Ladies and gentlemen, welcome to the Dexcom First Quarter 2024 Earnings Release Conference Call. My name is Abby, and I will be your operator for today's call. As a reminder, the conference is being recorded. And I will now turn the call over to Sean Christensen, Vice President of Finance and Investor Relations. Mr. Christensen, you may begin.

Thank you, Abby, and welcome to Dexcom's First Quarter 2024 Earnings Call. Our agenda begins with Kevin Sayer, Dexcom's Chairman, President and CEO, who will summarize our recent highlights and ongoing strategic initiatives, followed by a financial review and outlook from Jereme Sylvain, our Chief Financial Officer. Following our prepared remarks, we will open the call up for your questions. At that time, we ask analysts to limit themselves to 1 question so we can provide an opportunity for everyone participating today. Please note that there are also slides available related to our first quarter 2024 performance on the Dexcom Investor Relations website on the Events and Presentations page. With that, let's review our safe harbor statement. Some of the statements we will make in today's call may constitute forward-looking statements. These statements reflect management's intentions, beliefs and expectations about future events, strategies, competition, products, operating plans and performance. All forward-looking statements included in this presentation are made as of the date hereof based on information currently available to Dexcom, 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 Dexcom's 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 first quarter earnings presentation for a reconciliation of these measures to their most directly comparable GAAP financial measure. Now I will turn it over to Kevin.

Thank you, Sean, and thank you, everyone, for joining us. Today, we reported another great quarter for Dexcom with first quarter organic revenue growth of 25% compared to the first quarter of 2023. Demand for Dexcom CGM remains very high as customers continue to recognize and value our leading product performance and differentiated user experience. While it has only been a year since the launch of G7 in the U.S., we have seen a significant shift in the landscape over that time. We have attracted tens of thousands of new prescribers to our ecosystem, meaningfully improved our presence within primary care and experienced growing demand from people with diabetes who are benefiting from significant expansions and coverage over the last year. Much of this momentum can be directly attributed to our product performance and innovative features. With the launch of G7, we extended our leadership in sensor accuracy and took a significant step forward in ease of use. We also introduced a new software ecosystem, which was designed to improve our user experience and drive high levels of customer engagement and retention. Importantly, we have continued to enhance the G7 experience with ongoing improvements to both the hardware and software platforms. In fact, we have completed software updates almost monthly since the launch of G7, introducing new features, upgrading performance and connectivity and most recently establishing the ability to integrate insulin data into our app. These are great examples of how our new software architecture enables much faster innovation. We are constantly working to advance the customer experience and reinforce Dexcom as the technology leader in this space. Along those lines, we were very excited to receive clearance by the FDA for our direct-to-watch feature for G7 in the first quarter. This approval will allow our customers to use their Apple Watch as a primary display rather than connecting through their mobile phone, providing even greater flexibility in how and where they interact with their glucose data. This added to our long list of industry firsts as G7 is the first FDA-cleared CGM that can communicate directly from sensor to watch. To enable this, we built a robust connectivity infrastructure into the design of G7 with the ability to connect to three different Bluetooth devices at the same time, allowing our customers to simultaneously connect to a phone, a pump or receiver and a watch. Dexcom is the only CGM system that gives customers these options. We have received great feedback since we launched our direct-to-watch software in the U.K. and Ireland and look forward to extending it to additional markets shortly. Features like these add to our standing as the innovator in the CGM industry, strengthening our sensor platform as global access and awareness continue to expand. As a reminder, we recently crossed the one-year mark since the Landmark CMS decision to expand coverage for all people using insulin and certain non-insulin-using individuals that struggle with hypoglycemia. This decision paved the way for greater commercial coverage for these populations, further strengthening our position as the most covered CGM in the U.S. It also served to broaden our conversations with payers. While payers have long recognized Dexcom's ability to help titrate insulin, there is now a growing appreciation for our ability to drive better outcomes through behavior change and customer engagement. There is also a growing awareness of these benefits in the clinical community; with much broader coverage now available, many physicians have started incorporating Dexcom CGM earlier into their care plans. They recognize lifestyle management as a cornerstone of diabetes care and metabolic health and see CGM as a core tool to drive behavior alongside new drug therapies like GLP-1s. To that point, in the second quarter, we will be launching a medication logging module and activity integration tool within the G7 app to help those using Dexcom CGM with these therapies. While this has helped us significantly expand our prescriber base over the past year, we are still only scratching the surface of this sizable opportunity. There are over 200,000 primary care physicians in the U.S. who treat tens of millions of people with diabetes. There remains a clear opportunity for us to deepen our presence within this channel as we work to drive even greater care for their patients. As a result, we announced an expansion of our sales force this past quarter. We were blown away by the level of interest and the quality of talent that we were able to attract for these roles. By the end of the first quarter, we had already completed our hiring and trained these new reps. This team is excited to hit the ground running, and we look forward to seeing them build momentum over the course of the year. As part of this initiative, beginning in the second quarter, we are also taking steps to optimize the structure of our sales team to be most effective with our call points across endocrinologists and primary care physicians as well as leading practitioners in maternal-fetal medicine. We expect our new team in this upgraded structure to help us better capitalize on the significant opportunities ahead. Along those lines, we hit another significant milestone in our company's history with the FDA's clearance of our newest product, Stelo, the first glucose biosensor approved for use without a prescription in the U.S. Recognizing a significant unmet need for the 25 million people with type 2 diabetes who are not on insulin or at risk of severe hypoglycemia, we developed Stelo as a more tailored solution for this population and worked closely with the FDA to simplify access to this product. By removing the burden of a prescription, we expect Stelo to drive broad interest from both the clinical community and directly from members of the diabetes community who want to better understand their blood sugar. In our dialogue with the FDA, it became clear that the iCGM accuracy remains critically important in establishing this new sensor category, both as a safety measure and to ensure that our customers are receiving reliable, actionable information. Stelo will leverage the industry-leading accuracy of our G7 sensor hardware while providing a custom software experience to more directly meet the needs of those not taking insulin. We're on track to launch Stelo this summer as a 15-day cash pay product. We'll continue to build our case with payers for broader coverage. Stelo will be fulfilled initially via a brand-new e-commerce website and available in one-time purchases or subscription models. We look forward to providing greater detail on Stelo features, including pricing, immediately before launch, and we'll share further updates on our go-to-market strategy and ordering process at ADA and on our second quarter earnings call. In our international business, we also advanced some key strategic initiatives this past quarter. In February, we officially launched Dexcom ONE+ into eight European markets, which is our first step in moving our entire Dexcom ONE product line into the G7 form factor. This transition brings several of the G7 technological benefits to this customer base, such as the smaller form factor, shorter warm-up time and improved accuracy and further simplifies the prescribing process for physicians. Moving to a shared hardware platform also benefits our cost structure over time as it allows us to drive greater volume to our G7 lines and more quickly reach scale. We also completed our transition to a direct sales model in Japan, enabling us to begin commercial operations at the start of the second quarter. As a reminder, this is one of the only markets in the world with coverage for all people using insulin, which represents over 1 million people. Despite this, market penetration remains in its early stages and we see a significant opportunity to drive greater uptake in Dexcom's CGM share. As a result, we believe Japan could become a key growth driver for us over time as we strengthen our presence in this market in the coming quarters. This is an incredibly exciting time for us. There will be a lot to learn with the launch of Stelo, and we are thrilled to once again pioneer the CGM industry with a new subset of users. We look forward to sharing more updates with you as we begin this journey. With that, I will turn it over to Jereme for a review of the first quarter financials.

