Welcome to the DexCom Fourth Quarter and Full Year 2020 Earnings Release Call. My name is Darryl, and I will be your operator for today's call. Please note that this conference is being recorded. I will now turn the call over to Sean Christensen. Sean, you may begin.

Thank you, operator, and welcome to DexCom's Fourth Quarter and Full Year 2020 Earnings Call. Our agenda begins with Kevin Sayer, DexCom's Chairman, President and CEO, who will provide a summary of the quarter and the full year 2020, followed by a financial review and outlook from Quen Blackford, our COO and CFO, and then a strategic update from Steve Pacelli, our Executive Vice President of Strategy and Corporate Development. After our prepared remarks, we will open the call for your questions. Please note that there are also slides available related to our fourth quarter performance on the DexCom Investor Relations website. 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 are made as of the date hereof based on information currently available to DexCom, are subject to various risks and uncertainties, and actual results could differ materially from those anticipated. The factors that could cause actual results to differ materially from those expressed or implied are detailed in DexCom's annual report 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 statements to actual results. Additionally, during the call, we will discuss certain financial measures that have not been prepared in accordance with GAAP regarding 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 prepared in accordance with GAAP. Please refer to the tables in our earnings release and the slides accompanying our fourth quarter and full year 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. Let me start by summarizing some of the themes that DexCom accomplished in 2020. Total revenue grew 31% over 2019, driven by a record number of new patient additions. This translates to more than $415 million in absolute dollar growth, another high watermark for DexCom. We doubled G6 capacity in the first 6 months of the year. Our team has done a great job to meet the ambitious plans that we outlined nearly 2 years ago to scale G6 capacity, leaving the company in the best inventory position that we have been in since the launch of G6. The scale-up led to strong gross margin expansion in 2020, even as we increasingly shift our business to the pharmacy channel. We closed the full year 2020 with our highest gross margin since 2017. Our enhanced capacity puts us in position to aggressively pursue our growth initiatives. This includes the expansion of our sales force, which we announced in October and have nearly completed as well as our efforts around product sampling and direct-to-consumer advertising in the U.S. and international markets. Many of you have seen our most recent effort to drive category awareness as we kicked off a new campaign around one of our DexCom warriors, Nick Jonas, including our ad during the Super Bowl. This bold effort should give you a sense of our belief about the market opportunity ahead of us. We've received great feedback from the campaign so far and look forward to joining forces with Nick and diabetes advocacy groups in the coming months to drive greater awareness of the benefits of CGM. At the height of the pandemic's first wave, we established a new effort in a matter of days to support hospitals needing to preserve personal protective equipment and utilize our remote monitoring technology. We've made significant progress in our work to bring DexCom CGM to people with type 2 diabetes, including both those on intensive insulin therapy and those who are not. We also announced several new initiatives in 2020 that we believe will position us to meet the kinds of patient growth that we expect over the next several years. Building on the success of our team in Manila, where we've strengthened our customer service metrics across the board, we announced a new global business services unit in Lithuania that will help serve our international operations. We also announced that we will be building our third manufacturing site and first international manufacturing site in Malaysia. This state-of-the-art facility will be key to scaling our G7 capacity and provide logistical advantages as we look to serve our growing international base. Speaking of G7, 2020 saw us initiate and complete the first G7 pivotal trial. We're very happy with these results, and the feedback we've received from participants and clinicians involved in the trial has been outstanding. Our clinical work is continuing as we progress with the regulatory path in 2021 to support our goal to launch G7 in the second half of the year. In any given year, these are accomplishments that we would be proud of. But in 2020, our teams accomplished these goals during a global pandemic. I want to use this forum again to say how proud I am of the DexCom employees who have embraced our mission to empower people to take control of diabetes in a year of very unique challenges. It is a privilege to both lead and learn from such a talented team. And rest assured, our team is focused on the growth opportunity ahead of us as we're now well on our way in 2021. This is shaping up to be another exciting year for the company, featuring our continued momentum as we look to bring G6 to many potential customers yet to use CGM, the ongoing manufacturing scale-up and launch of G7 and investing in several other key initiatives related to the growth pillars that we outlined at our recent Investor Day. We believe there is still a huge growth opportunity ahead, and we are investing to ensure that the company is positioned to deliver CGM as a mass market technology for greater health outcomes. The pandemic has contributed to structural changes in the way health care is delivered, with DexCom CGM a valuable asset in the growing digital health and remote monitoring healthcare ecosystems yet a majority of people with diabetes in the world continue to rely on fingerstick technology. It is because of these developing landscapes and our belief on what DexCom CGM offers that we are announcing the formation of DexCom Ventures today, which Steve Pacelli will lead. With this entrance into the venture capital space, we believe we will be able to accelerate development for innovative companies that share our commitment to empowering greater health outcomes for customers and their clinicians. This may include technologies with use cases that can be combined with our CGM system as well as independent technology platforms. To summarize, we are very proud of what we accomplished in 2020 and are moving forward with the same commitment to our users and the growth of DexCom well into the future. With that, I will turn it over to Quentin for a review of the fourth-quarter financials and discussion of the 2021 outlook.

