Q3 2023 DexCom Inc Earnings Call
Welcome to the decks Com third quarter 2023 earnings release Conference call. My name is deep and I'll be your operator for today's call.
This time all participants are in a listen only mode. Later, we will conduct a question answer session.
A question answer session. If you have a question. Please press star one on your Touchtone phone as a reminder, the conference is being recorded.
I'll now turn the call over to Sean Christensen, Vice President of Finance and Investor Relations. Mr. Christian sent you may begin.
Thank you operator, and welcome to <unk> Coms third 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 <unk>, our chief financial.
Officer.
Following our prepared remarks, we will open the call up for your questions at that time, we ask analysts to limit themselves to one question. So we can provide an opportunity for everyone participating today. Please.
Please note that there are also slides available related to our third 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.
<unk> currently available to <unk> com are subject to various risks and uncertainties and actual results could differ materially from those anticipated in the forward looking statements. 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 third 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 Shawn and thank you everyone for joining US today, we reported another great quarter for decks com with third quarter organic revenue growth of 26% compared to the third quarter of 2022. This.
This year is proving to be one of the most exciting periods in our company's history access is expanding faster than ever before and we're seeing new levels of enthusiasm for our differentiated products. This can be seen firsthand in our broader rollout of G. Seven in the U S building upon our legacy of being the most accurate sensor.
G Seven's focus on simplicity and affordability continues to attract new customers and prescribers to our platform similar to last quarter. The majority of G. Seven customers continued to be new to <unk> com and we took yet another step forward in expanding our prescribing base. There are now nearly 18000 physicians writing scripts.
<unk> com there were not prescribing our products before the G. Seven large this represents a notable increase in our prescribing community and only a short period of time as more clinicians recognize G. Seven's unique feature set ease of use and market leading levels of coverage. This combination has made it incredibly easy for physicians to prescribe decks Com C. G.
M and drive greater levels of engagement within their patient populations. Additionally, our new G. Seven software platform is enhancing our value proposition across all patient types, we've implemented new software updates almost monthly since launch with improvements to features like connectivity and alarm personalization as one example, we have establish.
New lines of communication and our App to simplify the process of engaging with our customers. We are constantly working behind the scenes to improve the customer experience and we will continue to operate with this type of focus to ensure that we have the most user friendly and engaging products on the market. Our customers know that when you joined the decks com ecosystem you get all of the <unk>.
<unk> today, and tomorrow associated with our leading innovation.
Our latest product cycle has also coincided with the largest expansion of coverage in our company's history with significant reimbursement now establish beyond intensive insulin use there are more people with covered access index M. C. G M than ever before as a reminder, Medicare coverage went live in mid April for people with type two diabetes using basal insulin.
Only as well as certain non insulin individuals' of the experience hyperglycemia collectively these two populations represent nearly 7 million people in the U S with approximately half being of Medicare age Encouragingly commercial coverage continues to build for this group, we've established market leading levels of basal only reimbursement as payers clearly.
<unk> recognized the potential for better outcomes driven by decks com. This further supports our industry low out of pocket cost for our customers with a full quarter of broad coverage now under our belt. We continue to be very encouraged by early prescribing trends for this cohort. We noted last quarter that we experienced an immediate uptick in new.
Patient starts once coverage went live and we have seen a clear continuation of this trend since that time in fact, we delivered another record Medicare new patient start quarter in Q3 as physicians have quickly adjusted their prescribing patterns to match the new reimbursement landscape, while early basal adoption trends look very similar to those we.
Previously experience once broad coverage became available for intensively managed type two diabetes. We view this as a very positive sign of things to come importantly, when you combine this broader coverage with our leading sensor technology, we feel incredibly confident in our market position since the launch of G. Seven we have gained share across all re.
Members channels and patient segments in the U S and that trend continued this quarter, even among non reimbursed channels, we are seeing more and more interest index com CGM.
We are also seeing similar dynamics across our international footprint, we have never been better positioned to compete globally from a product access our capacity perspective, and we once again took international share this quarter as a result, our product portfolio continues to be a key contributor to this success by having multiple products available.
We can tailor our offerings to meet the unique needs of individual geographies and reimbursement structures are great example of this was seen in France. This past quarter, where decks come one secured reimbursement for all people on intensive insulin therapy, which represents around half a million people and we have submitted our evidence to extend that coverage to the basal population.
In addition to advancing our product offerings, we've been continuously working to build greater commercial scale and flexibility to serve each market more effectively as we discussed at our Investor day, one way to drive scale is through the conversion of key international markets from distributor to direct operations. Historically these conversions have been followed by a notable uptick.
Nick and performance as we provide greater levels of support and focus to these markets. Once we oversee all facets of sales and distribution along those lines. We recently made the strategic decision to go direct in Japan. As a reminder, Japan became one of the first countries to establish broad reimbursement for anyone taking insulin late last year.
Here, representing more than 1 million lives. Despite this the market remains it is very early stages and we will continue to work to drive much greater CGM adoption over time as we initiate direct sales in the second quarter of next year.