Thank you, Kevin. As a reminder, unless otherwise noted, the financial metrics presented today will be discussed on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release as well as on our IR website. For the first quarter of 2024, we reported worldwide revenue of $921 million compared to $741 million for the first quarter of 2023, representing growth of 24% on a reported basis and 25% on an organic basis. As a reminder, our definition of organic revenue excludes the impact of foreign exchange in addition to our non-CGM revenue acquired or divested in the trailing 12 months. U.S. revenue totaled $653 million for the first quarter compared to $526 million in the first quarter of 2023, representing growth of 24%. Our recent momentum in the U.S. continued this quarter as we again benefited from the largest expansion of reimbursed coverage in our company's history. This led to another quarter of significant new customer demand in the U.S. and contributed to our record new start quarter globally. As Kevin mentioned, we are excited to build on this momentum with our expanded sales force and look forward to seeing the new team ramp up in the months ahead. International revenue grew 24%, totaling $268 million in the first quarter. International organic revenue growth was 26% for the first quarter. We executed very well across our international footprint and again took market share this quarter, benefiting from our targeted access expansion and product portfolio strategy. We delivered a particularly strong quarter in our core European markets, which more than offset the pause in growth from Japan as we finalized its transition to direct sales. Our first quarter gross profit was $569 million or 61.8% of revenue compared to 63.4% of revenue in the first quarter of 2023. This gross margin result was in line with our expectations as G7 continues to become a larger part of our product mix. As a reminder, G7 carries a lower margin than G6 today. So we expect this to change in the coming quarters as we drive more volume through our G7 lines in the U.S. and Malaysia. Between continued G7 demand, our pump integrations and moving Dexcom ONE to the G7 platform, we continue to see more of our base moving to the G7 form factor. Operating expenses were $428.9 million for Q1 of 2024 compared to $391.2 million in Q1 of 2023. This quarter was another demonstration of our ability to generate significant operating leverage as we grow. In fact, we grew our revenue at more than double the rate of operating expenses in the first quarter, resulting in more than 600 basis points of OpEx leverage compared to the first quarter of 2023. Operating income was $140.2 million or 15.2% of revenue in the first quarter of 2024 and compared to $78.6 million or 10.6% of revenue in the same quarter of 2023. Adjusted EBITDA was $220.9 million or 24% of revenue for the first quarter compared to $145.9 million or 19.7% of revenue for the first quarter of 2023. Net income for the first quarter was $128.2 million or $0.32 per share. We remain in a great financial position, closing the quarter with approximately $2.9 billion of cash and cash equivalents on the back of nearly doubling our free cash flow year-over-year. This provides us significant flexibility to both support our organic growth opportunities and assess any strategic uses of capital. From a capacity perspective, we remain in a great position with Malaysia quickly scaling and we are further diversifying our footprint with the build-out of our Ireland facility. This leaves us well positioned to support our near-term growth opportunities, including the highly anticipated launch of Stelo this summer. Turning to guidance, we are raising the midpoint of our revenue guidance with an updated range of $4.20 billion to $4.35 billion, representing organic growth of 17% to 21% for the year. For margins, we are reaffirming our prior full year guidance of non-GAAP gross profit margin in a range of 63% to 64%, non-GAAP operating margin of approximately 20% and adjusted EBITDA margin of approximately 29%.