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. We reported worldwide revenue of $568.9 million for the fourth quarter compared to $462.8 million for the fourth quarter of 2019, representing growth of 23%. Our team did a great job maintaining momentum with new patient additions in the fourth quarter and accelerating our shift of the business into the pharmacy channel. Even with the increasing COVID lockdowns as the quarter progressed, new patients for the fourth quarter were in line with our original expectations for the year, a new record and a great achievement for our team. U.S. revenue grew 20% over the fourth quarter of 2019, totaling $451 million. We were able to drive more volume into the pharmacy channel than we originally expected, closing the year approaching 50% of our total U.S. commercial volume. This means that we are making excellent progress to position the company for long-term growth in the U.S. and an efficient operating model for the company. And while there is channel mix causing lower revenue per patient in the pharmacy channel, the underlying strength of the business saw fourth quarter unit volumes grow significantly more than our revenue growth rate in the U.S. Our international business reached a new high-water mark of $117 million in the fourth quarter of 2020, growing 35% over the fourth quarter of 2019. This growth includes strong performance in both our direct and distributor markets. We began an international DTC campaign in several of our markets in the fourth quarter and will continue to drive awareness of the benefits of our technology, knowing that CGM market penetration internationally remains even less than in the U.S. Our fourth quarter gross profit was $399.1 million or 70.2% of revenue compared to 66.8% of revenue in the fourth quarter of 2019. The 70.2% of revenue represents our highest gross margin quarter in the past 5 years. This is another demonstration of the ability of our team to navigate our strategic shift to the pharmacy channel while delivering strong profitability across the organization. As Kevin noted, our successful scale-up of G6 has been a key driver of this margin expansion while also placing us in our strongest inventory position to date, allowing us to more aggressively target new users as we continue in 2021. Operating expenses were $294.7 million for Q4 2020 compared to $205.7 million in Q4 2019. The year-over-year expense growth in the fourth quarter consists of several key areas of strategic investment, which includes roughly $15 million of nonrecurring spend related to enhancing our software development efforts and automation of our production capabilities. We also increased spending related to our DTC programs, product sampling, and the expansion of our U.S. sales force. Even with significant investments throughout 2020 to prepare DexCom for future growth and efficiency, total operating expense growth for the year totaled 26%, well below our 31% revenue growth for the year. Operating income was $104.4 million or 18.4% of revenue in the fourth quarter of 2020 compared to $103.6 million or 22.4% of revenue in the same quarter of 2019. For the year, we delivered more than 500 basis points of operating margin expansion, with full year 2020 operating margin of 16.6%, exceeding our most recent guidance. Adjusted EBITDA was $159.2 million or 28% of revenue for the fourth quarter compared to $141.7 million or 30.6% of revenue for the fourth quarter of 2019. Our full year adjusted EBITDA margin of 26.3% also exceeded our most recent guidance and came in more than 300 basis points better than our original 2020 guidance. As our margin progress shows, the significant steps that we have taken over the past few years are having a great impact on our ability to translate revenue growth into profitability. We are confident that the trend will continue over the long term as we move towards the 5-year targets that we laid out for you at our recent Investor Day by simultaneously taking opportunities that arise to invest in the growth ahead of us. Net income for the fourth quarter was $90.4 million or $0.91 per share. We significantly increased operating cash flow in 2020 and remain in a strong cash position with greater than $2.7 billion of cash and cash equivalents on the balance sheet as we exit the year. This gives us the flexibility to pursue the strategic investments that we believe will allow us to maintain a leadership position in our field. These include some of the investments we discussed related to our fourth quarter activities. Turning to 2021 guidance. As we stated early last month, we anticipate full year revenues of $2.21 billion to $2.31 billion, representing growth of 15% to 20%. We expect new patient growth to continue to exceed our revenue growth rate again in 2021, with our team extending their efforts to drive U.S. commercial business into our preferred pharmacy channel. We've also contemplated potential benefits from our efforts to drive category awareness through our expanded sales force, DTC advertising, product sampling, and integrated systems as well as general considerations around the competitive environment. Turning to margins. We have several considerations in 2021 as we position the business for efficient growth and long-term margin expansion, in line with what we outlined at our recent Investor Day. For 2021, we anticipate gross margins of approximately 65%, in line with our long-term expectations. This anticipates a slight shift from our 67% full year 2020 results, which we expect to be driven by the success of our pharmacy channel initiative as well as our 2021 investments in infrastructure related to our G7 scale up and OUS manufacturing facility in Malaysia. We expect operating margins of approximately 13%, reflecting our gross margin outlook as well as various investments we've contemplated in 2021. As you know, DexCom has advanced its profitability profile at a much faster pace than originally anticipated over the past few years while at the same time building the infrastructure to scale the business profitably. With the diabetes market still underpenetrated, we're going on the offense with these investments. We are continuing to invest in the growth of the business via DTC, sampling, new markets and the launch of new products that we mentioned at our Investor Day, including G7. We are also making a significant investment in the global sales force, including doubling the size of our U.S.-based commercial field team. We will also continue to work on advanced research and development, which is looking into future generations of products and sensing capability. We're making these investments to accelerate our ability to bring CGM to those in need. Additionally, we believe these investments will support the long-term profitability objectives that we set at Investor Day while at the same time yielding significant returns for our shareholders. However, in the near term, we want to be prudent about incurring these upfront costs in our guidance and let the benefits play out. We expect that adjusted EBITDA margins will be approximately 23% for 2021. Finally, with the release of the valuation allowance on income taxes in 2020, in 2021, we will start to have a tax rate that is applicable to earnings. We expect that rate, absent any changes in tax law, to be in the low to mid-20% range. With that, I will now turn the call over to Steve for a strategic update.