Finally, Eddie ASD. This month, we added to our substantial base of distinctive clinical evidence with new data around long term decks com CGM outcomes and inherits the impact of the XCOM one for type two diabetes and performance within the pregnancy setting study. After study we continue to demonstrate <unk> com's position as a cornerstone with any.
Evolving diabetes care and metabolic health landscape across a wide range of customers and care settings. Our product plays a unique role in providing real time information that can drive behavior change greater patient accountability and more informed therapy decisions like everyone else. We have also been interested to see the latest data behind new drug therapies.
We believe these drugs play an important role in the care continuum and it is encouraging to see new solutions emerging in a growing appreciation around the need for better and earlier care.
Data continues to demonstrate the clinicians prefer to use CGM together with these drugs to drive the best possible outcomes. In fact, we shared claims data this quarter that showed prescribing trends for CGM increase once someone has initiated G. O P. One therapy as clinicians favor decks com for both its protective features an ability just.
Sport lifestyle management as an update we looked at trailing 12 month data through August 20, twenty-three would suggest this dynamic is even more pronounced among the newest generation of these drugs. The data clearly show that CGM usage grows faster in G. L. P. One users than those who are not on therapy. This further demonstrates.
The complementary nature of decks com CGM across all therapy regimes in diabetes as we look forward. We continue to ensure that we advance our unique role within the ecosystem of care as we progress our mission of empowering people to take control of health. This will include launching new products such as our non us on product coming next summer as well as <unk>.
<unk>, our ongoing clinical work across much broader populations. We are still very early in our story in terms of potential impact in number of lives. We can ultimately touch our future's incredibly bright with that I will turn it over to Jeremy for a review of the third quarter financials Jeremy.
Thank you Kevin as a reminder, unless otherwise noted the financial metrics presented today will be discussed on a non-GAAP basis.
Reconciliations to GAAP can be found in today's earnings release as well as on our IR website for.
For the third quarter of 2023, we reported worldwide revenue of $975 million compared to 770 million for the third quarter of 2022 representing growth of 27% on a reported basis and 26% on an organic basis. As a reminder, our definition of organic revenue excludes currency in addition to non.
C G M revenue acquired or divested in the trailing 12 months.
U S revenue totaled 714 million for the third quarter compared to 573 million in the third quarter of 2022 representing growth of 24%.
Between the ongoing success of our G. Seven launch and significant expansion of coverage for decks com. This year, our U S business is really hitting its stride.
This is particularly noticeable when looking at our new customer start trends, which again outpaced our expectations for this quarter.
This dynamic has now played out for several quarters in a row and we are seeing the direct result of that continued momentum in the third quarter, we saw revenue growth accelerate compared to last quarter, and we delivered our fastest quarterly growth rate in over two years.
International revenue grew 33% totaling 261 million in the third quarter International organic revenue growth was 30% for the third quarter, we continued to execute incredibly well and our international markets our product portfolio strategy ongoing access work in growing commercial traction helped us again.
Sure this quarter, we had a particularly strong quarter across our European footprint as we saw growth remained similar to the accelerated level, we saw in the second quarter.
An item of note is we did have slower growth coming from our non C. G M business as well as relatively flat performance in Japan, as we worked with our distributor partner to start the process of transitioning to direct sales.
As a reminder, when we made our distributor acquisition in 'twenty 'twenty. One we also inherited a business that distributed products outside of the diabetes space. We recently made the decision to spin off this unit to focus entirely on our C. G M and diabetes technologies in this region, which we think will enhance our execution in the market. We expect the deal to close in early 'twenty 'twenty four.
And we want to thank our employees for their continued strong work through the transition in the space, our third quarter gross profit was $630 million or 64.7% of revenue compared to 64.2% of revenue in the third quarter of 'twenty 'twenty. Two we're very proud of our gross margin performance in the quarter. This is another testament to the top tier work our operations.
Team continues to deliver this year, despite managing through a new product launch we have improved yields on both the G. Six N G. Seven platforms. In addition, Q3 gross margins benefited from a stronger than expected mix of G. Six customers as our pump users eagerly await G. Seven AI D integration when this transition starts in the coming weeks, we expect in <unk>.
Acceleration in our base shift to G. Seven while G. Seven currently has a higher unit cost profile than G. Six and will over the near term. We expect this to become our highest margin product as we drive greater volumes and economies of scale over the course of 'twenty 'twenty four and beyond operating expenses were 392 million for Q3 of 2023 compared to.
333 million in Q3 of 2022 our focus on cost management again stood out this quarter as we delivered over 300 basis points of operating expense leverage. This now marks the seventh straight quarter that we have generated at least 250 basis points of year over year operating expense leverage we will continue to invest in the growth of the business.
While finding ways to be even more efficient operating income was $238 9 million or 24.5% of revenue in the third quarter of 2023 compared to $160 8 million or 20.9% of revenue in the same quarter of 2022. This margin represents a new quarterly record for decks com.
