Earnings Call Transcript - DXCM Q4 2022

Operator, Operator

Ladies and gentlemen, welcome to the DexCom Fourth Quarter 2022 Earnings Release Conference Call. My name is Abby, and I will be your operator for today's call. As a reminder, the conference is being recorded. I will now turn the call over to Sean Christensen, Vice President of Finance and Investor Relations. Sean, you may begin.

Sean Christensen, Vice President of Finance and Investor Relations

Thank you, Abby, and welcome to DexCom's fourth quarter 2022 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. Please note that there are also slides available related to our fourth quarter performance on the DexCom Investor Relations website on the Events and Presentations page. With that, let's review our Safe Harbor statement. Some of the statements we will make in today's call may constitute forward-looking statements. These statements reflect management's intentions, beliefs, and expectations about future events, strategies, competition, products, operating plans, and performance. All forward-looking statements included in this presentation are made as of the date hereof based on information currently available to DexCom, are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in the forward-looking statements. The factors that could cause actual results to differ materially from those expressed or implied by any of these forward-looking statements are detailed in DexCom's annual report on Form 10-K, most recent quarterly report on Form 10-Q, and other filings with the Securities and Exchange Commission. Except as required by law, we assume no obligation to update any such forward-looking statements after the date of this presentation or to conform these forward-looking statements to actual results. Additionally, during the call, we will discuss certain financial measures that have not been prepared in accordance with GAAP concerning our non-GAAP and cash-based results. Unless otherwise noted, all references to financial metrics are presented on a non-GAAP basis. The presentation of this additional information should not be considered in isolation or as a substitute for results or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and the slides accompanying our fourth quarter earnings presentation for a reconciliation of these measures to their most directly comparable GAAP financial measures. Now, I will turn it over to Kevin.

Kevin Sayer, Chairman, President, and CEO

Thank you, Sean, and thank you, everyone, for joining us. I'd like to start by reviewing some of DexCom's key accomplishments in 2022. Total revenue grew 20% on an organic basis driven by another year of record new customer starts. This translates into more than $475 million of organic revenue growth compared to last year as we saw another step forward for CGM awareness and DexCom brand loyalty. We added nearly 450,000 DexCom users to our base in 2022 and ended the year with close to 1.7 million customers globally. Our team did a great job generating this customer engagement and growth while simultaneously enhancing the scale and efficiency of our organization. Our operations team demonstrated world-class performance this year, ensuring adequate supply in a difficult macro environment and providing on-time delivery rates of greater than 99%. We drove over 500 basis points of operating expense leverage in 2022 despite broad inflationary pressure. This was not the result of reactionary cost cutting. Instead, it reflects decisions made years ago at our company to foster a culture of cost discipline as we grow. From a strategic perspective, we will look back at 2022 as a pivotal year for our company. We advanced several of our most important initiatives, including multiple new product launches, significant access wins, new market development, and a further extension of our market-leading performance in connectivity. Everything we achieved this past year helps build a foundation for years of sustainable growth ahead. For example, in October, CMS published a proposed local coverage determination that would meaningfully expand access to CGM technology for the Medicare population. This proposal would broaden coverage to include people with type 2 diabetes using basal insulin only, as well as certain non-insulin-using individuals that experience hypoglycemia. This result was led by the publication of DexCom's MOBILE study and furthered by a strong partnership with the diabetes community. We heard broad support and enthusiasm from key stakeholders during the comment period and expect the ruling to be finalized in the coming months. As a reminder, we size the basal-only type 2 population at 3 million people in the United States. Between this Medicare ruling and broader commercial coverage, which we expect to follow shortly, this population has the potential to nearly double our addressable reimbursed market in the United States. Outside the United States, our team has been equally focused on building greater access. We drove many positive coverage decisions from mobile payers over the course of 2022. These access wins were in response to the strong clinical evidence we continue to generate as well as the introduction of our portfolio strategy in many of these markets. 2022 was the first time that we brought multiple DexCom products to a single market, and this strategy has enabled us to significantly extend our reach. By offering multiple products, we can provide a unique value proposition that meets the specific needs of our diverse base of customers, clinicians, and payers. A great example is in the U.K., where DexCom ONE was added to the national formulary for all people with intensively managed diabetes. Collectively, our international access initiatives have helped us expand our reimbursed coverage by 3.5 million lives over the past 18 months. 2022 will also be remembered as the year of G7. We received both CE mark and FDA regulatory clearance for G7 and initiated a full launch outside the United States. The feedback from our customers has been everything we'd hoped for. We are hearing consistent praise for the new features, such as the 60% smaller form factor, shorter warm-up period, and more engaging and consumer-friendly app. Perhaps the most encouraging is that 97% of initial users surveyed have found G7 easy to use. We designed this product to simplify the lives of our customers, and we are thrilled to see that emphasis resonating. All of this leaves us incredibly excited to bring G7 to the U.S. In fact, we began shipping this week into our U.S. distribution channels to support our rollout. We have quickly ramped up production capacity to support the launch with our automated G7 lines already capable of producing more than 100,000 sensors a day. We want to get G7 into the hands of as many people as possible. So in conjunction with our launch, we've established a bridge program to simplify access for our early adopters. This program will provide new and existing customers access to G7 immediately and allow us to go to market in a broad and expedited manner. Behind the scenes, we continue to advance our discussions with payers to build reimbursement. Our conversations have progressed very well, and we are well on track with our G7 coverage plans. More importantly, we are not going to be bashful about what we think of this product. G7 is the new gold standard in diabetes technology. This is the most accurate, easy-to-use, and accessible CGM ever produced, and we want to share this message with the world. As a result, we will be releasing our second-ever Super Bowl commercial this Sunday. We're again teaming up with one of our most recognizable DexCom warriors, Nick Jonas, to announce that G7 is here. This is a great opportunity to connect not only with our loyal G6 users but with the millions of people with diabetes that still do not use CGM. We want these individuals, their caregivers, and their loved ones to know that DexCom can help them live healthier lives. With that, I'll turn it over to Jereme for a review of the fourth quarter financials.

