Dexcom Inc Q1 FY2025 Earnings Call

Welcome to the DexCom First Quarter 2025 Earnings Release Conference Call. My name is Louella, and I will be your operator for today's call. As a reminder, the conference is being recorded. I will now turn the call over to Sean Christensen, Vice President of Finance and Investor Relations. Sean, you may begin.

Welcome to DexCom's First Quarter 2025 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 this 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 first quarter 2025 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, 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 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 first quarter earnings call 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 first quarter organic revenue growth of 14% compared to the first quarter of 2024. This represented our second straight quarter of reaccelerating revenue growth as we benefited from continued strong category demand, recent access wins, and focused execution by our team. In our U.S. business, we successfully balanced strong demand while navigating short-term supply dynamics. Our teams worked hard to provide consistent support for our customers, channel partners, and physician community. We moved quickly to ensure limited customer disruption and set up clear lines of communication with all involved stakeholders. This included launching a public website that provided status updates and direct customer support for anyone impacted during this transition. Our manufacturing and logistics teams worked around the clock to make sure our product was where it needed to be to meet our customers' needs. We worked closely with our distribution partners to clearly align our updated supply timelines with their customer demand, and we would like to acknowledge the great work of these partners in providing excellent care to our users. As you can see, we prioritized customer care throughout this period, and I hope this commitment continues to be noticed. We experienced an acceleration in demand from new customers, which again came in at record levels during Q1. We are clearly seeing the benefit of expanding our commercial reach last year. After significantly expanding our prescriber base in 2024, we are going deeper across these practices as physicians expand their Dexcom CGM prescribing patterns. Importantly, we made these commercial investments knowing that new Dexcom technology and broader access were just around the corner. Since that time, we introduced Stelo as the first over-the-counter CGM, launched several new software and connectivity updates to enhance the customer experience, and secured much broader coverage within the type 2 market. We started the year by announcing that we had secured access at 2 of the 3 largest PBMs for anyone with diabetes regardless of whether they use insulin. While it is still early, we've been very encouraged to see physicians quickly adjust their prescribing patterns to match this new coverage. In fact, during the first quarter, we already saw a notable uptick in new customer starts coming from the type 2 non-insulin population compared to any time in our company's history. We'll now look to build on this momentum through targeted awareness campaigns and by advocating for even broader type 2 coverage over time. Along those lines, I'm excited to share that as of this summer, the third major PBM will also begin covering Dexcom G7 for anyone with diabetes in some of their key formularies. Having the 3 largest PBMs now covering Dexcom for all people with diabetes represents a true step change in the coverage landscape. It also indicates that a clear consensus is forming on both the health and economic benefits of incorporating CGM earlier in diabetes care plans. Between these 3 large PBMs and additional coverage we expect to finalize in the coming months, Dexcom will have coverage for nearly 6 million people with type 2 diabetes who are not on insulin by the end of the year. While this still represents only a portion of this 25 million person population in the U.S., we often see smaller and customized plans quickly follow suit of the larger PBM formularies. We'll also continue to strengthen our case with payers with additional data readouts in the coming quarters. This includes our recently announced randomized controlled trial for people with type 2 diabetes who are not on insulin. Similar to our MOBILE and DIaMonD studies for the insulin-using population, we believe this data set can become the centerpiece of our broader type 2 non-insulin evidence road map. This level of evidence has historically been a key factor in driving definitive changes to standards of care and unlocking even broader access globally. As we continue to advocate for broader type 2 coverage, we have already greatly simplified access to Dexcom technology through the launch of our over-the-counter biosensor Stelo. Stelo continues to attract a wide range of new customers across the type 2 diabetes, prediabetes, and health and wellness landscapes. We have also seen growing use of Stelo among the physician community who can now tailor their Dexcom care plans based on each customer's coverage and metabolic health. While we are still early in this launch, our team has moved quickly to enhance the Stelo experience with new software updates and broader distribution. During the first quarter, this included launching a 180-day data look-back feature, which was in direct response to early customer feedback. This is a great example of our ability to quickly iterate the Stelo app to provide new customer insights and deliver a more personalized experience. Stelo also officially went live on the Amazon storefront during the quarter, which provides our customers another easy access point on one of the highest volume e-commerce sites in the world, and we expect even more distribution partners to broaden our commercial access in the future. These updates are already resonating with our customers. Over the course of the first quarter, we saw even greater Stelo customer experience metrics in response to these updates, and we believe that we're just getting started with what we can do to lead our customers to greater metabolic health. Our first quarter results show that our commercial teams are performing very well, and we are excited to build from this position of strength by announcing the addition of Jon Coleman as our new Chief Commercial Officer. Jon brings over 30 years of global commercial leadership experience to our organization across multiple health care segments and channels. Over this time, he has established a proven track record of execution, making Jon a great fit for Dexcom at this important point in our company's history. We're excited to have him lead our commercial organization. I would also like to address the warning letter that our company received from the FDA in March. This letter was related to observations made by the agency following inspections of our San Diego and Mesa facilities during 2024. We take any FDA recommendations very seriously. So our team immediately began instituting corrective actions to address these observations. While