Adjusted EBITDA was $314 5 million or 32.3% of revenue for the third quarter compared to 226.6 million or 29.4% of revenue for the third quarter of 'twenty 'twenty. Two this margin also represents a new quarterly record for decks com net income in the third quarter was $203 million.
Or 50 cents per share we remain in a very strong financial position as we closed out the quarter with greater than 3.2 billion of cash and cash equivalents, our ability to generate consistent and growing free cash flow is becoming more apparent every quarter and we delivered the highest free cash flow quarter in our company's history. In Q3. This provides us a.
A lot of flexibility to be thoughtful and opportunistic in our capital allocation decisions along those lines. We are excited to announce a $500 million share repurchase program today, given our very strong underlying fundamentals and outlook. We see this as a great time to step into the market and buy back our stock. This program also provides the added benefit of more than.
Offsetting any remaining dilution related to our 20 twenty-three convertible notes as the remainder of these are reaching maturity in the coming weeks.
Turning to guidance, we are raising our full year 'twenty twenty-three revenue guidance to a range of 3.575 to 3.6 billion representing growth of 23% to 24% for the year.
Our updated revenue guidance reflects an increase of over 60 million at the midpoint compared to our previous guidance. It is more than 165 million higher than where we guided to start the year.
From a margin perspective, we are raising our full year non-GAAP gross margin guidance to approximately 64%. We're also increasing our non-GAAP operating and adjusted EBITDA margin guidance for the year to approximately 19 and 28% respectively.
With that I will pass it back to Kevin.
Thanks, Jeremy I would now like to open up the call for Q&A. We also have Jake Leach, our chief operating officer, and Terri Laver, our chief commercial officer, joining us for our question and answer session.
Sean.
Thank you Kevin as a reminder, we ask our audience to limit themselves to only one question at this time and then reenter the queue if necessary operator, please provide the Q&A instructions.
Yes.
Thank you.
We'll now begin the question and answer session. If you have a question. Please press star one on your telephone.
If you wish to be removed from the queue. Please press star. One if you are using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again you have a question. Please press star one on your Touchtone phone.
Okay.
Okay.
We will take our first question from Robbie Marcus with JP Morgan. Please go ahead.
Oh, great. Thanks for taking the question and congrats on an absolutely fantastic quarter.
There is a lot to talk about here, but are just keeping it to one question what really.
Sure just so much upside was the U S number this quarter along with the profitability. So.
Question really is a wine.
How much of that do we ascribe to the new basal indication.
With growth from both Medicare and commercial patients and.
We started to see this.
In France, and in Japan, and I hear that a lot of European countries might over the course of 'twenty four start covering for basal. So the question is really how much is base all contributing today and you know.
How big can it be over the coming years, if all of Europe starts to bring an enhanced reimbursement something that would have been unimaginable just 12 months ago. Thanks a lot.
Hey, Thanks Ravi This is Jeremy I appreciate the comments you know I can take that one.
Now.
You know we can address it from there you know in terms of what the contribution was this quarter from basal.
Obviously, we had a really strong quarter this quarter.
Record new patients once again.
And obviously raise the guide on the year now some of that does come from basal Theres. No question. There as we continue to open up reimbursement.
The new patients are coming along and Kevin mentioned it we're starting to see basal followed similar patterns that type two intensive.
You know when you when you think about coming into this year.
40% to 45% adoption, but really the curve is starting to follow that so we're very excited about the opportunity there.
So that's in the U S and certainly clearly that's playing out here in terms of O U S.
Great opportunity you know one of the things we've seen outside the U S is as access is created create significant opportunities for growth and you've seen our actions over the course of the past few years, we've created a lot of access for our products and in turn our international markets have grown incredibly well and there is a large population outside the U S that this would ultimately apply it.
Two once you have basal coverage so it could be an absolute are an absolute tailwind for us for years and years to come it's something obviously, we're very excited about don't want to get ahead of ourselves right, we have to get that coverage in place.
But the bullishness you hear about the U S experience is what we would expect to see is more and more coverage comes in so we leave very excited about the future holds.
Sure.
Thanks, a lot.
Yes.
Our next question comes from Margaret Keizer Andrew.
With William Blair. Please go ahead.
Hey, good afternoon, guys. Thanks for taking the question.
Yeah, Let me say a lot to talk on the quarter I'm sure a lot of people will get to that but you know one of the things that I want it.
Sure.
Dialogue you may have.
They switch clinical societies around where CGM fits within the treatment paradigm.
For users and I ask because obviously there could be a change in that.
It is right now and so can you use some of those discussions at all for TTM, well and again, if it's not now.
Okay.
Thanks.
You know Margaret this is Kevin I'll take that we have had discussions with the societies on expanding coverage for people with type two diabetes not on insulin.
And those.
Discussions continue we've seen a gradual uptick for lack of a better word in the guidelines as CGM use from a professional societies over the last several years and as we gather more data as we see more data come in from studies, we're aware of over the next 12 months.
