DexCom, Inc.

Ladies and gentlemen, welcome to the Dexcom third quarter 2024 earnings release conference call. My name is Abby and I will be your operator for today's call. At this time, all participants are in a listen only mode and later we will conduct a question and answer session. During the question and answer session, if you have a question, please press star one on your touch tone phone. As a reminder, the conference is being recorded. And I will now turn the call over to Shawn Christensen, Vice President, Finance and Investor Relations. Mr. Christensen, you may begin.

Thank you, Abby, and welcome to Dexcom's third quarter 2024 earnings call. Our agenda begins with Kevin 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 third quarter 2024 performance on the Dexcom Investor Relations website on the events and presentations page. With that, let's review our safe harbor statement. Some of the statements we will make on today's call may constitute forward-looking statements. These statements reflect management's intentions, beliefs, and expectations about future events, strategies, competition, products, operating plans, and performance. All forward-looking statements included on this call are made as of the date hereof based on information currently available to Dexcom, 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 third quarter earnings call for 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 dive in, I want to take this opportunity to share an important update. As many of you saw in today's press release, our Chief Commercial Officer, Terri Lauver, has expressed her plans to retire from Dexcom. Terri is a great leader who's advanced our commercial organization in several areas in the past two years, including the launches of our G7 system and Celo, which I will touch on shortly. I am thankful for her strong leadership and dedication to Dexcom, and she will continue to work with me as a special advisor and consultant through early next year as we navigate the transition and our search for a new chief commercial officer. I will assume leadership of the team, and having managed this team before, I can speak to their quality and look forward to leading them again. There are three primary takeaways I want to convey today, reinforced by what I've observed since our last quarter call. First, CGM remains a premier global growth category, and the excitement and uptake we've seen with the Stella launch has further reinforced my conviction about the long-term potential of this market. Second, I feel good about the execution progress that our team is making, both in terms of our commercial effectiveness and our product pipeline, and we'll walk through some of those steps today. And finally, I feel confident in our pathway back to higher growth and continued margin expansion, which Jeremy will discuss in more detail later. With those points as a framework for discussion, let's turn to the highlights from the quarter. Today, we reported third quarter organic revenue growth of 3% compared to the third quarter of 2023, which came in at the high end of our third quarter guidance. Our team continues to build upon our foundation for long-term growth by delivering new products and customer experiences while swiftly working through the temporary challenges to get us back on track. I want to touch on the action items we implemented in the third quarter and the strong progress we've made on the core issues identified. Together, these updates demonstrate that we are rebuilding momentum to solidify our growth as we head into 2025. Beginning with our U.S. Salesforce expansion, we are pleased to report progress and positive momentum as we move to apply learnings from the initial rollout and improve our commercial execution. As we anticipated, our productivity metrics improved over the course of the third quarter as we implemented several changes to strengthen our sales effectiveness. Importantly, new customer starts returned to record levels in the third quarter as we gained greater traction in new and existing physician offices. We are now encouraged to report that since the expansion of the sales force in April, we have seen our prescriber base expand by nearly 35,000 clinicians. While the impact of these new relationships is not fully reflected in our third quarter results, they represent a meaningful expansion in a few short months and set us up very well as we work to build on this momentum in Q4 and into 2025. Regarding our DME partnerships, we have worked quickly to refocus on those partnerships and ensure that our teams are aligned to the strategic importance of all channels in the U.S. Our leadership connected with our counterparts at the DME distributors in the last quarter to listen and collaborate on strategies that are mutually beneficial. Through this process, we found opportunities to better partner with these teams in the field as we collectively simplify workflows and provide a greater customer experience for all. While we still have work to do, we're in a far better position today than we were three months ago. These partnerships are a core part of our strategy, and we are confident in our ability to drive meaningful growth that accrues to both us and these channel partners. We've also executed at a high level within our international markets. We saw third quarter revenue growth accelerate from the second quarter levels in nearly all of our direct markets, driven by stronger new patient performance and the expanded availability of our G7 and Dexcom 1 Plus product platforms. This included the launch of G7 in Australia at the end of September, bringing our latest G-Series technology to our customers who have been eagerly awaiting its arrival. And we continued the expansion of our Dexcom One Plus system, which leverages our G7 hardware platform with a differentiated app experience. We've now introduced this technology in 19 countries, with France being the latest addition in the third quarter, in advance of the start of national reimbursement, including Basel coverage in early October. This provides reimbursed access to more than 600,000 people in this important market. We also saw Japan return to growth in the third quarter, with our new sales organization gaining momentum in this critical market. While it is not yet a large component of our international revenue, our team is making strong inroads with the clinical community and building awareness among the more than 1 million potential customers who have access to Dexcom CGM. In fact, we recently delivered our highest new customer start month since entering Japan in 2019, and we've lived on this progress in the coming quarters and years ahead. During the quarter, we were also thrilled to launch our newest product, Stello, in the U.S. market. Stella's launch represented a pivotal moment in the diabetes care and metabolic health landscape as now any adult in the U.S. can access a Dexcom biosensor. It also provides a glimpse into the future of the broader care paradigm as more personalized solutions can encourage better lifestyle management and enable clinicians to make more informed therapy decisions. We are already hearing this exact feedback from our earliest adopters. Many of these individuals are engaging with their glucose data for the first time and sharing stories of how Stello has changed their behavior and provided greater accountability in their lives. They're also sharing positive feedback on all stages of the product experience. Everything from ordering through our e-commerce platform, the speed of delivery by Amazon Fulfillment, engagement with the software interface, and a seamless reordering process through our subscription model. And in Dexcom tradition, we are listening to customers and are already working to innovate the Stello experience and meet the distinct needs of people with prediabetes or type 2 diabetes who are not on insulin. Even with the product being targeted to those populations, we've seen plenty of inbound interest for people looking to take advantage of the OTC opportunity early in their metabolic health journey. Across these cohorts, currently around half of our customers have signed up for a Celo subscription, which is encouraging to see this early in a product launch. We have historically found that greater CGM usage can lead to improved health outcomes, and we'll be tracking this closely as the market further develops. In October, we also began our initial expansion of distribution options for Celo. To start, we've broadened our sales presence and increased our partnerships by providing several of our core DME partners access to Stello on their platforms. This gives them yet another great product to engage and more fully broadly serve the diabetes community. We've also initiated our first B2B sales of Stello. This includes direct sales to certain clinicians as one of the first requests that we heard at the outset of Stello's launch was the desire from clinicians to have Stello available for sale within their practices. We've been very encouraged by Stella's launch thus far, and this is only the beginning. Stella will continue to adapt and evolve as we incorporate functionality that personalizes the experience for our customers. Finally, our team is always working to enhance customer experience across our platforms, and we recently took another exciting step forward on this journey. Following the completion of the necessary clinical work, we submitted our Dexcom G7 15-day CGM system to the FDA for review. This has been a top priority across the organization, and we're looking forward to bringing this product to market as soon as possible. We will have more to discuss around this product and its commercial rollout in the months ahead. In summary, the team has worked tirelessly to respond to the dynamics that emerged earlier this year. We're moving quickly and putting in place the pieces to help us return to the growth levels we expect from ourselves. And just as important, even as we work through these near-term dynamics, we continue to manage this business for the long term. With that, I'll turn it over to Jeremy.