Thanks, Quentin. As Kevin mentioned, our team did a great job executing on our strategic priorities throughout 2020. We quickly adapted to the changes brought about by COVID and ensured not only that our existing patients could rely on their DexCom supplies but that thousands of new patients could benefit from the use of G6. In fact, we closed the year with greater than 900,000 customers globally, up more than 38% over the end of 2019. We are excited by this growth, knowing the life-changing impact that CGM and the software tools that we provide with it can have on our patients. Just last month, we published 3 peer-reviewed studies in diabetes technology and therapeutics that showed a greater than 1 point A1c reduction for customers new to DexCom CGM in as little as 3 months. This study includes both type 1 and type 2 intensive insulin users, and the result validated the kind of outcomes we have seen before. But we took it one step further. We also saw a significant quality of life improvement for these patients as measured in terms of anxiety, emotional distress, and burden of disease management, results that affirm our corporate mission to empower our users. We also demonstrated that the software tools we are building around our sensors are driving improved outcomes. Across our base, we see increased time in range for our users of real-time share and follow apps. We see increased time in range for users who engage with our Clarity software, and we see increased time in range for users who take advantage of our integration with Apple's Siri Virtual Assistant. In 2021, we will continue to work aggressively to expand our customer base so that more and more people can experience these improved outcomes with DexCom. As we outlined in our recent Investor Day and at a conference presentation last month, we prioritized 3 pillars of growth in the near term and look forward to progress on all 3 fronts in 2021 while we also lay the foundation for longer-term market expansion. In our core business, which we define as people with type 1 diabetes and type 2 diabetes on intensive insulin therapy, we have several initiatives underway. In the U.S., we are nearing completion of our sales force expansion, which will enhance our footprint across the country, including our reach into primary care offices. We'll continue our push to prioritize the pharmacy channel, which is the most efficient channel for our patients, clinicians, and DexCom. And we'll continue our efforts to drive greater access and awareness of the benefits that DexCom offers, including the DTC campaigns that we've been driving in both the U.S. and international markets. Outside the U.S., we continue to advocate for greater access in several key markets and look forward to broadening our reach in places where we have had little presence to date. This includes our expansion in France, building from a positive recent reimbursement decision, as well as the launch of G6 in Japan with Terumo as our distribution partner. For our third pillar, expanding the use of CGM in non-intensive type 2 diabetes, we are extending our efforts with level 2 and kicking off commercial pilots with multiple partners on the digital health side. Our work with other providers continues as well as we make the case for the clinical value of DexCom CGM in the broader type 2 population. Recently, Everside Health, one of the nation's largest providers of on-site health clinics, announced that their health unit will make DexCom CGM available to their members with type 2 diabetes. This is a nice extension of our previous work with Healthstats following up on our pilot efforts that utilized CGM in an on-site health screening program. We remain increasingly confident in the market opportunity ahead for DexCom. And on this basis, today, we announced the formation of DexCom Ventures. We have a chance to identify and accelerate the development of amazing technologies, technologies that can truly make an impact on global health outcomes via innovation. I could not be more excited to lead this effort. I believe we are well positioned to advance our strategies and build connections that will make DexCom stronger in the years ahead. Look for much more from us on this front over the next several years. And in the meantime, I couldn't be more pleased to pass the torch on our day-to-day strategy and corporate development efforts to Quentin and his team. With that, I'll turn it back to Kevin.

Thank you, Steve. I think we've all grown tired of the 2020 superlative, so I'll keep this one brief. We're proud of what we accomplished in 2020, and we are pressing forward with excitement for the year ahead in 2021. Much of the discussion this week is centered around our recent Super Bowl ad. We were incredibly pleased by the public response, which drove 11x greater search volume compared to the average 2021 Super Bowl commercial, the highest of any brand that advertised this year. This is why we did the ad—to drive awareness and ultimately bring CGM to more and more people who stand to benefit from this technology. There may be more people talking about diabetes this week than any other time in recent memory, a conversation that includes health care providers, insurance providers, and people with diabetes themselves. We welcome these conversations and look forward to advancing these discussions for greater access for all people with diabetes. I would now like to open up the call for Q&A. Sean?

Thank you, Kevin. Operator, please provide the Q&A instructions.

And our first question comes from Robbie Marcus from JPMorgan.

So I'm going to use my one, Quentin. The guidance came in a little lower on the margin side for 2021. Can you walk us through what's the delta on gross margin and those expenses? I realize the long-term guide is $65 million, but I think people were thinking a little bit higher in 2021 here. And then it seems like to get to 13%, you're going to need a pretty big step-up in SG&A. So maybe just help us walk through SG&A and R&D and what you're expecting in terms of investment, how much DTC will be in 2021 versus 2020? And any other notable expenses that we should be thinking about?

Sure. Thanks, Robbie. Look, I think the first thing I would mention is we've made incredible progress from a profitability perspective over the last couple of years. If you think back to our original Analyst Day, we set an expectation to be at a 25% EBITDA margin by the year 2023, and we delivered 26% EBITDA margin in the year 2020. So we've made incredible progress. And I would say progress even accelerated or went beyond what our original expectations were. But we've always known there are investments we've got to make in this business to open up some of these incredible market opportunities that sit in front of us. And I think more than anything, the fact that we're making these investments ought to be a testament to the fact that we now believe in, and we're seeing that these are going to be real opportunities for us. So we're excited about making that investment. On the gross margin side, there's a few things to point out this year that makes 2021 a little bit unique. One, we will continue to drive the normal efficiencies and leverage through the gross margin that we have in the last several years. And I would expect there's a couple of hundred basis points of efficiencies to continue to take out of it over the course of '21. But there's 2 headwinds that we have to navigate through. One continues to be the move to the pharmacy channel. We expect that we'll see a significant move over the course of this year. We've seen that pick up in terms of its momentum in the back part of last year. The other one is we're making significant investments in standing up our first international manufacturing capability in Malaysia. We broke ground there. We have teams there as we speak starting to build out that capability, which is going to take—it is tens of millions of units of production capacity and turns it into hundreds of millions of units of production capacity for us, which we believe is going to be necessary as we open up these markets and begin to really see results from them. So that's what's going to play out on the gross margin side that results in a couple of hundred basis points of headwind from the 67% back to 65%. On the OpEx side, I think it's important. G&A is going to continue to lever nicely for us. Where the investment is going is purely in the sales expense and into R&D, and there's really a few drivers that drive it. There's the doubling of the U.S. commercial field force that we've talked about. That's pretty much done as we sit here today. Those resources are going to be in place and able to start to contribute over the course of the year, but they obviously bring with it an expense load. We're also turning up the DTC efforts. We've never been better positioned from an inventory perspective to really turn the dials on DTC and sampling and giving our commercial team the tools they need to be as effective as possible. So we're excited to be able to do that. And then finally, I'll just remind you, over the course of this year, we've got all the G7 expenses that are going on. We got the trial expenses, we got the filing expenses, and then we got the commercial launch behind that as well. So all those things together drive the incremental investment from an OpEx perspective. But that's all going to show up in R&D and selling expense. You will see leverage in G&A. So I hope that answers the question for you.

