Q4 2022 Dexcom Inc Earnings Call
Okay.
Ladies and gentlemen, welcome to the decks Com fourth quarter 2022 earnings release Conference call.
My name is Abby and I will be your operator for today's call.
At this time all participants are in a listen only mode.
We will conduct a question and answer session. During the question and answer session. If you have a question. Please press star one on your touched on something.
As a reminder, the conference is being recorded and I will now turn the call over to Sean Christiansen, Vice President of Finance and Investor Relations Shawn you may begin.
Thank you Abby and welcome to <unk> fourth 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 Sylvain, Our Chief Financial Officer.
Following our prepared remarks, we will open the call up for your questions at that time, we ask analysts to limit themselves to one question. So we can provide an opportunity for everyone participating today. Please.
Please note that there are also slides available related to our fourth quarter performance on the decks 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.
<unk> com 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> annual report on Form 10-K, most recent quarterly report on Form 10-Q, and other filings with the Securities and Exchange Commission.
Except as required by law, we assume no obligation to update any such forward looking statements. After the date of this presentation or to conform. These forward looking statements to actual results.
Additionally, during the call we will discuss certain financial measures that have not been prepared in accordance with GAAP with respect to our non-GAAP and cash based results unless otherwise noted all references to financial metrics are presented on a non-GAAP basis. The presentation of this additional information should not be considered in isolation or as a substitute for results or superior to results prepared.
In accordance with GAAP.
Please refer to the tables in our earnings release and the slides accompanying our fourth 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.
I'd like to start by reviewing some of <unk> key accomplishments in 2022 total revenue grew 20% on an organic basis driven by another year of record new customer starts.
This translates into more than $475 million of organic revenue growth compared to last year as we saw another step forward for CGM awareness and decks com brand loyalty.
We added nearly 450000 decks com users to our base in 'twenty to 'twenty, two and ended the year with close to 1.7 million customers globally.
Team did a great job generating this customer engagement and growth while simultaneously enhancing the scale and efficiency of our organization.
Our operations team demonstrated world class performance this year, ensuring adequate supply in a difficult macro environment and providing on time delivery rates are greater than 99%. We drove over 500 basis points of operating expense leverage in 2022 despite broad inflationary pressure. This was not the result.
A reactionary cost cutting instead it reflects decisions made years ago at our company to foster a culture of cost discipline as we grow from a strategic perspective, we will look back at 2022 is a pivotal year for our company. We advanced several of our most important initiatives, including multiple new product launches significant access.
Wins, new market development and a further extension of our market leading performance and connectivity everything we achieved this past year. It helps build a foundation for years of sustainable growth. They had for example in October CMS published a proposed local coverage determination that would meaningfully expand access to CGM technology for the Medicare.
Our population. This proposal would broaden coverage to include people with type two diabetes using basal insulin only as well as certain non insulin using individuals' that experience hypoglycemia. This result was led by the publication of Dex Com's Mobile study and furthered by a strong partnership with the diabetes community.
He heard broad support and enthusiasm from key stakeholders during the comment period and expect a ruling to be finalized in the coming months.
As a reminder, we size the basal only type two population of 3 million people in the United States between this Medicare ruling in broader commercial coverage, which we expect to follow shortly this population has the potential to nearly double our addressable reimburse market in the United States outside the United States. Our team has been equally focused on.
On building greater access we drove many positive coverage decisions from global payers over the course of 'twenty 'twenty. Two these access wins were in response to the strong clinical evidence we continue to generate as well as the introduction of our portfolio strategy and many of these markets 2022 was the first time that we brought multiple decks com.
Products to a single market and this strategy has enabled us to significantly extend our reach by offering multiple products. We can provide a unique value proposition that meets the specific needs of our diverse base of customers clinicians and payers are Great example is in the U K, where decks com one was added to the national formulary for all people with Intel.
We manage diabetes collectively our international access initiatives have helped us expand our reimburse coverage by 3.5 million lives over the past 18 months 'twenty 'twenty. Two will also be remembered as the year of G. Seven we received both CE, Mark and FDA regulatory clearance for <unk> seven and initiated.
A full launch outside the United States the feedback from our customers has been everything we'd hope for we're hearing consistent praise for the new features such as the 60% smaller form factor shorter warm up period, and more engaging and consumer friendly app, perhaps the most encouraging is that 97% of initial users surveyed have LNG.
Seven easy to use we design this product to simplify the lives of our customers and we are thrilled to see that emphasis resonating.
All of this leaves us incredibly excited to bring G. Seven to the U S. In fact, we began shipping this week into our U S distribution channels to support our rollout we have quickly ramped up production capacity to support the launch with our automated G. Seven lines already capable of producing more than 100000 sensors. A day, we wanted to get G seven to the hands.
There are as many people as possible so in conjunction with our launch we've established a bridge program to simplify access for our early adopters. This program will provide new and existing customers access to G. Seven immediately and allow us to go to market and abroad and expedited manner.
The scenes, we continue to advance our discussions with payers to build reimbursement our conversations have progressed very well and we are well on track with our G. Seven coverage glands. More importantly, we are not going to be bashful about what we think of this product G. Seven is the new gold standard in diabetes technology. This is the most accurate easy to use.