we were disappointed to receive a warning letter, I'm incredibly proud of how our teams have rallied together with a thorough review and response, and we look forward to working together with the FDA to further strengthen our systems and processes. As one example of our ongoing collaboration with the agency, we were excited to recently announce FDA clearance for our 15 Day Dexcom G7 System. This marks another innovation milestone for our company as our 15 Day product advances both wear time and accuracy levels for G7 with performance data demonstrating a mean absolute relative difference of 8.0%, this sets a new bar in the industry in terms of sensor accuracy. We are incredibly excited to bring this product to market. As previously mentioned, we plan to launch our 15 Day G7 System in the second half of the year, and our team is working quickly to prepare for this rollout. This includes working with payers to establish coverage in advance of launch and collaborating with our pump partners to ensure a seamless transition for G7 compatible automated insulin delivery systems. 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 first quarter of 2025, we reported worldwide revenue of $1.036 billion compared to $921 million for the first quarter of 2024, representing growth of 12% on a reported basis and 14% growth 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. U.S. revenue totaled $751 million for the first quarter compared to $653 million in the first quarter of 2024, representing an increase of 15%. As Kevin mentioned, our team did a great job navigating short-term supply dynamics while supporting both new and existing customer demand. We experienced another quarter of strong new customer demand in the U.S. with a particularly notable uptick coming from the type 2 non-insulin using population. By having the broader sales force in place, we were able to quickly take advantage of the coverage expansion that occurred in January to drive a nice acceleration in new patient performance, and we look forward to building on this momentum with our additional coverage kicking in over the course of the year. Additionally, as we previously indicated, we saw the combined impact of channel mix and rebate eligibility moderate during the first quarter. This helped narrow the gap between U.S. volume and revenue growth compared to the prior 2 quarters. International revenue grew 7%, totaling $286 million in the first quarter. International organic revenue growth was 12% for the first quarter. Our international business demonstrated pockets of strength, particularly in areas where we have highlighted recent coverage expansions in the type 2 landscape. Examples of this will be continued growth of our business in Japan as well as our growth of the Dexcom ONE platform in France. We continue to like our overall strategic position as regional access continues to grow. We see several opportunities for expansions of type 2 coverage upcoming in 2025 and are building good momentum in the core international markets to eventually match the level of coverage that we have achieved in the U.S. Our first quarter gross profit was $596.2 million or 57.5% of revenue compared to 61.8% of revenue in the first quarter of 2024. As we said on the fourth quarter call, we expected Q1 gross margin to be below our full-year levels because of historic seasonality as well as having to navigate some of the near-term supply dynamics that were caused by a shipment of sensors that was damaged in the fourth quarter. We are proud of how we navigated the first quarter to prioritize the care of our customers. But as Kevin alluded to earlier, we did have to incur some incremental costs to do so. As an example, we expedited our lead times by chartering direct flights to fulfill distribution centers, which comes at a higher cost than our traditional freight processes. We exit the first quarter in a much better position with our channel inventory levels. However, there is still work ongoing to get our internal inventory back to normal levels. As a result, we expect some of these costs to continue until we are back at normal inventory levels, which we have factored into our full-year guidance update. Operating expenses were $453.1 million for Q1 of 2025 compared to $428.9 million in Q1 of 2024. Operating income was $143.1 million or 13.8% of revenue in the first quarter of 2025 compared to $140.2 million or 15.2% of revenue in the same quarter of 2024. Adjusted EBITDA was $230.4 million or 22.2% of revenue for the first quarter compared to $220.9 million or 24% of revenue for the first quarter of 2024. Net income for the first quarter was $127.7 million or $0.32 per share. We remain in a great financial position, closing the quarter with approximately $2.7 billion of cash and cash equivalents. This cash position, along with our strong free cash flow profile, provides a lot of ongoing flexibility in our capital allocation decisions. Along those lines, we are excited to announce a $750 million share repurchase program today. Given our strong revenue and cash flow growth outlook, we see this as an opportunity to enhance our capital structure while still giving ourselves plenty of cash available to address our 2025 convertible notes and any other strategic uses of capital. Turning to guidance, we are reaffirming our prior revenue guidance of $4.6 billion, representing growth of 14% for the year. For margins, we are reducing our full-year non-GAAP gross profit margin guidance to approximately 62%, while reaffirming our full-year non-GAAP operating margin and adjusted EBITDA margin guidance of approximately 21% and 30%, respectively. Our new gross margin guidance reflects the impact of our first quarter results and a few additional factors. So I want to provide additional color here on how we've approached it and the cadence throughout the year. We expect the first quarter result to have an approximately 75 basis point impact on the full-year gross margin relative to our prior guidance. As we continue to rebuild our inventory levels while addressing increasing demand, we have factored in an additional 100 basis point impact to our global freight costs to support expedited shipping. We expect that this impact will lessen as we move throughout the year. We have also built into this gross margin guidance a 50 basis point impact of inflationary pressures from tariffs in the supply chain. While we do not necessarily expect a large direct tariff impact given our diverse manufacturing footprint and the health conditions that we address, we nevertheless want to be prudent given the fluctuations in the global trade landscape and the indirect impact tariffs have on supply costs. Finally, we anticipate an approximately 25 basis point impact to our global manufacturing costs based on fluctuations in the U.S. dollar. Despite the pressure on gross margin, we are in a position to offset that pressure and reiterate our operating margin and adjusted EBITDA margin guidance. Our teams are doing a good job prioritizing investments in the right areas while setting up our functions to scale efficiently. With that, we can open up the call for Q&A.