Thank you, Kevin. As a reminder, unless otherwise noted, the financial measures presented today will be discussed on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release, as well as the slide deck on our IR website. For the third quarter of 2024, we reported worldwide revenue of $994 million, compared to $975 million for the third quarter of 2023, representing growth of 2% on a reported basis and 3% on an organic basis. As a reminder, our definition of organic revenue excludes the impact of foreign exchange in addition to non-CGM revenue acquired or divested in the trailing 12 months. U.S. revenue totaled $702 million for the third quarter compared to $714 million in the third quarter of 2023, representing a decline of 2%. This reflected the compounding effect of slower new customer starts from Q2, along with the decline in our revenue per customer due to shifting channel dynamics and higher rebate eligibility compared to a year ago. This eligibility component alone created a year-over-year negative impact for approximately six points of growth in the U.S. With rebate eligibility now near 100%, we expect this impact peaked in Q3 and will moderate over the next couple of quarters. In the DME channel, we experienced some incremental share loss during the quarter as we had contemplated in our previous guidance. However, we were encouraged to see these trends stabilize late in the quarter as our team worked quickly to better align with these partners in the field. As Kevin mentioned, the DME channel is a core part of our strategy, and we are working collaboratively with our distributors to unlock meaningful growth. International revenue grew 12%, totaling $292 million in the third quarter. International organic revenue growth was 16% for the third quarter. We saw an acceleration in many of our core international markets in Q3 as we expanded availability of G7 and Dexcom 1 Plus across our footprint. With our leading product portfolio and the growing evidence of health outcomes driven by Dexcom CGM, we continue to see significant opportunity to expand reimbursed access to our CGM systems in international markets, particularly in the type 2 intensive and type 2 basal categories. Our third quarter gross profit was 625.9 million, or 63% of revenue compared to 64.7 of revenue in the third quarter of 2023. During the quarter, we incurred a $24.6 million non-cash charge on inventory related to some build configurations that we determined were not appropriate for commercial launch. We excluded this from our non-GAAP results for the quarter. We've made significant progress in transitioning our installed base to the G7 form factor with new pump integrations and the continued rollout of Dexcom 1+. This has enabled us to further scale our high-volume manufacturing facilities, which positions us well as we work towards our long-term cost target. Additionally, Kevin noted that we recently filed our 15-day G7 sensor with the FDA for review. This potential clearance would provide us yet another compelling cost lever into 2025 and beyond. Operating expenses were $413.9 million for Q3 2024 compared to $391.5 million in Q3 2023. Operating income was $212 million or 21.3% of revenue in the third quarter of 2024. compared to 238.9 or 24.5 percent of revenue in the same quarter of 2023. Adjusted EBITDA was 300.1 million or 30.2 percent of revenue for the third quarter compared to 314.5 million or 32.3 percent of revenue for the third quarter of 2023. Net income for the third quarter was 179.9 million or 45 cents per share. We remain in a great financial position. closing the quarter with approximately $2.5 billion of cash and cash equivalents. This cash position, along with our growing free cash flow profile, provides us a lot of financial flexibility. We took advantage of this during the third quarter as we quickly executed our previously announced $750 million share repurchase program during the quarter. Turning to guidance. We are maintaining our 2024 guidance in the range of $4.00 to $4.05 billion. representing organic growth of 11 to 13% for the year. With the third quarter playing out as expected, our guidance reflects a continued ramp in our U.S. Salesforce productivity while we continue to work through some of the channel and rebate dynamics discussed above. Through this ongoing execution, inclusive of record new patients starts in the third quarter and our continued rollout of Stello, we are building momentum as we enter 2025. For margins, we are reaffirming our 2024 guidance of non-GAAP gross profit margin of approximately 63%, non-GAAP operating margin of approximately 20%, and adjusted EBITDA margin of approximately 29%. With a full quarter now under our belt since resetting our 2024 guidance, we remain on track to achieve the $4.6 billion revenue and corresponding margin targets embedded in our 2025 long-range plan. With that, we can open up the call for Q&A. Sean?

