Dexcom Inc Q3 FY2024 Earnings Call

Ladies and gentlemen, welcome to the DexCom Third Quarter 2024 Earnings Release Conference Call. My name is Abby, and I will be your operator for today's call. At this time, all participants are in a listen-only mode, and later we will conduct a question-and-answer session. As a reminder, the conference is being recorded. And I will now turn the call over to Sean Christensen, Vice President, Finance and Investor Relations. Mr. Christensen, you may begin.

Thank you, Abby, and welcome to DexCom's third 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 one question each, so we can provide an opportunity for everyone participating today. Please note that there are also slides available related to our third 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 on 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 on this call are made as of the date hereof based on information currently available to DexCom and are subject to various risks and uncertainties. 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 call 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. Unless otherwise noted, all references to financial measures on this call are presented on a non-GAAP basis. This non-GAAP information should not be considered in isolation, or as a substitute for results, or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and the slides accompanying our third quarter earnings call for a reconciliation of these measures to the most directly comparable GAAP financial measure. Now, I will turn it over to Kevin.

Thank you, Sean, and thank you, everyone, for joining us. Before we dive in, I want to take this opportunity to share an important update. As many of you saw in today's press release, our Chief Commercial Officer, Teri Lawver, has expressed her plan to retire from DexCom. Teri is a great leader who has advanced our commercial organization in several areas in the past two years, including the launches of our G7 system and Stelo, which I will touch on shortly. I am thankful for her strong leadership and dedication to DexCom, and she will continue to work with me as a Special Advisor and Consultant through early next year as we navigate the transition and our search for a new Chief Commercial Officer. I will assume leadership of the team, and having managed this team before, I can speak to their quality and look forward to leading them again. There are three primary takeaways I want to convey today, reinforced by what I've observed since our last quarter call. First, CGM remains a premier global growth category, and the excitement and uptake we've seen with the Stelo launch has further reinforced my conviction about the long-term potential of this market. Second, I feel good about the execution progress that our team is making, both in terms of our commercial effectiveness and our product pipeline, and we'll walk through some of those steps today. Finally, I feel confident in our pathway back to higher growth and continued margin expansion, which Jereme will discuss in more detail later. With those points as a framework for discussion, let's turn to the highlights from the quarter. Today, we reported third-quarter organic revenue growth of 3% compared to the third quarter of 2023, which came in at the high end of our third-quarter guidance. Our team continues to build upon our foundation for long-term growth by delivering new products and customer experiences while swiftly working through the temporary challenges to get us back on track. I want to touch on the action items we implemented in the third quarter and the strong progress we've made on the core issues identified. Together, these updates demonstrate that we are rebuilding momentum to solidify our growth as we head into 2025. Beginning with our US sales force expansion, we are pleased to report progress and positive momentum as we move to apply learnings from the initial rollout and improve our commercial execution. Importantly, new customer starts returned to record levels in the third quarter as we gained greater traction in new and existing physician offices. We are now encouraged to report that since the expansion of the sales force in April, we have seen our prescriber base expand by nearly 35,000 clinicians. While the impact of these new relationships is not fully reflected in our third-quarter results, they represent a meaningful expansion in a few short months and set us up very well as we work to build on this momentum in Q4 and into 2025. Regarding our DME partnerships, we have worked quickly to refocus on those partnerships and ensure that our teams are aligned to the strategic importance of all channels in the US. Our leadership connected with our counterparts at the DME distributors in the last quarter to listen and collaborate on strategies that are mutually beneficial. Through this process, we found opportunities to better partner with these teams in the field as we collectively simplify workflows and provide a greater customer experience for all. While we still have work to do, we're in a far better position today than we were three months ago. These partnerships are a core part of our strategy, and we are confident in our ability to drive meaningful growth that accrues to both us and these channel partners. We've also executed at a high level within our international markets. We saw third-quarter revenue growth accelerate from the second quarter levels in nearly all of our direct markets driven by stronger new patient performance and the expanded availability of our G7 and DexCom ONE+ product platforms. This included the launch of G7 in Australia at the end of September, bringing our latest G-Series technology to our customers who have been eagerly awaiting its arrival. We continued the expansion of our DexCom ONE+ system, which leverages our G7 hardware platform with a differentiated app experience. We've now introduced this technology in 19 countries, with France being the latest addition in the third quarter in advance of the start of national reimbursement, including basal coverage in early October. This provides reimbursed access to more than 600,000 people in this important market. We also saw Japan return to growth in the third quarter, with our new sales organization gaining momentum in this critical market. While it is not yet a large component of our international revenue, our team is making strong inroads with the clinical community and building awareness among the more than one million potential customers who have access to DexCom CGM. In fact, we recently delivered our highest new customer start month since entering Japan in 2019, and we build on this progress in the coming quarters and years ahead. During the quarter, we were also thrilled to launch our newest product, Stelo, in the US market. Stelo's launch represented a pivotal moment in the diabetes care and metabolic health landscape as now any adult in the US can access a DexCom Biosensor. It also provides a glimpse into the future of the broader care paradigm as more personalized solutions can encourage better lifestyle management and enable clinicians to make more informed therapy decisions. We are already hearing this exact feedback from our earliest adopters. Many of these individuals are engaging with their glucose data for the first time and sharing stories of how Stelo has changed their behavior and provided greater accountability in their lives. They are also sharing positive feedback on all stages of the product experience, everything from ordering through our e-commerce platform, the speed of delivery by Amazon Fulfillment, engagement with the software interface, and a seamless reordering process through our subscription model. In DexCom tradition, we are listening to customers and are already working to innovate the Stelo experience to meet the distinct needs of people with pre-diabetes or Type 2 diabetes who are not on insulin. Even with the product being targeted to those populations, we've seen plenty of inbound interest from people looking to take advantage of the OTC opportunity early in their metabolic health journey. Across these cohorts, currently around half of our customers have signed up for Stelo subscription, which is encouraging to see this early in a product launch. We have historically found that greater CGM usage can lead to improved health outcomes, and we'll be tracking this closely as the market further develops. In October, we also began our initial expansion of distribution options for Stelo. To start, we've broadened our sales presence and increased our partnerships by providing several of our core DME partners access to Stelo on their platforms. This gives them yet another great product to engage and more fully serve the diabetes community. We've also initiated our first B2B sales of Stelo. This includes direct sales to certain clinicians as one of the first requests that we heard at the outset of Stelo's launch was the desire from clinicians to have Stelo available for sale within their practices. We've been very encouraged by Stelo's launch thus far, and this is only the beginning. Stelo will continue to adapt and evolve as we incorporate functionality that personalizes the experience for our customers. Finally, our team is always working to enhance customer experience across our platforms, and we recently took another exciting step forward on this journey. Following the completion of the necessary clinical work, we submitted our DexCom G7 15-day CGM system to the FDA for review. This has been a top priority across the organization, and we're looking forward to bringing this product to market as soon as possible. We will have more to discuss around this product and its commercial rollout in the months ahead. In summary, the team has worked tirelessly to respond to the dynamics that emerged earlier this year. We're moving quickly and putting in place the pieces to help us return to the growth levels we expect from ourselves. And just as important, even as we work through these near-term dynamics, we continue to manage this business for the long term. With that, I'll turn it over to Jereme.