Thank you, Jereme. In addition to Kevin and Jereme, we will also have Jake Leach, our Chief Operating Officer, joining us for our question-and-answer session. 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. Please provide the Q&A instructions.

Matt Taylor from Jefferies is on the line with a question.

Congrats on a good quarter. I wanted to touch on the U.S. growth improvement here. And see if you could talk a little bit about 2 things. One, did supply have any impact on the revenue growth? Could you characterize that? And then you keep talking about the gap closing between dollars and volumes. I was wondering if you could comment on what you think market volume growth is or your volume growth is so we can understand what the revenue growth could be through the year and how quickly that gap closes would be helpful.

Yes. Matt, thanks for the question. This is Jereme. Certainly happy to answer it. In terms of supply dynamics, I think we exited the quarter with normal supply levels in the channel. And so we had to work pretty hard over the course of the quarter to make sure we got there. I think everybody knew and we signaled it in the February call that we were going to navigate through that. So kudos to the team for all the work that they did to get there, prioritizing customers first. So what you see in the revenue figures is, I would say, a normalized inventory level and therefore, really a normalized pattern. In terms of the impact then on new patients, look, it was a record new patient quarter. So I think we were really happy to see that at the end of the day. So we still had very, very strong performance during that window and due to all the work that the teams did to navigate through there. In terms of what that then means for volumes, et cetera, while we don't necessarily give volumes by region, what I think we have done in the past is we've given you new patient or total patient details. And we exited last year at about a 25% patient increase, which is a good analog for volume growth. And given the performance we saw over the course of the quarter, record new patients, there's no reason to believe that the volume growth wasn't consistent with that. So that will help for the models. It will also help if you consider Stelo as a component of that as you're thinking about what that impact is. But the big takeaway, and I think you're pointing at it is that price volume delta is coming in as we said it would, and you saw that play out in the quarter.

Your next question comes from the line of Larry Biegelsen from Wells Fargo.

This is Larry Biegelsen from Wells Fargo. Regarding guidance, you achieved 14% organic growth in Q1 but maintained the full year guidance. Jereme, how do you anticipate the rest of the year will unfold, especially in the second half when comparisons become easier? I'm trying to understand why the overall growth for the full year would match the growth in Q1. Additionally, could you clarify if any assumptions from the 15 Day launch were considered in the gross margin guidance?

Yes, sure I can answer those. In terms of the guidance for the full year, the big takeaway is first quarter is first quarter. There's a full year up in front of us here. And so after a quarter, we felt it appropriate to see how the year unfolds before we start changing anything around guidance. We gave the guidance for the year, we really wanted to give a commitment on the full year. I think the big takeaway is we're off to a good start, a record patient quarter, and you saw the growth. So certainly happy with that. It's not saying anything other than we're happy with the quarter. We're bullish on the business. It's just one quarter. We want to see how the rest of the year unfolds. In terms of the guidance and how we're thinking about 15 Day, there was always a little bit of 15 Day in the guidance, the original guidance we gave, and there's still a little bit of that in the current guidance we gave, and it's commensurate with the launch expectations of the product, which is in the second half of the year. I think when we gave the guidance at the start of the year, we mentioned it was a very small amount where we wouldn't necessarily change our guidance. If the 15 Day timeline change, just given as a total of our population of sensors, it's a relatively small amount as we start to ramp it up. That remains true. So nothing really changed there. It is in the guidance, but nothing changed from the last time we provided in terms of our assumptions.

Your next question comes from the line of Robbie Marcus with JPMorgan.

Congratulations on a strong start to the year. I wanted to ask about type 2 patients, specifically those who are non-intensive and on basal treatment. You mentioned seeing good growth among non-intensive type 2 patients, and I assume the same holds for basal patients. I would like to understand more about the utilization, reorder rates, and patient trends you are observing in this area. I understand that basal treatment is mainly for insured patients and that non-intensive patients are increasing, but what strategies are you implementing to encourage high reorder rates for both insured and uninsured patients?