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

Thank you. And we will now begin the question and answer session. If you have a question, please press star 1 on your touchtone phone. If you wish to be removed from the queue, press star 1 a second time. Pardon me. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, to ask a question, please press star 1 on your touchtone phone. And your first question comes from the line of Danielle Antolfi with UBS. Your line is open.

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

Thanks, Danielle. As Kevin, I'll take that one. We knew that this quarter was going to be a tad rocky. That's why we guided where we did and we overachieved on, came in at the top end of that range. So we feel good about that. As we exited the quarter, there's a lot of good things that we saw. You know, first of all, the growth and development of the sales organization really took a turn up over the course of this quarter as people got more familiar with their territories, their relationships with their physicians, and all those other factors required when you make the changes like we made. You see that in the new patient ads being at record level, and that really was happening over the course of the last part of this quarter. So it was very strong in the latter half of August and in September. On top of that, we talk about the 35,000 new prescribers that have been added through the course of this quarter. And when you add a new one, it's not 10 new users at the same time. It's certainly one. And we now have the prescriber base sized out to where we hoped it would be when we did this field expansion to whereby we can begin to go deeper. And we believe that's going to be very helpful. On the DME side, we talked about things stabilizing. Things did stabilize. We had estimated, and Jeremy said earlier in his remarks, that we continued to lose a bit of share the first two months of the quarter. We saw things start to stabilize in September. That was a positive note. The other thing that's very positive for us going forward for the sales team is the stello message. Because as they're calling on more primary care physicians and those who see people with type 2 diabetes or prediabetes who are on insulin, that stello message rings loud and clear and offers these physicians a great opportunity to enhance the care model for their patients. It also enables those physicians to see if, in fact, it's a more severe patient that they have access to the G series. At the end of that, with this momentum, we feel real good about the implied sequential growth into the fourth quarter in the U.S. because it's higher than what we've had in the past. And that's even without a stellar contribution. So we feel very good going forward, Danielle, into the rest of this year and rolling into 25 based on what we saw as the quarter finished.