Thank you, Kevin. As a reminder, unless otherwise noted, the financial measures presented today will be discussed on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release as well as the slide deck on our IR website. For the third quarter of 2024, we reported worldwide revenue of $994 million compared to $975 million for the third quarter of 2023, representing growth of 2% on a reported basis and 3% on an organic basis. As a reminder, our definition of organic revenue excludes the impact of foreign exchange in addition to non-CGM revenue acquired or divested in the trailing 12 months. US revenue totaled $702 million for the third quarter compared to $714 million in the third quarter of 2023, representing a decline of 2%. This reflected the compounding effect of slower new customer starts from Q2, along with a decline in our revenue per customer due to shifting channel dynamics and higher rebate eligibility compared to a year ago. This eligibility component alone created a year-over-year negative impact of approximately 6 points of growth in the US. With rebate eligibility now near 100%, we expect this impact peaked in Q3 and will moderate over the next couple of quarters. In the DME channel, we experienced some incremental share loss during the quarter as we had contemplated in our previous guidance. However, we were encouraged to see these trends stabilize late in the quarter as our team worked quickly to better align with these partners in the field. As Kevin mentioned, the DME channel is a core part of our strategy, and we are working collaboratively with our distributors to unlock meaningful growth. International revenue grew 12%, totaling $292 million in the third quarter. International organic revenue growth was 16% for the third quarter. We saw an acceleration in many of our core international markets in Q3 as we expanded availability of G7 and DexCom ONE+ across our footprint. With our leading product portfolio and the growing evidence of health outcomes driven by DexCom CGM, we continue to see significant opportunities to expand reimbursed access to our CGM systems in international markets, particularly in the Type 2 intensive and Type 2 Basal categories. Our third-quarter gross profit was $625.9 million or 63% of revenue compared to $64.7% of revenue in the third quarter of 2023. During the quarter, we incurred a $24.6 million non-cash charge on inventory related to some build configurations that we determined were not appropriate for commercial launch. We excluded this from our non-GAAP results for the quarter. We've made significant progress in transitioning our installed base to the G7 form factor with new pump integrations and the continued rollout of DexCom ONE+. This has enabled us to further scale our high-volume manufacturing facilities, which positions us well as we work towards our long-term cost targets. Additionally, Kevin noted that we recently filed our 15-day G7 sensor with the FDA for review. This potential clearance will provide us yet another compelling cost lever into 2025 and beyond. Operating expenses were $413.9 million for Q3 2024 compared to $391.5 million in Q3 2023. Operating income was $212 million, or 21.3% of revenue in the third quarter of 2024 compared to $238.9 million, or 24.5% of revenue in the same quarter of 2023. Adjusted EBITDA was $300.1 million, or 30.2% of revenue for the third quarter compared to $314.5 million, or 32.3% of revenue for the third quarter of 2023. Net income for the third quarter was $179.9 million or $0.45 per share. We remain in a great financial position, closing the quarter with approximately $2.5 billion of cash and cash equivalents. This cash position, along with our growing free cash flow profile, provides us a lot of financial flexibility. We took advantage of this during the third quarter as we quickly executed our previously announced $750 million share repurchase program during the quarter. Turning to guidance. We are maintaining our 2024 guidance in the range of $4.00 billion to $4.05 billion, representing organic growth of 11% to 13% for the year. With the third quarter playing out as expected, our guidance reflects a continued ramp in our US sales force productivity while we continue to work through some of the channel and rebate dynamics discussed above. Through this ongoing execution, inclusive of record new patient starts in the third quarter and our continued rollout of Stelo, we are building momentum as we enter 2025. For margins, we are reaffirming our 2024 guidance of non-GAAP gross profit margin of approximately 63%, non-GAAP operating margin of approximately 20%, and adjusted EBITDA margin of approximately 29%. With a full quarter now under our belt since resetting our 2024 guidance, we remain on track to achieve the $4.6 billion revenue and corresponding margin targets embedded in our 2025 long-range plan. With that, we can open up the call for Q&A. Sean?

