnings for us over time, I think we'll probably do things a little more incrementally.

Forward, rather than as big as this one was and we can get things through faster but.

Sure.

We're in a good spot, where we have a lot of clarity as to where we need to go going forward and I'll, let Ravi and all the growth issues regarding <unk>, because we're still doing extremely well at that profit product Ravi. Jeremy go ahead, Yeah, Hey, How're you doing Robyn. Thanks for the question. So in the U S look the quarter here, we had about 11% growth.

That's generally due to some of what we talked about in prior quarters us getting into physician's offices.

Those new patients didn't hit those record levels, you ultimately see that recur in recurring business models, such as ours. It plays through well gives us a lot of confidence for the back half of the year is Q2 was a record and were back on that record track and we do expect strength for the rest of the year to the point, where we expect U S growth rates to accelerate.

Q3, and Q4 as we come off of this quarter, where we see these record new patient starts and quite frankly, we expect to have record new patient starts going forward for the balance of the year, even without <unk>. So hope that gives you that question, we're very confident in <unk> and obviously, we're even more confident in G seven months that launches.

And our next question comes from Jeff Johnson from Baird Go ahead, Jeff.

Thank you Kevin I, just want to go back.

On your comments about revising some of the software on the alerts and alarms on the G. Seven products. So it sounds like to me Youre still in the process of that but I think you also said in your prepared remarks that you were comfortable that you would still have a limited launch in the fourth quarter.

And our polo launch in the first quarter of 2023 in the U S. So one can I just confirm that's what you said to do you have some better certainty on all the other aspects of the filing from the FDA that gives you that ability to draw that line in the standard at least where does your confidence on that timeline. Thank you.

We do have greater certainty on the other components of the filing.

With the FDA, we've talked to all the other questions and things that we've discussed and we're very very comfortable with that so really the.

Outstanding major item is revision and filing of the revised software after we validated and verified all of that so we are very very comfortable with that and yes. What I did say is we are anticipating a limited launch in the fourth quarter in the U S and in the fall on rollout in early in the year in 2023.

One of the things as as in my prepared remarks is we're very bullish about the progress we've made with the payors as far as getting the G. Seven reimbursed because they can see how important it is going to be.

For our patient base. So on the one hand, while we have the delay in the approval and.

And the launch that none of us we'd all like to be faster. The other thing we're seeing on the other side. There is a lot of cooperation in the payer community and just in the channel and getting this thing positioned for reimbursement very quickly. After approval. So we can get the launch out and not too different of a timeframe on a reimbursed basis from what we expected in the beginning.

So those two factors together again.

As to where we think we are.

And our next question comes from Margaret Kaiser from William Blair Go ahead Margaret.

Hey, good afternoon, guys. Thanks for taking the question.

I wanted to maybe dive a little bit further into that kind of a new patient add growth.

And as we get into that.

23, as well, but.

Any details you can give in terms of how it looks like with <unk> pizza intensive than others and if there have been any changes I guess in the last 12 months.

Alright, thank any harder or easier.

What kind of effort you guys put in place.

Reaccelerate.

Meaningfully the patient yet.

Thanks.

Sure I can answer that and thank you for the question.

What we saw and I think this is we've really talked about it as we found our folks are most effective when they're able to get into physician's offices.

That's always been the case and it's continued to show itself time and time again and so what we've found is it rises all tides once we're able to do so but the predominance of where our new patient adds are coming if you want to if you want to kind of see what the more accelerate its really in the type two intensive space as.

As we get into more primary care physicians offices. These are folks who have called on really for the first time as we've expanded our sales force in 2021 getting there in person has really unlocked that market and Thats. What you continue to see and so now our focus is and we talked about it a little bit in the prepared remarks now that were in these offices a record new patient quarter this quarter certain.

That's encouraging but we're also seeing that all of these tools that have been put in place means every call. Every visit every time, we're in the office, we're able to be more effective about what might be the prescribers decision, making around that particular patient and through doing that whether it's debunking myths around co pays and what the out of pocket is and making sure folks.

The cost whether it's the ease of use and showing folks that a majority of our patients are able to put it on and use either.

<unk> online our simple training in the box ultimately put it on their body. What we're really finding is we're breaking down all of those myths out there and our sales force continues to get more and more effective. So we're going to continue to do that over time, and we're seeing that continue to play out as better prescriber patterns more prescriptions per provider and more providers coming over to prescribing decks com. So all.

Those are playing out which is what gives us confidence for acceleration in the U S. In the back half of the year.

And our next question comes from Joanne Wuensch from Citigroup go ahead Joanne.

Good evening or afternoon. Thank you.

I'm just curious about some of the reimbursement landscape and things, which may or may not have changed.

Where do you think reimbursement is for Paul.

And are you seeing any other changes as it relates to prior authorization.

One product versus another or anything else that really should be aware of thank you.

Thanks, Joanne Yeah, I can take the question. So in terms of basal we continue to make progress there. So as you think about where we're having the conversations the conversations are both on the government in the U S CMS as well as the U S commercial providers, we're having conversations with both in our access team has submitted the data they have.