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

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

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

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

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

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

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

Thank you. Good afternoon, guys. Maybe two-parter, if I could. First question, just as you talk about the record new starts in the U.S., is that with or without Stella? I'd just appreciate understanding that. And then as kind of a tie-in to that, you know, with the volatility of the last quarter or two, I'm sure my patient model is off a little bit, but when I look at at least what my model spits out, it says that your patient volumes in the U.S., your installed base, I'm sorry, in the U.S. is probably up somewhere around 27, 28% year over year this quarter. You did the negative 2% U.S. revenue growth. So I guess I'm, is there any way to help us bucket kind of that 25 to 30 point spread between what I think your installed base grew in the U.S. and what your revenue grew? I know you talked about the six points of headwind from Is there anything else to help us kind of bridge that 25 to 30 point gap? Thanks.

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

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

Oh, great. Thanks for taking the questions. I guess question. Wanted to ask in the DME channel, it sounded like you've stabilized your position there. I was just hoping you could give us a more detailed look as to what exactly you're doing there. Is price a factor? How are you changing the relationships? And Is it unreasonable to think that you could get back to where you were, you know, two, three, four years ago with your standing with DMEs, or should we think about just gradual improvements? Thanks a lot.

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

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

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

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

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

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

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

Yeah, you know, it's a good, it's a fair question. We've always, and first off, you know, really appreciate your note on Stello earlier. I thought it was, it was I'm glad you're wearing it and really appreciate you going through and doing the comparison there. In terms of, in terms of how we're thinking about partners, you know, we, we always have thought about partners and whether those partners are DME providers or bulk purchases, Or other forms and other different distribution channel that you can imagine we're looking at they've all been part of the long term contemplation. In terms of how we then think about that and how that runs through the financials remember. On stello.com you know we obviously bear a lot of the commercial work, the shipping work all the work takes place associated with that when you go through partners. Some of that OPEX goes and some of those shipping costs ultimately accrue to the partner as part of the fulfillment and part of their work going on. So when you think about it, we will be pricing. Obviously, they have to get a margin on it. And so we will be pricing it accordingly. At the same time, the cost to us is incredibly low. And we ship in bulk and we go from there. It's not too dissimilar from the economies of scale that we saw going through the pharmacy channels. where we knew that it's a very efficient model. So I think you can expect to see that over time. You'd expect to see it as we look at other channels, even beyond those, which we're working on as we speak. So it's always part of the plan, but stello.com will always also be part of the plan. And so I think you can imagine we'll have a few different opportunities, all of which accrue, I think, down to the bottom line, bottom line operating margin in a very similar manner.

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

Uh, good afternoon, everybody. Can you hear me? Okay. Yep. Okay. Um, I'm, I'm curious just how you're thinking about competition in your type one sort of pump integrated segment, um, particularly next year when there's going to be more competition and what I appreciate, you probably don't want to be too explicit, but how are you going to defend your position there?

considering doing head-to-head studies and really just trying to understand what the messaging is going to be to physicians and patients when there's another sensor option out there probably sometime next year thanks well i'll start every study in these aid systems been done with the dexcom sensor so there aren't any head-to-head studies they've all been run with dexcom at least with our pump partners and that's the data they publish for their time and range look we serve you know several hundred thousand aid system users right now and the results of those aid systems with our partners have been incredibly good we work very closely with them on a regular basis to talk about the new features we're about to bring on board we update our hardware and our app experience our interfaces with them on a regular basis to enrich the experiences of their customers and we believe we do that better than anybody else Over time, our reputation in this market and one of the places we've been always strong is in this type one market because that has been where we have had the largest market share advantage for a very long time. And we intend to maintain that through the higher quality of our product. And at the end of the day, it matters. The accuracy of Dexcom is tried and true and proven to these patients. I've been to several, it's kind of diabetes fundraiser season. I've been to a few fundraiser things that I've seen numerous, uh, Omnipod and Tandem users who are now using G7, certainly the Tandem ones and the Omnipods who are starting to switch, their belief in Dexcom and our sensors is incredibly heartwarming, and it's very important to see. That is a great customer base for us, and we'll continue to serve it the same way we always have.

