Q1 2023 DexCom Inc Earnings Call
Yeah.
Ladies and gentlemen, welcome to the decks Com first quarter 2023 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.
Later, we will conduct a question and answer session and during the question and answer session. If you would like to ask a question. Please press star one on your Touchtone phone.
As a reminder, today's conference is being recorded and I will now turn the call over to Sean Christiansen, Vice President of Finance and Investor Relations. Mr. Christian Sir you may begin.
Thank you Abby and welcome to <unk> first quarter 2023 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 first 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.
Forward looking statements included in this presentation are made as of the date hereof based on information currently available to decks com and are subject to various risks and uncertainties and actual results could differ materially from those anticipated in the forward looking statements.
The factors that could cause actual results to differ materially from those expressed or implied by any of these forward looking statements are detailed in <unk> 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 Sip.
Periods of results prepared in accordance with GAAP.
Please refer to our tables in our earnings release and the slides accompanying our first quarter earnings presentation for a reconciliation of these measures to their most directly comparable GAAP financial measure now I will turn it over to Kevin.
Thank you Sean and thank you everyone for joining us.
Today, we reported another excellent quarter for decks com, where first quarter organic revenue growth of 19% compared to the first quarter of 2022.
Momentum for our global CGM adoption remains very high and we continue to see a growing appreciation for the differentiated experience. The decks com provides it has been an exciting start to 2023, our teams advance some of our most important strategic initiatives in the first quarter that will continue to build on our foundation for growth.
In the years ahead.
There is growing momentum behind the rollout of our G. Seven system as we initiated our full launch of <unk> seven in the U S. This launch represents years of hard work to bring to market a product based on feedback from our customers that meets their specific needs.
G. Seven is the most accurate CGM on the market. It is simple to use and is supported by the most covered CGM brand. We expect this differentiated feature set will add to our leading customer satisfaction metrics.
We were thrilled with the opportunity to announce this launch on the biggest stage with our second ever Super Bowl commercial over 100 million people were watching the game on our commercial aired and the customary condition outreach that followed was incredibly encouraging as we expected it would be.
The AD generated three times as many impressions for decks com as our 2021 Super Bowl commercial exceeding our initial expectations on engagement and awareness.
We also heard from members of the diabetes community, who shared their decks kind of magic moments and pride and feeling represent on a platform of this size.
Awareness remains a critical element to driving broader access and adoption for CGM and we designed this campaign to demonstrate the life changing potential of our system and a G. Seven product that is incredibly simple to use millions of people with diabetes to not use C. G M and this provided us an opportunity to both connect with them and advocate.
On their behalf, while we are still early in our U S launch or G. Seven we've been very encouraged by the initial response, we have seen a steady ramp of new users and the initial feedback from both customers and clinicians has been consistently great. We.
Commercial pharmacy coverage has also progressed rapidly and our reimbursement discussions payers are clearly recognizing the value proposition that exists with decks com G. Seven <unk>.
As a result, we already have more commercial pharmacy coverage established where G. Seven today than our competitor does for their sensor platform.
Payers continue to value our premium feature set leading customer engagement metrics best in class performance and proven outcomes backed by robust clinical evidence.
Overall, we have advanced coverage more quickly than anticipated and we expect G. Seven to be covered by all major P. B M is by the end of the second quarter. These coverage decisions for G. Seven also position as well as our industry takes a significant step forward in terms of access for C. J M.
In early March CMS finalized their proposal to expand access to include people with type two diabetes using basal insulin only as well as certain non insulin using individuals' that experience hyperglycemia with coverage officially kicking in last week. This decision represented the largest single expansion of access the C. G M in our industry's history.
As a reminder, we size the basal only type two population alone at around 3 million people in the U S with around half being a Medicare age. We are incredibly excited to start serving this population more broadly going forward as we see a significant opportunity to help these individuals live healthier lives our mobile trial demonstrated meaningful.
<unk> in time and range a O N C levels and a hypoglycemic events. Among this population worrying decks com centers as sensor engagement proved to produce behavior changes within this cohort that supported greater by Semic control.
We are in a great position to compete as this market develops as accuracy performance and customer engagement will continue to be the defining features of delivering outcomes customers and clinicians have historically indicated a preference for our differentiated product where reimbursement exists and we expect this dynamic to endure as access continues to expand.
Along those lines, we will continue to leverage our mobile data as well as the updated 80, a standards of care to build broader coverage. We're in active discussions with private payers in the U S to establish basal reimbursement and will similarly advocate for broader coverage and international markets. Our international G. Seven or will that also continues to go well.