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

And your first question comes from Danielle Antalffy with UBS. Your line is open.

Hey, good afternoon, guys. Thanks so much for taking the question. Congrats on the filing of the 15-day and the progress in the quarter. It does sound like you feel confident in the progress you have made. US did, though, come in a little bit below consensus. I'm sure there are some modeling dynamics there that we just got wrong. But I was just curious if you could give any more color on the progress made as we move through the quarter in August and September. And maybe anything you can say about the run rate exiting the quarter or what you can say about sort of where you are with DMEs from a share perspective, any other color you can add would be great. Thanks so much.

Thanks, Danielle. This is Kevin. I'll take that one. We anticipated that this quarter would be somewhat challenging, which is why we set our guidance accordingly, and we exceeded expectations, coming in at the high end of that range. We're pleased with this outcome. As we closed the quarter, we observed many positive developments. Firstly, the growth and improvement of our sales team significantly progressed this quarter as they became more acquainted with their territories and built stronger relationships with their physicians. This was crucial following the changes we implemented. We saw record levels of new patient additions, particularly strong in the latter part of August and September. Additionally, we added 35,000 new prescribers during the quarter. Although each new prescriber doesn't correspond to multiple new users immediately, we now have developed our prescriber base to the level we anticipated with our field expansion, allowing us to delve deeper into this market, which we believe will be beneficial. On the DME side, we have seen stabilization. As Jereme mentioned earlier, we continued to lose some market share, but the first two months of the quarter showed signs of stabilization in September, which was encouraging. Another positive aspect for our sales team is the Stelo message. As they engage more with primary care physicians who treat patients with Type 2 diabetes or pre-diabetes on insulin, the Stelo message is resonating well and provides these physicians with a great way to improve their patients' care models. It also helps them determine if more severe patients can access the G-Series. Given this momentum, we are optimistic about sequential growth in the US for the fourth quarter, which appears to be higher than in previous periods, even without contributions from Stelo. We are feeling very positive about the remainder of this year and heading into 2025 based on what we noticed as the quarter concluded.

And your next question comes from the line of Larry Biegelsen with Wells Fargo. Your line is open.

Good afternoon. Thanks for taking the question. Kevin, when we aggregate your Q3 results with Abbott, it looks like the US CGM market slowed to about 10% from over 20% in the first half of this year and high 20s before that. So there's still concerns that the CGM market is slowing. Is the 10% or so market growth in Q3 a good number going forward? Or are there one-time items in the third quarter that you think depressed the market? Thanks.

I believe in general, again, our numbers, we had to deal with the factors we pointed out on the last call with channel mix shifting and things of that nature. So we believe that our numbers are lower, like we said, based on our execution that we needed to make better and the things we disclosed last time. We're still very bullish on the category, Larry. We believe the market can grow faster than that going forward, and we want to get back in. Basal coverage is still early on, and we have many other people on intensive insulin, who still don't use CGM. So there's plenty of market to go after. We don't believe it's just a 10% grower. Again, when you add the two of us together, that's where we are, but we believe our performance will pick up going forward.

And your next question comes from the line of Matt Taylor with Jefferies. Your line is open.

Hi, thank you for taking the question. I was hoping you could help us understand or benchmark your progress a little better versus some of the things that you said in Q2, like, do you still expect to get the same new starts in Q4 that you did before? And can you talk about whether you think the low end of the long-range plan is still in play in 2025?

Yeah, sure. Thanks, Matt. I can answer those. When we talked last time, we talked about a few things that we expected to play out. One was we saw that we were a little bit behind in terms of the productivity in the sales force, and we were a bit behind where our new patients were. And we said we were going to be about three months behind, and I think you're seeing that play out. And so when you look at the performance this quarter, record new patients in the third quarter, I think you're seeing us perform that way, and we expect obviously to do better in the fourth quarter as we get more and more effective over time. Now we said we were about three months behind, and so we won't necessarily be where we initially thought starting the year, but we are in line with the guidance we gave last time we spoke, and we're making progress as we said. In terms of the long-term guide, I think you heard it in my comments. We're on track to hit our long-term guide. We said basically, we are on track to hit our $4.6 billion in the same margin targets we gave based on what we're seeing in the business today, which is obviously record patients this quarter, stability in the DME channel, some of the productivity, of course, in the sales force. Certainly outside the US, you saw our international results accelerate a little bit and we have more opportunities opening up over the course of this year and into next year. We feel good about where we're going and we haven't even really talked about Stelo. Stelo is going to be a real interesting opportunity for us going forward. We've got a couple of months under our belt, great progress to date, and looking forward to sharing more and more as time moves on with Stelo.