Jereme Sylvain, Chief Financial Officer

Thank you, Kevin. As a reminder, unless otherwise noted, the financial metrics presented today will be discussed on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release as well as on our IR website. For the fourth quarter of 2022, we reported worldwide revenue of $815 million compared to $698 million for the fourth quarter of 2021, representing growth of 20% on an organic basis. As a reminder, our definition of organic revenue excludes currency in addition to non-CGM revenue acquired in the trailing 12 months. U.S. revenue totaled $606 million for the fourth quarter compared to $517 million in the fourth quarter of 2021, representing growth of 17%. Our recent momentum in the U.S. continued into Q4 as we delivered another strong quarter of volume growth and solid new customer starts. We were very encouraged by the prescribing trends we saw in the fourth quarter, and we closed the year with around 75% of our commercial scripts going through the pharmacy channel. This represents the endpoint of a multiyear channel journey. We believe our current structure maximizes access for our users as the most covered CGM and supports greater customer choice in how they access the most accurate CGM. International revenue grew 15%, totaling $209 million in the fourth quarter. International organic revenue growth was 27% for the fourth quarter. We continue to take share in international markets as the introduction of new products and access wins over the past year leave us in a wonderful position to compete for new users. For example, in response to the sizable U.K. coverage decision we received last August, our revenue growth has accelerated over the past two quarters in that region. Even though this was already one of our largest OUS markets, there has been a clear uptick in demand following this broad expansion of access. Our fourth quarter gross profit was $544 million, or 66.7% of revenue, compared to 67.7% of revenue in the fourth quarter of 2021. Foreign currency was an 80 basis point negative impact on gross margin in the quarter. Operating expenses were $372 million for the fourth quarter of 2022 compared to $461 million in the fourth quarter of 2021. You may recall that in the fourth quarter of 2021, we recognized an $87 million expense associated with the contingent milestone under the 2018 collaboration and license agreement with Verily Life Sciences. Absent this, our operating expenses for the fourth quarter of 2022 would have been relatively flat year-over-year. This represents another quarter of very disciplined cost management as we generated 800 basis points of OpEx leverage. Operating income was $172.1 million, or 21.1% of revenue in the fourth quarter of 2022 compared to $12 million, or 1.7% of revenue in the same quarter of 2021. Even excluding the Verily charge from 2021, this highlights incredibly strong operating expense leverage in our current year, which more than offsets our step backwards in gross margin. Adjusted EBITDA was $237.1 million, or 29.1% of revenue for the fourth quarter compared to $67.3 million, or 9.6% of revenue for the fourth quarter of 2021. Net income for the fourth quarter was $136.3 million, or $0.34 per share. We remain in a great financial position, closing the quarter with approximately $2.5 billion worth of cash and cash equivalents. This cash level provides organizational flexibility to support our organic growth opportunity and assess strategic uses of capital on an ongoing basis, such as the accelerated share repurchase program we executed in 2022 and ongoing development of our Malaysia manufacturing facility. Turning to 2023 guidance. As we stated last month, we anticipate total revenue to be in the range of $3.35 billion to $3.49 billion, representing growth of 15% to 20%. This reflects another year of strong underlying volume growth, which will again exceed our revenue growth rate for the year. To help provide some insight into the makeup of our guidance this year, we recently provided some additional color around our expectations. First, earlier in this call, Kevin discussed our plans to support our initial G7 customers with a bridge program. We expect this program to impact our revenue per customer early in the year as we provide G7 access at an affordable cash rate while we build reimbursement. We expect this impact to narrow over the course of the year as broader coverage is secured. Internationally, we estimate that around one-third of our new customer starts will come in through the DexCom ONE platform. Therefore, this business will start to have a more material impact on numbers this year as that customer base builds. For the type 2 basal opportunity, we anticipate CMS reimbursement to be finalized for this population by midyear and to begin contributing to our results in the second half of 2023. We expect this population to contribute approximately 1% of our total revenue in 2023. Turning to margins. We expect gross profit margin to be in the range of 62% to 63%. This assumed year-over-year decline is primarily related to the impact of the broader G7 launch. As with any launch, we will initially be running at lower production volumes, and it will take some time for our new manufacturing lines to scale. Importantly, this is a temporary dynamic, and we still expect G7 product costs to be less than G6 at scale. Despite the step backwards in gross margin, we are guiding for operating margins to be relatively flat year-over-year at 16.5%, which reflects another 150 to 250 basis points of operating expense leverage in 2023. This is the result of ongoing cost initiatives at our organization that continue to drive leverage even as we allocate greater investment to support our global commercial infrastructure and G7 launch. Finally, we expect adjusted EBITDA margins of approximately 26% in 2023. With that, I will pass it back to Kevin.