And our next question comes from Jeff Johnson from Baird.

I just wanted to follow-up. It's really going back even to the Analyst Day. Quentin, at the time, you talked about 7 to 8 points of channel headwinds kind of through 2022, 7 to 8 points annually. I don't think you really talked about whether that would be front-end loaded, back-end loaded, how even loaded that might be over the 2 years. So one, how much channel headwind are we thinking this year? I think you might have said 10% last quarter for 2021. I just want to check that. And does that then – if that's the right number, does that imply a fall-off in those channel headwinds going into '22? If you could just help us out there, understand gating.

Yes. Great question. 10%, 10 points of headwind is the right way to think about it, primarily driven by that pharmacy channel mix shift that continues to move towards the direction that is important for us to be able to scale the business over the long term. I'd remind you, profit dollars are higher in that channel. But yes, there is some gross margin pressure that comes with it. But from a top line perspective, that's what's driving it is that pharmacy channel, call it, roughly 10 points. I do think you'll see that evolve a little bit over the course of the year. Keep in mind, in the first part of last year, we weren't into the pharmacy channel to the same degree that we were as we exited the year. So you've got a tougher comp in Q1 and Q2. And you see that in the growth rates as well. You're going to see tougher growth comps in the first half of '21 that will start to subside in the back half of the year. So I do think that you'll see that evolve a bit as we start to anniversary some of the pharmacy shift that we saw in the back part of '20 into the back part of '21. As we head into '22, look, we'll talk about that as we get out there around that time frame. But I do think there's a couple of years here of stepping through it. Once we're through it, I think you're going to see the unit volume growth of this business is going to be much more reflective of the overall dollar growth. Unit volume growth continues to be incredibly strong. We were up 40% in units in the fourth quarter by the time everything settled out. And our unit volume growth in '21 is right around that 25% to 30% growth. So very strong unit growth continues to drive the business.

And our next question comes from Margaret Kaczor from Blair, William Blair.

So I'd like to shift maybe a little bit into the non-intensively managed type 2 patients and the consumer health wellness patients. I guess, upfront, do you guys have any sense of utilization or annual revenue per patient amongst these groups? And I guess, as you look at the different types of products or devices that these patients might need, is it different than what you've got right now? And is that one of the goals, I guess, of the new venture fund or are there some internal efforts around that as well?

Margaret, this is Kevin. I'll take that. The annual revenue profile per patient, we think, is going to vary based on condition and use case. We believe internally, or at least what we discuss internally, is for a type 2 non-intensive patient. For example, even if a full-time use, the revenue per year per patient is going to be a lower number because we're solving a different problem. We're not managing the lives and the health and safety of these patients, but we are making them healthier and we are giving a better experience than they have. And ultimately, we will take costs from the system. As far as what that number is going to be, I don't have a number completely. We have numerous models, and many of those depend upon the final use cases. I've also said numerous times, and I'll stick to this as well, I think the ultimate use case and the way we'll ultimately price it will be for full-time use for these patients. And if they choose to use it less often, that will be their choice. So on the health and wellness side, again, many, many more patients, a lower annual revenue number, but more interactions with more different people in a completely different distribution channel. With respect to the products, certainly, the core technology of sensing glucose, from our perspective, on the glucose side will remain the same. As those of you who listened to our Investor Day heard when I had my chat with Dr. Peter Atia, we talked about accuracy. And he said it's actually more important for his patients because if they only go between 70 and 120, 20 points off is a big deal. And they'd be making a wrong decision as far as their health and what they eat nutrition-wise, etc., within accuracy. So we know that fundamental core technology needs to remain accurate. Where we get into different products is the experience that we create, possibly even different wearables based on the category, different places to receive the data. Then as you look at the new ventures unit that Steve will be working in, then you look at software experiences for patients, data platforms to get data to these platforms better, possibly other things we could sense or measure and add to glucose. So we believe these markets are going to require something different. At the end of the day, one size fits all is not going to work for us as we try and expand and hit the goals we've laid out probably being in the future. We're going to have numerous experiences for these patient groups.

And our next question comes from Matthew O'Brien from Piper Sandler.

So I guess just to follow-up a little bit more, Quentin, on the operating margin side of things. I know you're running ahead of expectations on the operating margin side of things. But I think everybody is looking at the guidance here and saying, okay, you're making all these investments and a lot of different things to the sales force and DTC. First of all, how do you measure what's most effective between the 2? And then how does it not just you're making these investments basically just to kind of run at the same pace that you've already laid out versus you're making these investments because we think it can even potentially a little bit better?

Yes. Well, I think we're incredibly excited and bullish on the future opportunities. But at the same time, our approach has always been we want to see those start to pan out and contribute. And at that point, we'll start to reflect them into guidance. So as we open up some of these new markets and validate that we're able to generate the revenue from them, then hopefully, we've got some very positive updates for you guys over time. I don't think we could be more excited around where we're making these investments. We know for a fact the type 2 intensive space, for example, is going to come on to CGM therapy. We're seeing it happen in our results right now. We're starting to see some of it with the nonintensive. As a matter of fact, if you look at our new patient figures, it's led by type 2 patients. So we're starting to see some of that be validated. But in order to reach those patients, for example, on the sales force side, we've got to be in the primary care physician offices. That's where those patients are seen and that's where our current commercial force does not really play. And so as we've added those resources, that is going to be their primary focus, their primary target. Similarly, on the DTC side. I'll continue to reiterate, there's not a better investment that we make inside the four walls of DexCom today than our DTC efforts. And the returns that we see with the new patients that come out of it, we're very confident that that's the best investment we can possibly make. Now will that return on investment per individual or per patient start to step down into the future? It may as they get harder to bring on. Basically, for the time being, we've been very encouraged by that return that we've seen, and we'll continue to pour resources in there until we see that change. So I don't think there's a better place for us to be focusing our efforts right now than to really be building out the commercial force to see the right individuals where the patients are at and to continue to create awareness for these patients as well.