<unk> with good initial uptake and high customer satisfaction rates.
The majority of our international G. Seven customers continue to be new to decks com altogether, suggesting the new form factor and feature said is attracting both people new to CGM as well as those using competitive systems. We view this as a very positive sign as we broaden our rollout in the coming months.
In the second quarter, we will be launching G seven and eight new international markets as part of our strategic effort to get this product to as many people as possible for.
From a capacity perspective, we remain in great shape to support this broader rollout we are ramping up production quickly and have plenty of G. Seven inventory on hand to support our growth ambitions.
Additionally, we expect our Malaysia plant to start producing commercial product around mid year, which will further support our Gs have been scale up.
Finally, we look forward to seeing many of you in June at the American diabetes Association's 83rd annual scientific sessions in our hometown of San Diego, California.
We're always excited to connect with thought leaders across the industry at this event as we collectively work to map out the future of the XCOM CGM technology in diabetes care and beyond.
In conjunction with the conference we're planning an investor event, where we will provide our latest vision around the future of the ex comm and share incremental detail on many of our key strategic initiatives, we hope to see you there.
With that I will turn it over to Jeremy for a review of the first quarter financials Jeremy.
Thank you Kevin as a reminder, unless otherwise noted the financial metrics presented today, we discussed on a non-GAAP basis reconciliations to GAAP can be found in today's earnings release as well as our IR website.
For the first quarter of 'twenty twenty-three, we reported worldwide revenue of $741 million compared to 629 million for the first quarter of 2022, representing growth of 19% 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 526 million for the first quarter compared to 451 million for the first quarter of 2022 representing growth of 17%.
We experienced another quarter of strong new customer starts in Q1, as we saw a continuation of steady demand for our <unk> six as well as an encouraging initial uptake of G. Seven with our launch in the final weeks of the quarter.
As Kevin mentioned, we were able to progress our commercial pharmacy coverage for G seven faster than anticipated in the quarter. This caused the impact of our bridge program to be around half of the 15 million level, we expected as more customers, we're able to access G seven through reimbursed channels.
Accordingly, the impact on revenue from this program should continue to shrink going forward given our established commercial coverage for <unk> seven.
International revenue grew 21% totaling 216 million in the first quarter International organic revenue growth was 27% for the first quarter for another quarter. We continued to gain share in international markets in Q1 as customers have been responding well to our broad access initiatives and new product launches as.
Weighted decks com, one is having a growing impact on our results as this product has enabled us to enter new markets and compete much more broadly within existing markets in the U K access to Dex arm. One was recently simplified with the addition of the product's transmitter to the national formulary with the entire system now covered by the drug tariff this reduces the administrative.
Steps for clinicians in a market, where we already have considerable underlying momentum we.
We will continue to work on delivering these types of wins, making it easier and simpler for customers to get reimbursed access to decks com products.
Our first quarter gross profit was $469 8 million or 63, 4% of revenue compared to 63, 3% of revenue in the first quarter of 2022.
Our first quarter gross margin reflects the traditional step down relative to what we see in the fourth quarter as we serve a greater mix of pharmacy customers and less contribution from our D V users with high deductible health plans. This.
This was a better than expected Q1 result for gross margin as we delivered incremental efficiencies in our G. Six lines, while managing production for our G. Seven launch. However, we continue to anticipate gross margins for the full year in line with our original guidance as we scale our global G seven production.
Operating expenses were $391 2 million for Q1 of 2023 compared to $347 8 million in Q1 of 2022.
Operating expense management continues to be an ongoing point of emphasis for our team as part of our broader cost efforts and it continues to be on display this quarter in line with our expectations. We generated over 250 basis points of Opex leverage in the first quarter, even as we allocated greater commercial investment to support our G. Seven much we are very proud of.
The efforts our team has made and continue to make on these efficiency initiatives.
Operating income was $78 6 million or 10.6% of revenue in the first quarter of 2023 compared to $50 3 million or 8% of revenue in the same quarter of 2022.
Adjusted EBITDA was $145 9 million or 19.7% of revenue for the first quarter compared to $112 4 million or 17.9% of revenue for the first quarter of 2022.
Net income for the first quarter was $68 5 million or 17 cents per share.
We closed the quarter with approximately 2.6 billion worth of cash and cash equivalents remaining in a great financial position.
Our balance sheet provides us with significant flexibility to organically support our ongoing growth investments, including the build out of our Malaysian manufacturing facility and continually assess our strategic uses of capital.