And your next question comes from the line of Jeff Johnson with Baird. Your line is open.

Thank you. Good afternoon, everyone. I have a two-part question. First, regarding the record new starts in the US, can you clarify whether that figure includes or excludes Stelo? I'd appreciate some insight on that. Additionally, considering the volatility in the past quarter or two, my patient model may be slightly off. However, it appears that your patient volumes in the US, specifically your installed base, may have increased by around 27% to 28% year-over-year this quarter, yet you reported a negative 2% revenue growth in the US. Could you help us understand the 25 to 30 point gap between the growth in your installed base and your revenue growth? I know you've mentioned a 6 point headwind from rebates, but is there anything else that could explain this discrepancy? Thank you.

Yeah, I can take that. So first off, record new patients does not include Stelo. So we're excluding Stelo. This is really our G-Series/T-Series, call it, our insulin product base. So like-for-like apples-for-apples record quarter. So hopefully, that gives you some context there. In terms of where we're going, while we're not necessarily giving our patient base, I think we gave a patient base last quarter, and that really implied mid-20% growth in terms of that patient base. Now in the current quarter, Jeff, we are seeing a little bit of the kind of the Q2 performance rolling through in the third quarter. And so as you know, as you think about patient starts, the big kind of tie-in between both patients and unit volume, you really feel it in the subsequent quarter. So if you think 25% last point we gave it, it's a little bit tighter than I think your model is implying. So it's not too, too far off, but it's tighter than that. In terms of then the year-over-year delta, certainly you pointed out rebates. The biggest piece that remains between the two is where folks are getting their product. And we talked about losing share in the DME in the second quarter and to a lesser extent, some here in the third quarter, while the majority of the new patient starts were going through the pharmacy. As that delta takes place over time, it creates a widening based on the channel that we've historically seen. Now as that stabilizes, we expect that to start coming closer over time. But that's the reason why you see that. Our unit volumes are still strong as an organization. We're still excited about this over the longer term, but we needed to navigate through the stabilization of those, and I think you saw it in the third quarter. So hopefully, that gives you some context on the model. A big piece of it's going to be that channel shift in addition to rebates, but predominantly channel shift.

And your next question comes from the line of Robbie Marcus with JPMorgan. Your line is open.

Thank you for the opportunity to ask a question. I wanted to inquire about the DME channel; it seems you've stabilized your position there. Could you provide more details on what actions you're taking? Is pricing a factor? How are you adjusting your relationships? Is it realistic to expect a return to your previous standings from two, three, or four years ago with DMEs, or should we anticipate just gradual improvements? Thank you.

Yeah, this is Kevin, I'll take that. Some of the actions we put in place, first of all, we obviously met with the leadership of all those companies and listened to them and heard what they had to say. By and large, these partners have served us well. And as far as getting along day-to-day, we do very well. Where we disrupted the apple cart, Robbie, again, is relationships in the field, where we changed literally every single sales territory, the DME rep relationships were lost frequently between our rep in their territory and the DME rep in the corresponding territory. In addition to that, with respect to channel balance, one of the things we learned, and one of the perceptions of our DME partners is that we were not balanced that if we had an opportunity to send somebody to the drugstore, we sent them to the pharmacy immediately without checking the DME channel. So we've now encouraged our team to be a lot more channel-agnostic. And if there's an opportunity to go to DME, and it looks like that's going to be a very good alternative for a lot of our patients, we'll pursue that opportunity for those patients and put more business into that channel. These partners and these companies, as I've spoken with them, my conversations have not centered around price; they centered around volume. What these guys want is more patients. We need to get more prescriptions. We need to get more prescriptions sent through that channel. We need to get more prescriptions referred to us through that channel. As we send more their way, we're confident we'll get more back the other way. As we said last call, and I'll say again, while we think we've stabilized, this is going to take a while to build back up; it's not going to happen overnight. But we needed presence in the Type 2 market as well because many of these patients are Medicare Type 2 patients, and we haven't been calling out a lot of the physicians in that primary-care community who serve them. Add all those pieces back up, we think we've taken very good steps to shift it in the other direction. We've taken very good steps to get more referrals to put into the pipeline and serve more customers, and we believe we're on the right track. One of the other things we've done, by the way, with our DME partners, as we talked about in the call, we've offered them Stelo. They serve a lot of Type 2 patients who may or may not be on insulin, who have other medical conditions. By offering Stelo to these guys, they have an opportunity to market and sell to their very large patient bases even outside of typical diabetes therapies with respect to their help. So we're looking forward to them being a great additional Stelo distribution channel for us as well.

And your next question comes from the line of Joanne Wuensch with Citibank. Your line is open.

Good afternoon, and thank you for taking the question. Congratulations on submitting the 15-day G7 to the FDA. Could you please give us a little bit of an update on your thinking of, number one, the timing of when that might be approved? And number two, what you think the financial impact will be as we think about our 2025 numbers? Thank you.