Kevin Sayer, Chairman, President, and CEO

Thanks, Jereme. To summarize, we are incredibly excited about the opportunity ahead with G7, and we're rolling out the product to our distributors as we speak, and we're ready for a big launch in the U.S. I would now like to open up the call for Q&A. Sean?

Sean Christensen, Vice President of Finance and Investor Relations

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

Operator, Operator

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

Jeff Johnson, Analyst

Let me ask you just a two-part question on G7, if I could. Kevin, on your website, you talk about adding more commercial coverage for G7 every day. I guess, could you give us a number of what percentage of covered lives or lives are currently covered in the commercial channel for G7 and where you expect that to go in the next quarter or two? And I think Libre 3 has now been in the pharmacy channel for about four months or so in the U.S. Obviously, your business looks like it's probably safe with the AID users in the Medicare channel. But for your stand-alone T1 users, have you seen any change in your attrition rate? Anything as we kind of look at that Libre 3 versus G6 dynamic that has changed in the last few months that Libre 3 has been out there?

Jereme Sylvain, Chief Financial Officer

Thanks, Jeff. Yes, I appreciate that. This is Jereme. So to your question on coverage, we're still in the throes of the commercial DME and the Medicare coverage. We talked about on G7 taking about 90 days. But on the pharmacy side, we're actually a little bit ahead of schedule. Kevin referenced, we're well on track to the point where I talked about a $30 million-ish hit in Q1 as a result of our bridge program. That number is more like $15 million now, and that's because some of those pharmacy contracts are coming in earlier. So we are making great progress and we continue to get that every day. And the signs lead to more and more contracts coming over, maybe even ahead of schedule. In terms of the question then on competitive dynamics, maybe I can start and then Kevin will obviously have a few thoughts there. We had a record new patient start in Q4. If that gives you any context to we had another solid new patient quarter. So while we have seen competitive product out there, we continue to do very, very well with G6 to the point where we have seen incredible strength there. And that's, of course, on the heels of a G7 launch which, as we referenced, is coming out here in the next coming days. Kevin, I don't know if you have anything else to add there.

Kevin Sayer, Chairman, President, and CEO

No. I would tell you what we're also hearing is a great deal of excitement from our user base for G7. So regarding your question about how our G6 users are doing, they're very anxious to get G7 and very excited to go. So we're feeling good about where we are right now.

Operator, Operator

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

Larry Beigelsen, Analyst

Kevin, I wanted to ask about the ramp in the type 2 basal population. I think people were a little surprised you only expected a 1% growth contribution in '23. I guess that would be about $60 million on an annual run rate. At the last investor meeting, you said you expect $700 million in revenues in 2025 from sources other than insulin-intensive patients, and I think this was mostly type 2 basal. So the question is, do you still expect $700 million by 2025 from these non-intensive sources? And how do you see the ramp in the type 2 basal population?

Kevin Sayer, Chairman, President, and CEO

Well, Larry, I’m going to speak for a moment before handing it over to Jereme. Our initial estimates indicate that 1% of our total revenues will come from that, which is a significant figure. We are planning for approval and rollout in July during the second half of the year. While it may happen sooner, we have been cautious in our estimates and aim to exceed them. As we look towards 2025, the non-intensive insulin market is not limited to just basal users. We believe our CGM product will be highly beneficial across several markets within the type 2 segment and in metabolic health. It's not only about basal users; the potential is much broader. Additionally, many of the basal users eventually transition to become intensive insulin users. Therefore, we see this population as evolving and adapting with us. Jereme, do you have anything else to add?