And our next question comes from Matt Taylor from UBS.

So my question is about the international investments. You're really stepping up with the support center and the new investments in Malaysia. I guess, can you talk about the arc of that opportunity? If you could frame anything in France, Japan and what that means for kind of the future expansion in international, that would be really helpful.

Thanks for the question. We laid out international as 1 of our 3 primary pillars at our investor conference. And as you look at the progress we've made, I recently prepared a speech for the sales guys. We're up 10x where we were 5 years ago from $40-plus million to over $400 million for 2020. And by every indicator, one would say, wow, that is fabulous. And in our mind, as we look at it, the opportunity is bigger than what we've addressed. And we do need to build infrastructure, and we also need to look at doing things more creatively. I think, for example, the Japan partnership with Terumo, whereby we're really letting a partner take our business in that country that is a medical technology leader in that geography is going to be a great business model for us to watch and look at. In France, we get reimbursement for a group of patients. We will invest some there. But we have other international models we're looking at. We literally break down every country in a type of bucket. There's great reimbursement here. Here's how we need to attack this one. There's no reimbursement here, and we're making plans across all the geographies. Another key investment internationally is going to be our e-commerce platform. We've had great results every place we've launched it, so in geographies where we're not. Where we go, we'll probably go first with an e-commerce platform going forward. And so we're investing on all fronts there. The Malaysia factory is truly an investment in scale for us. It will—it's going to be ultra-modern, as is our Arizona manufacturing facility, don't get me wrong. But we've learned a tremendous amount in building out Arizona that we can apply to Malaysia and really put ourselves in a position to whereby we can go after these businesses. One of the things that we often discuss, as we sit and discuss the what have, should have, could haves, and for a better part, 1.5 years, as far as capacity, we were selling everything we built. With the opportunity now, with the inventory we have and our ops team being able to build as much as they can, we think we can much more aggressively go after these international markets just on a commercial strategy basis as well, and we're going to going forward.

And our next question comes from Jayson Bedford from Raymond James.

You mentioned—I think Kevin mentioned the goal to launch G7 in the second half of this year. Historically, you've referred to launching G7 in some markets in '21 and on other markets in '22. You didn't say that this time. Maybe it was implied, but is the expectation that the G7 launched in the second half? Is it a worldwide launch? I'm just wondering what's changed around your G7 launch plans.

Really, Jayson, nothing has changed. We are operating on schedule. We—as I said, we completed our first pivotal study. And that certainly will provide us enough data to file for a CE Mark. We do not have enough data to file in the U.S. for ICGM approval, and we're working on that with the studies we have ongoing and it will continue to go on for a while. Much of this is a function of regulatory time frame studies. COVID letting us in the clinics, yes or no. There's still some uncertainty around just pulling off the execution necessary to get the submissions prepared, the abilities of the entities to review it. So we're marching to our schedule. At the end of the day, we've never been more bullish on a product. I've spoken with investigators and patients who run our first studies, and they're—look, they're done with G6 now. They do not want to wear it anymore, and we told them they have to go back. It is everything that we'd hoped it would be. Anything that G6 does, G7 will do better. And for now, it's just a question of timing, commercial availability, manufacturing. And we're pretty tight-lipped on these milestones as well. I'm just not going to lay out the yellow brick road for everybody to know and see and prepare for. We kind of like to surprise a few people.

And our next question comes from David Lewis from Morgan Stanley.

Just, Quentin, a quick one for me. You obviously talked about the 10 points of headwinds here in '21, which obviously implies 25% to 30% volume growth. One of your competitors, your only competitor basically, is talking about 40% growth here in '21. And I just sort of think about, given the size of their business, which is a little larger from a volume perspective and I think about the major investments you're making in DTC, the major commercial investments, how should investors react to sort of your 25% to 30% volume number relative to your larger competitor saying they can grow 40%?

Yes, David, thanks for the question. Look, I think my takeaway is, I think we all see the market opportunity exactly the same way. There's incredible runway sitting in front of us. There's a lot of adoption yet to be had in the intensive segments of the market, and the nonintensive is going to open up as well. Our approach to the guidance is probably a little bit different and unique, which is we're very bullish on some of these new market opportunities and contributions that can come from them, but we're not going to get ahead of ourselves with respect to those expectations as they play out. Over time, if that happens in '21, then fantastic. It's going to be a terrific result. If it comes a bit later in '22, it's still going to be a great result. At the end of the day, we're very confident in what this ultimately has the potential to look at—look like, and we're going to make the investments to ensure it's a reality for us. But at the same time, we're not going to get ahead of ourselves. So I think more than anything, you've got 2 players in this space who are incredibly bullish on the opportunity, which just validates there's a lot of runway here and a lot of opportunity for all of us to have success together.

And our next question comes from Marie Thibault from BTIG.

My question has to do with the doubling of the sales force, it's certainly an impressive move. So I'm curious about what it means for the legacy sales force in terms of the culture with so many new folks coming on. And are those new folks concentrated in any specific geographies? I know reimbursement is still important to targeting the type 2 patient market.

Thank you. That's a great question. And we have worked very hard to preserve that legacy and that culture and hire the same quality of individuals. I'm actually preparing for our virtual national sales meeting coming up here in a couple of weeks. In 2010, we had 26 territories. And we're going to 260. And of those 26 territories, you'd be amazed at how many of those people are still here. So they are still a big influence on our company, on our culture, and training and teaching the new people that come in what's important to DexCom and what are our values. At the same time, as the business is expanding rapidly, our culture has had to change from time to time. We've made moves over the years. For example, if I go back, we did away with having trainers in every territory in addition to a rep, which was different than everybody else in the industry. But we made that move and it proved very successful. As we go to the pharmacy channel more as we get access easier, the job of our reps continues to evolve and change. And it's our job to provide them with tools to whereby these jobs are meaningful and rewarding, and they want to stay and they want to be with us. And we're working very hard on that in this expansion. And we're being very thoughtful about it. We had many thousand candidates for these jobs and really feel we picked some fantastic people, not only for the field positions but for some of the leadership positions that were opened up as well. We look forward to meeting with the group and being with them, and we have high expectations.