As Kevin mentioned, we are expecting our Malaysia facility to start producing commercial product around mid year, which we view as a pivotal moment in our global manufacturing journey. This plant will provide a significant new capacity and be a key element of our long term growth and cost reduction plans.
Turning to guidance, we are raising our full year 2023 revenue guidance to a range of $3 four to 3.515 billion for margins. We are reaffirming our prior full year guidance of gross profit margins in the range of 62% to 63% operating margins of approximately 16.5% and <unk>.
Adjusted EBITDA margins of approximately 26%.
The increase of approximately 38 million at the midpoint of revenue guidance reflects our increased confidence in the business and the underlying market.
This factors in our strong first quarter results as well as a benefit from CMS finalizing type two basal coverage earlier than originally anticipated with that I will turn it back to Kevin.
Thanks, Jeremy 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 Abby please provide the Q&A instructions.
Thank you.
As a reminder, 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 a moment to compile the Q&A roster.
And we will take our first question from Robbie Marcus with JP Morgan Your line is open.
Oh, great. Thanks for taking my questions Congrats on a great quarter.
Maybe to start the focus is all on the type two basal expansion that just started at the beginning of last week.
Maybe speak to the expectations and cadence of whats in guidance here, what the initial what do you think the initial reception and awareness is and how much you earn.
Are their CGM competitor have to do to educate the market.
And then.
Maybe on the back of the Super Bowl AD, what you think the patient awareness and also.
Acceptance to wearing a CGM full time as for type two basal thanks a lot.
Sure Hey, Thanks, Robbie this is Jeremy I appreciate that.
In terms of guidance, maybe I'll start there and then I can turn it over to Kevin in terms of thought process around where times you know in terms of guidance, we had talked about basal prior to approval. If it started in the middle of the year being about 1% and our updated guidance has us.
Higher than 1% certainly.
More on that one and a half ish percent range, but.
But not necessarily changing <unk>. So hopefully that gives you some context to where thats going certainly we expect it to be a a.
A market change in terms of.
What I would say is reimbursement for the longer term.
In terms of adoption, where we're obviously just getting in those approvals and just getting in the reimbursement. So it's going to take a little bit of time for us to ultimately see how that cadence of adoption is but you've got our expectations and over the long term, we expect adoption to be to be quite frankly, very very positive and maybe I can turn it to Kevin in terms of awareness in the channel and in kind of where <unk>.
And longer term.
Thanks, Jeremy with respect to wear times, you know our best play of references are.
Mobile study that provided the really the most important data in securing this approval over 90% of the individuals who are sensors during the study and I want to give them up.
Felt the information was very valuable very useful and provided them very much a scoreboard and how they can manage their diabetes going forward. So it doesn't progress and they could have much better outcomes.
And so we're very confident with a fulltime where from an educational perspective, we do have some work to do and in the PCP community. We did a big sales force expansion.
Last year in anticipation of going more broadly we continue to evaluate our marketing and our full on direct distribution efforts to see what adjustments need to be made to create more awareness. We worked very hard with our channel partners and believe we are in a very good position with them.
Go take on this.
This friend, so it's about creating awareness, it's about making it easier for patients to get their product and use it I've been out in the field a few times in the one thing I'm definitely hearing as I speak with a lot of the primary care physicians, who are the answer to this market is G. Seven is so much easier to use and so easy to use versus G. Six they view this as a very.
Real and a very strong.
The opportunity for their patients to achieve better outcomes. So we know we have the right product.
We'll just work on creating awareness of the proper places.
To get it out there, but we're comfortable that people will wear it all the time once they get started.
Significant amount of folks are taking advantage of at that price point, a little bit lower at this point.
And Great News of course is the coverage has come in a little bit earlier, and so certainly we haven't had to have folks take as much advantage of it in terms of those cash pay programs. We have seen some encouraging initial adoption, but it is relatively initial so as you see those start to come through.
Longer term, we think it can be.
Additive and we believe it will be in the shorter term, it's really not a material contributor but longer term again, Jeff. We're very we're very excited about what this opportunity offers to folks.
Longer term margins perspectives, we feel good about the pricing in those cash pay programs. We don't expect it to have a long term drag on margins.
As you've seen in the quarter, we continue to really really well on designing cost out of our product and we'll continue to work on doing that both with <unk> and <unk>, 7% to where these programs won't necessarily be dilutive to our long term gross margin.
Okay.