Jereme Sylvain, Chief Financial Officer

Sure. Yes. Larry, so the $60 million number you're referencing would assume, say, everybody started on July 1 and they went through the end of the year. The reality is that some folks will start in July, and some folks will start in December. And so really, the exit velocity is much higher than that on a run rate perspective. If you were to blend it, average it over the course of the year, you're only getting three months of revenue contribution. So you kind of do the math there, and the exit rate is a little bit higher than I think what you're implying. So we are really, really bullish on it. But it is a recurring revenue business. So what we need to do is get that coverage out there and get the scripts in. And so, look, I understand the question. It's a big, big market with a big, big opportunity. We plan on playing in it, and we plan on playing it in a big way. But obviously, we want to be prudent around guidance. And certainly, if things go better than that, then we'll always try to do so. We'll report back to everybody.

Operator, Operator

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

Unidentified Analyst, Analyst

I wanted to maybe take Larry's question a step further and just kind of talk about the potential pace of adoption within type 2 basal, maybe not just this year but really more over an 18-month, 24-month period? And is it fair at all to compare it to, I guess, what the attritional type of insulin diabetic population is? Is it going to be easier, harder, to drive adoption? Or are there guardrails on penetration? And then just because you brought up metabolic health to non-insulin diabetics, 2025 is just around the corner. So should we expect a more meaningful impact from here as early as next year?

Jereme Sylvain, Chief Financial Officer

Yes. Let me start by discussing the base, and then I can hand it over to Kevin. The ramp in basal will be interesting. We believe this process should be viewed through the lens of type 2 intensive. If the coverage develops over a similar timeline, we would anticipate a comparable ramp. However, there is greater awareness today, and the Super Bowl commercial presents a valuable chance for us to enhance that awareness. Basal patients interact with a broader range of physicians. We don't have a definitive prediction here. If we look to past examples, type 2 intensive provides the best comparison, implying a similar adoption rate. As time progresses, we should be able to provide more insights. For now, that's our best estimate. Kevin, would you like to share some general thoughts on metabolic health and the opportunities there?

Kevin Sayer, Chairman, President, and CEO

No. As we look out to the future, Margaret, particularly with our easy-to-use G7 platform that we're launching today, we believe our future is very bright as we deal with metabolic health. We've changed our mission statement to help people control their health, not just diabetes anymore. We continue to see very positive results from several programs who are using sensors to assist people in these endeavors. Over time, particularly with type 2 management and all the type 2 drug alternatives on the horizon, we believe CGM becomes a very important part of that health equation. We are continuing to work on product offerings and business models. It will be differentiated from what we do today and geared towards that population. We're really excited about the opportunity. It will continue to mature over 2023, and then we'll see what happens in 2024. We've got a lot of basal patients to reach first. So let's go after them and then we'll continue to move into the other areas as well.

Operator, Operator

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

Robbie Marcus, Analyst

Congrats on a nice quarter. Wanted to ask about the European or OUS experience. It looks like you're gaining share, you're doing well. How much of that is being driven by G7? And what's the feedback there? And any head-to-head color you could give us versus Libre 3 in the markets where it participates? And then also sort of same question on DexCom ONE and the impact you're seeing there.

Kevin Sayer, Chairman, President, and CEO

I will start off. With respect to the sales and the revenue numbers, G7 and DexCom ONE are still early enough in their launch life cycle that while they’re additive, they’re not what's driving a lot of the adoption, a lot of the growth that we've seen in European markets. A lot of that's been what we've established with G6, the additional coverage that we’ve obtained. In 18 months, we’ve added 3.5 million more reimbursed lives. That being said, initial response to G7 has been everything we'd hoped for. People love the app. They love the receiver. My most recent conversation with the G7 user focused completely around the 30-minute warm-up period. A 30-minute warm-up has eliminated 90 minutes of the longest two hours of somebody’s life who has ever used the G6. And certainly, in the comparative front, compared to the hour warm-up, again, it is a much better experience. The majority of our G6 users are new to DexCom. They're not DexCom upgrade users. Most of our G7 users are new to DexCom. Some of them come from the competition. Some of them have not used CGM before, but they're all finding it very easy to use and having great experiences. So we're very happy with the product at this point in time.

Operator, Operator

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

Joanne Wuensch, Analyst

So I'd like to spend just a minute on the gross margin and how you anticipate those ramping throughout the year. And then while I know we're sort of early to be thinking about 2024, I do think people are looking at that as sort of a more normalized margin rate and if you could sort of shed any light on how to think about that.