Submit both clinical data economic data as well as clinician recommendations and so we are going through those conversations. So it has been submitted discussions are ongoing timing is hard to peg in all of these but we are continuing to advance. It forward in terms of conversation. So that's Basil will certainly be as that progresses forward. We will continue to give you line of sight.

As to how that goes in terms of other areas so existing coverage in areas around prior authorizations, where otherwise we havent seen a lot of that now there are occasionally plans that have a prior authorization pop up or pull out our goal is through all of the renegotiations that take place to limit those prior authorization and as we continue to show how CGM can improve patient.

The outcomes, it's becoming very very clear that prior authorizations.

We see we see payers starting to pull those down overtime better way to put it and so we continue to expect to see it and keep pushing that we have not seen a material change in any form of factor in fact for the most part we see them coming down and we will expect to see that over time in the intensive space.

Our next question comes from Matthew O'brien go ahead, Matt.

Great. Thanks for taking the question.

Can we just.

As I look at the stock down 18% in the aftermarket that $6 billion ish and loss of market cap.

Even a little bit more than that so I think it'd be helpful. I don't know if the reduction of the top line guidance from 20 down to 19 or maybe it's a little bit more largely because of G. Seven but I'm thinking it's like $60 million headwind, maybe something like that this year versus not getting the approval. So is it about a 100 million.

Or is that incremental pressure youre going to see next year and not having the approval earlier. This year that you can't get all the marketing activities have been going next year.

How do we frame up.

Some of this modest delay it seems like on the payer side things are better, but just <unk>.

What this modest delay may do to the top line as we look forward.

Sure I can talk about at least for 2022 and how it operates and we can maybe not get too too much into 2023, but it can help that conversation. So a lot of the guidance and the pull down of guidance is related to currency. So it's not necessarily related to <unk>, 7% and the timing associated with that.

So as you look at where we're going and where we've pulled that down currency has out, especially outside the U. S has played a large impact on reported growth rates and that's one of the reasons why we've shifted in how we talk about organic growth as you zoom back into the U S. The G. Seven delay does have a little bit of an impact on guidance and so certainly we would recognize that we had some impact in there in <unk>.

Soon with launch.

The longer term impact is really determined on how fast we get commercial coverage and how fast we can roll it out and so what we believe is by working alongside our coverage teams and trying to get access as fast as possible and while we're working through getting formal approvals partnering with folks to get quicker accessing quicker coverage. We believe we can.

Work on getting those patients back in quicker and faster to where we don't believe it's going to be a material impact on 2023 and beyond and so a little bit in 2022, certainly put out a little bit of tick in 2023, but for the most part we're doing all the work now to make sure that we have a major launch where it doesn't impact longer term growth rates.

And our next question comes from Jayson Bedford from Raymond James Go ahead, Jason.

Yeah.

Good afternoon, just two questions that require quick answers.

Just a clarification I get the sense that it.

It was a record.

Patient starts in both the U S.

Okay and worldwide if you could just.

Confirm that and then the second question is you mentioned expanding G.

Seven launch.

In Europe over the coming weeks I wasn't clear whether you are going into new countries or is this just more expensive than the UK.

Yes. This is Kevin I'll start yes, it was record new patients.

And in our U S markets as well both teams.

Had new patient add records during this quarter with respect to the rollout of <unk> seven in Europe . What we had indicated was our first of all that will be in the UK and we expect to realize in other geographies before the end of the year.

And our next question comes from Travis Steed from Bank of America go ahead <unk>.

Hey, Thanks for taking the question one quick clarification, the pricing mix versus volume growth. This quarter and then as you look ahead to next year.

Like with the volume.

Revenue growth start to match up a bit more and I'm thinking about the basal opportunity is that an opportunity where youre going to have to lower price to get the volume or the basal pricing probably pretty similar to the intensive market. Thank you.

Sure. So I can take those questions.

In terms of pricing and what I'd say is more channel mix, but the delta between the two it was about the same this quarter as it was in prior quarter, which is what we had signaled at the start of the year, we still expect to migrate in the U S channel as you move more <unk> a pharmacy that continues as expected and then we had the O U S pricing, where we took down pricing in <unk>.

Range for access we expected that to run through the end of Q2 before we lapped our strategy. So it's all gone and aligned with expectations. It was right around $70 million on the quarter in terms of in terms of basal and beyond.

Look basal coverage, we believe is out there in terms of what the pricing is.

At this point a lot of the conversations are about category coverage and currently category coverage is already relatively defined defined in pricing today and so what that means is it could be the same but would we be willing to talk to folks about increasing access in exchange for price, we would absolutely entertain the conversation to have to make sense for us for both.

Returns that we would expect on our performance as well as for our shareholders, but nothing to this point has indicated it would be lower however, we understand that as more and more folks get access we will be having those conversations.

And our next question comes from Marie Thibault from <unk> go ahead Marie Hi.

Hi, good evening, thanks for taking the questions I wanted to go back to something Kevin said earlier about the new software and App experience for the patient.

<unk> seven in the U S can you give us a hint of how meaningful that new app experience might be for patient willingness to try the G. Seven just switch to the G. Seven what it might do for patient demand. Thank you.