And accessible CGM ever produced and we wanted to share this message with the world as a result, we will be releasing our second ever Super Bowl commercial this Sunday, where again teaming up with one of our most recognizable decks Com warriors, Nick Jonas to announce the G. Seven is here. This is a great opportunity to connect not only with our loyal of G. Six years.
<unk>, but with the millions of people with diabetes that still do not use CGM. We want these individuals their caregivers and their loved ones to know the decks com getting help them live healthier lives.
With that I'll turn it over to Jeremy for a review of the fourth 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 the fourth quarter of 2022, we reported worldwide revenue of $815 million compared to 698 million for the fourth quarter of 2021, representing growth of 20% on an organic basis. As a reminder, our definition of organic revenue excludes currency. In addition to non CGM revenue acquired in the trailing 12 months.
U S revenue totaled 606 million for the fourth quarter compared to 517 million in the fourth quarter of 2021 representing growth of 17%. Our recent momentum in the U S continued into Q4 as we delivered another strong quarter of volume growth and solid new customer starts.
We were very encouraged by the prescribing trends, we saw in the fourth quarter and we closed the year with around 75% of our commercial scripts going through the pharmacy channel. This represents the endpoint of a multiyear channel journey and we believe our current structure maximizes access for our users as the most covered CGM and supports greater customer choice in how they access.
It's the most accurate CGM.
International revenue grew 15% totaling 209 million in the fourth quarter International organic revenue growth was 27% for the fourth quarter.
We continue to take share in international markets is the introduction of new products and access wins over the past year leave us in a wonderful position to compete for new users. For example in response to the sizable U K coverage decision. We received last August our revenue growth has accelerated over the past two quarters in that region.
Even though this was already one of our largest O U S markets. There has been a clear uptick in demand. Following this broad expansion of access our fourth quarter gross profit was $544 million or 66, 7% of revenue compared to 67.7% of revenue in the fourth quarter of 2021 boring.
Foreign currency was an 80 basis point negative impact on gross margin in the quarter.
Operating expenses were 372 million for the fourth quarter of 2022 compared to $461 million in the fourth quarter of 2020 what.
You may recall that in the fourth quarter of 2021, we recognized an 87 million dollar expense associated with the contingent milestone under the 2018 collaboration and license agreement with Verily Life Sciences absent. This our operating expenses for the fourth quarter of 2022 would've been relatively flat year over year. This represents another quarter of very.
And cost management as we generated 800 basis points of Opex leverage operating income was $172 1 million or 21.1% of revenue in the fourth quarter of 2022 compared to $12 million or one 7% of revenue in the same quarter of 2021, even excluding the verily charged from 2021 this.
Highlights incredibly strong operating expense leverage in our current year, which more than offsets our step backwards in gross margin adjusted EBITDA was $237 1 million or 29, 1% of revenue for the fourth quarter compared to $67 3 million or nine 6% of revenue for the fourth quarter of 2021.
Net income for the fourth quarter was $136 3 million or 34 cents per share.
We remain in a great financial position closing the quarter with approximately 2.5 billion worth of cash and cash equivalents. This cash level provides organizational flexibility to support our organic growth opportunity and assess strategic uses of capital on an ongoing basis, such as the accelerated share repurchase program, we executed in 2020.
Two and ongoing development of our Malaysian manufacturing facility turning to 2023 guidance as we stated last month, we anticipate total revenue to be in a range of 3.35 to 3.49 billion representing growth of 15% to 20%. This reflects another year of strong underlying volume growth, which will again exceed our revenue.
Growth rate for the year.
To help provide some insight into the makeup of our guidance. This year. We recently provided some additional color around our expectations.
First earlier on this call Kevin discussed our plans to support our initial G. Seven customers with a bridge program. We expect this program to impact our revenue per customer early in the year as we provide G. Seven access at an affordable cash rate as we build reimbursement.
We expect this impact to narrow over the course of the year as broader coverage is secured internationally weeks estimate that around one third of our new customer starts will come in through the decks com. One platform. Therefore, this business will start to have a more material impact our numbers this year as that customer base builds.
For the type two basal opportunity, we anticipate CMS reimbursement to be finalized for this population by mid year and begin contributing to our results in the second half of 2023, we expect this population to contribute approximately 1% of our total revenue in 2023, turning to margins. We expect gross profit margin to be in the range of 62%.
63%.
This assumed year over year decline is primarily related to the impact of the broader G. Seven launch has with any launch we will initially be running at lower production volumes. It will take some time for our new manufacturing lines. The scale. Importantly, this is a temporary dynamic and we still expect G seven product costs to be less than G. Six at scale.
Despite the step backwards in gross margin, we are guiding for operating margins to be relatively flat year over year at 16, 5%, which reflects another 150 to 250 basis points of operating expense leverage in 2023. This is the result of ongoing cost initiatives at our organization, which continue to drive leverage even as we allocate <unk>.
<unk> investment to support our global commercial infrastructure P&G seven launch.
Finally, we expect adjusted EBITDA margins of approximately 26% in 2023.
