DexCom, Inc.

Welcome to the Dexcom second quarter 2024 earnings release conference call. My name is Abby and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star 1 on your touchtone phone. As a reminder, the conference is being recorded. I will now turn the call over to Shawn Christensen. You may begin.

Thank you, Abby, and welcome to Dexcom's second quarter 2024 earnings call. Our agenda begins with Kevin Sayre, Dexcom's chairman, president, and CEO, who will summarize our recent highlights and ongoing strategic initiatives, followed by a financial review and outlook from Jeremy Sylvain, our chief financial officer. Following our prepared remarks, we will open the call up for your questions. At that time, we ask analysts to limit themselves to one question each so we can provide an opportunity for everyone participating today. Please note that there are also slides available related to our second quarter 2024 performance on the Dexcom Investor Relations website on the events and presentations page. With that, let's review our safe harbor statement. Some of the statements we will make on today's call may constitute forward-looking statements. These statements reflect management's intentions, beliefs, and expectations about future events, strategies, competition, products, operating plans, and performance. All forward-looking statements included on this call are made as of the date hereof based on information currently available to Dexcom, 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 of 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 second 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. Before we begin discussing Q2 results, let me state that overall category demand remains strong, and awareness of the value of CGM across the metabolic health spectrum continues to accelerate. This trend was evident at the recent American Diabetes Association Conference, which featured Dexcom's largest evidence to date in the non-insulin type 2 space. Dexcom research demonstrated significant A1C reduction in multiple studies, as well as real-world evidence showing a time and range increase of greater than four hours per day for nearly 4,000 customers using Dexcom CGM at one year. We are leveraging several pathways of evidence generation to ensure that we are maximizing our market opportunity into the future, as our CGM systems become increasingly tailored to the unique needs of each customer. Despite the positive progress on these fronts, we saw three near-term trends emerge over the course of the second quarter that drove results below our expectations. First, as we have worked through our U.S. Salesforce realignment expansion, we have seen our share of new customers fall short of our expectations, despite still strong absolute customer additions. Second, our U.S. revenue per customer has stepped down faster than expected based on two primary drivers, rebate eligibility and channel mix. With G7 coverage emerging faster than expected, we realized greater rebate eligibility relative to initial expectations and compared to 2023 levels. While we believe this enhanced G7 coverage has helped facilitate new customer starts, as mentioned above, the pace of these starts did not allow us to offset the temporary impact from this rebate eligibility. We expect the impact of this rebate eligibility dynamic will reach its peak in the third quarter, and Jeremy will provide specific color on the Q3 expectations shortly. Beyond the transitory G7 eligibility dynamic, we also saw revenue per customer impacted by U.S. channel mix dynamics. U.S. customer growth has remained strong in our pharmacy business as we expand our reach into primary care and type 2 diabetes more broadly. However, our growth in the DME channel has trailed our plan. The DME distributors remain important partners for us in our business, and we've not executed well this quarter against these partnerships. We need to refocus on those relationships. Finally, our international performance was also lighter than expectations in the quarter. While we delivered strong performance in some of our core markets, such as the UK and France, we saw category growth soften in certain geographies as Type 1 penetration advances in these regions. We continue to see a significant runway ahead across our international footprint, particularly as we drive greater access for people with Type 2 diabetes. To account for these trends and appropriately reflect our base assumption, we've lowered our full-year revenue guidance to 11% to 13% organic growth. We have higher expectations for our business than what we experienced this quarter. We believe we have an incredible product, an incredible future pipeline, and an unparalleled market opportunity. We also have a great team capable of leading this market, but I expect more from myself and more from my team going forward. So what are we doing to enhance our competitive position and reestablish momentum? It starts with our product portfolio, which we continue to strengthen to put our field sales team in a great position with clinicians. In the second quarter, we expanded our direct-to-Apple Watch connectivity with G7, launching in the U.S. and several additional international markets with this feature that has been among our most requested for several years. We expanded the international launch of the Dexcom 1 Plus system, now reaching 18 international markets with our smaller G7 form factor for our Dexcom 1 users. We've built upon the performance of G7, making it even better. This includes a continuation of our monthly cadence of software updates, which included the second quarter additions of medication logging and the ability to ingest activity data into our G7 app. We've introduced a stronger adhesive to support our customers into the summer months, and we expanded the G7 Bluetooth connectivity range by more than 65%. We advanced Dexcom CGM leadership in the ID space with the launches of G7 integrations with Tandem's Mobi system and Insulet's Omnipod 5. We've strengthened our existing products while preparing for the most expansive product launch in our company's history with the upcoming August launch of Stellar. We are seeing the demand for CGM build in the non-insulin space and consumer use and believe that we've created a unique and engaging system to drive people to better metabolic health outcomes. Our team has worked hard to build a scalable service model for Cello that will be great for our customers, including the e-commerce experience. Seamless delivery through Amazon fulfillment, insightful product features, digital support options, and much more to come. We'll offer both single purchase opportunities as well as discounted subscriptions that bring the monthly cost below $100. Stellar will be a full launch on Stellar.com, and we continue to expect approximately 1% of revenue contribution in 2024. We are committed to personalized approaches to metabolic health management through updates like these. This is what will enable us to capture greater share and maintain high rates of retention and utilization across our customer base. We feel that our expanded U.S. Salesforce positions us very well to reignite our growth opportunity now and well into the future. We have the ability to dive deep into the technological leadership that Dexcom provides for diabetes specialty practices. We have also expanded our reach and ability to highlight the simplicity of our platform and how it fits into a busy primary care practice. We have the advantage of better coverage and the lowest out-of-pocket cost for the insulin population and soon to be enhanced by the simplicity of the Stello OTC platform. As we take significant steps to broaden our addressable market well into the future with Stello and our expanded U.S. sales force, we are also working hard to ensure simplified access to our systems in the markets we serve. In the second quarter, our team worked with the CDC to create new ICD-10 diagnostic codes for problematic hypoglycemia. These codes, which were published in May and go into effect in October, can simplify the process of documenting hypoglycemic events that qualify non-insulin users for CGM coverage. Our international market expansion efforts also progressed into the second quarter as we received coverage in France for people with type 2 diabetes on basal insulin and began serving these customers in June. We also transitioned to direct sales in Japan at the outset of the quarter and look forward to taking control of our commercial efforts in that crucial market. To summarize, our second quarter performance and 2024 outlook are not up to our standards, and we look forward to better capitalizing on our opportunity as we move forward. With that, I'll turn it over to Jeremy.