One of the best features of the limited launch in the UK has been getting feedback on the software and people absolutely love the App.

From the very beginning when you start is much easier to fire it up and get on the system and understand what CGM is going to do for you and how it's going to work. So for a new user. This is a much much easier experience and much much easier start the <unk>.

Or what is your what is your favorite and what is your worst thing about <unk> six and the two are warm up as very frequently comes up was what came up and so this half hour warm up is going to be a feature but the software itself.

In addition to the typical graph.

The sensor reading in the arrows. We also have clarity clarity data built into the App that gives you a feedback about how youre doing over one day three days seven days or even a month.

So someone can go down and look and see exactly how theyre doing and what their their trends are how much time. They are spending in range. So it's much more of a full experience for somebody in their diabetes care and our patients.

I would like to tremendously we'll be ready to go on Android and iOS and launch we're not going to hold either of them back.

Other thing with the App and it's not really on the App and it's a feature of this product that's been very well accepted as well I didn't talk much about we have a new receiver coming.

The patients absolutely.

Loved and are using it very well and while I figured when we went through the phone in the beginning everybody would immediately migrate to the phone theres, a very large percentage of our customers who use that receiver they will be greatly enhancing their experience by going to the extra receiver with us and the good news front as well that new.

A receiver while a better experience is a much lower cost offering so.

I will get stuck there on the App.

And our next question comes from Matthew Blackman go ahead Matthew.

Good afternoon, everybody. Thanks for taking my question.

International growth did step up even though you had a tougher comp is that the broader GE seven rollout next come one some combination of those two.

I'm also really curious about.

About Germany in particular, where.

Where I think you are going head to head versus the newest sensor from your competitor just any commentary.

That sort of geographic performance within that international number thanks.

Sure, Yes, we can absolutely answer that and it's interesting <unk>, one and <unk> seven really haven't contributed all that much to this point. So certainly its an exciting future contributor and we're very very bullish on both <unk> and the opportunity index Com one.

<unk> really is in the bell countries and Hasnt contributed all that much in <unk> with limited launch and so what Youre seeing is G. Seven with a more meaningful launch and decks com, one with a more meaningful launch and bigger countries in Q3 and beyond so what you saw in Q2 was really a continuation of our access and going deeper into countries, where we had our G series and.

Really it was broad based and it's a continuation of broad based performance outside the U S really across all of our countries, including Germany, where we do go head to head with Libre three and so I think I think what you can say is that business is doing incredibly well and theres new catalysts to ultimately support it for upcoming periods. So we are very excited about that.

International business and like I said in countries, where were going up head to head with our competitors. Most recent product we continue to do very well and take share so very very bullish on our opportunity going forward.

And our next question comes from Josh Jennings from Cowen Go ahead, Josh.

Hi, This is Brian here for Josh are you currently seeking or planning to seek CE Mark approval for the software changes, you're making in the U S and if so could you share the projected timeline there. Thanks for taking the question.

We already have the software are approved for CE Mark in Europe , and we do not plan on implementing the changes that we're putting into the USAF will consider that over time will we have the app in the software configured to whereby we can launch the product with what we're doing in Europe to sell it and support it there and if we feel.

Need to in some period of time, we can implement those changes into the.

Other software and upgrade patients apps on the phone, but not immediately now.

Our next question comes from Steven Lichtman from Oppenheimer Go ahead Steven.

Thank you hi, guys.

As you are moving.

G seven to full launch in the U K, where you now also have that come one I'm just wondering how will those two offerings the marketing relative to each other should we assume that over time.

Any sort of emerge and with <unk>, becoming the primary hardware. There obviously, that's going to happen in more and more countries over time, So I'm wondering if.

And if you could talk to your thoughts on that thanks.

No I appreciate that question, we launched <unk> com one.

In Europe , and we're launching in the UK because there are many reimbursement opportunities we've not been able to participate in our G series <unk> six and <unk> seven products are regarded as very high end sensors for intensive insulin management integration with insulin pumps a lot of pediatrics the share of the follow the other features that have made us our products.

<unk> to our users the <unk> app.

It doesn't have many of those features it's much more simple and it falls into a different reimbursement category. Many of these geographies in the U K for example, our decks com one system will literally be will go through the pharmacy channel for broad based distribution and broad based accessibility for everybody, whereas our G series.

It requires more documentation of our approval in very specific conditions as we look at these geographies. We think we have an opportunity with <unk> to sell a different product and a different system with different features that really won't step over onto our G series that is fully integrated with other systems and offers all of these other features ultimately as I said on the.

Call, where one of our <unk> product to be on the <unk> platform as well as we simplifies our operating simplify our operating structure over time, but that will take a little while and so <unk> kind of one platform. We think will do very well and our initial user feedback has been very good the software for <unk> I would also add is.

Been designed on the same platform as the G. Seven software so it looks and feels a little more much more like G. Seven.

Then it does G. Six so our users will have a great experience there as long as there are two reimbursement categories. We do not see these two products coming together from a reimbursement perspective, they might look more like physically.