With that I will pass it back to Kevin.
Thanks, Jeremy to summarize we are incredibly excited about the opportunity ahead with G. Seven and we're rolling out product to our distributors as we speak and we're ready for a big launch in the U S. 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 <unk>.
<unk> and then reenter the queue if necessary Abby please provide the Q&A instructions.
Thank you.
We will now begin the question and answer session. If you have a question. Please press star one on your Touchtone phone.
If you wish to be removed from the queue Press star one once again, if you are using a speakerphone you may need to pick up the handset first before pressing the numbers.
And we will pause for just one moment to compile the Q&A roster.
Yeah.
We will take our first question from Jeff Johnson with Baird. Your line is open.
Thank you. Good afternoon, guys. Let me ask you just a two part question on <unk> seven if I could Kevin.
Kevin on your website, you talk about adding more commercial coverage for <unk> seven and every day I guess can you give us a number of what percentage of covered lives. Their lives are currently in.
In the commercial channel for G, seven and where you expect maybe over the next quarter or two and I think Libre three has now been in the pharmacy channel for about four months or so in the U S.
Obviously your business looks like its probably safe.
Users in the Medicare channel, but for your Standalone tier one users have you seen any change in your attrition rate anything as we kind of look at that libre three versus six dynamic.
That has changed in the last few months the Libre three has been out there. Thank you.
Thanks, Jeff Yeah I appreciate that this is Jeremy so to your question on coverage.
Still in the throes of the commercial DMA in the Medicare coverage, we talked about on <unk> seven that taking about 90 days, but on the pharmacy side, we're actually a little bit ahead of schedule, Kevin referenced we're well on track to the point, where we had talked about a about a 30 million dollar ish hit in Q1 as a result of our bridge program that number is more like 15.
Million now and that's because some of those pharmacy contracts are coming in earlier so.
So we are making great progress and we continue to get that every day and assigned lead to more and more contracts coming over maybe even ahead of schedule.
In terms of the question then on competitive dynamics, maybe I can start and then Kevin mobile obviously have a few thoughts there you know we had a record new patient start in Q4, if that gives you any context too we had another solid new patient quarter. So you know, while we have seen competitive product out there. We continue to do very very well with <unk> six to the point, where we have.
Seen incredible strength, there and that's of course on the heels of a G. Seven launch, which as we referenced is coming out here in the next coming days, Kevin I know if you had anything else to add there no I would tell you. What we're also hearing is a great deal of excitement from our user base for <unk> seven.
So with respect to your question regarding how our G. Six users doing they're very anxious to get <unk> seven and very excited to go. So we're we're feeling good about where we are right now.
Understood. Thank you.
We'll take our next question from Larry.
Wells Fargo. Your line is open.
Good afternoon, and thanks for taking the question Ken.
Kevin I wanted to ask about the ramp in the type two basal population I think people were a little surprised you only expected 1% growth contribution in 'twenty, three I guess that would be about $60 million on an annual run rate.
At the last Investor meeting you said, you expect 700 million in revenues in 2025 from sources other than insulin intensive patients and I think this was mostly type two basal. So the question is you know do you still expect $700 million by 2025 from these non intensive sources and you know how do you see the ramp.
<unk>.
Type two basal population thanks.
Well, Larry or I'm going to talk for a bit I'll turn it over to Jeremy Our initial estimates, it's 1% of our total revenues would come from that and that's a reasonably sized number we plan for July 2nd half of the year approval and rolling it out from there.
It may go faster than that but we've been conservative in our estimates and we will make every attempt to beat those as we look out to 2025 that non intensive insulin space is not just basal users. We believe our CGM product will be very valuable. Unlike say a number of markets in the type two space and also in metabolic health.
So it's not just basal users there is a lot more than that in many of the basal users as well as you well know move up to be intensive insulin users as well. So we view that population is moving and shifting with us as they go and Jeremy have anything else you know sure yeah, Larry So the $60 million number you're referencing would assume say everybody started on July one.
First and they went through the end of the year.
Reality is that some folks will start in July some folks will start in December and so really the exit velocity is much higher than that on a run rate perspective, if you were to a blended average it over the course of the year, you're really only getting three months of revenue contribution and so you kind of do the math there and the exit rate is a little bit higher than I think what you are implying so we are really really bullish on it.
But it is a recurring revenue business. So what we need to do is get those get that coverage out there get the scripts in and so look I understand the question, it's a big big market with a big Big opportunity we plan on playing in it.
On playing it in a big way, but but obviously, we want to be prudent around guidance and certainly if things go better than that and we'll always try to do so we will report back to everybody.
Yeah.
And we will take our next question from Margaret Kaczor with William Blair. Your line is open.
Hey, good afternoon, everyone. Thanks for taking the questions.
I wanted to maybe take Larry's question, a step further and just kind of talk about the potential pace of adoption within type two basal maybe not just this year, but really Moreover, in 18 months 24 months period and is it fair at all to compare it to I guess Attritional type one diabetic.
Population is going to be easier or harder I guess to drive adoption of our their guardrails penetration and then just because he brought up at the volatile for non insulin diabetics, Yeah, 2025, and just around the corner. So it should we expect I guess, a more meaningful impact from here you know as early as next year.