Thank you, Jereme. As a reminder, we ask our audience to limit themselves to only 1 question at this time and then reenter the queue if necessary. Abby, please provide the Q&A instructions.

We will take our first question from Danielle Antalffy with UBS.

Congrats on a strong start to the year. Kevin, so the Stelo over-the-counter clearance was obviously one of the most exciting things that we saw happen in the first quarter. Can you help us understand how you think the OTC label expands your addressable market? And how you're aligning the new sales team to capitalize on it?

Well, thank you for the question. And it's been every bit as exciting for us as you can imagine, Danielle. We have had more media impressions and inquiries and buzz about Stelo from the outside than really anything we've ever done. It's been spectacular. We're very excited for it. The way it expands our access as we thought through this, there's 25 million people with type 2 diabetes who are not on insulin or who don't suffer from severe hypoglycemia. We wanted to get that product out quickly and make it very accessible to them. We studied this. We spent a lot of time thinking about it. The best way to do that is to eliminate the prescription process and not to have them in the middle of that for physicians. And that's also helpful for the health care providers because they don't have to call the pharmacy and do prescriptions as well. So the key to this, particularly in getting to a lot of people, is to make this very easy to obtain. And that's why we went over-the-counter with it. At the same time, as I said in my remarks, we're thrilled with the labeling and the fact that we still have iCGM controls around this sensor by going over-the-counter, we didn't just open the floodgates for everybody to come in. You still have to have an incredibly good product to go do something like this. So we think we have a very, very good advantage there. With respect to our sales expansion, I made a couple of comments about the expansion and positioning of the sales force. We know for a fact that when we have coverage in the physician arena, when we call on doctors, we do extremely well. And so as we repositioned our sales force, I talked about repositioning between endocrinology, primary care, and also the maternal and fetal medicine markets as well. We've repositioned our group so that we have specialists who spend more time in the endocrinology offices and with high prescribers, not so much with those who don't prescribe a lot. And a lot of the new adds, a lot of the expansion relates to primary care, where they will talk about Stelo with primary care doctors who see almost all of the type 2 patients who aren't on insulin. So by expanding this way, we believe we'll be able to have more coverage with physicians as well. This will also be a message driven direct-to-consumer in the same way that you see all the other type 2 products. Go on, Jereme, you might have a bit to add to that too.

Yes. You asked the question about the sales force. And Kevin certainly pointed to Stelo as a big part of the sales force and expanding the total addressable market. One of the reasons to expand is exactly, as Kevin said, there's a massive opportunity there. However, there's also a massive opportunity in our existing markets. G7 is a wonderful product. G6 is a wonderful product. There's coverage continuing to expand as well in those categories. And so expanding the sales force also allows us to cover more in that category. That code of category continues to do incredibly well. We had a record new patient quarter this quarter. And so you can expect to see really growth on both ends of that as a result of the expansion of that sales force.

And we will take our next question from Robbie Marcus with JPMorgan.

Congrats on a nice quarter. I wanted to talk about the leverage we saw down the P&L. It was pretty impressive. It will be by like 150 bps on operating margin. So just wanted to see how we should think about gross margin progression, operating margin progression throughout the year. I saw the reiterated guidance but just trying to think about cadence, especially in light of the Stelo launch and the key drivers of that upside in the quarter and how we should think about that moving through the year?

Yes, thank you for the question, Robbie. When considering gross margin, it's important to note that we expect this year to resemble a more typical one, where we generally see 300 to 400 basis points of expansion. That’s the expectation we have for this year. Last year was unusual due to the transition from G6 to G7 and the launch of a new manufacturing facility. Looking back at previous years, we can see a consistent pattern. This context helps us understand the operating margin and operational spending. We've already invested in our sales force, which is reflected in the first quarter results. As you mentioned, there was nice leverage in that quarter. We plan to invest further in Japan as we launch in the second quarter, and those investments will continue throughout the year, particularly with the upcoming launch of Stelo in the summer. While we might not see the same level of leverage as in the first quarter, we do anticipate some leverage contributing to an increase in operating margin, despite a guidance that indicates a slight decline compared to last year. Regarding the strong performance in Q1, particularly in operating margin, it's a positive indicator for us. We've shown over the past few years that we can achieve leverage in this business, and this year is no different. All of our previous efforts remain in place. However, it's still early to revise our outlook for the full year based on the first quarter results. As you noted, it was a solid start, and we will keep you informed on our progress as the year unfolds.