And beyond the same platform once we get <unk>, seven and enough capacity to transfer to the other decks come onto that platform, but they won't be the same experience won't be reimbursed at the same rates.

And our next question comes from Larry <unk> from Wells Fargo Go ahead Larry.

Hi, This is Nathan on for Larry can.

Can you comment on what drives the margin improvement in the second half given the launch of <unk>, how should we think about margins in 2023.

Sure, Let me talk about the second half and we won't get too too much into 2023, specifically other than we all have with our long range plan is 65%.

And so that's the way, we generally think about things in terms of the back half of the year typically what happens is as we go typical seasonality as we go through the course of the year part of this has to do with who's ultimately purchasing the product margins typically get better.

Now that was thrown on its head a little bit and as we were launching <unk> seven when we had some timing things about when that would launch and in what countries that would go into so whats you are finding is as for the first half of the year.

We obviously had a few different unique items that impacted margins, which were really finding is the run rate for our margin for the first half of the year absent. These was just below 65% back half of the year, we expect it to be just the opposite just north of 65 as we hit that typical seasonality, we will have a little bit of pressure from the launch of <unk> outside the U S.

However that will clearly be offset through the <unk> throughput that you ultimately see and the reason the tick up in the back half of the year in some ways is due to with the <unk> launch in a meaningful way outside inside the U S. Sliding into Q1 of next year, you do see that performance on that <unk> platform, which continues to have nice margins play through over the course of the rest of the.

A year. So we have a lot of confidence 65% for the year, even despite all of the macroeconomic conditions.

We have no more questions at this time I will turn it back to the speakers for closing comments.

Well again, thanks, everybody for participating on the call one of the great things Thats happened in the second quarter has been my own ability to get out and talk and meet with people going to Ava and also some other conferences, where I've spoken and I've never seen decks com are respected and more visible than we are now.

Our customer satisfaction scores as I talked earlier have never been higher and Thats. What you hear in real life people are absolutely thrilled with the performance of our product and the problem that we solve for them.

It's never been a better time here, we have a number of <unk> launches coming out over the next few quarters on top of that with <unk> seven as well, both presenting great revenue and growth opportunities for us.

And our operations are running very efficiently smoothly, everybody have a great day and thanks for participating on the call.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

Okay.

Yeah.

[music].

Welcome to the decks Com second quarter 2022 earnings release Conference call. My name is Carol 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 session. During the question and answer session. If you have a question. Please press zero.

One on your Touchtone phone.

As a reminder, this conference is being recorded I will now turn the call over to Sean Christensen, Sean you may begin.

On information currently available to <unk> are subject to various risks and uncertainties and actual results could differ materially from those anticipated in the forward looking statements.

Factors that could cause actual results to differ materially from those expressed or implied by any of these forward looking statements are detailed in <unk> annual report on Form 10-K, most recent quarterly report on Form 10-Q, and other filings with the Securities and Exchange Commission.

Additionally, during the call we will discuss certain financial measures that have not been prepared in accordance with GAAP with respect to our non-GAAP and cash based results unless otherwise noted all references to financial metrics are presented on a non-GAAP basis.

Now I will turn it over to Kevin.

Thank you Sean and thank you everyone for joining us.

Today, we reported another strong quarter for <unk> com with second quarter organic revenue growth of 16% compared to the second quarter of 2021.

Momentum for global CGM adoption remains high and we once again achieved worldwide record new customer starts in the second quarter. Following some disruption early in the year related to the Omicron wave offers access has continued to improve and we experience a return to a more normalized customer journey, which helped us deliver this record.

Product performance has been a hallmark for <unk> com throughout our history customers and caretakers alike rely upon the accuracy of <unk> CGM and can be confident in performance across all aspects of glucose management backed by numerous clinical trials and born out by real World experience.

We have long viewed software as an avenue to differentiate enabling unique user experiences supporting greater connectivity and enhancing our ability to move more seamlessly into new markets and.

In support of this vision, we've invested significantly in building our software infrastructure in recent years and now spend more of our R&D budget on software than hardware.

A tangible example of this can be found in our rollout of <unk>. This.

This product Leverages, our <unk> hardware and will use our <unk> platform in the future, but uses software to provide a different experience in our G series systems. This has allowed us to meaningfully expand our market presence in recent months entering new markets and winning tenders internationally that were previously not available to our G series product.

This is just the beginning of our journey leveraging software to create products that meet the needs of our end users.

Our software infrastructure has also positioned us to be the partner of choice for technology companies looking to build new and innovative experiences around CGM data.

Just a real time API partners continues to grow as we are the only company that can provide partners real time CGM data in an FDA regulated solution.

Our software capabilities are also laying the foundation for our success beyond the intensively managed population.

And today.

The second quarter saw a number of strategic accomplishments in the international markets that continue to strengthen our competitive position.

Demand continues to grow for our portfolio of CGM systems, <unk>, six <unk>, seven and <unk>, one and we have made significant strides in both direct and distributor markets to broaden access to our technology, we launched XCOM one in both Spain, and the UK and have secured reimbursement for key segments of the population opening large parts of these mark.

<unk> had previously lacked reimbursement for <unk> CGM.