Yes. Thank you, Robbie. We have consistently indicated that we observe strong retention rates in these patient groups, especially considering the current state of reimbursement. As we extend coverage for the basal insulin population and the type 2 population in general, including non-intensive type 2 patients who do not use insulin but have reimbursement, we are witnessing solid utilization and retention rates. While these rates are slightly lower than those of our type 1 patients, the difference is not significant, and the mix has remained steady over time. For instance, with our Stelo users, type 2 patients who buy Stelo are frequently reordering and maintaining their subscription patterns, showing a high likelihood of opting for subscription rather than opting out. Overall, whether through reimbursement or cash payments, we are observing strong retention and utilization in these groups because the information provided is immensely valuable.

Yes, Robbie, we announced this at your conference, and I want to commend you for having it there. We have updated and published our rates for the covered population, which you can find on our website. These rates have not changed since our last discussion. The utilization remains strong in those covered markets, as Kevin mentioned. Without coverage, the utilization is slightly lower. However, we are observing a strong uptake in Stelo, particularly among the type 2 user population, which shows good retention, even if it is not as high as in the covered population.

Our next question comes from the line of Danielle Antalffy with UBS.

Just a quick question on the macroeconomic environment and actually less about tariffs and more about the several proposals for the budget and Medicare and will we or won't we go into a recession? That's a big question. I would love, Kevin, how exposed or unexposed or protected you guys think you are if, in fact, we go into a recession and maybe give some commentary around that COVID sort of the last time, but that was very unique. So just curious what you would say there.

Yes. I can start with that, Danielle. This is a question. We've done a full analysis on this in the past just to see what our exposure is to coverage levels, both from coverage, employment and then also individual circumstances. And I would say that by leaning into coverage the way we have and certainly making CGM a core part of someone's care pattern, but also the cost we save the systems and demonstrated time and time again, while everybody is impacted in economic upturns and downturns, I think we would hold out pretty darn well. While we're not in a position to release that analysis, I think as we were going through as a management team and really as a Board, as they looked at it, I think we left feeling we'll be strongly positioned, at least relative to other companies in the space in a downturn. So we're excited. But we're happy about the position we're in the event that takes place to weather quite well. Kevin, don't know if you have any broader...

No, I'll just reiterate what Jereme said. We're one of the few medical products, prescription drugs, or medical devices that provides tremendous information and also saves cost to the system. So we believe we hold up very well. All of our analyses support that, and we believe we can demonstrate that quite well as we did when we got Medicare coverage many years ago as we brought all the Medicaid plans along as we moved to basal. We've been able to demonstrate our value time and time again, and we believe we can continue to do so.

Your next question comes from the line of Jeff Johnson with Baird.

Congratulations on the quarter. Jereme, I have a question for you about gross margin and the gating process. You provided a lot of information, which I appreciate. However, from my rough calculations, it seems we should still be in the very low 60% range or possibly the upper 50s for the second quarter, with expectations to reach the mid-60s in the latter half of the year. Is this the range we should anticipate for growth throughout the year? Additionally, I've come across some discussions online that mention potential manufacturing issues with sensors, although that's not my primary source of information. What is the current status? You're talking about arranging flights, but regarding the manufacturing process, are you confident that the products coming off the line are of good quality? Is the primary focus now on restoring channel inventory or your own inventory to normal levels, rather than addressing any ongoing manufacturing challenges?

Yes, I can start with the cadence question and then pass it to Jake. My simple answer is that Jeff, you're great with numbers, and I can't dispute your calculations. That's it. Now, let me hand it over to Jake to explain our thinking on the product and the process.

Sure. Thanks for the question, Jeff. We have a strong warranty program for our sensors, and while issues do occur, we have observed that the frequency of these issues remains consistent compared to last year. In fact, we have made improvements in several areas. We are confident in the quality of our products coming off the production lines. We are actively working to restore our internal inventories, and as we concluded the quarter, we were achieving record output. Additionally, we have extensive testing and quality controls in place, so we feel assured about our products. There are no underlying manufacturing problems to address. Our primary focus during this time is ensuring that we have the necessary products available for both our current and new customers, which has been a significant aspect of our operations in the first quarter.

Your next question comes from the line of Jayson Bedford with Raymond James.

Congratulations on the progress here. Just internationally, you mentioned pockets of strength relative to consensus, international revenue was a bit below where folks were looking for. So is there anything notable to call out? And maybe more specifically, was international impacted more by the supply dynamics?