We will take our next question from Larry Biegelsen with Wells Fargo.

Kevin, I'd love to ask about Stelo. So I heard your comments about the e-commerce website. Why an e-commerce website as opposed to pharmacies and retail? Maybe talk about how you see utilization playing out. And I know the indication is only for type 2 oral patients, but do you see an opportunity beyond type 2 oral patients such as prediabetes and health-conscious people maybe down the road?

I'll start with the end and go back to the website. That product is labeled for people not on insulin. It's not necessarily labeled just for people with diabetes. We designed the experience to focus more on those with type 2 diabetes because we believe there's a very, very strong unmet need, and a product tailored to that solution can do very well. We believe people who don't have diabetes will, in fact, use it and will purchase it. But the focus out of the gate is in this marketplace where people have a direct need. Over time, we definitely see this platform and features in our software migrating towards those other markets. We just wanted to get started here first. With respect to the website and the reason we've gone with this direct distribution model, we've had great success with it launching products in some of the international markets as we've rolled Dexcom ONE out. So we do know how to do this. Second of all, we want a little bit of control when we start the launch. We want to understand what's going on. We want to track utilization patterns. We want to see how this goes, and we felt this was the most efficient way to do it. And as you go back to my comments, I said initially, we will launch in this program. I think as this gets bigger, we'll seek other distribution channels if it's more efficient to get more product to people. We are very well positioned, and we've done a lot of work setting this website up and the distribution process will be extremely efficient. We're not concerned about being overrun right now; we're in a really good position to get this product to the people that want it through the website we've set up.

Yes. And then to your question on utilization, Larry. It's going to be a little bit of everything. I think there are going to be some users that do use it full time. I think some folks will use it intermittently. That's based on our market research. Our market research has indicated, for the most part, once folks are on this product, they want to use it. We've run studies where there was a high either utilization while in study and a high request to continue utilization post-study. All that being said, as we think about modeling, we want to ensure we're prudent in doing so. So I think you can expect a little bit of everything. That population is so large that you'll get, I think, a grab bag of everything. Fortunately, we always are surprised positively by how often folks want to wear these things.

We will take our next question from Joanne Wuensch with Citibank.

Congrats on the quarter. With a 15-day Stelo out in the market, what are the steps to bringing a 15-day sensor onto the G6 or G7 platform? And what are the economics of moving to that time frame?

Yes. First of all, there won't be any G6 15-day. We're not going to spend any more money on G6. I can assure you of that. One of the reasons we're launching Stelo with 15 days and our current G7 platform is to learn its performance in this type of environment. As we talked earlier, we have a level of performance reliability and expectations of our customers. We wanted to ensure we delivered those, and we felt more comfortable at 10 days to start. We have numerous clinical efforts and R&D efforts to move the platform to 15 days for all the G7 products, including Dexcom ONE+ in our international markets at some point. As we've said in our guidance and what we've done, that's not anticipated for 2024, but it's certainly anticipated not long after that. So you'll hear and see more about that over time. The economics are quite simple. You're selling two sensors over a 30-day period rather than three. We can see a significant margin pickup as long as we have the proper reliability on the other side because if you're shipping a sensor in a FedEx box, replacing one that doesn't work, you've lost all your economies of scale anyway. So we're not only looking at 15 days, making it reliable, we're looking very hard at offering the maximum most efficient customer experience for individuals when we go to 15-day. So they're ready. And so this delivers what we've always delivered because one of our CSAT scores and as we survey our customers, one of the things that we always hear about is how much people value that experience and the support that we give them. It's a combination of all those things. But scientifically, we're well down the road to having a 15-day product.

We will take our next question from Jeff Johnson with Baird.

So wanted to ask on basal. Just any visibility you can give on how that's been scaling. Obviously, a record new start quarter this quarter. I would assume basal's contributing nicely to that. But what are the sequential patterns over the last few quarters? Is it still sequentially growing at a pretty healthy rate? Assuming, but any color you can provide there? And also, there's been some debate, obviously, on market share within the basal population here in the U.S. Just would love any insight you can provide on that front as well.

Sure. I'll address that. Thanks, Jeff. When we discussed our expectations for this year, we focused on basal adoption rates across the entire population. We anticipated finishing the year with around 15% adoption within the U.S. basal population and reaching 23% by the end of the year, which is about an 8 percentage point increase. So far in the first quarter, everything is progressing as we expected. The record number of new patients reinforces that point. A significant portion of our new patients are indeed coming through the basal channel, and we're seeing excellent performance in that area. The excitement we mentioned earlier in that channel remains strong. Regarding market share, we analyze script data based on pathology. There is no internal debate; we know we are gaining market share, and we can see that reflected in the data, which many of you also have access to. The scripts continue to trend in our favor. When we have coverage and compete directly, we've generally come out on top. We might have differing views on some comments made, but the data clearly supports our position. The trend in script data will continue to show positive developments moving forward. I hope this information is helpful.