We'll take our next question from Larry <unk> with Wells Fargo. Your line is open.
Good afternoon, and thanks for taking the question and congrats on a nice start to the year here Jeremy.
Two part for me I mean, the first quarter.
It was about 20% if you back out the bridging program the guidance, 2017% to 21% can you talk about the cadence through the year end.
Is there any reason why growth wouldn't accelerate from Q1, <unk> seven and the base of launches.
Separately, what was volume in the U S volume growth people are going to compare and contrast, your call it 18% growth in the U S. Adjusted.
Adjusted for the bridging versus <unk>.
<unk>, 50% just any color on what you think is going on there. Thanks for taking the question.
Sure Yeah, I'll start with the volume question first of all we're not necessarily disclosing.
Volume specifically in quarters.
Going forward, what we can say is our patient base. If you look at where we were exiting 2022.
Our patient base grew in the mid 30%.
So as we as we've talked about what that patient base looks like when we disclose patients. We will do that every year, so folks have an understanding.
That continues that continues to play through to.
To give you some context to the first quarter. The first quarter was a record for new patients and so our unit volume growth continues to be very strong. So as you compare the two we feel very good about our unit volume growth relative to competitors.
And we'll continue to feel feel good about that for the balance of the year in terms of how to think about the cadence of the year I do think the cadence of the year will be a little bit heavier weighted into the back half relative to prior years. That's just given the timing of the basal approval and as that starts to get going but.
As you think about Q2, we are we do recognize where the street is today and we realize that number will have to go up a little bit.
So is the over performance you see in Q1, certainly record new patients that will play through into Q2, and so youll see some of the increase in guidance that is specifically related to some increase in expectations and Q2 performance. So hopefully that covers your questions.
We will take our next question from Matt Taylor with Jefferies. Your line is open.
Yes.
Hey, guys. Thanks for taking the question so.
So I wanted to ask you one about just how quickly the.
Coverage has been established in the <unk> in the pharmacy channel that thought it was interesting.
Interesting comment that you made that you think you have more coverage in pharmacy than your competitor, maybe you can compare that and talk about what that means for ultimately how much of the basal opportunity you think you can garner.
Yes. This is Kevin I'll take that and Jeremy can add a bit afterwards on the batesville opportunity remember Medicare sellers processes durable medical equipment, and we have very good relationships with our distributors and in that channel and we are we work very hard to position them to be successful with the basal patients and so we're very comfortable there.
With respect to our coverage I think it's important to note our approach here.
Our goal is to minimize the out of pocket costs of our customers and by getting all of this coverage. We've repeated the statistics several times, 30% of the ex Com users commercial users go to the pharmacy zero, copay, and 70% have lower or at least equal to co pay as our major.
Our goal is to get them through and to get them covered rather than rely on the bridging program forever and our team is very successful in getting through that the bridging program is still out there and it's still open but many of the customers go to the drugstore and don't need it.
We've got that pharmacy coverage in place, which creates an opportunity to them for them to spend less.
Italy basis, and that's very important to our users. That's why we have approaches coverage very aggressively in all fairness, we've talked about <unk> seven long enough the payers, we're ready to have discussions.
We were we were met with open arms are theyre very excited at the opportunity to have this new product and for us to get in front of them again.
Yeah.
We will take our next question from Margaret Kaczor with William Blair. Your line is open.
Hey, good afternoon, guys. Thanks for taking the question.
Kevin I don't want to get too far away from diesel that which is clearly driving the short term and where a lot of focus is but I guess can you give us some of the contracts on the steps that you're taking today to drive adoption and to even earlier stage type two patients with <unk> our oral <unk>.
Is it just going to require a clinical data are you guys working on that or are the partnership programs I guess at this point sufficient upscale where coverage can broaden I guess without something like a mobile study.
Where we are working on all fronts. There Margaret. Thank you for the question, we see tremendous benefit to CGM.
As type two diabetes sharing gets more sophisticated.
I was with a physician recently and he talked about CGM being the scorecard.
How do you do this in a heavy aggressively treat type two diabetes without knowing the scorecard and what's going on at CGM offers a tremendous opportunity. It offers an opportunity to reduce or increase medications for individuals who aren't succeeding bring aon's. He is down significantly in combination with therapies, we think.
It will become a vital part will continue to gather data from programs.
Like we have done in the past we're contemplating studies.
But nothing we're ready to publish or announce we don't announce our studies early on we'd like to wait until we get done.
But we are contemplating in saying study proposals that can provide great data. The question is do we want to go do.