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

Hey, thanks for taking the question. I wanted to ask on the 2025 how you're thinking about the U.S. recovery in that 25. I don't know if the U.S. is back to double digits. I don't know if there's any first half, second half comments you'd like to throw in, and any rebate eligibility in 2025. And I don't know if it includes STLO or not. Just curious if, I don't know if you reiterated the STLO guide for 24. I just lost some color on that.

Yeah. Sure. Yeah, I'll give you some of the commentary. It assumes a stable market moving into 2025, so stable adoption, stable penetration trends moving from 24 to 25. It also assumes stable, not necessarily winning share back, but stable trends through the DME share, and then certainly us continuing to do well on the retail channel, which we've seen over the past quarter and we expect to see for the rest of the year. It does include stello, and we've considered a bunch of different ranges and opportunities You can probably imagine, given we're only a couple months into launch, there's multiple different opportunities and ranges. Kevin alluded to two different channels we're launching right now across both DME and bulk, and you can imagine there's a few more channels we'll be launching here over the coming months, which we're all really excited about and going into a holiday season. This will be a first-ever U.S. OTC holiday season with Estello out there. So there's a lot of things we're going to learn over the course of the coming weeks before we give it. We've taken in contemplation all of those ranges stability in terms of what those numbers are and felt good about the $4.6 billion number. And so it includes all of that. And so hopefully that answers the question. Of course, we'll give you some more clarity by quarter as we get into the end of the year, but you can probably imagine just given comps, You know, you can do the math on what a comps would look like. And we obviously have a little bit more challenging comps in the first half, a little bit easier comps in the back half, certainly, as we're talking about Q3. But nothing funky there, just naturally lapping comps. The rebate question, you're 100% correct. 100% rebates is assumed, and so you won't necessarily have that headwind.

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

Good evening. Thanks for taking the questions. Guess I want to follow up on the rebate issue. I think I heard, maybe I missed it, but I think I heard it was six points of impact to growth in Q3. What's being assumed in the Q4 guide for points of impact from the rebate issue?

Yeah, it's less than that. And so I think that number was going up as we moved into Q4 of last year. We don't have an exact number to give in that guide. Obviously, we generally don't guide the specific items like that, but it won't be six points. It obviously peaked into Q3. It's going to be less than Q4. And so I think you can safely assume that, again, having given a specific number yet, but again, if the models are, you'd expect that the ASPs would be pretty consistent moving in from Q3 to Q4 because we do have them at 100% rebate rate.

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

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

Yeah, sure. And, you know, look, I think, and appreciate the comments. Certainly, you know, Stello, and we've always assumed that in our modeling is you're not necessarily going to have the same retention utilization in Stello. But Stello is a brand new category for us. So you got to remember the comps relative to next year to this year are certainly different. You know, as you step back and you think about a record new patient quarter this quarter, and obviously as our sales force continues to get more and more productive, you're going to expect to add more patients next year. So when you think about it in terms of just net absolute dollars, you know, when you say, well, gee, there's new patients added, record new patients in our core insulin business, as that rolls forward and more access opens up, you're going to have more opportunity there. And so I would expect that as we moved into 2025. On top of that, you're going to have a new product launch in Stello in the U.S., that can also contribute as well. So when you think about both of those, you're not wrong in the sense that stello utilization and retention should be lower, but it's going to be against the backdrop of really no revenue in the first half of the year and only partial revenue here in the third quarter of the year. So hopefully that gives you some context towards it.

um in terms of growth of of the overall business and that's why we as we've gone through it we felt um good about reiterating that lrp well i guess the other thing i'd add jeremy was we have a 15-day product to launch in 2025 as well which we believe will a great will be a great revenue enhancer for us and your next question comes from the line of bill planich with canaccord genuity your line is open

Great. Thanks. Good evening. Thanks for taking my question. Just on Stello, I think the original guide was 40 million this year. Just commentary on that. And then are you seeing with initial usage, can I think of this as a potential as a kind of a gateway product for you? Have you seen any Stello be diagnosed prediabetes or type 2 and transfer into the G7 product? And if so, kind of what are your kind of expectations for that as well? Thanks.