We will take our next question from Jayson Bedford with Raymond James.

Just on Stelo. Kevin, you mentioned getting it out quickly, but you're not launching it until the summer and certainly don't mean to be impatient. But just outside of the sales force training, maybe the e-commerce setup. What else are you doing to prep for the launch? And then just does the FDA need to approve anything else? I'm thinking of an app or the like before you launch?

No, we have full FDA approval for launch. It has been our experience over time at Dexcom that when we get a very rapid approval, we tend to become very impatient and we launch very quickly. We've put ourselves in a bind by going out as quickly as we have. We had a launch plan for this product anticipating an FDA approval when it was going to come, and we're going to stick to the launch plan that we have. We have manufacturing scheduled, we have lines set up, we have everything, packaging, everything that we need ready to go, but we're going to stick to the plan that we have. We believe our timing is good; there's no need to rush anything. And so we're sticking to what we have, and we're comfortable with it.

We will take our next question from Margaret Andrew with William Blair.

I wanted to follow up on something, Kevin. Earlier you mentioned that you're seeing increased coverage in plans for patients earlier in their care. Can you clarify if you're referring to basal or perhaps non-insulin options for prediabetics and nondiabetics, or maybe even less traditional options? Additionally, can you provide any information on how many people have reached out on your website to purchase the product since the launch?

Well, we haven't had anyone reach out to buy it because we haven't offered it for sale, but we certainly have had a lot of inquiries. And again, as you go to media impressions, articles, interviews, and solicitations like that, Stelo has been the biggest offering that we've had as far as news. As our reps walk into primary care doctor offices, I just spent a bunch of time with several of our field team members. That's the question the minute they walk in the door: when am I going to see Stelo? When I was at ATTD, it was interesting; many of the physicians came up to me and said, how does Stelo affect my practice? So there is a lot of interest and there is a lot of buzz around that. As far as using CGM earlier in treatment, we're seeing that with basal. We're seeing that as somebody goes on basal insulin; like you go on basal insulin, you might as well use a sensor to know how this is affecting your body so you can learn and so we can titrate your basal insulin the way it needs to be, and we're looking at product offerings and software enhancements to improve that experience. But even in the type 1 population, Margaret, you now see kids leave the hospital with their Dexcom. They get diagnosed, they go to the hospital, and again, I talked with someone this morning even, the six-year-old was diagnosed and left the hospital wearing a Dexcom because there was no way they were told they could manage this disease without it. So we have definitely become a product and an offering that comes into play very, very quickly. I also think we see, particularly if there's coverage with somebody with type 2 diabetes who is not using insulin. Physicians know that patient can get it, they'll get it to them and use this as a teaching aid, as a tool to help these people manage their conditions. Across the board, CGM is becoming used earlier in treatment over and over again.

Yes. And Margaret, this is one of the reasons why last year we think we talked a little bit about this; we introduced a cash pay option on our G-Series. One of the reasons for doing so is, as Kevin alluded to, really across the spectrum of managing diabetes, there's been more interest. Those plans that do have pockets that cover everybody with diabetes and the cash pay option have seen some uptake there, certainly not a majority of our uptake and certainly not the materiality of our customer base, but the interest is there. You continue to see that taking place. It's why we're so bullish on Stelo. Back to Kevin's point, why there's so much inbound interest in that product. So hopefully, that gives you some context. There's a groundswell of attention to this, and rightfully so; it can help a lot of people.

We will take our next question from Matt Taylor with Jefferies.

I wanted to ask you kind of a combined question when you were talking about moving earlier in the treatment paradigms and also with Stelo coming on. And obviously, you've got plans to try to broaden coverage and have these conversations with payers about how that may benefit patients. So the question is really, are you seeing signs from the payers that you could actually get coverage for the G-Series and/or for Stelo in some other format this year, basically earlier in the treatment paradigm than basal? And how long do you think it will take to get any kind of coverage for Stelo?

Yes, that's a valid question. There are some plans that cover nearly all individuals with diabetes, although they are not the majority. These plans recognized early on the value of continuous glucose monitoring as a lifestyle change, a preventive measure, and a tool that ultimately provides benefits to the healthcare system. This aligns with the economic discussions we've had previously. Some plans have adopted this approach, but it's not widespread. Regarding broader coverage or earlier introduction, we do not anticipate significant expansion this year. There may be some successes on a plan-by-plan basis, but these do not represent the majority of national formularies at this time. Continued efforts are needed. One reason we aimed to introduce Stelo is the data that will emerge, in addition to ongoing clinical trials and work that we consistently conduct with our partner organizations. This real-world data will be crucial in demonstrating to payers and employers the benefits of this tool in improving health and reducing costs. I do not expect this to happen in 2024. As for the timeline, Kevin has been clear that we estimate a 2- to 3-year window for this process. We are strongly motivated to move quickly, and we will keep you updated on our progress as we make advancements.