In Australia, the government recently committed to providing subsidized access to our <unk> system for all people living with type one diabetes, which is a significant improvement in coverage and a great win for Australia, and preserving access to CGM technology.

Our limited launch of <unk> in the UK continues to be met with significant enthusiasm from our customers who have provided consistently positive feedback on product size ease of use the shorter warm up time, the app experience and more many customers sharing that they will often forget they were even wearing the G. Seven during the recession and the indicators.

They can't wait to continue wearing the product full time in the future.

We are excited to get <unk> seven in the hands of more customers and plan to expand our launch in the third quarter starting in the U K.

In the U S. In the first quarter 2023, encouragingly, our preliminary discussions with payers are progressing very well they understand when this product will mean for our customers and people with diabetes broadly, giving us increasing confidence in the ability to ramp up commercial coverage quickly.

Finally, we were very proud to showcase our expanded CGM portfolio two of the largest diabetes conferences of the year <unk> in Barcelona in New Orleans.

Population and used in the hospital between these two events there were dozens of presentations abstracts and posters highlighting success stories of CGM to date on what the future could hold for this technology.

I started attending diabetes conferences, almost 30 years ago.

Back to even two or three years ago. These types of conversations around the broad potential of CGM or nonexistent now has become very apparent that CGM data will become the basis of where diabetes management and glucose control in the future is headed we're very excited about the opportunity to add <unk> com and with that I'll turn it over to Jeremy for a review of the <unk>.

Quarter financials, 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 our IR website for.

For the second quarter of 2022, we reported worldwide revenue of $696 million, which included $12 million of unfavorable foreign currency impact.

This is compared to $595 million for the second quarter of 2021, which represents growth of 16% on an organic basis, we have slightly changed our definition of organic revenue based on feedback from our stakeholders to exclude currency and acquisition related revenue and the trailing 12 month period volume growth for the second quarter.

Came in around the mid 30% range on a global basis.

U S revenue totaled $511 million for the second quarter compared to $462 million in the second quarter of 2021 representing growth of 11%.

Customer demand remained strong in the U S and our unit volume growth continued to grow at a very healthy clip this quarter relatively in line with recent quarters.

We have been launching a number of new tools for our salesforce in the U S that leverage technology to make each physician visit more efficient and effective.

These tools and form our team fought each doctor is prescribing. The makeup of their payer mix and even comparative out of pocket costs for each customer. This data can make each visit more impactful and help us continue to address the competitive that still exist in the market.

International revenue grew 39% totaling $185 million in the second quarter organic revenue growth was 34% for the second quarter.

Our positive momentum continued this quarter as the number of global initiatives, we implemented in the past year has significantly improved our competitive position in international markets in.

In addition to the decks com one new market wins, Kevin highlighted before we also continued to drive greater reimbursement in our initial launch countries in eastern Europe This quarter.

Through new product launches and reimbursement efforts over the past 18 months, we are happy to share that we have increased the reimbursed access to our products by more than 3 million customers and look forward to getting this much needed technology in the hands of as many people as possible.

Our second quarter gross profit was $449 5 million or 64, 6% of revenue compared to 71% of revenue in the second quarter of 2021.

US on track to hit our margin targets for the full year.

Operating expenses were $347 6 million for Q2 of 2022 compared to $315 million in Q2 of 2021.

Similar to last quarter, we generated meaningful operating expense leverage despite incremental investment to support the <unk> launch.

We saw opex as a percentage of sales this quarter dropped by 310 basis points year over year as we continue to leverage our R&D and G&A expense lines.

Operating income was $101 9 million or 14, 6% of revenue in the second quarter of 2022 compared to $101 5 million or 17, 1% of revenue in the same quarter of 2021 and.

As a tough year over year gross margin comp was partially offset by operating leverage in the quarter.

Adjusted EBITDA was $175 5 million or 25, 2% of revenue for the second quarter compared to $156 6 million or 26, 3% of revenue for the second quarter of 2021.

Net income for the second quarter was $69 5 million or <unk> 17 per share.

We remain in a great financial position closing the quarter with approximately $2 8 billion worth of cash and cash equivalents. This provides us the flexibility to continue to invest in our organic growth opportunity, including the ongoing build out this year of our Malaysia manufacturing facility.

In our own business as we remain incredibly bullish on the sizable opportunity ahead for <unk> com.

Turning to guidance, we are updating our full year 2022 revenue guidance to a range of $2 86 to $2 $91 billion for.

For margins, we are reaffirming our prior full year guidance of gross profit margins of approximately 65% operating margins of approximately 16% and adjusted EBITDA margins of approximately 25%.

This guidance factors in a significant uptick in currency headwinds relative to the expectations, we shared a quarter ago.

We now expect around $40 million of foreign currency headwinds for the full year relative to our prior estimate of around 15% to $20 million with that I will pass it back to Kevin. Thanks.

Thanks, Jeremy as I look at this quarter, our underlying fundamentals remain incredibly strong.

We experienced another quarter of solid volume growth achieved worldwide record new customer starts recorded our highest ever customer satisfaction rating.