We believe we can continue to build a better case every time, we run a study or look at a study from this population in this group.
People on CGM do better it's just simple they have better outcomes, they're more adherent to their merge they have a feedback loop that they don't have any other way. We're very excited about this opportunity that's why we're going with the.
You know the product.
We've talked about filing before the end of the share and launching next year. Our product is designed for people not on insulin.
We think it's going to be a great product offering on this front going forward. So we're looking forward to it and I think we'll be able to write the script. The same way we have written the script in our industry. So far.
Our next question comes from Larry <unk> with Wells Fargo. Please go ahead.
Good afternoon, and thanks for taking the question and reiterate that my congratulations on a really strong quarter here.
Jeremy I wanted to ask about the guidance in any car.
Comments on next year.
The math, if I'm doing it correctly.
<unk> Q4 growth slows.
400 basis points.
Get the same quarter over quarter lift you typically see.
And so why is that and any.
Any reason why the momentum for.
For sales growth would slow next year.
And then.
Anything we should think about on the margins that safety implications from Japan. Thank you.
Yeah. So thanks for the question Larry So in terms of where the guide goes you know I think you're right. It does imply a tad or a D cell. Most of that you know I would say is related to really comps historically over time and Larry you've tracked us for a while so you know as we move more out of commercial D. M. A N into pharmacy tip.
We have enough uptick into Q4, and those and those DMA environments as more and more of our of our folks go through the retail channel you kind of lose some of that so really you're playing about it's really about seasonality within the course of a year. So we're not trying to imply anything really what we're trying to say is this is this is the trajectory we see it going with seasonality. This is our again our.
Our base case as we start to look at guidance over the course of the year and so the trends underlying trends if theres nothing to say there I mean, the underlying trends in this business remains strong I don't think were trying to imply anything other than that we do expect you kind of referenced Japan, there could be around the fringes until we go direct a little bit of a stabilized as opposed to necessarily growing story around Japan.
And so that is around the fringes, but that represents a really small piece of the business on the international side really what Youre seeing is just us being mindful about seasonality in our base case, and then certainly if we can outperform we'll do what we traditionally do which is try to do so.
Thank you.
Our next question comes from Daniel and healthy with UBS. Please go ahead.
Hey, good afternoon, guys. Thanks, so much for taking the question.
Congrats on a really great quarter.
Just curious as Jeremy alluded to this.
It is starting to ramp similar to how the implant.
Hey, you did when you got coverage there.
Utilization perspective, any color you can give on how these days days all patients are adopting technology similar to what you saw in the novel study I know it's early but.
That's been Reorders by now so just curious what you're seeing thanks, so much.
Yeah really.
I appreciate the congrats thanks.
What we see is in Terry's here. So what I can do is I can give you kind of what we're seeing maybe numbers wise, but maybe Terry can kind of take you into the day to day interaction with patients numbers wise, we haven't seen much of a change at this point that the population does has reorders relatively in the same capacity as as in the past and so that's a good early indicator, but maybe Terry can take you through what she is here.
Airing and seeing in the field around the excitement around basal and who wants to use it sure. Thanks, Jeremy and thanks Danielle.
No the trends as Kevin referenced that we see in basal in terms of uptake and intention to prescribe from the physicians mirror, what we've seen in other segments of the marketplace and the coverage is certainly a big driver of that we track coverage very closely for next time for the industry and in diesel as with the rest of the Mark.
<unk> Com continues to be the most covered CGM with the lowest out of pocket co pay we also have the benefit of being out in front of the payers and the health care providers with the multiple study demonstrating the benefit and the outcomes that decks com drives for this population. So we see a nice trajectory I think in line with what we would expect and we expect.
That to continue.
Thank you.
Yeah.
Our next question comes from Matt Taylor with Jefferies. Please go ahead.
Hey, Thanks for taking my question and congrats on the result.
I guess I wanted to ask you Kevin can talk more here about the.
They'd be combination therapy or benefit.
C G M D.
<unk> with GOP ones that I was wondering if you had thought about partnering with the pharma companies are maybe running studies.
So that over time, there is a benefit to using P. G M with the drugs things like that that might give investors, even more confidence longer term in the future of CGM and equip world.
Well, certainly we think about partnering with the drug companies, but they are doing so well right. Now there are they are very busy.
We do have relationships.
I have had discussions with respect to studies, we certainly talk about some of those internally we saw clinical evidence over at the ASD meeting recently, where that was a large topic of discussion at the team, but brought back and we're very aware of studies coming out over the first half of 2024 that are going to show some of that.
These data for the use of these combo.
These new drugs in CGM in combination and how that works for people. So we know there's evidence coming and investigator initiated studies and we're looking at some of our own right now I think the data will continue to support it.
Great. Thank you very much.
Yeah.
Our next question comes from Matthew O'brien with Piper Sandler. Please go ahead.