Yes, thank you for the question. The areas of strength mentioned earlier were primarily in France and Japan. Japan has shown improvement since we started direct operations there, and in France, we've achieved Dexcom ONE coverage for basal products in the region. Those are our key areas of strength. However, there is some variability in our international business. This was evident last year as some coverage wins came and went—though more accurately, they are forthcoming—and the timing of their implementation can vary. We had anticipated some coverage wins to occur in the first quarter, but some have been slightly delayed while others have moved up. Overall, the underlying demand for volume remains strong, particularly in the markets we've entered. France is among those where we've had success with Dexcom ONE. We expect to achieve more wins in both the G Series and Dexcom ONE as we expand into new markets throughout the year, though some fluctuations can be anticipated. The underlying patient demand and unit volume growth stays robust. We will keep you updated on our progress with these wins, which will assist you in your models throughout the year. The business remains solid with consistent underlying growth, and we anticipate it will continue to be a significant contributor this year.

Your next question comes from the line of Travis Steed with Bank of America Merrill Lynch.

Congrats on a good quarter. I wanted to ask about the 50 basis points of inflation that you kind of built in with supply chain, if that's kind of directly related to tariffs. And I'm curious about the use of some exemptions out there like the Nairobi exemption and if that's applicable to you and kind of what you've assumed around that going forward?

Yes, I'm happy to address that question. First, we have a significant manufacturing footprint in the United States, and we take pride in our operations in Mesa as well as the capabilities we've developed in San Diego and Mesa. We produce a lot of our products domestically, which reduces our exposure to tariffs. Historically, our industry has had certain exemptions, which we have utilized, so we don't anticipate any significant impact from direct tariffs. We are comfortable with this situation. However, there are pressures regarding raw materials coming into various supply networks, and as we negotiate prices based on economies of scale, these issues arise. Over the course of the year, when renewing contracts, we estimate that indirect impacts from raw materials could lead to around a $20 million effect, which is approximately 50 basis points. Our aim is to navigate these challenges and explore ways to mitigate the impact. If there is tariff reform and these tariffs are eliminated, it would certainly be beneficial. We are monitoring the situation closely and this is what we have estimated for the year. This impact does not pertain to our end product, and we have not assumed any effects in that regard.

Your next question comes from the line of Matt O'Brien with Piper Sandler.

Maybe just sticking with the 15 Day for a second. I don't know exactly who this question is for, but can you just talk a little bit about the rollout of that product as far as integrating into the pumps, etc.? And how do we think about not necessarily this year, but in some of the out years, the contribution on gross margins? Can it be a couple of hundred basis points in a year in terms of gross margin benefit? Or will it be more measured than something like that?

Matt, this is Jake. I'm happy to address that question. We are very excited to have received approval for the 15 Day product, and our internal team is focused on its launch. One of the steps we're taking to prepare is collaborating with all our pump partners to ensure compatibility with the extended 15 Day duration and the additional grace period. Our aim is to have all displays and FAQs aligned to support the 15 Day product, and that process is going smoothly. We are committed to achieving compatibility by the launch date. Additionally, we are working to secure coverage for this product now that it has been approved, ensuring a smooth transition for users upgrading to the 15 Day product. It will require a new prescription to access the 15 Day option, meaning users will need to consult their healthcare provider for the prescription. We are enthusiastic about its rollout and it does impact our margins positively. However, we are not providing guidance beyond this year as our focus is on the current year. Jereme, do you have anything to add?

Yes. I would just say, while we're not necessarily giving numbers, I think your question is more, does it snap overnight? Or is it more measured? And I think the answer is it's more measured. And the reason is, obviously, as Jake alluded to, new scripts, but we still have folks on G6, right? It just takes time for folks to get to see their physicians to make the change to get comfortable with it. So our goal will be to move people quickly, and we hope to outperform measured. But as you're thinking about it, I would start with measured from a modeling perspective. I think that's the right way to go about it.

Your next question comes from the line of Marie Thibault from BTIG.

Nice to see a very strong quarter. I wanted to ask here about the OpEx control that's being sort of assumed in the guidance, especially with some of the impacts to gross margin, but you're able to hold the operating and EBITDA guide. Just wanted to understand sort of where some of those puts and takes are and how you're able to accomplish that.

Yes, I'll begin with that. Jake has been leading many of these efforts. When we evaluate the investments we've made, we see where we can continue to invest in crucial areas. We've discussed our work on the next-generation sensor, our investment in Stelo, and the various software features. We're committed to advancing these projects and expanding our commercial organization. Remember, we invested in our commercial organization last year by expanding the sales force, which we can now leverage. We’ve mentioned our focus on AI and robotics, and we’re taking advantage of location strategies. We’ve undertaken many initiatives that provide us with these advantages. This year, we will utilize those advantages while still investing in the business. Ultimately, if you look at the total for the year, we anticipate over $100 million in investment in operating expenses despite this. It represents a significant investment in the business while implementing all the initiatives we've established. Jake, many of these efforts are driven by you and your teams.