You know what, I'll start with approval timeframe. We've submitted and we think it's a very good filing, but we won't go too far as far as speculating on when they're going to approve our filing. Conversely, we did submit a Stelo filing with a 15-day product that was very clean with very good data and got it approved very quickly. We would love a fast approval here. And as far as 2025 impact, a lot of that will depend on launch timing and how long it takes us to roll through the customer base, and we'll give you more color on that as we go. I'll let Jereme talk about the financial impact.

Yeah, obviously, Joanne, you know this one really, really well. As we start to go into some of these contracts where it's a monthly fee, that's going to be a big opportunity for us. As of right now, we talk about our long-range plan guide in 2025 and at 65%, and that's where we are. That all being said, we know this is an interesting lever. And so we'll give you more clarity as we start to roll out commercial plans on when we expect those levers to be in the business, but nothing more exciting, as you could imagine, at least in my world of having this opportunity to lever through the business, and we're really excited about it as well. So I think the thing we talk about as investors is gross margin, but there's also customers who are really looking forward to the longer extended wear period. And that's another great thing that we're going to offer through this product. A lot of good things coming here really soon.

And your next question comes from the line of Michael Polark with Wolfe Research. Your line is open.

Good afternoon. My question is on opening Stelo to DMEs and doctors directly. I've been working under the assumption Stelo in the US would kind of go for your lowest price point yet, $100 a patient a month, $1,200 a year. And now if you're introducing a channel, in theory, these folks have to earn margins. So can you help me just understand how you're going to price it with DMEs and doctors? In two or three years from now, how much of Stelo are you doing direct versus through these partners in your mind? Thank you.

It's a good question. I appreciate your comments about Stelo. We're glad you're using it and value your comparison. When it comes to our partnerships, we have always considered various types, including DME providers, bulk purchases, and other distribution channels. These factors have been part of our long-term strategy. Regarding the financial aspect, at stelo.com, we handle a lot of the commercial and shipping work associated with sales. With partners, some of those operational expenses and shipping costs are passed on to them as part of their fulfillment. Therefore, pricing will take into account that they need to make a margin as well. Our costs remain very low, and we ship in bulk, similar to the scale efficiencies we've experienced in the pharmacy channel, indicating a very efficient model. You can expect this model to develop as we explore additional channels. Stelo.com will remain an important aspect of our strategy. We envision multiple opportunities that will contribute positively to our operating margin in a comparable way.

And your next question comes from the line of Mathew Blackman with Stifel. Your line is open.

Good afternoon, everybody. Can you hear me okay?

Yep.

I'm curious just how you're thinking about competition in your Type 1 sort of pump integrated segment, particularly next year when there's going to be more competition. And look, I appreciate you probably don't want to be too explicit, but how are you going to defend your position there considering doing head-to-head studies? I'm really just trying to understand what the messaging is going to be to physicians and patients when there's another sensor option out there probably sometime next year. Thanks.

I’ll begin by saying that all studies in these automated insulin delivery systems have been conducted with the DexCom sensor, so there have been no direct comparisons. The data shared by our pump partners is based on those studies, which show great performance in terms of time in range. Currently, we support several hundred thousand users of these systems, and the outcomes for our partners have been outstanding. We collaborate closely with them regularly to discuss upcoming features. We consistently update our hardware and app interfaces to enhance customer experience, and we believe we excel in this area. Our strong reputation within the Type 1 market is due to our substantial market share, which we aim to preserve through our high product quality. The reliability of DexCom is well-established among patients. During recent diabetes fundraising events, I noticed many users of Omnipod and Tandem, particularly those transitioning to the G7. Their confidence in DexCom and our sensors is truly encouraging. This is a vital customer base for us, and we will continue to support them as we always have.

And your next question comes from the line of Travis Steed with Bank of America. Your line is open.

Thank you for the question. I would like to know your thoughts on the US recovery in 2025. I'm uncertain if the US will return to double-digit growth. Do you have any insights on the first and second halves of the year? Additionally, could you provide information on rebate eligibility for 2025 and whether it includes Stelo? I'm also curious if you have reaffirmed the Stelo guidance for 2024. Any details on this would be appreciated.

Sure, I'll provide some insights. The outlook for 2025 assumes a stable market, including consistent adoption and penetration trends continuing from 2024. It also considers stable trends in DME market share, even if we aren't necessarily regaining any lost share. We anticipate continued success in the retail channel based on recent performance, which we expect to sustain throughout the year. The analysis includes Stelo, and we have explored various opportunities and scenarios, particularly since we are just a couple of months post-launch. As Kevin mentioned, we are currently launching across both DME and Bulk channels, with additional channels set to debut in the coming months, which is exciting, especially as we approach the holiday season. This marks the first US OTC holiday season with Stelo available, providing a wealth of learning opportunities in the weeks ahead. We've carefully considered range stability in our projections and feel confident about the $4.6 billion target, which encompasses all these elements. We plan to provide more clarity as we wrap up the year, although it's worth noting that we face more challenging comparisons in the first half but somewhat easier in the latter half, especially regarding Q3. Regarding the rebate, you are correct; we are assuming a 100% rebate, which mitigates any potential headwind.

And your next question comes from the line of Marie Thibault with BTIG. Your line is open.