Afternoon. Thanks for taking my question can you maybe Jeremy you mentioned this but you talked about the G. Seven integration that's upcoming here in the next few weeks.
Is that is that literally sometime in November we'll start to see that and then.
Just talk about what that's going to do in terms of.
Trying to access new patients, but also convert existing <unk> users over to G. Seven any kind of disruption that that could cause.
In Q4 than early next year. Thanks.
Yeah, Hey, Matt you know, we have Jake here right now who's intimately familiar so let me Jake what do you think yeah sure. So.
We are very excited about transitioning our <unk> AI to users over to G. Seven once those pump partners have compatibility that's coming very rapidly and we really think it's.
It's going to be important for those users to be able to access the benefits of <unk> seven it's the most accurate sensor. So having that are driving those aig's systems, we're really looking forward to seeing that out in the marketplace no real disruption those users will basically just switch over for tandem as a firmware update to the pump.
And they'll just switch over to <unk> six <unk> seven once they get their <unk> supplies are utilized and they get the new prescription for <unk>.
Much looking forward to that product being in the field.
Thank you.
Our next question comes from Mathew Blackman with Stifel. Please go ahead.
Hi, good afternoon, everybody. Thanks for taking my question.
So we did a big CGM survey last month and one of the most interesting takeaways were very positive early expectations for the non insulin opportunity Nick docs expecting peak penetration over time should approach the 50 plus percent range and with a pretty steep adoption curve. So it really does seem somewhat similar to the type two intensive.
I was just hoping for any color on how that tracked versus your expectations for non insulin assuming some reimbursement overtime does any color there would be helpful. Thanks.
You know what I'll I'll take that one and I appreciate the question and that's long been our view.
In fact, one of the things I tell our guys hear frequently is while it took us many years to build the intensive insulin market and get this technology adopted rapidly I don't believe the curve is going to be near that long and.
This type two world once people start using this product and we gear and experience towards what will be meaningful to them because what is meaningful to them is different than what's meaningful to our current patients again, driven by the performance of our product and they have accurate data bell.
Once we get an experience that enhances their lives with respect to the performance of their medications.
What exercise does what their various nutrition does in their lives and can add other insights from other sensors. We think we can create a tremendous health care experience in this market and we do think we can ultimately push towards reimbursement.
Pos wave and creation of a new product category altogether.
Or for those individuals', we're pretty thrilled about it I think it's going to be a great great opportunity, yes, and Matt.
Thank you for that study, obviously, we saw it as well.
In terms of in terms of timing I think one of the things that is our obligation as a management team is just to make sure.
As we start to see it and as we launch products that are geared to this population. We keep you in line with what we see so we can have a collective understanding about where that market is going over time, so it'd be should be assured as we start to get more line of sight into and obviously you can tell we're very bullish on the opportunity we.
We will make sure we communicate that as quarters proceed.
Thank you I appreciate it everybody.
Our next question comes from Joanne Wuensch with Citi Bank. Please go ahead.
What do you think that really stuck out to me this quarter was margin and operating margin of course that youre tied but even your SG&A was well contained does this create a new.
On a go forward rate or how do I think about that because that's fair that's.
Quite nice.
Yeah. Thanks for the question I'll take I'll take the portion on the gross margin and then Jeremy can talk about operating margins so with <unk>.
Gross margin, yes, we're really thrilled with the results this quarter, it's really a testament to how well our operations teams are executing across both <unk> six and <unk> seven.
Yields on the G. Seven scale up we're a little ahead of where we planned which is a fantastic place to be.
We look at the transition from the <unk>.
Patients from <unk> six to <unk> seven one of the things that is implied in our in our guide there for gross margin for the year.
And the next year as we look in the long range.
We are going to be switching those patients or seven which G. Seven today is at a slightly lower gross margin.
Just based on where it is in its product lifecycle <unk> six is a higher margin product today over time as we do switch our base all over to <unk> seven and continue to scale that product. We have a very good path to getting to lower costs than <unk> six on that over time, but what we're trying to do we'd be on that guys are transparent around the margin gross margin.
For the product just as we do that transition.
And then to your question on operating margin and our spend profile lays out.
Certainly a great quarter, and I think we're really happy with it.
At the end of the day, we raised our full year guidance to 19% on the op margin perspective, and that's on the back of some of the work we're doing around it.
Investor Day, we talked about our cost to execute initiative and a lot of that was around driving profitability. So I think you can expect us to continue to look at driving operating margin over time, there will be ebbs and flows as we invest in the business for growth and so I think it's reasonable to expect.
Ebbs and flows, but I'll kind of rewind back to where we started the year right from JP Morgan, we issued guidance of around 16, 5% operating margin and now we're talking about exiting the year at 19% and that's just all around the work of just being highly efficient around how we deliver service how we deliver support how we look to acquire customers all of the things that we tried to do I E.
Can tell we are absolutely focused on making sure we do so in an efficient manner, while continuing to reinvest in the business.
Thank you very much.
Our next question comes from Jeff Johnson with Baird. Please go ahead.