Jereme Sylvain, Chief Financial Officer

Sure. Thanks, Joanne. I appreciate that. And you start off with, obviously, the fourth quarter. We had a really strong gross margin. I think it's a demonstration of what's to come with what our teams can do when you give them time with a new product launch. So I think as you think about the year, the cadence for 2023, we do expect in the first half of the year margins to be a little bit lower because of the bridge program. Certainly, that has an impact. But most importantly, it’s the launch of G7. Volumes won’t be at where they would have been in a more mature launch, and we will still be going through some of those early manufacturing scrap and yield challenges we always see. But what we've proven time and time again is if you give our engineering and R&D team time with these lines, they continue to get yields better over time. Our expectation is as we start to exit the year in 2023, we start to come closer back to that long-term guide of 65% gross margins. There is nothing structurally long-term that we don't believe. Especially as G7 gets to scale, that gets us back to those long-term guidance that we've originally provided. So we'll continue to work towards that. Think about 2023 as the first half of the year being a little bit lower. As we ramp up those lines in the back half, you start to tackle some of that absorption of those fixed overhead.

Operator, Operator

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

Matthew O'Brien, Analyst

Just on the bridging program, can you tease out a little bit more, maybe, Jereme, on expectations there? I think you had said $20 million to $30 million. You said you're trending better than that for Q1, which is great to hear. But I don’t think you ever said how much the bridging program is going to cost you for the full year. It seems like it's going to be even better than expected overall versus maybe what you were thinking starting off '23. But then also bridging is supposed to be more of a headwind on the gross margin side too. If it's less of a headwind, maybe that helps out the gross margin profile a little bit more, maybe sooner than expected. So I'm just wondering, like based on all these things on the bridging program specifically being better than expected, should we start to creep up a little bit more as far as our expectations for top-line growth and then even gross margins for the full year?

Jereme Sylvain, Chief Financial Officer

Sure. Yes. I don't think we're at a point where we'd necessarily change our guidance. But let me take your question head on, which is in isolation what does this do? So certainly, what the bridging program effectively means is we have contracts in place a little bit more ahead of when we ultimately expected. ASPs will be a little bit higher as a result of most folks going through coverage as opposed to the bridging program. So that does a couple of things. It helps revenue and it helps margin. That all being said, we're not changing guidance for the year. But I think what this does mean is, one, it's a great thing for patients who want to access the product. We talked about coverage being a key strategy. That's wonderful. It does help longer-term for those margin profiles. While I wouldn't necessarily guide you outside of our ranges, you are correct. It does help on revenue and gross margin on the full year. And the other question was how much for the full year. We expected a majority of it, almost all of the $20 million to $30 million in the first quarter. We do expect a nominal amount in Q2. We haven't expected any of it beyond Q2. Really, the majority of your concern would be in Q1.

Operator, Operator

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

Marie Thibault, Analyst

Congrats on a strong quarter. Wanted to ask a little bit more on kind of the backlog around the Medicare decision-making. I'm very curious how physicians and patients are aware of that decision and whether we might see a bolus of patients sort of come on once that Medicare coverage took place.

Kevin Sayer, Chairman, President, and CEO

Thanks for the question. It will be up to us to drive awareness in that community to make sure people are aware of that decision. There will certainly be those very familiar with DexCom and continuous glucose monitoring who will pick it up quickly. But it will be up to us to drive awareness in both communities: the physicians and users of the product to go and ask for it and to create that environment. So we're not going to sit back and wait. We're going to have to push.

Operator, Operator

We'll take our next question from Travis Steed with Bank of America.

Travis Steed, Analyst

So U.S. growth for the last couple of quarters has been around 17%. For the second half of the year, I think, was record patient growth for both quarters. So trying to think about the contra for the bridge program; if we should be seeing an acceleration here in the first quarter and the U.S. growth specifically and how that builds over the course of the year. And then on the Super Bowl ad, what kind of impact did you see on U.S. new patient starts last time you did that?

Jereme Sylvain, Chief Financial Officer

Sure. Yes. So I'll start with how we're thinking about Q1. The way we've generally thought about Q1 is in terms of full-year contribution, absent any sort of bridging program, to be a very similar contributor as a percentage of total year revenue in the first quarter. So that's total company, not just U.S. total company. Then you add the bridging program and pull it down from there. That’s generally how we think about the quarter, which is just an indication of continued strong new patient growth. Clearly, we'll be working through driving new patients and driving growth over the course of the year. In terms of the Super Bowl and how to think about the Super Bowl and how that contributes, last time we did it, there were hundreds and hundreds of thousands of inbound leads. Not all of those obviously translated into patients, but there was a lot of interest. One of the challenges, if you rewind the clock a couple of years, is there wasn't as much coverage there. I think what we’re hoping this time around is: one, the awareness is the most important thing. As that gets out there, will be very helpful. As coverage starts to come through and we have this bridging program in place, it’s a real opportunity to take advantage of it. We’re not ready to give exact patient numbers out there other than to say that the return on capital is a very strong investment. So, you should expect we do that math before we sign up for this, and we wouldn’t be doing it if we didn’t expect a return on investment that was commensurate with what you and we would expect.