<unk> hundred thousand type two patient study and it takes three years in that right. Now we don't think we need that type of evidence, but there is a very strong body of evidence at all of the type two.
Individuals that we've seen that arent on insulin that shows CGM again, it provides a great benefit when youre using index com sensor, where you can rely on the accurate information and you can use it. So we'll stay tuned on that Margaret will talk more about that in future, but it is coming we believe we play a vital role there in spite of all of these advances that we're reading about.
And we will take our next question from Matthew O'brien with Piper Sandler Your line is open.
Afternoon, Thanks for taking my question.
And Jeremy can you talk a little bit more about the pricing commentary that you just made I think.
He said volumes up in the first quarter in the 30 years, but yet overall and this is the domestic question.
Overall up 17, 18% in total so that would mean pricing came down quite a bit is that a trend. We should anticipate and then with your competitor taking pricing up are you really just trying to close the gap entirely here and just be done with this pricing.
The delta between the two of you. Thanks, Yeah.
Yeah I appreciate the question and Thats not what I was necessarily trying to India now, but I was talking about is our underlying patient base is up in the mid <unk> and that was based on the patient base. We gave you as part of our kind of pegs, we give you once a year.
Isn't necessarily coming on specific volume within the quarter, but what I would say is the volume in the quarter was relatively it was robust. It was another good quarter for us and it was on the backs of a record new patient add so I didn't want to get into specifics on volumes. What I can tell you just in generalities around price and price.
And volumes do 10 are continuing to converge over time that has us moving moving less from pharmacy I'm, sorry from <unk> to pharmacy that channel has started to stabilize quite a bit.
There is still some annual <unk> going on so make no mistake, we are still going through that annualized <unk> plus we have the what we talked about earlier, which is the bridge program playing through albeit to a lesser extent so there the prices up.
Moving how we would've expected so we weren't really trying to insinuate that there was an increasing delta between the two was just trying to give some context around a strong robust underlying patient base for the quarter. So we didn't want to read too much into that and apologize. If you gave you the wrong impression.
We'll take our next question from Danielle <unk> with UBS. Your line is open.
Hey, good afternoon, everyone. Thanks, so much for taking the question and congratulations on a good start to the year.
I'm going to try to ask a question qualitatively Kevin because I. Appreciate you guys are going to give us an update in two months here at Adi, but as we look at the basal opportunity we were kind of thinking of looking at intensive insulin intensive type two as a proxy there.
I guess my question for you is it looks like one intensive type two is ramping to 50% plus penetration around five years after securing Medicare coverage. I mean is there any reason to think that could be true as well for basal and arguably could diesel ramp even faster just given that we are significantly ahead of where we.
Where in 2018 from a technology from an awareness perspective anything you could say around that without front running the analyst day. Thanks, so much.
No and its a good question and it's one we discuss a lot internally remember to start reimbursement is with Medicare patients only and that's about half. The population. It has always been our experience that we've got to drive reimbursement.
From the private payers as well and then through the Medicaid programs also.
To get extensive penetration and with type two intensive insulin therapy, we're now pretty much there.
Most of the payer landscape.
Bit of work to do on the Medicaid side still but we're there with Medicare and the private payers. So youll see reimbursement evolve our early on and we get more coverage and then I think we've got to generate these experiences with these users over time, Danielle, but in a five year period.
I can definitely see that and maybe it does go faster because we have such a large group of Av.
And users who are going to have reimbursement on the Medicare side.
At the same time, they're not I'll say endocrinologists. So we've got a broader base of education with respect to their health care providers that we have to cover as well. So we will factor all that in as we go and we'll talk more about it later, but those are all the factors we consider.
We look at it.
Okay.
We will take our next question from Jason Bedford with Raymond James Your line is open.
Good afternoon, just two quick questions that require short answers.
You mentioned I think <unk> was a record for new users just a little clarification. There that was for one there was a <unk> record or are you, saying that you added more new users and four in <unk> than you did in <unk>.
We've added more users in <unk> than we ever have in any quarter index Com's history.
Very clear. Thank you and then Kevin I was intrigued by your comment around.
Actively talking to payers in Europe around basal reimbursement I'm just kind of curious is this something that you would expect in 'twenty three and if not is it something that could happen in 'twenty four.
Yeah.
It will take time.
Overnight.
Outcomes data that we've provided with a mobile study gives us a good first pass I think as we see success with users in the United States and we see outcomes.
And possibly gather more economic data as where we're at.
Some of these patients is going to require that type of <unk>.