These results were before any material contribution from G. Seven.

We expect to improve the customer experience in every way we.

We advanced our CGM portfolio outside the United States with a wider rollout of decks com, one helping us reach more reimbursed lives and serving more new customers for.

Preliminary payer discussions are setting the stage for a big launch early next year. Despite.

And finally, we announced a $700 million share repurchase plan today. This will allow us to offset the dilutive impact of our 2023 convertible notes and also provides us an opportunities and declare message we're betting on ourselves in the mass opportunity ahead of US we are optimistic as we've ever been about our future.

With that 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 one question at this time and then reenter the queue if necessary operator, please provide the Q&A instructions.

And if anyone has a question you can press zero one on your Touchtone phone. Once again question is zero one on your Touchtone phone.

And our first question comes from Robbie Marcus from Jpmorgan go ahead Robby.

Great. Thanks for taking the question.

It was when you file G certain.

Last year you had.

At a pretty high degree of confidence in.

And the the completeness of the filing.

So one wondering if we could get a little more on what it is with the software what you have to change and how different it is going to be from the European version.

It gives you that level of confidence in how to think about U S sales growth until we get a <unk> seven launch thanks.

Robbie This is Kevin I'll take the the G seven questions.

This software revisions relate to the management of the alerts and alarms and the U S. App.

<unk> had some questions about some of the things that we've done and put in it.

We discussed several options that we had we decided the best option at this time, we have to revise the software and.

And pilot differently and we've added a few other.

Features to it.

As well based on our discussions with them. We're in the middle of revising the software for that and have to run a truly complete validation and verification process and resubmit.

The one thing we figured out is we've been through this process as we changed absolutely everything we changed the algorithm we change the insertion techniques. We can change every manufacturing.

A procedure that we have and completely rewrote the entire app in the software experience, which is a lot for them to digest and lot for us to submit.

If I look at learnings for us over time, I think we will probably do things a little more incrementally.

Forward, rather than as big as this one was and we can get things through faster but.

Sure.

We're in a good spot, where we have a lot of clarity as to where we need to go going forward and I'll, let Ravi and all the growth issues regarding <unk>, because we're still doing extremely well with that profit product on that Ravi. Jeremy go ahead, Yeah, Hey, How're you doing Robyn. Thanks for the question. So in the U S look the quarter here, we had about 11% growth.

That's generally due to some of what we talked about in prior quarters us getting into physician's offices and as those new patients didn't hit those record levels you ultimately see that recur in recurring business models, such as ours. It plays through will gives us a lot of confidence for the back half of the year is Q2 was a record of more.

Back on that record track and we do expect strength for the rest of the year to the point, where we expect U S growth rates to accelerate in Q3 and Q4 as we come off of this quarter, where we see these record new patient starts and quite frankly, we expect to have record new patient starts going forward for the balance of the year, even without <unk>. So hope that gives you that question we're very.

Confident in <unk> and obviously, we're even more confident in <unk> seven once that launches.

And our next question comes from Jeff Johnson from Baird Go ahead, Jeff.

Thank you Kevin I, just want to go back.

On your comments about revising some of the software on the alerts and alarms.

On the G. Seven products. So it sounds like Youre still in the process of that but I think you also said in your prepared remarks that you were comfortable that you would still have a limited launch in the fourth quarter.

And a full launch in the first quarter of 2023 in the U S. So one can I just confirm that's what you said to do you have some better certainty on all the other aspects of the filing from the FDA that gives you that ability to draw that line in the sand or at least where does your confidence on that timeline. Thank you.

We do have greater certainty on the other components of the filing.

With the FDA, we've talked to all the other questions and things that we've discussed and we're very very comfortable with that so really the.

And early in the year in 2023.

One of the things outside of my prepared remarks is we're very bullish about the progress we've made with the payors as far as getting the G. Seven reimbursed because they can see how important it is going to be.

For our patient base. So on the one hand, while we have the delay in the approval and.

And the launch that none of us we'd all like to be faster. The other thing we're seeing on the other side.

There is a lot of cooperation in the payer community and just in the channel and getting this thing positioned for reimbursement very quickly. After approval. So we can get the launch out and not too different of a timeframe on a reimbursed basis from what we expected in the beginning so those two factors together again.

As to where we think we are.

And our next question comes from Margaret Kaiser from William Blair Go ahead Margaret.

Hey, good afternoon, guys. Thanks for taking the question.

I wanted to maybe dive a little bit further into that kind of a new patient add growth just because it's important as we get into 'twenty three as well.

Any details you can give in terms of how it looks like with <unk> pizza intensive than others and if there have been any changes I guess in the last 12 months.

Alright, thank any harder or easier.

What kind of effort you guys put in place.

Reaccelerate.

Meaningfully the mutation that thanks.

Sure I can answer that and thank you for the question.

What we saw and I think this is we've really talked about it as we found our folks are most effective when they're able to get into physician's offices.

As we get into more primary care physicians offices. These are folks who have called on really for the first time as we've expanded our sales force in 2021 getting there in person is really unlocked that market and Thats. What you continue to see and so now our focus is and we talked about it a little bit in the prepared remarks now that were in these offices a record new patient quarter this quarter certain.