And our next question comes from Danielle Antalffy from SVB.

Kevin, I just wanted to clear something up that it sounds like after the Super Bowl ad, which, by the way, I thought was a great ad. I also do love Nick Jonas, but I—yes. There was some controversy. It sounds like—or I don't know if you'd call it controversy, but just some chatter, it sounds like around, oh, we can't even afford insulin, how can we afford this technology? And we spent a lot of time with you guys at the Analyst Day talking about how affordable actually the technology is. Is there just a misunderstanding out there in the market around accessing this technology? Or where is the disconnect there?

Well, I don't even know if there's a disconnect, Danielle, and we talked about this a lot before we decided to run the ad. And we decided that running the ad, and I'm going to get to this a little bit in my closing remarks. But running the ad, creating more awareness, getting more people on the technology and more demand would actually lead to more accessibility and ultimately lower cost for patients and get more product to them. But if you look at the life of our patients, buying insulin, buying CGM, if they have an insulin delivery system, these people spend a lot of money. And it's a large percent of their income, and it's hard. It's just hard. We empathize with those people. We've done our best with our pharmacy ship, for example. And when we gave some of these statistics at Investor Day, I think somewhere above 30% of our pharmacy patients have zero co-pay. And another group of them have less than $60 a month on their co-pay. So we've done what we can to bring costs down on our side. And we've not only done it bringing costs down, but we've done it while improving our margins. So we've really done the best we can here. We do think it is important to acknowledge the community and listen to them, but we also have to run a business. And ultimately, we felt by making more people aware, we'd have a much more positive effect than negative.

And our next question comes from Larry Biegelsen from Wells Fargo.

Kevin, can you talk a little bit about the venture fund, specifically the amount of funding, how broad the focus will be? It sounds like it's going to be broader than diabetes. And when could we see an impact?

Well, I'm going to hold Steve to the standard of when he made the investment in tandem many years ago. And our return was several times. No, I'm just kidding. We will focus on diabetes technologies a bit because that's what we do. And there are things in this diabetes or in this health care world that can utilize our technology that we don't have time to develop, that we need to look at and be friendly with and we have capital that we can invest. We will also look at other things that could fit into our business and our technology. I don't see us going and acquiring share in 50 different companies that are all over the place. But I do see us with a very focused approach. As far as the level of funding, as I've chatted with our Board, we're going to leave that open right now for the opportunities that we see and dip our foot in the water and get going. But we think we have some really good opportunities to give us platforms to expand our business over time and help some of these companies grow. Steve, I don't know if you want to add anything else?

Yes. No, the only thing I would comment on is that we're very much approaching this as corporate venture capital, or I would tell you, kind of strategic venture capital. So certainly, while returns are important, although Kevin's holding me to a ridiculous standard out of the gate. Returns aside, look, you're going to see us investing in opportunities that are not only seeking out financial returns but could have some sort of a technology development piece or an in-licensing of technology piece or potentially commercial aspect to it. So they'll all make sense. Many of them you guys won't actually have visibility into unless and until we disclose them, but it's an exciting next step for me.

And our next question comes from Joanne Wuensch from Citibank.

I have one, which is, can you comment if there are any changes on—or any observations on the competitive landscape? And in any particular region that, that may have shifted slightly more positively or slightly more negatively?

Joanne, I would just say it is a competitive landscape and will remain competitive. We're—both us, Amit and quite frankly, Medtronic, every—all companies are aggressive here. We'll continue to push. We've done very well in all of our markets. We see opportunities to do better. We see opportunities for improvement across the board. We'll continue to do that. I think our Super Bowl ad really achieved the result that we were looking for as far as creating awareness. I mean, you heard, 11x more searches than the average ad. We have an opportunity to drive some awareness, and we will do that. But it is a very competitive landscape, and it's not going to change. And we're up for it. We have no problem with that. It makes everybody better.

And our next question comes from Mathew Blackman from Stifel.

I wanted to touch on the sales force expansion. And just remind us how quickly those new reps could start to contribute to revenues. And also remind us, how is the sales force going to be structured? Are these reps going to call on all clinicians or it will somehow be bifurcated between PCPs and endos and specialists?

The way we structure the teams out in the field is very much based upon the number of people with diabetes and intensive insulin users that they see. And that information is already available through the IQVIA data as far as insulin prescriptions in the various territories. And we use that—those geographies and that data to determine how we structure the territories and where we put our people. The people in their territories will be responsible for all of the medical professionals within that group, and they will continue to do that. I'm trying to think, is there—if there is another part to his question. Yes, and we structured it similar to how we've done it in the past. We have regions and districts within the sales organization. We've increased the number of districts, the number of regions from 2 to 4. And so similar structure that way. And then we've worked out a comp plan that we think is very fair for everybody, and our guys are willing to live with. I think the most interesting piece for me in laying out the whole sales force expansion was how it was received by our team in the beginning. You're always wary of that when you start. Instead, the team raised our hands and said, we need more help. We need more exposure here. This is a good thing. There are people we don't call on. So we look forward to it. And as far as time, it takes everybody time to get acclimated to a new position, a new territory. For those who have diabetes relationships, for example, if you hire somebody from an insulin company or an insulin pump company, they can go back to offices they've already been to, and they're up and running quite quickly. For others, it takes more time. And that's why we have our district managers and our regional managers to help with those relationships and train those people. So there is a time. It varies based on the experience level of the rep before they start with us. Some hit the ground running and go faster than the one before. Others, it takes a little time. And we monitor that and we watch and go give those more training that need it. So it will be fun to watch unfold.