Evidence so we don't have.
I don't think we have enough yet personally the team may disagree with me, but I think we need to develop more but certainly it's on the table and it is certainly something we can now discuss because when CMS approves. The policy of this nature of the World takes note and so we are now getting audiences to discuss that internationally and we'll continue to push.
Yeah.
And we will take our next question from Joanne Wuensch with Citibank. Your line is open.
Good evening. Thank you for taking the question and let's start for the year.
I want to make sure I understood. This new user comment I'm going to assume that that also includes that come on patients that are in there.
Might be adding to the difference between the dollar growth in the user growth and then I'm curious how many countries <unk> currently thank you.
Yes sure. It does include <unk> com one users. So this is the entire the entire group decks Com. One is now and I want to say, it's about 12 countries 10 to 12 countries.
I'm trying to do the math in my head across all of them. It's about 10 to 12, so we're starting to really see some uptick.
And some of those smaller countries that we initially launched it and then of course some of the bigger countries, where we have coverage like the U K. We're also seeing some nice uptick as well.
Yeah.
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 questions. Just a quick follow up on decks online as well I know you had talked about.
Entering the year thinking about a third in new patient starts are you assuming some ducks come one just curious if you could talk about where you are right now at <unk> and then as you think about geographic expansion contributions to that going forward through the year.
Your expectations as well.
Yeah sure. So I can I can answer that.
The expectation still is one third of new patients and as you can see some of the encouraging things for example, with the UK formulary decision to include transmitters on there just makes it easier and so the easier we can make it the easier it is going to be so that's still our expectations and right now a majority of the decks com one product is sitting in the EU region. So.
Can you think of geographies think of the European region, and including the U K in that as well, where I think youll expect to see most of the growth associated with <unk> com one.
And really most of the growth for the foreseeable future until we can launch in other jurisdictions meaningfully across the world.
We will take our next question from Mathew Blackman with Stifel. Your line is open.
Good afternoon, everybody. Thanks for taking the question another international one for me just curious for an update on Japan now that you've got broader a broader reimbursement with with <unk> is there any way to just give us a sense of how much that business is annualizing at and how important a component. It is in your 2023 outlook. Thanks.
Yes. This is Kevin I'll take it it's still a relatively small component of our 2023 outlook, we're working with our partner Trumeau, there and with the <unk>.
Broadened coverage.
Well, we'll obviously see an increase but it is not a material part of our plan. This year. We're looking forward over time to getting G. Seven launched over there. We think G. Seven provides us a quite candidly much stronger opportunity in the Japanese market with all of its great features we've grown.
And in Japan.
Not as much as we'd like and as so as we look at the year. We're looking at ways to go faster G. Seven will be one of those and.
Be a bigger part of our 24 plan that it is 23 substantially.
And we will take our next question from Marie Campbell with <unk>. Your line is open.
Okay.
Your line is open please check your mute button.
Apologies I was on mute. Thanks for taking the question you started the call by describing how much prescribers seem to like the G. Seven format and that you had new prescribers coming onto <unk> Com I. Just wanted to clarify are these competitive wins are these prescribers coming completely new to CGM.
And then how much of the launch or the intro is complete as in how many of the potential.
Prescribers have you been able to get to seven and in front of thank you.
Yeah. This is Kevin I'll take that we have a lot of prescribers to go for <unk> seven because there's going to be a very broadly used product, particularly as you look at the basal opportunity. We have ahead of US. We know we have new prescribers, we have to gain and we structured our sales force and design their workflow and goals for the year to in fact go after it.
To go educate those that we need to go to a lot of the prescribers, who have who are prescribing G. Seven could impact being new to CGM. What we do know is there a new desk com and that's what's most important to us of their new <unk> com. It's one of two things either they're new to CGM in general are they've come.
After using competitors' products, both of which we view are good and with G. Seven again the excitement.
And the Doctor's office is the ease of use and it's just so easy to use and so easy for somebody to get started.
<unk> seven with a half hour warm up with the easy insertion with a small form factor that we have in the patient chooses to use the receiver that receiver experience is much better than what they've had before we really are getting great feedback.
The new receiver and and you know and the accuracy of this system. This system. What we're hearing back performs extremely well and people are very happy with what they are saying so word of mouth has been very strong on this product are campaigns have obviously been aggressive but the strength of the product is supported what we've said.
And we'll take our next question from Travis Steed with Bank of America. Your line is open.