Thanks.
Yeah. So let me start on the basal and then I can turn it over to Kevin.
So from that perspective, and so you know the ramp and Basil is going to be a bit interesting will give you kind of the way we think about it.
You know.
Think about it is that I generally start with type two intensive and you think about that ramp and you think about coverage and how that takes place and if the coverage takes place over a similar time you.
You would expect a relatively similar ramp now I'd caveat that by saying there is more awareness today and hence you know the Super Bowl commercial is a good opportunity for us to continue to raise that awareness. However, the place in which of the basal patients seed is a is a wider swath of physicians and so we don't have an exact crystal ball here, if you're using prior analogs the best Ana.
A log is type two intensive would be about the adoption rate, but I think as time moves on we'll be able to give you a little bit more color, but that's kind of our best Crystal ball and then maybe Kevin if you want to give just some general thoughts about metabolic health and the opportunities there no as we look out to the future Margaret, particularly with our easy to use G. Seven platform that we're launching today we built.
Our future is very bright as we deal with metabolic health, we've changed our mission statement.
To help people to control their health not just diabetes anymore. We continue to see very positive results from several programs are using sensors to assist people in these endeavors and over time, and particularly with type two management and all the type two drug alternatives on the horizon, We believe CGM becomes a very important part of that health equation.
And we're continuing to work on product offerings and business models. So it will be differentiated from what we do today and geared towards that population, we're really excited about the opportunity.
And it will continue to mature over 2023, and then we'll see what happens in 'twenty 'twenty four we've got we've got a lot of basal patients to reach first so let's go after them and then we'll continue to move to the other areas as well.
Yeah.
And we will take our next question from Robbie Marcus with Jpmorgan. Your line is open.
Great and congrats on a nice quarter.
Wanted to ask about the European or U S experience and it looks like you're gaining share you're doing well how.
How much of that is being driven by <unk>, seven and what's the feedback there and and.
Any head to head color you could give us versus libre three in the markets where it participates in that and then also sort of same question on <unk> and the impact Youre seeing there. Thanks.
I will start off with respect to the sales and the revenue numbers G. Seven index calm waters still early enough in their launch lifecycle.
While they're additive theyre not what's driving a lot of the adoption of a lot of the growth that we've seen in a European markets. A lot of that's been what we've established with <unk>. The additional coverage that we've obtained as I talked about it in the prepared remarks in 18 months, we've added three and a half million more reimbursed lives that being said initial risk.
<unk> seven has been everything we'd hope for people love the App.
Loved the receiver again and many of these markets. The receiver is a very very.
Strong tool.
My most recent conversation with the G seven user focused completely around the.
The half hour warm up a half hour warm up has eliminated 90 minutes for the longest two hours of somebody's life you'd ever use the G six and certainly in the comparative Frank compared to.
The hour warm up again it is a much better experience. The majority of our <unk> six users are new to IDEXX com, they're not decks com upgrade <unk> seven users I apologize the majority of our G. Seven users are needed exco.
Some of them come from the competition some of them have not your CGM before but they're all finding it very easy to use and having great experiences. So we're very happy with the product to this point in time, we've done very well.
Great. Thanks, a lot.
We'll take our next question from Joanna <unk> with Citibank. Your line is open.
Good evening and thank you for taking my question.
I'd like first I'm, just a minute on that gross margin and how you anticipate ramping throughout the year and then well I know, we're starting to I think be thinking about 2024 I do think people are looking at that I'll start to that more normalized margin rate and if you could sort of shed any light on how to think about.
Thank you.
Sure Hey, Thanks, Joanne I appreciate that and.
You start off with obviously the fourth quarter, we had a really strong gross margin I think it's a demonstration of what's to come with what our teams can do when you give them time with the new product launch.
So I think what did you think about the year the cadence for 2023, we do expect in the first half of the year margins to be a little bit lower.
And thats because of its Kevin referenced earlier the bridge program certainly that has an impact but most importantly, it's the launch of <unk> seven volumes won't be at where they would have been say in a more mature launch and will still be going through some of those early manufacturing scrap and yield challenges we always see.
But what we've proven time and time again as if you'd give our engineering and R&D team time with these lines. They continue to get yields better over time and so our expectation is as we start to exit the year in 2023, we start to come closer back to that long term guide of 65% gross margins and there is nothing longer term structurally that we don't believe especially as Jay said.
It gets to scale that gets us back to those long term guides that we originally provided.
We'll continue to work towards that think about 2023 as the first half of the year is a little bit lower as we ramp up those lines in the back half you start to.
Tackle some of that absorption of those fixed overheads.
Terrific. Thank you.
And we will take our next question from Matthew O'brien with Piper Sandler Your line is open.
Afternoon. Thanks for taking the question at just under a bridging program can you tease out a little bit more maybe Jeremy on.
On expectations. There I think you had said $20 million to $30 million, you said youre trending better than that for Q1, which is great to hear but.
Thank you ever said, how much that bridging program was going to cost you for the full year. It seems like it's going to be even better than expected overall versus maybe what you were thinking.
Turning off <unk>.