Good evening. Thank you for the questions. I want to follow up on the rebate issue. I think I heard it was a 6-point impact to growth in Q3. What is being assumed in the Q4 guidance for the impact from the rebate issue?

It's actually less than that. The number was increasing as we approached Q4 of last year. We don't have a specific figure to provide in that guidance, and typically we don't specify items like that. However, it will not be 6 points. It peaked in Q3 and will decrease in Q4, so you can reasonably assume that. Although we haven't provided a specific number yet, you can expect that the average selling prices will remain fairly consistent from Q3 to Q4 since we have them at a 100% rebate rate.

And your next question comes from the line of Matthew O'Brien with Piper Sandler. Your line is open.

Afternoon. Thanks for taking the question. And maybe just a follow-up on the '25 outlook, Jereme, $4.6 billion, that's about, I don't know, something like $500 million of growth absolute year-over-year. You've done that before. You would have done that this year without the mix headwinds. But this time around, you're going to be trying to do that kind of growth with patients that maybe aren't going to use products as much Basal, Stelo, et cetera. So how do you kind of deconstruct getting that kind of absolute growth next year on top of the fact that you're going to have some competition on the pump side of things, and then maybe a little bit of price on the DME side of things? Thank you.

Certainly. I appreciate your comments. We've always anticipated that the retention and utilization for Stelo would differ from our core products, as Stelo represents a completely new category for us. It's important to note that the comparisons between this year and next year will be significantly different. If we look at our record number of new patients this quarter, and as our sales team continues to enhance their productivity, we can expect an increase in new patients next year. Specifically, our core insulin business has seen a record addition of new patients, and as we expand access, there will be more opportunities. Additionally, we anticipate a new product launch for Stelo in the US in 2025, which should contribute positively as well. While it's true that Stelo’s utilization and retention may be lower, we are coming from a position of minimal revenue in the first half of the year and only partial revenue in the third quarter. I hope this provides some context regarding the growth of our overall business, which is why we feel confident in reaffirming our long-range plan.

I guess the other thing I'd add, Jereme, we have a 15-day product to launch in 2025 as well, which we believe will be a great revenue enhancer for us.

And your next question comes from the line of Bill Plovanic with Canaccord Genuity. Your line is open.

Thank you. Good evening. I appreciate the opportunity to ask my question. Regarding Stelo, I believe the initial guidance was $40 million for this year. Could you provide some insights on that? Additionally, with the initial usage, do you see Stelo as a potential gateway product? Have you observed any instances where Stelo has been associated with pre-diabetes or Type 2 diabetes and has led to a transition to the G7 product? If so, what are your expectations around that? Thank you.

Yeah, this is Kevin. I'll take all of those. I don't know that we've necessarily seen a lot. And I mean, we've heard some anecdotal stories, but we haven't seen a massive trend of people diagnosed. But what we have seen is as our reps have gone into primary care offices, with the Stelo message, we then find out they have people with diabetes who actually have coverage for G7, and they can get one that's reimbursed and insured. So that has led to much better and much more positive conversations with our sales force as they go into new offices. We believe that's a trend that actually could play out very well over the course of the year. That's why we designed this app and this experience for those with pre-diabetes and Type 2 diabetes non-insulin rather than a straight health and wellness play. We felt that was the most lucrative market for us to go after first because we could migrate those patients to a reimbursed solution over time if, in fact, they do have diabetes. With respect to our revenues for the year, we projected 1% of revenues and we can extrapolate that to $40 million. Our goal in launching Stelo this year is to learn, whether that's $30 million or $40 million, the most important thing is that we learn what to do. Our learnings have been spectacular. Amazon fulfillment was the first big learning as several people I talked to ordered the first day we put it on the market and got it the next morning. We've never experienced anything like that at DexCom. At the same time, as I said in my prepared remarks, we've had positive feedback on the app. We've had positive feedback on the website. We've also had some things that we've been told we can do better with respect to our customer service model as a lot of these people have never interfaced with a product like this. We will learn as we go to more distribution channels and we get again to a more diverse group of people over and over again. We've got a base right now of over 70,000 users on our product we launched a couple of months ago. That's a huge success for us as far as we're concerned. We've given our guidance for the quarter. We've reaffirmed it. Stelo right now for us is a huge success, and we are really looking at things we can do to enhance the experience of those users going forward to make it more sticky and to add more. So far, so good with Stelo; we're very pleased.

And your next question comes from Jayson Bedford with Raymond James. Your line is open.

Good afternoon. I have a few questions that require short answers. I just wanted to come back to the new user add commentary. Just for clarification, this was a record for 3Q, or any quarter? Did the comment apply to both US and international? And have you seen any notable change in attrition? Thanks.

Yeah, so it's a record for any quarter, Jason. We generally don't break out US or OUS, but it's a record for any quarter, not 3Q, but any quarter. In terms of attrition, we haven't seen many changes in attrition by category. So we've generally talked about the bands where you have insulin-intensive users have traditionally stayed in a band, you have the basal user that traditionally stays relatively close, and they're kind of clustered in there into that same band. And then we all know that the non-insulin user tends to be in a band of its own. Those continue to remain very similar categorically.

And your next question comes from Joshua Jennings with TD Cowen. Your line is open.