Everybody I guess I wanted to touch on margins gross margin in Q1 was actually above the full year guidance. So I understand the bridge on gross margin and then maybe you can talk a little bit about opex leverage while we're on the margin topic and maybe the potential to see upside longer term above that long term margin guide.
Sure Yeah. Thanks for the question you are right Q1 came ahead of expectations and what we saw was we really saw continued efficiencies on our <unk> lines that really played through in the quarter.
It certainly is favorable and given theres a large portion of our base of course that sits on those <unk> lines that played through so it was ahead of the full year, we do expect as more and more folks move to <unk> seven over the course of the year as we're turning on Malaysia, ultimately ramping up our <unk> seven launch and therefore, the throughput on those lines.
We will go through a bit of a margin dip as we make that transition and so we still expect that over the course of the year, we still do expect the year to fall in line with the 62% to 63% gross margin, but you are right Q1 came in strong and I think it just Joe shows the capabilities of our teams when you give them time, what they can do in terms of designing cost out of product on menu.
Factoring lines, we expect something similar like that you'd like that to happen on G seven into those future years.
In terms of margin profile operating margin profile, we gave the long term guide certainly of getting to 20% margins by 2025.
If you assume the year was at 65% gross margin, we're starting to get pretty close to there even in 2023 and that just goes to show you. The leverage we are building into the business, while we're not in a position to change our long term guide to your question do we think that there's opportunities to lever this business over the long haul we do.
And we are putting the levers in place in right now Thats part of what we're doing as an organization. So we're very excited about that opportunity I'm glad you pointed it out we do believe there is opportunity in this business longer term to continue to generate more profits and we will continue to work on doing so.
Yes.
We will take our next question from Chris Pasquale with Nephron Research. Your line is open.
Thanks I appreciate it.
Couple of questions about the middle of the income statement SG&A grew quite a bit faster than sales. This quarter. Just was there anything specific that drove that and then R&D spending has been down year over year now four quarters in a row should we expect that trend to continue or does it start to ramp back up as we go through this year.
Yes, it's a good question, it's really a function of timing.
So I'll start with R&D.
R&D. If you think about this time last year, we were wrapping up a lot of the work around <unk> seven as well as wrapping up a lot of the work on prototype lines for development and so what you saw running through the P&L was an elevated period of spend and as you saw it go through the rest of the year you saw R&D kind of come back down as those G. Seven costs started to either dissipate or move up and up.
Into two different areas liabilities validates validate those lines as much anymore and so you saw that change happening over the course of the year I would not expect that type of leverage on R&D.
We will still continue to leverage it as a percentage of sales, but it won't be what you saw in this quarter.
Just the inverse for SG&A. So we obviously last year, we did not have a super bowl commercial or a <unk> seven launch in the first quarter. This year, we did in the U S. And so you saw an elevated level of spend associated with that which we expected in coming out with our long term guidance was all expected, but that's why you saw the change the other parties.
As you do see the Malaysia costs as we're building up that factory were getting closer to go lives and so we're ramping up costs, but until we go live those costs sit in G&A. So what youll see is the will start to actually leverage SG&A, a little bit more as the year goes on and Conversely will leverage R&D, a little bit less but its still ultimately leads to leverage by the end of the year across both of those.
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We will take our next question from Matt <unk> with Barclays. Your line is open.
Yeah.
Yeah.
Okay, great. Thanks, so much for taking the question so.
Because some follow up here on on the basal opportunity. So clinicians we seek to describe something like procuring.
Paramount painter pent up demand in this community of Medicare.
Are patients.
Patients if you.
Just wondering if you have any sense of how long. That's the way you are also seeing this turn out like how long do you think it'll take to work through that and to have interest in the community and then just if I could also on pricing and margin for this category.
We're talking about sort of mixed factor.
For all these different types of.
The channels that you that you manage.
What is this how does this compare to your sort of core business or maybe some of your other channels in terms of margins and pricing and mix.
Yeah, I'll start and then I'll, let Jeremy go from there, we do see pent up demand and we do see.
People are very excited for this opportunity.
We've gotta get as I said earlier, we work very hard with our channel partners to prepare and so we're ready for that with our <unk> distributors.
Handle the influx of users that will come through that.
With respect to pricing and miles Jeremy you can get a little more specific began this is the same Medicare pricing that we have in our Medicare business for those who are on intensive insulin therapy. So.
And the only thing that would change as a larger portion of our patients could become Medicare patients and subject to Medicare reimbursement and on overall basis Medicare pricing.
Is very favorable for us so we're in a very good position there.