Three but then also bridging is supposed to be more of a headwind on the gross margin side too and if it's if it's less of a headwind.
So maybe that helps out their gross margin profile, a little bit more maybe sooner than expected. So I'm just wondering.
Based on all of these things on a bridging program, specifically being better than expected should we start to creep up a little bit more as far as our expectations for first for topline growth and then even gross margins for the full year.
Sure, Yes, I don't think we're at a point, where we would necessarily change our guidance, but let me take your question head on which is in isolation. What does this do so certainly what the bridging program. What this effectively means is we have contracts in place a little bit more ahead of when we ultimately expect it and so asps will.
We'll be a little bit higher.
And that's as a result of most folks going through coverage as opposed to the bridging programs. So that does a couple of things certainly it does help revenue and it does help margin.
That all being said, we are not changing guidance for the year, but I think what this does mean as well.
One it's a great thing for patients who want to access the product we talked about coverage being a key strategy. That's wonderful it does help longer term for those margin profiles and while I wouldn't necessarily guide you outside of our ranges you are correct. It does help on revenue and gross margin on the full year.
Oh and your other question was how much for the full year, we expected a majority of it almost all of the 2000 and $30 million in the first quarter. We do expect a nominal amount in Q2, we haven't expected any of it beyond Q2 really a majority of your concern would be in Q1.
Got it thank you.
Okay.
And we'll take our next question from Marie Thibault with <unk>. Your line is open.
Hi, good afternoon, and thank you for taking my questions and congrats on a strong quarter.
To ask a little bit more on kind of the backlog around.
Medicare decision, making and I'm very curious how physicians and patients. How aware are they are of that decision, whether we might see a bolus of patients sort of come.
Come on once that Medicare coverage.
Yeah.
Thanks for the question it will be up to us to drive awareness in that community to make sure people are aware of that decision there will certainly be.
Those very familiar with decks com and with continuous glucose monitoring will be aware of it and we will pick it up quickly, but it will be up to us to drive awareness in both communities.
Physicians and.
And users of the product to go and ask for it and to create that environment. So we're not going to sit back and wait were going to have to push.
Okay. Thank you very much.
We'll take our next question from Travis Steed with Bank of America. Your line is open hi.
Alright, thanks for taking the question. So U S growth. The last couple of quarters has been around 17%. The second half of a year I think was record patient growth for both quarters. So trying to think about ex the contra rather than from the British program. If we should be seeing an acceleration here in the first quarter in the U S growth, specifically and how that builds over the course of the year.
And then on the Super Bowl AD you know what kind of impact did you see on U S. New patient starts last time, you did that thank you.
Sure, Yes, so I'll start with you know how we're thinking about Q1 and you know the way. We've generally thought about Q1 is is in terms of full year contribution absent any sort of bridging program to be a very similar contributor as a percentage of total year revenue in the first quarter and so Thats total total company not just U S. Total.
<unk>.
And then you add the bridging program man and you pull it down from there and Thats generally how we think about the quarter, which is just an indication of continued strong new patient growth.
Clearly, we'll be working through driving new patients and driving growth over the course of the year.
In terms of the Super Bowl and then how that how to think about the Super Bowl and how that contributes you know last sheet last time, we did it.
Sure.
Hundreds and hundreds of thousands of inbound leads.
Not all of those obviously translated into patients, but there was a lot of interest.
One of the challenges, though if you rewind the clock a couple of years as there wasn't as much coverage there and so I think what we are hoping this time around is one week. The awareness is the most important thing and the awareness is that gets out there will be very very helpful. But as covered starts to come through and we have this bridging program in place, it's a real opportunity to take advantage of it we're not ready to give exact patient numbers out there other.
Other than to say that the return on capital is a very strong investment and so you should expect we do that math before we sign up for this and we wouldn't be doing if we didn't expect a return on investment that was commensurate with what you and we would expect.
Great. Thank you.
We will take our next question from Jason Bedford with Raymond James Your line is open.
Hi, Good afternoon, just maybe an opex question.
It looks like.
Bigger or a step up implied in 'twenty three I know the Super Bowl AD is a contributor but just wondering if you can comment on kind of what are the sources.
The opex growth and maybe hit on any plan changes to the sales force and supportive of G. Seven thanks.
Thanks, Jason This is Kevin I'll take it.
Rather big picture will continue to invest in R&D, our spend will grow some but not as rapidly as it has another years and quite honestly as a percentage of revenues probably come down a little bit.
With on the G&A side will continue to invest in infrastructure and build things out for our continued growth, but a lot of that investing has been our biggest dollar investment in a regulatory increases youre going to be on the commercial side.
And you know in all areas create awareness.
And the sales force marketing.
Across the board will be spending on the commercial side those expenditures could adjust and move over the course of the year as we learn more we have always been very adept at.
Channeling those dollars, where they can be the most effective we're analyzing some of that now we certainly have a plan, but we've never been afraid to deviate from them from it if it makes more sense.
And so we're looking at all those things a lot of international investment this year quite honestly as a percentage of our investment international is getting a bigger piece of it than they have in the past because we really look at this opportunity as we've got G. Seven in several of these companies combined with the <unk> launch and all of those covered lives. We have added we think there is Greg.