Thank you good afternoon, guys I will admit I missed most of the prepared comments I jumped on right as Matt O'brien was asking his question, but it was a G. Seven integration question for Matt and Jake.
From your answer I, just wanted to ask one follow up question I guess, if I could.
We started to hear just in the last week or two that maybe are there was a.
Maybe newer version of G. Seven that has to come along to fully integrate with control IQ. Just if you can clarify what I'm hearing in the field or help me understand what I'm hearing in the field.
And that that newer version of G. Seven is only going to be available for the first couple of months here in the D. M E channel and eventually in pharmacy as of January one.
So what's going on there and is that anything at all from an investor perspective, we need to think about worry about that.
Impact numbers at all it doesn't sound like it to me, but just would love your insight there. Thanks.
Yeah. Thanks, Thanks for the question Geoff So, yes, as we continually scale and the G. Seven platform, we've actually made several enhancements to the product both on the software side, but also on the hardware items, we actually recently made an update to the Bluetooth capability on the product both increasing.
The frequency that we can reconnect to advice as well as the performance of the Bluetooth.
Radio itself, so that product is compatible with the tandem pump and is already shipping globally. Both here in the U S and internationally and we don't expect there to be any issue with people being able to upgrade their tandem pumps to the G. Seven compatibility and Jeff No margin concerns no.
This is really par for the course and what we do in terms of iterations over time, a lot of times you don't necessarily hear about it we went through this with <unk>, you'll remember it we had a transmitter swap out which ultimately came through at a lower cost higher performance.
I would expect more of these types of changes over time, whether it's software and hardware as we continue to make.
Improvements to the platform over time as part of just continuous improvement.
<unk> only availability through the end of this year is that just to control kind of access initially or just anything I'm missing there.
No Theres nothing you are missing there theres product that'll be out in all channels.
So really I think what youre hearing is timing questions about when you burn through things that I think more anecdotal than anything else everybody is going to be able to have access to this thing in short order right.
It might start to the <unk>, just because thats the channel that you can generally start through but.
This product will be available everywhere, well and that also accommodates a lot of our tenant buffers because they get a lot of their suppliers through the <unk> channel too Jeff So.
This has been well thought out.
Thank you.
Our next question comes from Travis Steed.
With Bank of America. Please go ahead.
That's everybody on the on the good quarter.
Maybe just talk about the buyback the thought process for the buyback how much of that is related to the convert versus just seeing your stock at an attractive valuation and is buyback something we should think about you doing more going forward now that you've got your free cash flow or is that a good level.
Yeah. So we think about the buybacks in multiple different ways, certainly we want to limit dilution and that's that's something we always think about as we launch converts.
The other things we do when we launched converts as obviously they come at a lower cash cost and so when we have the opportunity to take the.
The incremental cash that we're making through those and give that back to shareholders. We certainly do so and then you know look at the end of the day, while it's not for us to comment on share price that certainly for others.
We are highly highly highly.
Bullish on our business over the long term and so when we see an opportunity to invest in our business either in the form of investment in capabilities or by purchasing stock back we certainly want to take those opportunities whether or not we do these all the time look it's been two consecutive years, we've done that so it's something we'll certainly always look at you can tell we're not shy about it.
But we'll always take a look at it and make sure that we're opportunistic around it as well as representing.
Representing the bullishness, we have in our business.
Great. Thank you.
Our next question comes from Murray Tebow with BTG.
Please go ahead.
When it goes off complementarity between CGM use in the D. L. P ones I'm, just curious to get more details on the magnitude of that and any thoughts on why that would be even more pronounced with the latest generation. Thanks.
Well this is Kevin and I'll have Jeremy jump in too because he's more familiar with the underlying data than I am but the underlying gear as we research. This as much as we can indicate with a new compounds.
The physicians are also prescribing CGM for the GOP one users as they add <unk> to diabetes therapies. There are already existing they want to give these patients a scoreboard to let them know how they're doing and they're seeing very good results from the <unk> in combination with other therapies, they're on and then you add a sensor to it you.
Can see okay I've taken this drug and look at my habits have changed.
Cal My average glucose has changed over the course of a week or a month versus where it was before and so we think were a vital tool in a very good tool in the underlying data that we're seeing in prescriptions support said, Jeremy if you have anything else to add no. That's exactly it and if you are asking kind of the why the reason Murray I mean, we have we have clinicians tell us all the time.
Two administered drugs as potent as these are and ultimately to ensure that they are effective both while they're on the drug and while theyre coming off the drug and how they ultimately engage going forward. There is a high correlation of interest in CGM and the more and more folks we speak to they are saying you know why why wouldn't you want to understand what's <unk>.
On in the body as to how to better understand one to titrate the drugs, but then how to change behaviors and get folks off the drugs over the long haul. So youre, just seeing more and more of that in the script data proves it.
All right got it thank you.
Our next question comes from.
William <unk> from Canaccord. Please go ahead.
Okay.