Yes, certainly. The main message is that we are becoming more efficient in many areas. This has been a focus for us over several years, particularly within our software teams. They are doing outstanding work with newer technologies, allowing us to produce more software with similar resources. We continue to invest in research and development and our next-generation technology, ensuring we maintain adequate investment levels while keeping our program on track. Overall, it's about the efficiencies we’ve developed over time, and we are able to leverage those this year.

Your next question comes from the line of Joanne Wuensch with Citibank.

Nice quarter. Let me just pause on the FDA warning letter. It didn't stop you from getting the 15 Day sensor approved. I don't anticipate that it will stop you from getting a hospital label, but is there anything that it does stop you from doing? And how do we think about timing and steps towards resolution?

Yes, this is Jake. That's a great question. We are actively working on implementing several process controls. We made significant progress following the FDA's audit. You're right; the warning letter does not prevent us from submitting and gaining approval for new technologies and devices, nor does it hinder distribution. We do need to continue collaborating with the FDA to address their concerns, which is a primary focus for us. We have allocated dedicated resources to ensure this is managed effectively, but it does not limit us at all. While it's difficult to predict exactly when we'll resolve this, we are seeing substantial progress. We regularly update the FDA on our advancements based on our commitments. This will be an ongoing process, but the warning letter does not restrict us, and our efforts to respond to it have not negatively impacted our innovation pipeline. We've redirected some resources to concentrate on responding to the warning letter and implementing the necessary actions.

Your next question comes from the line of Michael Polark with Wolfe Research.

RFK Jr. recently said in an interview that he thinks glucose monitors are extraordinarily effective and only cost $80 a month. So it's a clear positive read from the Head of HHS, and there's not many things on the right side of his ledger right now. And so my question is, can you remind us on what is the path with Medicare fee-for-service program for broadening the coverage decision to the non-insulin using type 2 population? Does this change in leadership raise the odds in your view? And I know the RCT is critical for this as well. Can you remind us on what's kind of timing of disclosure for the type 2 NIT RCT?

I will address that. First and foremost, we are very happy with the administration's comments. It's not just RFK Jr.; there have been others who mentioned that CGM is an excellent health tool. We're excited about this because we believe in its potential, and we are learning more every day, including insights from our Stelo users who do not have diabetes, about how they can enhance their metabolic health, as well as information from type 2 users. Regarding type 2 approval and CMS approval, we have discussed working directly with CMS and have submitted a request for approval for those not using insulin. We are currently waiting for their response while continuing to collect supporting evidence. The CMS approval process will follow standard procedures based on this evidence, which takes time. With the new administration, we are uncertain about the timing. However, we would be delighted to receive that approval promptly. We are striving to learn as much as possible, just like everyone else. We believe our products align well with the Make America Healthy initiative, and we will keep pushing for that.

Yes, we believe in the recognition that continuous glucose monitoring (CGM) is a valuable tool for both managing health conditions and reducing healthcare costs. This acknowledgment is evident from RFK and others, as well as a third pharmacy benefit manager starting to cover CGM and non-invasive technology. It shows that the message that CGM is the right solution is spreading. Regarding the randomized controlled trial (RCT), we expect to complete enrollment in the first half of this year, keeping the trial on track. We anticipate the initial results to come late this year, though they will likely be available early next year. The real-world evidence from users of G7 and Stelo in the non-invasive technology population shows promising outcomes. We expect to present additional data on these outcomes at the upcoming ADA meeting. The evidence continues to accumulate, and we are eager to share that information when the time comes.

Your next question comes from the line of Margaret Andrew with William Blair.

I wanted to follow up on the commentary you guys talked about on non-insulin using type 2s. You're saying I think new customer starts are higher than ever before. I guess, can you give us a sense of scale here? Is it doubling, for example? Or can you at least call it material to overall new patient adds in the period? And it doesn't sound like you're assuming this accelerated pace continues in guidance given that you're reiterating sales. So I guess, one, is that right? And two, why not? Are there offsetting factors to that? Or you just want to get ahead of yourselves?

Yes, I can certainly address that. Historically, we've always emphasized coverage as a key strategy for providing access to our product. This quarter, we launched with two of the three PBMs having coverage, which I believe significantly contributed to our success. As a result, new patient additions are beginning to represent a substantial share of those numbers. We expect this trend to continue as more coverage becomes available, especially since this population is much larger than any we've seen with previous coverages. I also anticipate positive developments as we add the third PBM later this year. These factors are positive indicators and have played a role in achieving a record quarter for new patients. Regarding your question about assumptions of a downturn, that's not necessarily our outlook. This is just one quarter, and we have guided for the entire year. Let's see how things unfold this quarter, which will provide us with more insights. Our optimism about the business remains unchanged, and we expect a solid performance this year. However, it is still early to revise our guidance upwards, as we want to ensure we deliver on our commitments.

Your next question comes from the line of Mike Kratky with Leerink Partners.