Opportunities over there, but we've got to invest in that infrastructure.
Yeah, and just to kind of add to that one Jason just to give you. Some context, we launched outside the U S. With Dex Com won in <unk> seven call. It in the first couple of phases, but we have more phases to go and so we're going to make the marketing push obviously with G. Seven in the U S. But there's also a second phase of G. Seven launches outside the U S and our second and third phase of <unk>.
One outside the U S. So sales and marketing is really where we want to put our investment.
And we'll get leverage elsewhere, but hopefully that gives you kind of some context for how we're thinking about that spend in 2023.
Yes. Thank you.
We will take our next question from Matt Taylor with Jefferies. Your line is open.
Yeah.
Hey, guys. Thanks for taking the question.
So I just wanted to get some thoughts on gross margin longer term I know you touched on this this year and obviously with the new product launch there is some initial depression and the need to get you know get spring loaded with leverage overtime.
Help us think about G. Seven over the next couple of years is that <unk>.
Expand how can that impact gross margin with and without the potential for a longer where label.
Yes, I can start there.
You're 100% right I mean, obviously there is the levers to get the actual cost of the product and we've been very transparent about it we want to get to basically a dollar per day on a 10 day sensor or a $10 sensor.
And then we want to go even beyond that but that was always been kind of our public goal.
And then of course as you move to a 15 day sensor that cost is spread out over a longer period. So we have intentions over the long haul of doing all of that now the math. If you do that would indicate there's some real opportunities in gross margin.
Even beyond potential long term guide the one thing we want to be mindful of is we don't want to shortchange ourselves and other opportunities to either partner or otherwise.
Over the long haul so while the long term guide remains intact are certainly levers and opportunities for us to do well there.
And so I think youre hitting on all the right points that all being said, we really hold to that long term, 65% gross margin and that's what we'll work to and if there's other opportunities to get fill you in on some other things we're doing in the future, we'll certainly do so.
Okay. Thanks Darren.
And we will take our next question from Mathew Blackman with Stifel. Your line is open.
Hi, good afternoon, everybody. Thank you for taking my question.
Jeremy just curious I appreciate all the <unk>.
Puts that that you gave us that roll up to the 15% to 20% Guide I'm. Just curious have you contemplated in that 15% to 20% range any competitive pressures in the event that.
Your competitor gets approved to integrate with our pump sometime in 2023.
Yeah. Thanks, Thanks for the question, Matt and yes, we do we've considered all of that when providing that guidance I mean, when we think about all the competitive pressures and then we think about all the opportunities ahead of US we consider all of that in the guidance and you are right. There is the potential out there at least according to.
Some of the commentary that there could be some.
Potential first rather I would say that we've contemplated it at the same time, we feel very confident in our product offering and what it ultimately does how it integrates and the safety features that people rely on our products for the accuracy and ease of use.
So I think I think we feel very confident about it but yes, we did contemplate that in our guidance.
I appreciate it thank you.
And we will take our next question from Chris.
Pardon me, Chris Pasqual with Nephron your line is open.
Thanks.
Date on how you guys are thinking about price you said in the past there U S channel mix could start to stabilize once you hit 75% of the pharmacy are there now, but you also SD Wan, making a bigger portion of the U S starts, which I would imagine might pull down your international ASP a bit. So can you tell us what impact price had on revenue in 'twenty two and then how you are thinking.
About the potential impact this year.
Yeah. So we'll talk about 2022 since we gave kind of a guide there which was around $200 million in the U S and around $50 million outside the U S and the full year of 2022 was generally in line with that it was I think just south of $200 million in the U S and just sell the $50 million outside the U S. So basically right in line with that so I think you can you can feel good about what.
We gave there going forward the expectation is in the G series that Delta that price volume Delta starts to come down over time.
What we would expect to see us and we're not going to give a specific number for 2023 since most of that migration is done, but we will have to lap. The 2022 migration and then if theres drift say $75 that drifts to 80, you wouldn't expect any material moves there, but those are all things we've contemplated in those figures to your point and I think.
Youre hitting at the way we model the business, we model the business as a G series and <unk> and I would suggest you do that going forward and then to your point <unk> com one modeled as a percentage of total business will allow you to then understand the contributions to ISP, there, which is why it was important for us to give you our expectation of new patient starts in 2020.
Three that a third of them outside the U S will be on <unk> com. One so thank you the way Youre thinking about the model is exactly the way we model it internally and that's the way I'd go about doing that for 2023 and beyond.
Yeah.
And we will take our next question from Kyle Rose with Canaccord. Your line is open.
Great. Thank you very much.
Wanted to just ask.
An additional question just on the commercial strategy moving forward I understand the DTC advertising and you double the sales force a few years ago, but just as you prepare for basal approval in the U S. How does the focus of the call point of the actual sales force need to change do you need to make additional investments in and people just help us understand.
Yes. This is Kevin I'll take that Jeremy gave us a bit of color earlier.
75% of our calls already by our U S sales force or in the PCP Arena.