With these patients were very excited.
Serve them, Jeremy you want to add to that yes, I think that's exactly I mean at the end of the day it depends on what the reimbursement would come through at that will ultimately determine margins. Thus far the reimbursement has come in generally in line in a favorable manner.
Over the long term, we'll we'll keep an eye on what that reimbursement looks like and then we'll have that conversation to make sure you guys understand where this is going but all throughout this process, we'll be looking at.
We'll be looking at reimbursement will also be looking at how we deliver our product set that will be a lower cost and so that'll be a way of helping manage through that as well.
We will take our next question from Kyle Rose with Canaccord. Your line is open.
Great and good evening everyone.
So I guess I'll be the I'll be the guy that that asks what's next when you are in the early stages of a new product launch.
Just wondering if you could set some expectations.
With respect to extending the days of use as well as adding back some of those software features that you pulled.
At the request of the FDA in the second half of last year, just help level set expectations for R&D on a go forward basis here. Thank you.
Why don't I start on the software side, we've made significant investments in software will be adding back for example, the.
The shut the alarms off feature for up to six hours in the U S. Certainly before the end of the year that people. It will be added back to the App and we're looking for a steady stream of upgrades to the app over the course of time, what youre going to see from our software team.
As continual upgrades and launches on a much more regular basis than we have in the past part of G Sevens.
Engineering was greatest Huff, we're platform that we can do more with and that we could upgrade much easier than.
And then we have done in the past so that feature will be back before the end of the year and we're excited for that as our.
As our users as far as what comes next number one initiative in our R&D group is to get those extra days of sensor wear out there as we've talked about this publicly we've got some work to do on the patch we have a new patch that we're going to put into manufacturing as a new manufacturing processes, there and we have a couple of other programs.
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That we know can extend the life and make it better what we struggle with and the reason. We started 10 days is we want the appropriate reliability reliability and experience for our users and what they expect.
Upgrading the patch in a couple of other changes were quite confident we can be there and you'll see that life extended here in the.
Not too distant future. It is our number one priority and our team is making very good progress.
Okay.
And we will take our final question from Steve Lichtman with Oppenheimer. Your line is open.
Okay.
Thank you.
Guys I was wondering on as we think about the LCD, obviously, a lot of focus understandably on basal only I was wondering how you're thinking about the opportunity within the non insulin using patients and I understand it's going to be a subset based on the LCD in hypoglycemia risk, but the overall numbers are are very high. So just curious how you are.
Thinking about that and are you approaching commercial pay there as well.
Yes. It is.
Good question, maybe I can start and then certainly Kevin can fill and obviously massive market.
And within that market, there's different use cases as you kind of go through the acuity, even the sub acuity within that market.
So we are thinking about it from multiple different levels.
From a combination of a few different areas. One is is it an area, where we want to reimburse where we're worried about hypo is there a software change we need to make to target maybe a hypoglycemic approach.
So we're thinking about how to either either fit form software and product feature and or does the existing product makes sense, which again in many cases, we think it does so we are working with payers and thinking about how we go after that market in terms of price point and use cases I think that's the one we're still working on because the acuity level may be different there may be someone who is kind of moving more on.
The acute side that is going to want to use it very similar to a basal or an intensive user.
Where it's going to help maybe reverse the progression of the disease as opposed to someone that's maybe more diagnostic on the front end to help may be curb changes earlier on that's something we are working through I think there's going to be a bunch of different use cases, so it's hard to model that price out because I think it's going to it's going to be different based on who exactly is using it.
What stage of the disease state they're in.
Kevin any other thoughts.
No Jeremy I think you've hit it very well it is a different market and it will be different use case, and it's up to up to us to determine the proper value equation for that.
Somebody is getting what they expect to be paying for and the problem isn't as severe as somebody has integrated with an AI system on the other hand, the results can save the system as much if not more money over time. So we're looking at that balance and looking at how best to position our technology in that market, but where.
We're very excited to address it in the future.
And ladies and gentlemen that concludes our question and answer session for today I will now turn the call back to Mr. Kevin Sayer for closing remarks.
Listen I want to thank everybody for listening today. This was a great quarter for us record new patients.
Great beat on the topline continued leverage on our on the operating expense line in General you know based on what we know.
Given the fact that the first quarter of the year, we couldnt be happier here and it's going to be a great year for <unk> com. Thanks for listening have a great day.
And ladies and gentlemen, this concludes today's conference and we thank you for your participation you may now disconnect.
Okay.
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Okay.
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Yes.