Operator, Operator

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

Jayson Bedford, Analyst

Just maybe an OpEx question. It looks like it's a bit bigger of a step up implied in '23. I know the Super Bowl ad is a contributor. But just wondering if you can comment on what are the sources of the OpEx growth and maybe hit on any planned changes to the sales force in support of G7.

Kevin Sayer, Chairman, President, and CEO

Thanks, Jayson. This is Kevin. I'll provide a high-level overview. We will keep investing in research and development. Our spending will increase somewhat, but not as quickly as in previous years. To be honest, as a percentage of revenue, it might have slightly decreased. The same applies to general and administrative expenses, where we will continue to invest in infrastructure to support our growth. However, much of that investment has already been made. Our largest dollar investments will focus on the commercial side, enhancing awareness among the sales team and marketing efforts across the board. We will be increasing our spending in this area, and those expenditures may shift throughout the year as we gather more information. We have always been good at directing funds to the most effective areas, and we are currently analyzing that. We certainly have a strategy, but we are not hesitant to make adjustments if it seems more logical. Thus, we are evaluating all these factors. This year, we're making significant international investments, as a percentage of our overall investment, international markets are receiving a larger share than before because we see great opportunities. With G7 and several other companies alongside the DexCom launch and the covered lives we've added, we believe there's substantial growth potential, but we need to invest in the necessary infrastructure.

Jereme Sylvain, Chief Financial Officer

Yes. And just to kind of add to that one, Jayson, just to give you some context. We launched outside the U.S. with DexCom ONE and G7 in the first couple of phases. But we have more phases to go. We’re going to make the marketing push obviously with G7 in the U.S., but there’s also a second phase of G7 launchings outside the U.S. and a second and third phase of DexCom ONE outside the U.S. So sales and marketing is really where we want to put our investment, and we'll get leverage elsewhere. Hopefully, that gives you kind of some context for how we're thinking about that spend in 2023.

Operator, Operator

And we will take our next question from Matt Taylor with Jefferies.

Matt Taylor, Analyst

So I just want to get some thoughts on gross margin longer-term. I know you touched on this year. And obviously, with the new product launch, there's some initial depression and then you get spring-loaded with leverage over time. So help us think about G7 over the next couple of years. Does that expand? How can that impact gross margins with and without the potential for a longer wear label?

Jereme Sylvain, Chief Financial Officer

Yes. I can start there. You're 100% right. I mean, obviously, there's the levers to get the actual cost of the product, and we’ve been very transparent about it. We want to get to basically $1 per day and a 10-day sensor or a $10 sensor. We want to go even beyond that. But that has always been kind of our public goal. Then, of course, as you move to a 15-day sensor, that cost is spread out over a longer period. We have intentions over the long haul of doing all of that. Now the math, if you do that, would indicate there's some real opportunities in gross margin even beyond potential long-term guides. The one thing we want to be mindful of is we don’t want to shortchange ourselves and other opportunities to either partner or otherwise over the long haul. While the long-term guide remains intact, there are certainly levers and opportunities for us to do well there. I think you’re hitting on all the right points. That all being said, we really hold to that long-term 65% gross margin. That's what we'll work to. If there are other opportunities to fill you in on some other things we're doing in the future, we'll certainly do so.

Operator, Operator

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

Mathew Blackman, Analyst

Jereme, just curious. I appreciate all the inputs that you gave us that roll up to the 15% to 20% guide. I'm just curious, have you contemplated in that 15% to 20% range any competitive pressures in the event that your competitor gets approved to integrate with a pump sometime in 2023?

Jereme Sylvain, Chief Financial Officer

Yes. Thanks for the question, Matt. Yes, we do. We've considered all of that when providing that guidance. I mean, when we think about all the competitive pressures and then we think about all the opportunities ahead of us, we consider all that in the guidance. You are right, there is the potential out there, at least according to some of the commentary, for potential pressure. I would say that we've contemplated it. At the same time, we feel very confident in our product offering and what it ultimately does, how it integrates and the safety features that people rely on our product for, the accuracy, the ease of use. So I think we feel very confident about it. But yes, we did contemplate that in our guide.

Operator, Operator

We will take our next question from Chris Pasquale with Nephron.

Chris Pasquale, Analyst

Love the update on how you guys are thinking about price. You said in the past, your U.S. channel mix could start to stabilize once you hit 75% of the pharmacy. You're there now. But you also have DexCom ONE making a bigger portion of the OUS starts, which I would imagine might pull down your international ASP a bit. So can you tell us what impact price had on revenue in '22 and then how you're thinking about the potential impact this year?