And I think you'll continue to see that expand as our team spends more of their time addressing that marketplace at the same time not ignoring the places where we've been so successful in the past with the intensive management diabetes. So we will look at that structure in great detail.
On a geographical basis, even within the U S. There may be some places, where we need to expand geographically versus <unk>.
A large expansion across the entire country, we will analyze that in great detail as we go we're in the process of doing that now we just brought on a new chief commercial officer as many of you will remember in.
Early January and she's steeped in the middle of that today as we manage those thoughts and a launch and everything else going on but we will look at it very strongly.
We'll take our next question from Steve Lichtman with Oppenheimer. Your line is open.
Thank you guys.
On <unk> Com one outlook.
Can you talk about any major new geographic regions, you expect to roll out the platform. This year end and should we expect to see any movement in bringing <unk> on to the G. Seven platform. This year or is that a longer term play.
Yes, it's a fair question, let me let me just say, we're not necessarily going to give the playbook as to what countries. We're going into now we have launched recently in Croatia, Romania, and Greece for decks Com won.
That is out there now so hopefully that gives you some context, but we will be launching in more countries, but rather than give the playbook publicly we will let our commercial team execute that and give you that feedback, but just know we will go into more countries.
So hopefully that gives you at least some context, we will go.
In terms of the movement from <unk> to the <unk> form factor, we are absolutely going to be moving to that factor.
Take a little bit of time and the reason, it's going to take a little bit of time is.
As we get economies of scale on G six, which we have today across the existing user base as well as <unk> as well as a lot of opportunity for new users on <unk> seven we want to make sure we prioritize.
Seven in that form factor for those patients coming on to therapy on the G series.
Make no mistake, though as soon as possible right. After that we will be moving <unk> one to that G. Seven form factor stay tuned we'll have some updates as the years progress on but youre thinking about it the right way, we will move there in relatively short order.
Thanks, Jeremy.
We will take our next question from Josh Jennings with Cowen Your line is open.
Hi, Good afternoon, I was hoping to follow up on the pricing question.
I'm not sure if you've given a recent update just on how investors should think about the average reimbursement takes time receipts in the U S for <unk> six or G series patient.
Just to follow up on that is will that change with the G. Seven introduction crew wanted them to.
Is it does is it important the share shifts in the pump market just considering the <unk>.
Reimbursement takes time gets the dnb channel with a tandem pump versus the pharmacy channel with the Insulet pump. Thanks for taking the questions. Thank you. Yes. It's a good question look I think the way to think about.
The ASP is really more about channel than it is about version and so as you think about where folks and <unk> folks get out who gets access the general way to think about it is Medicare which is publicly out there I think after the increase its around 250 a month. There is there is a delta there, which goes to the distributor who ultimately fulfills that so the net price to us.
South of that but ultimately that will be our price in that range. That's publicly available generally commercial EMEA is higher than that in pharmacy is lower than that number and so that's the way to think about it in terms of then how ASP moves over time think about it less of a generation of product and think about it more as where folks want.
To get their product and so I think youre thinking about it the right way as we talked about 75% of our lives covered in commercial 75% of those patients. Those patients. Obviously then come through at a lower price point that if that drifts to say, 80% you could see that having a potential tick on there again most of that is behind us, but that's the way to think about the split.
There.
And then in terms of.
Pump partners and how folks ultimately access it really depends again consumer preference youre right tandem is generally access through the DMA and Insulet generally access through the pharmacy. So it makes sense that folks get their CGM through that that channel that all being said it's ultimately.
<unk> preference and we believe the consumer experience through the pharmacy is great. When we have some really great partners that do a wonderful jamba filling.
<unk> channel and so we believe that that folks can be fulfilled either way.
Great if I could sneak in just a quick follow up just thinking about your CGM platform attached to pumps is there a premium reimbursement at that time receives in that scenario versus standalone, whereas it all consistent across the board just depends on the channel as you said, thank you sorry about that.
No right now there is one class of CGM products and reimbursement is consistent across the board.
We will take our next question from Cecilia furlong with Morgan Stanley . Your line is open.
Hey, good afternoon, and thank you for taking my question I was hoping to follow up on you talked last quarter, just about rolling out cash pay model in the U S.
Just curious if you could provide more color as you're thinking about that opportunity today, and then for 2023, specifically and how we should think about potential incremental.
Contributions from that and thank you for taking my question.
You bet. This is Kevin I'll take it.
Big picture, our cash pay program for <unk> to start with is going to be a bridging program.
People will be able to pay cash for G. Seven that way ultimately as we get access and coverage of <unk> seven when peoples co pays will be significantly lower than the bridging program cost will phase that out and have a cash pay program on G. Seven individuals be able to access we continue our cash pay program on <unk> six but that is not a major.
A portion of our revenues.
It's just a piece of them we do this to create access primarily where people's insurance doesn't cover it and they can't get access through the federal or the other governmental channels as well.
It's not a huge percentage of our revenues, we need to continue to be cognizant of it and address those patients needs.
That's why we have it there.
We will take our next question from Matt <unk> with Barclays. Your line is open.
Thanks, so much.
Just two quick follow ups on some of the topics that were covered earlier so on.