We will take our next question from Mathew Blackman with Stifel.

Can you hear me okay?

Yes.

Okay, great. Maybe, Jereme, this question's for you. I know you're not going to give me precision here, but I'll ask anyway. Just on G7, where are we even in the roughest sense in terms of the mix of the installed base? And I guess the more important question is what's the tipping point for gross margin accretion in terms of G7 mix? Is that something we hit this year? Is that part of the quarter-over-quarter potential improvement to get you to the full year guide? Or is that something that happens further out? And is AID integration a key component of that ramp?

Yes. Here's my expectations. The way we're tracking, and again, it's going to depend on how things play out over the course of the year, but we are tracking to a point where G7 as a percentage of our overall sales will eventually move ahead of G6. I expect that here over the coming quarters in 2024. So that is moving. It started moving obviously at the back half of last year and having, to your point, the AID integration was very helpful for the base. This is happening, and it’s the reason for some of the leverage in the back half of the year. As G7 starts to be the primary product, the economies of scale start to kick in, and that's where you start to see the cost come below G6. That could happen this year and it very well could happen as we move over. It's going to depend on the velocity at which we move. I will tell you, Q1 was a very strong velocity in movement. In terms of new patients coming in, a majority of new patients are already moving to G7. So the great news is, it's not a matter of if, it's when. It's really on converting that base. So I think the long way to answer is yes; some of the leverage this year in gross margin is because we do expect G7 to be the majority of product. When it gets lower, it's going to be kind of a timing thing. We don't have an exact date, but at the velocity we're going, it's happening very quickly, and it should be a good guide. AID will play a large part of it. It's already started with our Tandem base. I know we're talking about Insulet coming up here pretty soon. Excited about both of those opportunities and converting that base.

And we will take our next question from Shagun Singh with RBC.

So U.S. growth was pretty strong at 24% year-over-year, but it was roughly in line with expectations. And so I'm wondering if you can elaborate on pricing. And I know that's been big for you guys. What were trends year-over-year and sequentially? And then on Stelo pricing, is it fair to assume more in line with cash pay similar to what your competitor has indicated?

Stelo pricing, I'll start with, and then Jereme can jump into the other. Stelo pricing is going to be competitive. We've got a number of models we're considering. We said we'd bring you more information on that on the next call at ADA, and that's when you'll hear more of it. But we'll be very competitive with other cash offerings when we launch Stelo.

Yes. Regarding your question about Q1 pricing dynamics, they are stable. We don't have many contracts changing from year to year. When contracts do change, we still face the typical pricing pressures associated with medical devices, which remain consistent. At the start of the year, as benefits reset, we notice many new patients are coming through the pharmacy channel. Our durable medical equipment (DME) business remains strong, supported effectively by our partners. However, as we engage with more primary care physicians who treat basal patients, there is a noticeable shift toward the pharmacy channel for new patients. While the overall base remains stable, the mix is slightly leaning more towards that channel due to where our new patient influx is coming from. We don't characterize this as a pricing change; it has been consistent year over year, but it's important to be aware of these dynamics as we enter the new year.

We will take our next question from Matthew O'Brien with Piper Sandler.

Jereme, it seems like you're not feeling well, so I hope you recover soon. I've noticed that the stock is down about 8% in aftermarket trading. You just had a strong start to the quarter, but now the rest of the year looks to be set for a significant acceleration despite tougher comparisons. Even when looking at a two-year basis, your performance is still better than what you achieved in Q1. I understand that Japan will be a bit of a boost for you, and you have a larger sales team now, although it will take time for them to make an impact. Stelo probably won't contribute much until Q3 or even Q4. Can you explain the confidence in reaching the midpoint of your guidance for the rest of the year, considering these factors?

Yes, sure. I'm happy to provide that, Matt, and thanks for the wishes on the cold. I was trying to impress you with my deep voice; I guess that didn't work. In terms of how the confidence on the year. One of the things that, as we go into a quarter, we try to set a base case. The base case has risks around things like competitors, things like adoption in the basal base, things like what we would do in terms of channel mix and pricing international expansion. While we said Japan was going to launch, you have to be mindful of that, talking about basal coverage and adoption outside the U.S. All of those go into as you set ranges for base cases. As some of those get knocked down, we feel much more confident about raising the base case. And so that's the reason why we ultimately did it. We feel more confident in the base case as a floor. So we certainly felt good there. We haven't talked about it yet, but I think one of the things we are really excited about is in France; we've submitted our final paperwork for Dexcom ONE+ to launch with what we expect is basal coverage in the coming months. We talked about it; it was something we thought was coming. We knew it was coming, but it was one of those things that we needed to ensure we did the appropriate steps. As we start to derisk it, that's one thing. In Germany, we have wonderful basal coverage there or shouldn't say wonderful, for the small population that's agreed to it. But that's a wonderful start for us. In terms of now saying, well, there is a pocket of payers in Germany, albeit small that do have basal coverage. It's a wonderful progression for us. We are the leader in terms of basal coverage in Germany right now. These are the things that help derisk the year that hopefully give you guys a little bit more confidence in that base case; certainly, it gives us confidence in that base case. That's why when we come out and feel comfortable moving that up; it's that confidence that we have in that base case.