Maybe just a quick follow-up to that last one. But alongside the acceleration that you're seeing in that type 2 non-insulin patient population, are you seeing anything on the type 1 side of the world, whether it's market growth and penetration or just your overall market share that might be a little bit different than your expectations coming into the year?

This is Kevin. I'll take that. Our market share expectations are exactly where they thought they would be. We do incredibly well in the type 1 market, and we continue to do so. We also continue to add type 1 patients internationally and in the U.S. every quarter, and we saw nice growth in our type 1 business this quarter, right along the lines of what we anticipated. So we're doing very well in new patients in type 1. And as always, our retention utilization in that population is outstanding. It is an absolutely essential tool for managing type 1 diabetes.

Your next question comes from the line of Matthew Blackman from Stifel.

This is Colin on for Matt. I want to take a moment to ask about the sales force and in particular, what you're seeing on the ground with basal adoption now and in the DME channel. Any specific commentary on that opportunity and how penetration is ramping since we got a last update? And also how your share position is trending would be really helpful.

Sure. This is Jereme. I believe our sales force is continuing to grow and perform well. We've seen record numbers of new patients, particularly in the first quarter, which is usually not our strongest for new patients. It's fantastic to see this in Q1, and it's noteworthy that this marks a record for any quarter, not just the first. To achieve this, we're effectively reaching type 2 non-insulin users and deepening our presence in basal insulin while also maintaining our historical success in the intensive insulin market. Overall, it was an outstanding quarter for us. Regarding our channels, I want to extend my gratitude to our DME partners who have worked closely with us throughout the quarter. They supported us through supply challenges and collaborated effectively, and we believe we have fostered a strong relationship with them. We've previously mentioned that our market share stabilized in the fourth quarter, and we expect to maintain this stability as we move through 2025. Currently, we have achieved stabilization in our share, and we feel positive about our position in partnership with our DME collaborators. We will continue to work throughout the year to further improve. Overall, our progress is encouraging, and I'm excited to see our sales force ramping up and improving each quarter.

Your next question comes from the line of Issie Kirby with Redburn Atlantic.

I just wanted to follow up on the non-insulin using type 2s again and the extent to which you're seeing potentially any of these patients coming from competitive switching versus if they are new to the sensor? And then just on Stelo, sorry if I missed this, are you giving Stelo revenue again this quarter? And then just on Stelo, how are you sort of capturing potentially now that reimbursement is improved for G series, how are you capturing or encouraging people to upgrade from Stelo to the G7?

Yes. I'll start with that one. With respect to our type 2 non-intensive or non-insulin patients, most of those are new patients and new to DexCom CGM, particularly as we've expanded coverage, and we do have the best coverage amongst the PBMs of any of our competitors out there. We're doing very well getting new adds on those non-insulin users. With respect to Stelo revenues, Jereme, I'll let you go ahead and talk about that guide.

Sure. Yes. And Issie, thanks for staying late with us. Yes. So I think Stelo, the answer is we talked about it being 2% to 3% of growth on the full year, and we are right in line with that. So we're continuing to do well. While we haven't necessarily broken out revenue by quarter, we will give you the growth contributions over the year, and we're tracking right to that 2% to 3%, so right in line.

Your next question comes from the line of Bill Plovanic with Canaccord.

Just on the 15 Day, as you walk through the contracting for this, you're reimbursed on a per diem. Some of the knock has been you're a little more expensive than some of your competitors when it comes to the payers. Is that something that will be adjusted in this 15 Day as you're working through those contracts? And if so, so does the price per day come down a little as you kind of do this? How should we think about that?

So as you mentioned, Bill, CGM is reimbursed as a unit, so per day or per quarter per month. So basically, we do anticipate that that reimbursement will remain the same as we launch 15 Day. So same revenue for a period of time.

Your next question comes from the line of Chris Pasquale with Nephron.

Congrats on the quarter. Two quick follow-ups. Just I know you don't want to give a Stelo revenue number, but I would love it if you could give us an update on where the installed base stands today relative to the more than 140,000 users you had in mid-January. And then, Jereme, could you just go back to the 100 basis point impact you're assuming from increased freight and other things. If channel inventory is already back to normal levels, why that magnitude of impact still in front of you relative to the 75 basis points you took in 1Q?

Sure, I'm glad to provide that information. Regarding Stelo users, there is public data available indicating that there are over 200,000 downloads to date. We are making significant progress and continue to add new patients each quarter, which is encouraging. The app's performance remains strong, with an increasing number of downloads and usage. We will provide further details on retention and utilization as we gather more data. We do anticipate some fluctuations in usage, but the positive aspect is that we can track all users on the app. So, while we have surpassed 200,000 downloads, it effectively represents over 200,000 connections to Stelo, marking considerable progress. As for freight challenges, when we ended the first quarter, our supply levels were almost non-existent, leading to low inventory on store shelves. To ensure we maintain adequate inventory to meet demand, we must navigate these low levels carefully as orders come in. Our objective is to maintain at least 60 to 90 days' worth of finished goods on hand, which will allow us to better serve the market. We will continue to expedite freight to reach this target. This is crucial, especially for pharmacies that may run low on supply, enabling us to manage distribution effectively. We expect this trend to continue into the second quarter. While we aim to stabilize inventory levels, it will take time, and although we can’t stop completely, adding more inventory will help slow our operations. We mentioned that we anticipate a moderation in this pressure over the coming year. This expensive freight situation is a factor in our guidance, as we are currently chartering flights instead of using more cost-effective ocean freight, which directly impacts our costs over the year.