And the cost whether it's the ease of use and showing folks that a majority of our patients are able to put it on and use either.

Training online are simple training in the box ultimately put it on their body. What we're really finding is we're breaking down all of those myths out there and our sales force continues to get more and more effective. So we're going to continue to do that over time, and we're seeing that continue to play out as better prescriber patterns more prescriptions per provider and more providers coming over to prescribing decks com. So all.

All of those are playing out which is what gives us confidence for acceleration in the U S. In the back half of the year.

And our next question comes from Joanne Wuensch from Citigroup go ahead Joanne.

Good evening or afternoon. Thank you.

I'm just curious about some of the reimbursement landscape things, which may or may not have changed.

Where do you think reimbursement is for them and are you seeing any other changes as it relates to prior authorization or one product versus another or anything else that we really should be aware of thank you.

Both clinical data economic data as well as clinician recommendations and so we are going through those conversations. So it has been submitted discussions are ongoing timing is hard to peg in all of these but we are continuing to advance. It forward in terms of conversation. So that's Basil will certainly be as that progresses forward. We will continue to give you line of sight.

As to how that goes in terms of other areas so existing coverage in areas around prior authorizations or otherwise, we havent seen a lot of that now there are occasionally plans that have a prior authorization pop up or pull out our goal is through all of the renegotiations that take place to limit those prior authorization and as we continue to show how CGM can improve patient.

Outcomes, it's becoming very very clear that prior authorizations.

We see we see payers starting to pull those down overtime better way to put it and so we continue to expect to see an accumulation that we have not seen a material change in any form of factor in fact for the most part we see them coming down and will expect to see that over time in the intensive space.

Our next question comes from Matthew O'brien go ahead, Matt.

Great. Thanks for taking the question.

Can we just.

As I look at the stock down 18% in the aftermarket.

$1 billion ish and loss of market cap.

Even a little bit more than that so I think it'd be helpful. I don't know if the reduction of the topline guidance from 20 down to 19 or maybe it's a little bit more largely because of G. Seven but I'm thinking it's like $60 million headwind, maybe something like that this year versus not getting the approval. So is it about a 100 million.

The incremental pressure youre going to see next year and not having the approval earlier. This year that you can't get all the marketing activities have been going next year.

How do we frame up.

This modest delay it seems like on the payer side things are better, but just frame up what this modest delay may do to the top line as we look forward.

It would launch.

Work on getting those patients back in quicker and faster to where we don't believe it's going to be a material impact on 2023 and beyond and so little bit in 2022, certainly put out a little bit of tick in 2023, but for the most part we're doing all the work now to make sure that we have a major launch where it doesn't impact longer term growth rates.

And our next question comes from Jayson Bedford from Raymond James Go ahead, Jason.

Okay.

Good afternoon, just two questions that require quick answers.

Just a clarification I guess.

And it was a record.

<unk> starts in both the U S.

<unk> if you could just.

Confirm that and then the second question is you mentioned expanding G.

Seven launch.

In Europe over the coming weeks.

Or whether you are going into new countries or is this just more expensive than the UK.

Yes. This is Kevin I'll start yes, it was record new patients.

And in our U S markets as well both teams.

New patient add records during this quarter with respect to the rollout of <unk> seven in Europe . What we had indicated was our first of all that will be in the U K and we expect to realize in other geographies before the end of the year.

And our next question comes from Travis Steed from Bank of America.

Hey, Thanks for taking the question one quick clarification, the pricing mix versus volume growth. This quarter and then as you look ahead to next year.

Starting to see volume and revenue growth start to match up a bit more and I'm thinking about the basal opportunity is that an opportunity where youre going to have to lower price to get the volume or the basal pricing probably pretty similar to the intensive market. Thank you.

Sure. So I can take those questions.

In terms of pricing and what I would say is more channel mix, but the delta between the two it was about the same this quarter as it was in prior quarter, which is what we had signaled at the start of the year, we still expect to migrate in the U S channel as we move more <unk> a pharmacy that continues as expected and then we had the O U S pricing, where we took down pricing in <unk>.

For access we expected that to run through the end of Q2 before we lapped our strategy. So it's all gone and aligned with expectations. It was right around $70 million on the quarter in terms of in terms of basal and beyond.

Look basal coverage, we believe is out there in terms of what the pricing is.

And our next question comes from Murray Tebow from BTG go ahead Marie Hi.

Hi, good evening, thanks for taking the questions I wanted to go back to something Kevin said earlier about the new software and App experience for the patient.

<unk> <unk> seven in the U S can you give us a hint of how meaningful that new app experience might be for patient willingness to try the <unk> seven the switch to the G. Seven what it might do for patient demand. Thank you.

One of the best features of the limited launch in the UK has been getting feedback on the software and people absolutely love the App.

From the very beginning when you start is much easier to fired up and get on the system and understand what CGM is going to do for you and how it's going to work. So for a new user. This is a much much easier experience and much much easier to start the <unk>.