Hi, thanks for taking the question. I just was hoping you could help us think through the risk of persistent channel mix-shift from DME to pharma with two pump players looking to access the pharmacy channel for their own products. I guess the two-part question is, one, I mean, is the Omnipod 5 share gains and that access to the pharmacy channel driving some of the mix-shift you're seeing? And do you think it's a risk that these other two players are going to be accessing the pharmacy channel over the next 12, 18, 24 months? Thanks a lot.

This is Kevin. I’ll respond to that. Jereme, feel free to add your insights after I finish. We've observed a significant shift in our volumes toward the pharmacy channel, especially on the commercial side where many of these pump products are located. As a result, the DME commercial channel is not as significant for us as it once was. The bulk of our DME business is now in Medicare and the government sector. Therefore, as others seek reimbursement and distribution through the pharmacy channel, we are well-placed to meet that demand. If we can remain channel-agnostic and ensure our users receive their products conveniently and effectively, while also having a positive experience, we will continue to maintain a neutral stance on this matter.

Yeah. And just as a reminder, the Medicare fee-for-service channel, i.e. the non-Medicare Advantage channel is reimbursed via Part B, i.e., DME. And so it won't necessarily shift to the pharmacy anytime soon. So there's a certain limitation on what you could expect even within the DME channels because of the reimbursement schemes as they exist today. So hopefully, that's helpful, at least in thinking about the persistence of any sort of change there.

And your next question comes from the line of Shagun Singh with RBC Capital Markets. Your line is open.

Thank you very much. With the leadership transition in the US, could you share your confidence in the commercial strategy as we move into 2025? Specifically regarding Stelo, what are your plans for accelerating its launch in 2025? Additionally, how are you preparing for the launch of the G7 15-day sensor, particularly in terms of supply? Thank you for addressing my questions.

Okay. Let me start with the 15-day product. Again, this will be manufactured on our current manufacturing lines and put together the same way the current 10-day product is manufactured. We already manufacture a 15-day product in our Stelo product. So we're not concerned about having capacity to build a 15-day sensor. It's a question of when we turn it on and how much inventory we build in advance and what markets we serve with that product. With respect to Stelo and expansion, a couple of things are going on there. Number one, we have a number of scheduled enhancements to the Stelo app over the course of 2025 and even through the course of 2024 to make this a much richer experience for those who use it. So you'll see a steady stream of things come with Stelo. And also again, Jereme and I both have talked about additional distribution channels where that product can be very well-positioned and sold to potential Stelo seller end-users. So you see distribution channel expansion. Remember, our US sales force has only had one sales cycle to talk about the Stelo end offices yet. They will continue to talk about that in offices, and we'll get more and more coverage there with respect to knowledge on the physician's part over the course of 2025. Familiarity will breed growth, and we've got to get that message in front of people more than once to get them to go there. With respect to the commercial change, look, we'll miss Teri. She's done a great job here. At the same time, we have a lot of good leaders in this organization. As I said earlier, I've spent quite a bit of time with the Head of Sales and Marketing reporting directly for a while before Teri came. So I'm familiar with this, and we have a great team of leadership with the company. We will quickly find a new Chief Commercial Officer to head this group. At the same time, I'm not concerned about the leadership of my US team. They're very, very good and very strong and very experienced in the industry. We will work very hard not to disappoint. We're fine.

And your next question comes from Chris Pasquale with Nephron Research. Your line is open.

Thanks. I want to ask a couple of questions about the 15-day sensor. Jereme, are there any incremental costs associated with that product or at scale should have the same cost profile as the current version? And then I know you guys took your time moving that forward because you really wanted to optimize durability. Do you expect the survival to full wear time to be similar to what patients are experiencing today?

I'll start with the second question. We expect the durability of the 15-day sensor to be strong. While wearing a sensor for an extended period always introduces some risk, we are confident that its durability will be well-received by users when it launches. Regarding the product itself, the standard cost will remain unchanged. We will consider some adjustments related to adhesives and other aspects that are already being implemented in our product, but overall, the standard cost won't change significantly. We may add a slight increase for warranty purposes to account for potential issues that could arise over the additional five days, such as sensor detachment or moisture impact. However, the standard cost should remain stable. There is a great opportunity here for us.

And your next question comes from Mike Kratky with Leerink Partners. Your line is open.

Hi, everyone. Thanks for taking our question. To what extent did you benefit from competitor CGM shortages towards the end of the quarter in the US? Can you help quantify how much of an impact this may have had on your US growth in 3Q, if any? And does your current revenue guidance assume any potential contribution from that dynamic in 4Q?

Yeah. We had heard about some of the disruptions here and there. And at the end of the day, everybody goes through these types of things. What we ultimately expect at the end of the day is, you have to write a script. When you write a script, it has to be branded. And when you write that script, you ultimately go fulfill it. And so we didn't necessarily expect it. We didn't see anything necessarily change. Or what we really saw was our sales force getting out there and getting more interest in DexCom. Obviously, folks go through these challenges and they come and they go, I don't know that it changed all that much. I don't know that changed our trajectory. I think what you really saw was, and we're seeing it in our metrics, is our sales force has done a really nice job bringing in new physicians and really getting the message in front of them in conjunction with both our G7 as well as Stelo. That's what you saw.