Ramping production for G. Seven gross margins manpack scrap rates and all that and just wondering by the end of the year.
Any what you would say that the whole manufacturing et cetera.
Representative margins, maybe in the facilities that you have and the other was just.
On the comment you had on.
No contemplation of competition.
Integration fronts this year and if that were not to come I'm just wondering what's your.
Tough spot or anything like that or pressure that margin guide.
The guidance range, but if that were not to come does that does that.
Sort of a slight tailwind to the.
Could you to the top end of your guided range or how to think about that thanks.
Okay.
This is Kevin I'll take that bigger picture Jeremy has been very familiar with the numbers, but I'll give you a bit of my perspective with respect to no competition in the pump integration point, we may pick up more we may not.
What I do know is everybody using those pumps in integrated systems right now uses <unk> com and.
And they are achieving remarkable results with the technology, we have developed over the years and will continue to receive such it is our position that the experience that they're going to have with algorithms based upon decks com CGM that have been developed through the data and the performance of our sensor will continue to make us the leader in that space regard.
Listen through the competing sensor is and so we're very confident there that we will continue to have a very strong product offering going forward with respect to the margin change over the course of the year. There's a couple of factors in there obviously Jeremy has talked about the bridging program in the first half of the year, bringing margins down a bit because their revenue per patient.
A bit lower there when we start but as we see that pickup will pick that up on the revenue side. Then you have base will come in and Medicare reimbursement is strong so that will help on pricing the flip side of that is sometimes lost on.
Folks everything we do with G. Seven is different all of these lines are completely different all the capacity is different about the only thing thats the same as or building in Arizona and we're building in San Diego and that is not going to be the same for a good portion of the year, because we expect a factory in Malaysia to be up and running in the second half and producing product. There. So you have a number of very.
With respect to scrap with respect to purchasing components with respect to how these lines run as we get them up and running and functioning at full speed versus where they are today and then bringing on a new factory. We have tried to contemplate every one of those variables as we've started and we'll update you as to how things are going.
As time goes on but whenever you do a product launch, particularly won this significant because when we did our last big G. Six product launch we had similar margin activity, but it was on a much smaller scale because we're so much bigger than we were before.
Theres just more variables that we have to plan for it we've tried to be conservative and thoughtful in our guidance.
Based on the performance we expect of our teams. We also expect our teams to be better than this too we don't ever lower the bar for them as they will tell you, but we've looked at all of our every one of those things and contemplating that and we meet on this literally every day to make sure we're covering all of our basis.
This launch is really important to us as our margins, but it's really important to get product out to all the users that want it.
Thanks for the color.
And we will take our last question from Michael Polak with Wolfe Research. Your line is open.
Good evening. Thank you I just wanted to follow up on first quarter to make sure I have my modeling square Jeremy I heard in a response to prior question you know using the full year guide you're thinking about <unk> consistent with seasonal patterns. The last three years I had 21% of.
Full year revenue in the first quarter, if I use the midpoint of your range. This year that's.
$720 million, but then you made the comment about the bridge program.
Down from there so.
That'd be another <unk> 20 for the quarter so.
It'd be at 700 or seven O five as I put this together correctly if not can you help. Thank you so much.
Sure, Yes, I mean, youre not youre not far Directionally off I mean, you are right. We do expect the Q1 contribution and really the sequential decline from Q4 into Q1 to be very similar to what you've seen in the past and so that'll help you can get a little bit closer as you think about sequential decline as well from Q4 into Q1.
That will put you into a ballpark.
And then and then from there you are right we updated our number its about $15 million now as a result of the bridging program as opposed to the 20 to 30.
But that will get you in the ballpark youre not far off, but there's probably a little bit of tweaking to do around the edges, there, but use that 21% contribution but think also 10% sequential.
Little little rounding differences ultimately matter in there hopefully that gives you the context you though.
Yes. Thank you.
And ladies and gentlemen, with no further questions at this time I will turn the call back to Kevin Sayer for any additional or closing remarks.
Thank you very much and thanks, everybody for joining US today, we spent a lot of time in our fourth quarter call talking about 2023, I want to just step back again and thank all of our great people here at this company for their hard work in a year, where we delivered on our revenue targets, we controlled our costs at the same time, we've advanced our.
Allergies or infrastructure, and we've advanced coverage and accessibility for our product all over the world to enhance People's lives, but.
But we are very excited for this launch. This is my fourth major launch here at <unk> Com and every single time, it's taken our company to another level.
The first time was G. Four and that was when accuracy really came to bear and we truly established what accuracy standard should be for CGM and we will remain the most accurate system in the world <unk> is going to be a better experience than <unk>. Six every time, we try to make the product easier to use and this is the biggest ease of use advancement.
We've ever had as we look at the responses from our users so far and as always we will make this product as accessible as we can <unk> com has always been the most successful brand CGM as far as coverage and we will continue to do so.
It's our commitment to drive that very hard for our end users is going to be a busy and great 2023, I am very confident we'll be sitting here a year from now on I'll be able to say the same things thanks, everybody and have a great day.
Okay.
Thank you ladies and gentlemen, this concludes today's conference call and we thank you for your participation you may now disconnect.
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