Jereme Sylvain, Chief Financial Officer

In 2022, we provided guidance of approximately $200 million in the U.S. and around $50 million internationally. The actual results were slightly below those figures, with the U.S. being just under $200 million and international revenues just under $50 million, which aligns well with our expectations. Looking ahead, we anticipate that the price-volume differential in the G Series will gradually decrease. While we won't provide a specific number for 2023 since most of the migration is completed, we still need to consider the impact of the 2022 migration. If there's a shift, such as an increase from 75% to 80%, we don't expect significant changes. We've factored these elements into our projections. Regarding your observations on our business model, we look at it as divided between the G Series and DexCom ONE, and I recommend you adopt this perspective moving forward. Additionally, understanding DexCom ONE as a percentage of our overall business will help clarify its impact on average selling price. It's also important to note that for 2023, we expect one-third of new patient starts outside the U.S. to utilize DexCom ONE, which aligns with our internal modeling approach and should guide your expectations for this year and beyond.

Operator, Operator

And we will take our next question from Kyle Rose with Canaccord.

Kyle Rose, Analyst

I wanted to ask an additional question just on the commercial strategy moving forward. I understand the DTC advertising and you doubled the sales force a few years ago. But just as you prepare for basal approval in the U.S., how does the focus or the call point of the actual sales force need to change? Do you need to make additional investments in people? Just help us understand how the targeting goes moving forward.

Kevin Sayer, Chairman, President, and CEO

Yes. This is Kevin. I'll take that. Jereme gave us a bit of color earlier. 75% of our calls already by our U.S. sales force are in the PCP arena. I think you’ll continue to see that expand as our team spends more of their time addressing that marketplace, at the same time, not ignoring the places where we've been so successful in the past with the intensive management diabetes. We will look at that structure in great detail. On a geographical basis, even within the U.S., there may be some places where we need to expand geographically versus large expansion across the entire country. We'll analyze that in great detail as we go. We're in the process of doing that now. We just brought on a new Chief Commercial Officer, as many of you will remember, in early January. She’s deep in the middle of that today as we manage those thoughts and the launch and everything else going on, but we'll look at it very strongly.

Operator, Operator

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

Steve Lichtman, Analyst

Question on DexCom ONE outlook. Can you talk about any major new geographic regions you expect to roll out the platform this year? And should we expect to see any movement in bringing DexCom ONE onto the G7 platform this year? Or is that a longer-term play?

Jereme Sylvain, Chief Financial Officer

Yes. It's a fair question. Let me just say, we're not necessarily going to give the playbook as to what countries we are going into. Now we have launched recently in Croatia, Romania, and Greece for DexCom ONE. That is out there now. Hopefully, that gives you some context, but we will be launching in more countries. Rather than give the playbook publicly, we’ll let our commercial team execute and give you that feedback. We will go into more countries. So hopefully, that gives you at least some context. We will go. In terms of the movement from DexCom ONE to the G7 form factor, we are absolutely going to be moving to that factor. It's going to take a little bit of time, and the reason it's going to take a little bit of time is, as we get economies of scale on G6, which we have today across the existing user base, as well as DexCom ONE, as well as a lot of opportunity for new users on G7, we want to make sure we prioritize G7 and that form factor for those patients coming on to therapy on the G Series. Make no mistake, though, as soon as possible, right after that, we will be moving DexCom ONE to that G7 form factor. Stay tuned. We'll have some updates as the years progress on.

Operator, Operator

We will take our next question from Josh Jennings with Cowen.

Josh Jennings, Analyst

I was hoping to follow up on the pricing question. I'm not sure if you've given a recent update on how investors should think about the average reimbursement DexCom receives in the U.S. for a G6 or a G Series patient. Will that change with the G7 introduction for one? And is it important that share shifts in the pump market, just considering the reimbursement DexCom gets to the DME channel with the Tandem pump versus the pharmacy channel with the Insulet pump?

Jereme Sylvain, Chief Financial Officer

Yes. It's a good question. Look, I think the way to think about the ASP is it's really more about channel than it is about version. As you think about where folks and who gets access, the general way to think about it is Medicare, which is publicly out there, I think after the increase, is around $250 a month. There's a delta there which goes to the distributor who ultimately fulfills that. So the net price to us is south of that. Ultimately, that would be our price in that range that’s publicly available. Generally, commercial DME is higher than that, and pharmacy is lower than that number. That’s the way to think about it. In terms of then how ASP moves over time, think about it less of generation of product and think about it more as where folks want to get their product. As we talked about, 75% of our lives covered in commercial. 75% of those patients obviously come through at a lower price point. If that drifts to, say, 80%, you could then see that potentially having a tick on there. Again, most of that is behind us, but that's the way to think about the split there. In terms of pump partners and how folks ultimately access it, it really depends again on consumer preference. You're right, Tandem is generally accessed through the DME, and Insulet's generally accessed through the pharmacy. It makes sense that folks get their CGMs through that channel. That all being said, it's ultimately consumer preference. We believe the consumer experience through the pharmacy is great. We have some really great DME partners. They do a wonderful job fulfilling product through that DME channel. We believe that folks can be fulfilled either way.