And we will take our next question from Marie Thibault with BTIG.

I wanted to ask a question here on Japan. It sounds like you have really broad favorable coverage for all people using insulin. So I want to understand where was penetration into that market with your distributor partner and what have been the barriers? What have really been the hurdles? And what are you going to do to try to attack those?

Our penetration with our partner has been minimal. Japan has not been a significant market for us despite the extensive coverage that has just been introduced, which is why we've decided to go direct; our distributor partner and we have parted ways. We have encountered similar experiences in various regions over the years. In areas where we partnered with a distributor that already had infrastructure, like we did in Australia and many years ago in Germany, we were able to quickly gain ground and rapidly grow the market due to the existing infrastructure. In Japan, as in some other regions, we are starting from the ground up, similar to our approach in France. It will take time to establish that growth engine and dynamic in Japan. The main factor holding us back has been the lack of sufficient infrastructure, and our distributor primarily focused on what was most beneficial for their own business. There wasn't the necessary commitment and drive there. Moving forward, we will have that commitment and drive, but building it will take time; it won't happen overnight. We are confident that we’ve assembled a team capable of fostering the necessary relationships. The Japanese market is significantly influenced by the decisions of physicians and hospitals. We believe we have, from a leadership standpoint, a team that can successfully build those relationships and accomplish what is needed, but this process may take some time. Looking ahead, I fully expect that in the coming years it will become a very large market for us, and we will achieve great success there.

And we will take our next question from Bill Plovanic with Canaccord Genuity.

Just I was wondering if you could just comment on attrition rates, reorder rates. What have you seen with the transition to G7 from G6? And then how do we think about this in the different patient populations as we get out of the IIT patients and into the basal hypo and eventually into non-using?

Yes, it's a question we've asked ourselves quite a bit, so I'm happy to give you our thoughts on it. From G6 to G7, we've seen a relatively consistent rate. There hasn't been much of a change in terms of retention utilization across those two products, and that's as expected as we upgrade folks from one to the other. Obviously, we think the G7 experience is wonderful, but so is the G6 experience, and we pride ourselves on the experiences that we offer. So that's been relatively consistent. What we've also found to date, and I think it's important to state to date, is that there's not really as much of a difference in the populations we've served across those folks on our products today. We find that there's really only one category where retention and utilization is markedly different; it's those on AID systems. Everybody else seems to follow a pretty similar pattern of retention and utilization, and I say that to date because we are moving into new populations; we are moving more into basal and more into non-insulin-using population, albeit still a smaller part of our user base. The hypothesis has always been that we expect a high utilization in those spaces. We've always been positively surprised, but we are aware that as we move down the acuity curve, there is potential opportunity for folks to use it maybe a little bit less. That being said, we haven't seen it to date, but we'll keep you posted as we're moving through what we're seeing. To help you guys kind of get your arms around it.

Yes. I would add, as we head into non-intensive insulin therapy, we think there could be a number of outcomes here, and there could be a number of use cases for people. One of the reasons to maintain our distribution on our own website to start with is to begin to understand those patterns and to understand what the purchasing patterns, how many people prefer the subscription model versus individual one-time purchases, and how often do they come back and then use our tools to find out what the experience is like, what they like, and what they didn't. The other thing I would add with respect to retention and attrition, one of our biggest barriers, particularly back in the day, was the copays of the first quarter when everybody was in the DME world. Now that we have pharmacy coverage, that barrier has been eliminated a bit. That's not as big a reason as to why we lose customers at this point in time. It used to be in the past; we've been very successful in working that dynamic. The flip side is our DME patients have very strong retention rates and very strong utilization patterns because of the attention our fine distributors pay to them. So it's a mix of everything, Bill, but I think we're in a good spot. We will learn in the non-intensive insulin therapy world and figure out how to build product offerings to maximize our experience with those users.

We will take our next question from Michael Polark with Wolfe Research.

I wanted to ask on one of your sales force comments, Kevin. I heard about the expansion faster and higher quality talent than expected. Those folks are hitting the street in 2Q. I got that. I also heard about a new team upgraded structure, and it didn't quite follow what you're doing there and why it's impactful. So if you could unpack that update for me, I would appreciate it.

As we assess our goals and identify areas needing greater focus in the field, we've noticed a few key developments. First, we've discovered that our representatives, while reaching out to high prescribers, were also engaging with non-prescribers. This made us realize we're possibly not giving enough attention to our top prescribers. Consequently, we've organized staff to concentrate more on endocrinology and high-prescribing diabetologists rather than just primary care. Simultaneously, we require more representatives to reach out to primary care physicians. We've consistently found that engaging with more practitioners leads to success. Therefore, we need to expand our outreach and strengthen relationships. Over the past few months, we’ve also become more proactive with our sampling program, aiming to provide samples to more individuals and connect with additional healthcare professionals. Furthermore, education is crucial—where we've encountered offices with limited experience in CGM prescriptions, we've enhanced our investment in training support. Many doctors, especially as we expand into primary care, may not interact with our representatives. Therefore, we've bolstered our internal sales force on a regional level to increase our efforts. Our strategy involves deepening our connections with high prescribers in endocrinology while broadening our outreach across the entire primary care landscape, including patient training and support.