Other thing that's very obvious and the software is another feature that our patients love it as a 30 minute warm up that actually ends up being about 25 minutes. Once you put the sensor on I was speaking with a patient just last week and asked are what is your what is your favorite and what is your worst thing about <unk> six and the two are warm up as very frequently comes up was what.

It came up and so this half hour warm up is going to be a feature but the software itself.

In addition to the typical graph in the end.

The sensor reading in the arrows. We also have clarity clarity data built into the App that gives you a feedback about how youre doing over one day three days seven days or even a month.

I would like to tremendously we'll be ready to go on Android and iOS and launch we're not going to hold either of them back.

Other thing with the App and it's not really on the App and it's a feature of this product that's been very well accepted as well I didn't talk much about we have a new receiver coming.

The patients absolutely.

Loved and are using it very well and while I figured when we went to the phone in the beginning everybody would immediately migrate to the phone theres, a very large percentage of our customers who use that receiver they will be greatly enhancing their experience by going into an extra receiver with us and the good news front as well that <unk>.

Receiver, while a better experience is a much lower cost offering.

So.

Ill get stuck there on the App.

And our next question comes from Matthew Blackman go ahead Matthew.

Good afternoon, everybody. Thanks for taking my question.

International growth did step up even though you had a tougher comp is that the broader GE seven rollout next Tom one some combination of those two.

I'm also really curious about.

About Germany in particular, where I think you are going head to head versus the newest sensor from your competitor just any commentary.

And that sort of geographic performance within that international number. Thanks.

<unk> really is in the bell countries and Hasnt contributed all that much in <unk> seven with limited launch and so what Youre seeing is G. Seven with a more meaningful launching <unk> com, one with a more meaningful launch and bigger countries in Q3 and beyond so what you saw in Q2 was really a continuation of our access and going deeper into countries.

Where we had our G series.

And really it was broad based and it's a continuation of broad based performance outside the U S really across all of our countries, including Germany, where we do go head to head with Libre three and so I think I think what you can say is that business is doing incredibly well and theres new catalysts to ultimately support it for upcoming periods. So we are very excited about.

That international business and like I said in countries, where were going up head to head with our competitors. Most recent product we continue to do very well and take share so very very bullish on our opportunity going forward.

And our next question comes from Josh Jennings from Cowen Go ahead, Josh.

The need to in some period of time, we can implement those changes into the other.

Other software and upgrade patients apps on the phone, but not immediately now.

Our next question comes from Steven Lichtman from Oppenheimer Go ahead Steven.

Thank you hi, guys.

As you are moving.

G seven to full launch in the U K, where you now also have decks com one I'm just wondering how will those two offerings the marketing relative to each other should we assume that over time.

Sort of merge with.

With <unk>, becoming the primary hardware there, obviously, that's going to happen in more and more countries over time, So I'm wondering if.

If you could talk to your thoughts on that thanks.

No I appreciate that question, we launched <unk> com one.

In Europe , and we're launching in the UK because there are many reimbursement opportunities we've not been able to participate in our G series <unk> seven products are regarded as very high end sensors for intensive insulin management integration with insulin pumps a lot of pediatrics the share the follow the other features that have made it our.

<unk> to our users the <unk> app.

Doesn't have many of those features it's much more simple and it falls into a different reimbursement category. Many of these geographies in the U K for example, our decks com one system will literally be will go through the pharmacy channel for broad based distribution and broad based accessibility for everybody, whereas our G series.

On the call.

While our <unk> product to be on the <unk> platform as well as we simplifies our operating simplify our operating structure over time, but that will take a little while and so <unk> kind of one platform. We think will do very well and our initial user feedback has been very good.

Software for <unk> I would also add is been designed on the same platform as the G. Seven software so it looks and feels a little more much more like June seven.

And beyond the same platform once we get <unk>, 7% enough capacity to transfer to the other.

<unk> come onto that platform, but they won't be the same experience won't be reimbursed at the same rates.

And our next question comes from Larry <unk> from Wells Fargo Go ahead Larry.

Hi, This is Nathan on for Larry can.

Can you comment on what drives the margin improvement in the second half given the launch of southern and.

How should we think about margins into 2023.

Sure, Let me talk about the second half and we won't get too too much into 2023, specifically other than we all have with our long range plan is 65%.

And so thats the way, we generally think about things in terms of the back half of the year typically what happens is as we go typical seasonality as we go through the course of the year and part of this has to do with who is ultimately purchasing the product margins typically get better.

No.

It was thrown on its head a little bit and as we are launching <unk> seven.

<unk> had some timing things about when that would launch and in what countries that would go into so whats you are finding is as for the first half of the year.

However that will clearly be offset through the G. Six throughput that you ultimately see and the reason the tick up in the back half of the year in some ways is due to with the <unk> launch in a meaningful way outside inside the U S. Sliding into Q1 of next year, you do see that performance on that <unk> platform, which continues to have nice margins play through over the course of the rest of the.

<unk>. So we have a lot of confidence 65% for the year, even despite all of the macroeconomic conditions.

We have no more questions at this time I will turn it back to the speakers for closing comments.

And our operations are running very efficiently smoothly, everybody have a great day and thanks for participating on the call.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

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