Your next question comes from the line of Steve Lichtman with Oppenheimer & Co.

With more pieces in place on the non-insulin front, could you discuss what driving awareness might look like? Is it solely through direct-to-patient efforts, or is it also about educating primary care physicians with the expanded sales force? Any insights would be appreciated.

It's across the board for us. Certainly, we'll have more direct-to-consumer advertising and more focused on that type 2 population and those non-insulin using patients to show what they can do with that. But there's a great educational effort that really has to go on in the physician's office as well. We need to make sure that they know that these patients can get a prescription for a Dexcom. I mean if you go back a few years, if they wrote a prescription for a Dexcom for a non-insulin user and sent them to the drugstore, they were told they could have it for list price. Now they can go to the drug store with many of these plans, there's 0 co-pay. So we're creating a much better experience for the physician in addition to the end user. And we need to educate that because they may have had an experience in the past where it didn't go that well and didn't go the way they wanted to. Those experiences are going much, much better now. And so it's educational across the board. It's not just one customer. It's all of them.

Your next question comes from the line of Matt Miksic with Barclays.

I want to follow up on Stelo. Last year, it seemed to have a slightly different role and target potential, but it’s still important. As you've mentioned, Dexcom G7 is fitting into some of these non-insulin opportunities with its coverage. Can you discuss how the two products relate to each other and how they fit together?

Yes. One of the things we're most excited about with Stelo is the opportunity it presented our sales force because as they walk into a primary care office now, they have 2 options to present to a physician. If we don't, by chance, have coverage for a patient now, that physician can now offer Stelo to that patient and again, learn about glucose behavior and value to that customer. The other thing that we are learning as coverage expands, utilization and retention and everything are always much better when there's reimbursement rather than paying cash. And one of the other things we have to consider with respect to the Stelo and G7 crossing of the roads, we're probably going to have to move some of the Stelo features into the G7 app. And Jake and team are working on that. I'll let you go for a minute, Jake. Go ahead.

Certainly. Initially, when we launched Stelo, our primary focus was on individuals with type 2 diabetes who lacked coverage, as well as those with prediabetes. As we have continued to innovate and develop our product, we are enhancing its features not only for individuals with diabetes but also for those without the condition. We are concentrating on our integration with Oura, which we believe will attract more users to the Stelo platform, including those who do not have diabetes. Therefore, we aim to broaden the applications of Stelo beyond just diabetes and prediabetes.

Your next question comes from the line of Anthony Petrone with Mizuho Group.

I'll stick on Stelo. A question on the utilization intensity with a prediabetic versus a nondiabetic patient. Do you have any data on that? Are you noticing more utilization intensity with prediabetics? And then just on channel access, where are most folks getting Stelo today? And when you think about Amazon, how much could that sort of just open the opportunity for Stelo?

Sure, I'm happy to answer that question. To think about utilization patterns based on our current observations, when individuals choose to use Stelo, they have options to identify themselves as having diabetes, being prediabetic, or not having diabetes at all. Those who identify as type 2 diabetes tend to show the highest utilization, followed by prediabetics, and then those who do not have diabetes exhibit the lowest utilization. When considering which populations engage with Stelo, this influences the retention and utilization rates we observe. Over time, as Jake mentioned, we plan to introduce various features aimed at engaging a broader health and wellness audience, and we see potential for increased utilization in the future. Initially, Stelo was launched primarily for type 2 diabetes users, and we are gradually expanding our focus. Currently, our primary sales channel remains stelo.com, but we have recently launched on Amazon and have seen strong initial uptake. We are optimistic about Amazon's extensive reach and believe it will play an important role in how we distribute our product. As the year progresses, we expect Amazon to become a more significant part of our distribution strategy, and we will provide updates on any shifts from stelo.com to Amazon.com as the quarter continues. For now, most sales are still through stelo.com, with updates to come on our progress with Amazon.

We have no further questions at this time. I will now turn the call back over to Kevin Sayer for closing remarks.

We want to thank everybody for participating today. This is another great quarter for DexCom. The new patient growth and the revenue growth were phenomenal. More importantly, there's a lot of people at our company we need to thank today because there was a lot of effort on the supply side, on our sales side, our trade teams. Everybody did a great job. So thanks, everybody, and have a great day.

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