And our next question comes from Ravi Misra.

So just wanted to go back to the gross margin and the kind of CapEx investments and scale up that you're looking to make. I'm trying to figure out, Quentin and Kevin, you're building all this capacity presumably for the next, I'm guessing, decade or so. How do we think about that plant or the plants coming online in terms of what level of volume do you think you need to be when it comes to the kind of sales numbers that you put out there for the long term to kind of really truly get those plants to lever the fixed cost investments they've made? I guess what I'm trying to ask is sales ramp faster than we've kind of modeled here. Is there upside to your gross margin conversely if it's kind of in line with the long-term guidance? What gets that 65% higher that contemplate these CapEx investments?

You go first. I'll go after you.

Yes. Well, I would—Ravi, it's a great question. I'd remind you, the $4 billion to $4.5 billion revenue figure we put out there in 2025 or so was more or less our base case. That's how we qualified that to you folks. And it started to open up a bit of the type 2 nonintensive opportunity, but there's a massive market that sits in front of us. And as we open that up in bigger ways, as you start to open up things like hospital or gestational or get further upstream into the diabetes condition and get into prediabetes, those volume numbers are incredible. And so I mentioned earlier, we're talking about going from tens of millions of units to hundreds of millions of units of capability over time, and we're beginning to make those investments as we speak. In terms of the CapEx investment, I think you're going to see roughly double this year what we've seen in the last couple of years. We've seen about $200 million of CapEx in the last 2 years each year. I think that is going to be north of $400 million, probably as we stand up this building and build out the capability that will then service for years to come into the future. How quickly we're ramping that is really going to be predicated on how quickly we open up some of these markets. What we're not going to do, and we've been very clear about this after having learned from the experience ourselves when we launched G6, we're not going to put ourselves in a position again to where we don't have the inventory to deliver to the patient and create a DexCom experience that is one that we want them to have. And so we are investing ahead of that curve, but we're very confident that the curve is ultimately going to be realized. I think the question is just nailing down that timing and know exactly what that's going to look like. From our perspective, we're going to be ready when it's ready to go. We're not going to be behind it, so...

Yes. Thanks, Quentin. And let me add just a bit. As I look at volumes and why hundreds of millions rather than tens. As we look at the use of CGM, for example, as a diagnostic for somebody who may have prediabetes but may not be sure as part of the annual checkup, there's hundreds of millions of people in the U.S. who would need that checkup every year. As you look at 30 million people with type 2 diabetes in the U.S., I don't know if my 30 million is right, but it's close. If just 10% of those people went on sensors full time, you're looking at 60 million to 90 million sensors we'd be selling on an annual basis. These opportunities are going to require scale. And we've just made the decision going at this in a manner to whereby we do it gradually and hope we have enough when we get there. It's just not going to work. The opportunities are too big and the investment is required. That's why we've raised the money. That's why we've made the plans. That's why we've designed the product and set the relationships that we have. We need to go after this. And when you look at the size of the investment versus the size of the prize, size of the prize is way bigger than the size of the investment.

And our next question comes from Steven Lichtman from Oppenheimer.

So the increased focus on the primary care office here near term with your sales force expansion I assume means targeting non-intensive type 2s sooner rather than later. I guess, first, how should we think about the ramp in this patient population before reimbursement models are established broadly for these patients? And second, do you have the back office capability yet? I know you're building out some more here to handle those patients over the next few years.

Yes. This is Kevin. I'll take that one, too. Their focus will initially be on insulin-using patients who have reimbursement for the technology. The non-insulin users will, in fact, tag along as they become aware, and there are situations where some of these patients who have coverage. On the type 2 non-intensive patient, we've been very clear from the beginning that we're going to go about that—this market 4 different ways: through programs, payers, clinicians, and then directly to patients. And over the course of 2021, you will see those 4 initiatives unfold as we gather more data and launch more initiatives. And so awareness will grow. As Quentin said earlier, and Steve, a very reasonable number of our leads from the Super Bowl ad have been type 2 non-intensive patients. Whether we can serve them or not with reimbursement today remains to be seen, but we certainly have a database of these names on people we can call on. As soon as we have the product offering, we want to get in that space ready. So I think we're preparing and getting ready for that. More importantly, though, as we make these clinicians aware, they can look for cases where they can make it available to their patients. They can look at situations where somebody can appeal for coverage if they have type 2 diabetes and are out of control, and those appeals have been successful. So we're looking forward to going there and—but these guys will focus on our core markets and where we play with reimbursement, first and foremost.

And our next question comes from Kyle Rose from Canaccord.

I just wanted to ask a little bit more about just the investments in the SG&A side in 2021. I think the sales force investments are well understood. But maybe just help us understand specifically on DTC and sampling, how does that change the cost and the timeline of a customer acquisition? And then also maybe the capture rate in the retention, can you just give us the metrics to understand how to evaluate those investments in 2021?

Yes. Well, I think when you look at the overall investment in the areas you identified, the most significant increase is likely going to show up in doubling the size of that commercial field force. And then right behind it is DTC and sampling. Sampling is a bit new to us. We've never sampled historically. We just started to roll that out in the fourth quarter and very early in seeing what that looks like. But that's a pretty easy one for us to measure. We're not going to give you the specific results of what that looks like. Although the fact that we're going to continue to double down on it should tell you that we're incredibly happy with what we're seeing. But that's as easy as knowing exactly where we're dropping the samples in the field and knowing exactly what patients are utilizing those samples, and ultimately, turn into a recurring purchase for us. So those are easy measures. And on the DTC side, with social media and the leads that get created from that, that ultimately turn into patients, that becomes relatively easy to measure as well. One of the things that I think was just really fascinating coming out of the Super Bowl ad is that we had 5x more impressions in the last 4 days than we had it for the entire year of 2020 on the heels of that. I think it's just remarkable the type of reach that we're finding with our DTC efforts. So we're going to continue to monitor those things and measure those and hold ourselves accountable to them. And as long as the return is there, we're going to continue to invest aggressively there. If we see the returns start to drop down, then we'll start to think differently. But we're not going to give specific return measures, those sorts of things. But the fact that we're doubling down in these efforts, I think, ought to convey the confidence we have in these investments and what they're bringing to us.