Hi, This is Kate on for Bell <unk> and yeah. Congrats on a great quarter, just maybe touch on the non insulin product. Thank you.
You mentioned that it was going to come out next summer any more color you can provide on this specific product features but you havent talked about before and any updates kind of on the price point of where you are with with payer conversations. Thank you.
Yes. This is Jack I'll take the first part about the products. So yes. It is.
Really excited about it we've already finished the clinical trial required for the submission.
Before the end of this year for the product. It's 15 day midsize CGM criteria. So really really excited about that and the product is all about helping people really engage with their health. So it is a different completely different software experience than what our G series and <unk> one products are I'm not going to get into all the specific features.
Yet, but rest assured our focus is to ensure that people get the benefit of CGM and basically helping them connect the dots to the other lifestyle and.
It's really a important tool to help them learn about no matter what therapy they are on.
And how their metabolic health can be improved.
So really excited teams just finishing up validation in the product and we're looking forward to launching it next year.
Caitlin Hi, it's Terry Thanks for the question Yeah. This product like all of our product stocks with unique insights into the needs of our customers. So we're really excited to bring a product to the market that is designed specifically for those who are not on insulin. This is a highly motivated group.
Different needs different health needs different lifestyle needs and different product and feature needs.
First is those who are on insulin. So we've designed the product specifically for that group understanding what additional medications they might be on and we are excited to bring this to the market probably in the summer of next year is what we're tracking.
And over time, we'll look for reimbursement we've talked about this as a cash pay option to start and that's how we'll do it as far as the exact pricing that remains to be determined when we launch we are not going to give that out yet so.
We're excited as you can tell.
Our next question comes from Jason Bedford with Raymond James. Please go ahead.
Thanks, and good afternoon, so two questions that require.
One word answers whats the whats the timeline on basal coverage in France, and then maybe for Jeremy What's the annual revenue contribution from that business that you expect to us to sell off in the first half of 'twenty four.
Yeah, So easy answers basal expected 2024, and France timing exactly will depend on the government bodies, but we expect it in the first half of 2024.
And the approximate contribution from the business being spun off its $30 million annual run rate.
Thank you.
Our next question comes from Michael <unk> with Wolfe Research. Please go ahead.
Good afternoon. Thank you for taking the question in the prepared remarks.
You mentioned you.
<unk> gained share across all reimbursement channels and segments and then added even in non reimbursed channels I'm curious I mean, clearly we know about the innovation work here in the product launch in that that might be the answer but is there anything.
Commercially youre doing different in the cash pay market today.
It's influencing that comment.
No. We do have a cash pay program right now at G. Seven, but we've not done anything significant I I'll go back mainly to our coverage I mean G. Seven coverage has come at a rate much faster than anything we've done before.
Not just on the payable side, but also on the intensive insulin side and every place else. So were widely covered and people find it very easy to get and very easy to pick it up in the channel that they choose to pursue.
We offer the cash pay program and that there are people taking advantage of it they like G. Seven they liked the different form factor the ease of use and the things that we offer so we have seen an increase there, but it's not something we're pushing really hard.
Thank you.
Okay.
Our next question comes from Steve Lichtman with Oppenheimer and company. Please go ahead.
Thank you congrats guys.
Obviously, a lot of focus on basal as expected.
But you do of course have coverage now for non insulin hypo at risk, which is sizable population its own right.
Can you talk about what Youre hearing from physicians on the use of CGM there.
And are you hearing anything in the field of changes your initial view on how big that opportunity can be in particular.
Yes, Thanks, Steve It's Terry.
Only about six months in sentiment since the implementation of that CNS precision. So it's still an evolving landscape for the problematic hypoglycemia group, but we see a real opportunity to continue to build coverage with the payers to continue to educate them and to build education with the HCP community keeping in mind that.
This is a population where historically, we haven't thought a lot about CGM use in utilization, but the data that we now have that supported the CNS decision that will continue to be able to bring to the payers is really compelling. So we see a tremendous opportunity here and one that's still quite nascent with a lot of upside in the future.
Thank you.
Our next question comes from Josh Jennings with TD Cowen. Please go ahead.
Hi, Thanks for taking the questions I know you have a lot in front of you with type two basal and the cash paid product being launched next year, but you did mention that you are pursuing reimbursement Kevin for type two non insulin using patients and was just hoping to better understand the roadmap here the clinical development program and should we investors be thinking.
Two to three years for that potential reimbursement to come in were three to five years.
And then just on top of that just you know, what's what's giving you. The optimism that you can can show a clinically meaningful and statistically <unk> reduction.
They weren't seeing that type two non insulin using population I think you had some registry data and I know you had some registry data.
At Ada this year, but any other signals in.
And drivers of your confidence thanks.
Look we've done numerous studies and every time, we introduce CGM to this population, we see lower even see higher time and range and all the other vital signs of these patients get better.
And so we are confident that we have a positive in CAC I'll add a couple of other things that we've heard.
And in my own travels and travels or the group one of the things everybody is concerned about is inherent to MIT.