We will take our next question from Steve Lichtman with Oppenheimer.

I wanted to ask about the non-insulin hypoglycemic risk group, which obviously does have coverage now and I think you've estimated before is about the same size as basal. Are the sales force expansion and moves you're making that you just alluded to, Kevin, in the commercial organization, helping with those education efforts? Any updates overall you could provide on sort of where you're at sort of tapping this opportunity would be great.

Yes. Thanks for the question. You're right. It's a big opportunity for us, but it is one that has taken a little bit more time. Obviously, the focus is on basal with a known quantity, but the hypoglycemia unawareness or the severe hypoglycemia event, I should say, those are harder to educate folks. To your point, one of the things that we've done, and Teri and her team have really focused on is creating the educational materials and then arming the sales force accordingly to get out there. If you have a situation where we are expanding our sales force and reaching broader touchpoints where a lot of these folks are seeing across the healthcare spectrum. That expansion does allow us to get out there and educate more. The biggest challenge is that education; it doesn't come to top of mind for individuals and prescribers that when this event takes place, I qualify. More touchpoints, a good thing, and the team is working hard at that.

We will take our final question from Josh Jennings with TD Cowen.

Kevin, you mentioned that you'll have numerous iterations of Stelo over the course of the first 24 months of launch. I wanted to just see if there's any other color you can provide on those iterations and mostly are they going to be on the software side? Or is one of the iterations going to be an increase in the rate of sensors lasting the full 15 days? How important is that expansion to the success of Stelo?

Well, we always work on sensor performance optimization, and we have a very, very strong program on that across the board. Stelo operates on the G7 platform, so anything we do with G7 certainly can apply to Stelo. With respect to changes that we make, I think I can go back to what I said about G7. We literally had a software iteration every month since we launched G7, and we brought several new features into G7. We expect a similar ramp with Stelo once we launch it, and we have a number of features on a roadmap over the next 12 months that we would add to it from a software perspective, particularly as we learn what engages people as we start. We've been very vague, and we'll remain vague about the features we're going to have at launch and those that we're going to add for competitive reasons. We're just not going to give everybody else a roadmap.

And we will take our next question from Matt Miksic with Barclays.

Kevin, I wanted to revisit some of your earlier comments regarding the Stelo approval and the timeline for its launch. Could you elaborate on your thoughts about ensuring manufacturing capacity is in place and your desire to avoid hastening the launch after approval? Additionally, it would be helpful to understand how you're prioritizing supply, resources, and business and market development between various opportunities, especially considering the excitement surrounding this product beyond the diabetes community.

I appreciate that. We're committed to our launch schedule. We’ve made significant investments and are prepared to move forward as planned. Our approval process was quick, and we credit the FDA for their collaboration. Our team did an exceptional job with the submission, allowing us to reach this point swiftly. We will adhere to our timeline, and we believe our success will be due to everything being aligned and ready for launch. Having experienced many product launches, I've learned that rushing can lead to complications, such as excess inventory. We're allocating the necessary resources, including multiple G7 manufacturing lines in Malaysia, which became operational this summer, as well as production in Arizona. Our G7 capacity is ample, and we have dedicated lines for Stelo. We’ll stick to our plan and feel confident we’ll be ready when the time comes.

And there are no further questions at this time. I will now turn the call back to Mr. Kevin Sayer for closing remarks.

Thanks, everybody, for participating in our call today. This really was a great quarter for Dexcom, and we continue to drive the most important innovations in our industry. We're continuing to widen the gap between Dexcom and our competitors by driving more firsts in our CGM user experience, particularly in the G7 platform. Direct-to-watch has been the most requested addition to our experience ever since we launched G5 many years ago, and now it's here. Our users are going to be able to, as I just articulated, have an incredibly discrete experience with CGM on an Apple Watch only, and that will include all of our shared follow system as well. So imagine, again, a parent who wants to send their kid to school without a phone; they will be able to do everything on a watch that they used to be able to do on their phone. Access to CGM on a global basis continues to expand. We're very well positioned with our product portfolio to win these opportunities. Lastly, I'll just talk a bit about Stelo. We went from a December filing with the FDA on Stelo to a March approval for the first over-the-counter CGM product platform in the United States. This is going to greatly enhance the lives of many, many people, and we'll learn so much about it during this launch in 2024; we will be very well positioned in '25 and years going forward. Let's not forget the theme of this call: We continue to deliver outstanding worldwide topline growth, continued strong operating margin expansion. At the same time, we have not at all skimped on investing in our future products in R&D, and we have a very strong commitment to creating the scale necessary to drive this business where it needs to get and pursue all of our opportunities. Thanks, everybody, we appreciate your support on the call today.

Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.