Josh Jennings, Analyst

Great. If I could sneak in just a quick follow-up. Just thinking about your CGM platform attached to pumps, is there a premium reimbursement that DexCom receives in that scenario versus standalone? Or is it all consistent across the board? It just depends on the channel, as you said?

Kevin Sayer, Chairman, President, and CEO

No. Right now, there's one class of CGM products and reimbursement is consistent across the board.

Operator, Operator

We will take our next question from Cecilia Furlong with Morgan Stanley.

Cecilia Furlong, Analyst

I was hoping to follow up. You talked, though, the last quarter just about rolling out cash pay models in the U.S. Just curious if you could provide more color as you're thinking about that opportunity today. And then for 2023, specifically, how we should think about potential incremental contributions from that?

Kevin Sayer, Chairman, President, and CEO

You bet. This is Kevin. Big picture, our cash pay program for G7 to start with is going to be our bridging program. People will be able to pay cash for G7 that way. Ultimately, as we get access and coverage of G7, when people's co-pays will be significantly lower than the bridging program cost, we'll phase that out and have a cash pay program on G7 that individuals will be able to access. We continue our cash pay program on G6, but that is not a major portion of our revenues. It's just a piece of them. We do this to create access primarily where people's insurance doesn't cover it and they can't get access through the federal or the other governmental channels as well. It's not a huge percentage of our revenues. We need to continue to be cognizant of it and address those patients' needs. That’s why we have it there.

Operator, Operator

Next question from Matt Miksic with Barclays.

Matt Miksic, Analyst

If I could, just two quick follow-ups on some of the topics that were covered earlier. So on ramping production for G7 to the gross margins and the impact and improving on scrap rates and all that. By the end of the year, are we sort of hitting what you say about your manufacturing and sort of representative margins maybe in the facilities that you have? And the other was just on the comment you had on contemplation or competition on the pump integration front this year. If that were not to come, I'm just wondering, not to put you in a tough spot or anything like that or credit margin the guidance range. But if that were not to come, is that sort of a slight tailwind to the top end of your guided range or how to think about that?

Kevin Sayer, Chairman, President, and CEO

This is Kevin. I'll take that bigger picture. Jereme has been very familiar with the numbers, but I'll give you a bit of my perspective. With respect to no competition in the pump integration point, we may pick up more, we may not. What I do know is everybody using those pump-integrated systems right now uses a DexCom. They’re achieving remarkable results with the technology we’ve developed over the years, and we’ll continue to receive such. It is our position that the experience that they’re going to have with algorithms based upon DexCom’s CGM that have been developed through the data and the performance of our sensor will continue to make us the leader in that space regardless of who the competing sensor is. We’re very confident there that we will continue to have a very strong product offering going forward. With respect to the margin change over the course of the year, there are a couple of factors in there. Obviously, Jereme has talked about the bridge program in the first half of the year bringing margins down a bit because the revenue per patient will be a bit lower when we start. But as we see that pick up, we’ll pick that up on the revenue side. Then you have basal come in, and Medicare reimbursement is strong; so that will help on pricing. The flip side is it’s sometimes lost on folks. Everything we do with G7 is different. All these lines are completely different. All the capacities are different. The only thing that’s the same is we’re building in Arizona, and we’re building in San Diego. That’s not going to be the same for a good portion of the year because we expect the factory in Malaysia to be up and running in the second half, producing product there. You have a number of variables with respect to scrap, with respect to purchasing components, with respect to how these lines run as we get them up and running and functioning at full speed versus where they are today and then bringing on a new factory. We've tried to contemplate every one of those variables as we've started, and we’ll update you on how things are going as time goes on. But whenever you do a product launch, particularly one this significant because when we did our last big G6 product launch, we had similar margin activity, but it was on a much smaller scale since we’re so much bigger than we were before. There’s just more variables that we have to plan for. We’ve tried to be conservative and thoughtful in our guidance based on the performance we expect of our teams. We also expect our teams to be better than this, too. We don’t ever lower the bar for them, as they will tell you. But we’ve looked at every one of those things, and we’re contemplating that, and we meet on this literally every day to cover all of our bases. This launch is really important to us, as are our margins. We will make this product as accessible as we can. DexCom has always been the most accessible brand CGM as far as coverage, and we will continue to do so. That's our commitment to drive that very hard for our end users. It's going to be a busy and great 2023. I'm very confident we'll be sitting here a year from now, and I'll be able to say the same things. Thank you, everybody, and have a great day.

Operator, Operator

Thank you, ladies and gentlemen. This concludes today's conference call. We thank you for your participation.