With CGM, we can.
Patients can see what happens when they're here it to their management when they taken be it.
Whichever type two therapy, they're on they can see what happens when they take their med form at every morning, or there is <unk> two pill or even the effect of their GOP. One injection every week, they can see what happens and that adherence to drugs lease a better.
Better health on overall basis, so let's be clear, it's not like diabetes growth has slowed down anywhere.
Diabetes still continues to grow rapidly in the cost of diabetes care is greatest all of our technologies have been continues to increase so if we can be a cog in that wheel to whereby we add an element of cost it's not not that significant when you look at the Grand scheme of things, but can reduce many other cost and produce.
Complications that they spend on other things and possibly slow down the train on some of the <unk> people have to move to we think we have a great role to play here and that's how we look at it I don't think it's going to take five years. I think this is more of a two to three year journey, but you know what that's it gospel According to me.
I don't have anything else to base that on but Youll see data continue.
To pile up in this segment, particularly as we launch a cash pay product to start and then get some basic reimbursement from that from others, We're making our case, obviously building a case with CMS like we did for mobile on base oil that was data produced by Dex Com, we're pretty good at that.
So we'll keep pushing.
Great. Thanks, so much.
Our next question comes from Matt MC sick with Barclays. Please go ahead.
Hey, good afternoon, and congrats on the quarter and appreciate all the all the color today on the call.
If I could follow up on the comments you made do you have an idea about the number of.
New prescribers.
Oh, it's driven by the launch.
Get some color if you could share around.
Is that a is that sort of getting further into that sort of simple.
Listen the simple user segment of the market as it is it linked in any way to the basal coverage what's your assessment.
What's been driving that and other.
Other than G seven just being great but.
And then also maybe the implications are there trends in the U S.
If that continues.
Hey, Matt This is Jeremy I can take this and by the way. It's all intentional right. We have a we have a commercial team that's done an incredible job of identifying areas to go in and doctors to really certainly focus on.
Where we can come in with the product demonstrate obviously, it's the most accurate certainly it's easy to use and with the coverage. We have I think it really demonstrates to the physicians in their prescribing patterns look we can we have the lowest out of pocket for these patients and we can ultimately keep them on therapy adherence for much longer period, So I think that in <unk>.
And obviously G seven and all the features it has inherent in it has allowed these physicians to make the change, but it's a wonderful product wonderful coverage and absolutely intentionality by the sales team I mean, just a great job by that team identifying who those targets are going out there and addressing it. So it's no coincidence that eighth.
<unk> thousand incremental prescribers.
A significant amount in the PCB space and a lot of folks are switching these pcp's or switching from who they prescribed today and moving over to <unk> com. So we're really proud of it and obviously it was a 1000 in the first quarter 8000 in the second quarter and another 9000 this quarter. So it is.
The message is getting out and it's meaningful.
That's great. Thank you for the color.
Yes.
Our next question comes from Mike Kratky with Leerink partners. Please go ahead.
Yes, hi, everyone. Thanks for taking our question just going back to basal only what's the latest basal only commercial coverage you have in place and how are you thinking about both the cadence and what's needed to bridge that gap to get more full coverage.
This is Terry are happy to take that one yeah. We track coverage very closely for next time and for the industry and <unk> is the most covered CGM with the lowest out of pocket co pay that is true for the overall population in U S. Commercial lives and it's also true for the basal population and I would.
Keep in mind that we were out with the global study in front of the payers even before the CMS decision came through so we continue to we will continue to lead in the coverage for this population.
And then your question was is how how much more do we need to go the answer is it's not a lot of commercial payers were already really covering this you know Terry referenced we have the most wide covered.
So it's just canvassing and by the way. This is not something that we didn't face with type one it's not something we didn't face with type two intensive and so just give us time, but a majority of people walking around with using basal insulin now have access to CGM technology. It's a wonderful thing for the population.
Understood Thanks very much.
Okay.
This concludes our question and answer session for today.
I will now turn the call over to Mr. Kevin Sayer for closing remarks.
Thank you.
This was truly a banner quarter for US this was our first quarter with over $200 million in year over year quarterly growth in the second consecutive quarter of record financial performance and market share gains on all fronts.
RG seven launch remains in its early stages, there's tremendous amount of momentum left in this launch with our plan.
So this system and also our upcoming AAD integrations.
In addition to continuing to perform in these traditional metrics our company's growth as a world class organization on a number of fronts continues to be recognized.
<unk> Com was recognized by Forbes as one of the top five organizations to work for in the state of California by the way three of the top five or universities or one or two companies in that group.
We were recognized by Newsweek as one of the 300 top green organizations in acknowledging our great work of our teams to advance our sustainability initiatives and we are considering this very thoroughly and all of our product development efforts going forward.
Great honors for our company I want to thank everybody here at <unk> Com, who makes these great things happen and thank everybody for your continued support.
Thank you.
Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.
[music].
Yes.
[music].
Okay.
[music].