And our next question comes from Bob Hopkins from Bank of America.

Quentin, I'll just ask a quick one of you. And you may have just answered this in response to the last question. But you said several times in this call how strong an inventory position you're in right now. And I'm just curious if you could talk a little bit specifically about what you're able to do in 2021 that you weren't able to do in 2020 as a result of that very strong inventory position.

Well, look, Bob, I think it's a good question. But historically, I think we've seen opportunities sit in front of us. And we knew they were available to us, but we couldn't aggressively pursue them because we knew we couldn't get patients their product at that point when they became aware of the opportunity. So what you didn't want to do is create all this awareness and then be in a back order situation immediately. And if you go back to 2019, we operated through most all of '19 in a back order situation. We came out of that early in '20 which has now allowed us to build inventories and put ourselves in a position where we can start to get more aggressive with these things. So I think it enables a whole lot of opportunities for us to get a whole lot more strategic than where we could historically just because those opportunities weren't real. We couldn't serve the patient at that point in time. Now we can.

And our next question comes from Chris Pasquale from Guggenheim.

I wanted to follow-up on the question about non-intensive type 2s. Back at the analyst meeting, you set a pretty ambitious goal for that segment to contribute 15% of sales by 2025. Can you tell us what that was in 2020, just as a baseline? And what the gating factors might be for starting to provide more visibility into how you're tracking towards that goal?

Yes. We really can't lay that out for 2020. I think the way you'll get more visibility from us, as our programmatic approaches take off, you'll—we'll be able to speak about revenues from the programs. Additionally, as you look out to 2023, it's my belief and attention on '23, '24, and '25, this will be a product that is distributed through our typical distribution channels, and there will be visibility that way. When we have meaningful revenues to report, we'll certainly let you know that that's going on. But we don't—right now, these are more investments than they are our revenue opportunities. We need to gather data. We need to show that this works. We need to create relationships like we have at Intermountain Health care, for example, where they're running a study right now to look at CGM in these patients in a couple of different ways. The program we talked about that we ran down in Florida internally is now part of one of our programs where Healthstats is offering CGM to their type 2 patients. Up to this point, even though there's been volumes created here, a lot of this stuff has just been really to invest and to learn, similar to what we did in the hospital business this year as well. It's going to take a while for these markets to develop. But eventually, we'll break it down and report more. But for now, we're just not ready to.

And our next question comes from Raj Denhoy from Jefferies.

This is Anthony for Raj. My question would be on gross margin. I'm wondering in the 65% guide for '21, how much trapped overhead actually is in there from the Malaysian plant as that gets up and running. But as you look out and that plant gets up to scale, I'm wondering where the cost per sensor will trend for units coming out of that facility, again, once it gets up to scale?

Yes. Good question. In 2021, there's about 200 basis points of pressure that we're going to realize from the investments in standing up that Malaysia operating capability. So I think that quantifies for you very clearly what it will be. As we look out into the future, we've said we believe we can get the cost profile to less than $10 per day in a 10-day use case. So think about that as less than $1 per day. Malaysia will certainly be below that, offset by where we're at in the states. So it certainly is a very attractive profile for us. And as we continue to think about ways to innovate there with automation, we're hopeful to take it even further. But that's a big enabler of ultimately getting our cost profile down to those ranges we've discussed both here today and in the past.

And we have no more questions at this time. I'd like to turn the call back to Kevin Sayer for final comments.

Thank you. I did a bit of math while we were doing this call. This is my 40th call with Steve. And as he moves into a new role, I just need to acknowledge what a wonderful job he's done with our investors over the years. I think back at our calls in the early years, where we'd sit around and go, okay, what is it we're going to say today and what is it we have to report. This company has changed so much over those 40 calls. A marvelous effort and some incredible work, and he'll still be here, but he's going to have some different investors to please, and we're excited about that. I do want to thank everybody for being on the call today. As you can tell, we remain extremely bullish about our opportunities going forward. One of our executives was having a conversation with me here one day and he said, the way he described DexCom is just as soon as we climb one mountain, we get to the top of it. And on the other side, there's a bigger one, and we start another climb. And I think as Quentin detailed our financial plans and what we have going on, what we see is a great big mountain and a great big climb. And we're preparing to do that. We think we can do it very effectively. We are very bullish about the future. Over the past several days, a lot of the talk has been around the Super Bowl commercial here. And I have gotten numerous pictures, videos, emails, text messages from our patients and their parents or their caregivers saying thank you for creating awareness. Kids in school are telling everybody, remember that commercial, I wear that. And I have that, and this is how I manage my diabetes. We have seen such a positive reception to this, and the positive energy has just been amazing. So kudos to our marketing team, to Nick Jonas, and everybody for getting this done. Our hospital initiatives and the new initiatives we've talked about. As I said, there are investments, but now we're getting numerous physicians reaching out saying, you've got to get this everywhere. It needs to be all throughout the hospital. It needs to be worn by the patients when they go home. We can't have them coming back, and monitoring glucose can be very important. We'll continue to go after those efforts. Our new market efforts are very strong. And last, I'll go to the intensive type 2s as well. As I said, we created some awareness here. I recently had a conversation. I've had several conversations with people with type 2 diabetes absolutely struggling with what to do. What can I possibly do to take care of myself because they just don't know. And CGM tells them. It tells them what to do. It tells them about foods. It tells them about exercise. It tells them about stress and sleep and everything else. And we are really excited for this opportunity. You'll see us have a lot of good things come to pass in 2021 on all these fronts. But thanks, everybody, for continuing to listen. And great day, great year for DexCom and our team. Thanks, everybody.

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