And your next question comes from Matt Miksic with Barclays. Your line is open. And, Matt, please check your mute button. And hearing no response, we will move to our next question from Steve Lichtman with Oppenheimer. Your line is open.

Thank you. Hi, guys. You talked about part of the improved international performance in the quarter coming from the turn in Japan as you guys took over. Looking into 2025, can you talk about what you see as the biggest drivers internationally?

Yeah. This is Kevin. I'll start. We've opened up a tremendous amount of access across the world over the past several months. I said in my prepared remarks, for example, we just launched DexCom ONE in France in October, where reimbursement is now opened up and we have access to 600,000 more individuals. In Japan, there's access to a million individuals. Both of these markets include Basal insulin as well. We're seeing access wins in several of the EU markets that are more mature on the intensive insulin side, particularly with respect to Type 1, opening up access slowly to Basal patients and having this Basal opportunity come forward. Additionally, a lot of these markets don't even access intensive insulin use for Type 2 patients, and access is coming there as well. So access will be a big driver in the markets that we serve more than anything else over 2025.

And your next question comes from the line of Patrick Wood with Morgan Stanley. Your line is open.

Brilliant. Thank you for taking the question. Just curious for the record new starts and just what you've seen in the business overall. If you could give any qualitative commentary between what you've seen within Type 1 versus Type 2? I know Stelo mix is not up a little bit, but just the kind of the sources of growth and how those markets split the health of them? Thanks.

Sure, we can address that. The record new patient starts do not include Stelo. It's important to note that when Kevin mentioned 70,000 individuals using Stelo, that figure isn't part of our record new patient numbers. Currently, we are observing strong adoption across all categories. Intensive insulin is consistently leading in both Type 1 and Type 2 diabetes, which we anticipated at the beginning of the year, while basal insulin also remains robust. As we analyze the physicians who manage many basal patients, we're seeing increased productivity stemming from our efforts in the third quarter, which is becoming evident. This growth is widespread throughout the insulin-using population. Additionally, there is notable uptake in the non-insulin and health and wellness segments with Stelo, but this is not counted in our record new patient figures.

And your next question comes from the line of Issie Kirby with Redburn-Atlantic. Your line is open.

Hi, guys. Good evening. Thanks for taking my question. I appreciate it is only a couple of months since the launch with Stelo, but would love to hear any early insights you have around reordering, retention rate, and also any sort of color you can give on returns and reliability of the product. Thank you.

Yes, this is Kevin. I'll begin by saying that at least 50% of our individuals have signed up for the subscription model, and reordering has just started. We are pleased with the current reordering rates, but it's still early and we have more to learn. In terms of retention, reliability, and customer interface, this has been beneficial for us. We have developed a different service model with Stelo, known as Stelo bought online, which has provided valuable insights. We have identified areas for improvement as well as elements that are working well. Our goal is to create a more efficient and user-friendly service model for our customers, considering the nature of our business and what we can learn and apply to our core offerings in the future. We are discovering that consumer expectations for a glucose sensor differ from those of individuals on intensive insulin therapy. Someone on intensive insulin therapy understands that the sensor may turn off after seven days and can accept that. However, a consumer who buys a Stelo and experiences it turning off at seven days might question the value given they just paid for it. We are learning how to improve the experience for these customers, which is why I emphasized that the key aspect of the Stelo launch is to gain insights that will enhance customer satisfaction with the product. If they choose to use this product three or four times a year, we need to ensure that their experience is delightful each time. If we execute this well, we hope to encourage continuous use of the product. It's still too early to fully assess usage, retention, and other factors since we are just a few months into the launch, but we are witnessing reorders and subscriptions coming back at a rate that exceeds our expectations.

And your next question comes from Margaret Kaczor Andrew with William Blair. Your line is open.

Hi, everyone. This is Macauley on for Margaret. Thanks for taking our question. Just a follow-up on some of the earlier questions on the LRP. You previously mentioned, call it, 70%, 30% US OUS sales split. Does that imply a larger OUS contribution now in order to hit the low end at the $4.6 billion? And maybe just a follow-up on the 15-day durability. Stelo, I think achieved the roughly 80% in the studies, but how does that compare to what you've seen in the first couple of months of the launch? And any commentary on if the 15-day G7 was able to exceed that?

I think when considering the long range plan, the sales split between the US and international markets is generally around 70% to 30%. We expect the international business to continue its growth based on current trends and additional successes, and we anticipate strong performance in the US as we stabilize our core markets while Stelo gains traction. Regarding Stelo's durability, we're observing that many sensors are lasting around 15 days, and their performance in the field is consistent with what we've seen in our submissions. As users become more familiar with the product, we're noticing improved results. In the initial days, some users were uncertain about how to properly use the product, which affected performance. However, we're pleased to see the sensor life holding steady at about 15 days, and this gives us confidence. With the G7's 15-day durability, we've achieved a survival rate we feel good about, and as we submit this data for review and hopefully approval soon, we will share more insights. Overall, we are satisfied with the survivability data we've gathered for our submissions.

And we have no further questions at this time. I would like to turn the call back to Mr. Kevin Sayer for closing remarks.

I would just like to thank everybody for participating today, and we'll talk to you again at the first of the year on when we start providing guidance for 2025 officially. Have a great winter, everybody, and we'll talk again soon.

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