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

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

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

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

And our next question comes from Joshua Jennings with TD Cowan. Your line is open.

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

You know, this, Kevin, I'll take that. Jeremy, you can add to my comments when I'm done. We've seen such a major shift of our volumes to that pharmacy channel, particularly on the commercial side where many of these pumpers reside, that the DME commercial channel is not near as large a segment for us as it used to be. The majority of our DME business certainly is in Medicare and in the government channel. And so as others seek reimbursement and others seek distribution in the pharmacy channel, we're well-positioned. to serve that. If we can get, again, as long as we're channel agnostic and our users can get their product where they want to and get it in a manner that's efficacious for them and have a great experience, we will remain channel neutral on that front.

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

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

Great. Thank you so much. So, you know, just given the leadership transition, In the US, can you talk about your confidence in the commercial strategy, you know, getting into 2025? And then more specifically on Stellar, you know, what's your plan for accelerating this launch in 2025? And then on the G15, G7 15-day sensor, you know, how are you preparing ahead of the launch, you know, including with respect to supply? Thank you for taking the question.

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

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

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

Yeah, so I'll start with the second one. We expect the durability to 15 day to be solid. When I say solid, you know, obviously any additional days you wear a sensor, you always run into more risk and chance. But we got it to a point where we believe the survivability is going to be very well received by the community. And so that's the work, that's the expectation as it launches. In terms of the product itself, the standard cost really doesn't change at all. Certainly we'll be mindful of some of the changes we're making across the board in terms of just, you know, adhesives and things that you're already seeing starting to play through our product. But the standard cost doesn't change, you know, to the extent that we add a little bit there for warranty here and there, just because what can go wrong over five more days, whether it knocks off an arm or you sweat it out. We'll always be mindful of those types of things, but the standard cost shouldn't change too much. So there's real opportunity here for

And your next question comes from Mike Kratke with Learink Partners. Your line is open.

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

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

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

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

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

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

Brilliant. Thank you for taking the question. Just curious for the record new starts and just what you've seen in the business overall, if you could give any qualitative commentary between what you've seen within type one versus type two. I know Stella mixes that up a little bit, but just the kind of the sources of growth and how those markets split and the health of them.

Thanks.

Sure, yeah, we can answer that. And, you know, what the record new patients starts exclude stello. So I think it's helpful to know that when Kevin alluded to 70,000 folks using stello, that's not in the numbers we're quoting around record new patients. And I think what, so I think what you're seeing now is you're continuing to see a pretty robust adoption really in all categories. Your intensive insulin continues to lead the way across T1 and T2 intensive insulin. And we expected that coming into the year, but basal continues to also be relatively strong. And what you're seeing more and more of is as we deeper dive into these physicians where, you know, a lot of basal patients are seen, that's where a lot of our work was taking place over the course of the third quarter in terms of getting back to productivity, and you're starting to see more and more of that. So it's really broad-based across the insulin-using population. You are seeing a lot of nice uptake in the non-insulin and health and wellness population in Stella, but that's not included in our record new patient number.

And your next question comes from Issy Kirby with Redburn Atlantic. Your line is open.

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

Yeah, this is Kevin. I'll start with that. With respect, I said earlier, 50%, at least 50% of our individuals signed up on the subscription model, and reordering has just begun. We're happy with the reordering rates right now, so that's going very well, but it's early. We have more to learn there. With respect to retention and with respect to reliability and customer interface, This has been great for us. We have a completely different service model with Stella with what we call Stella Bot Online. And we've learned a lot through that. We've learned that there's some things we can do better. We've learned that there are some things that work very well. We're trying to develop a much more efficient, easy service model for these customers, just given the nature of this business and things we can learn and apply to our core business later on. As we hear from these users, we are learning also that a consumer market has different expectations for a glucose sensor than somebody who has intensive insulin therapy. Somebody on intensive insulin therapy knows that physiology comes into effect from time to time, and the sensor may turn off at seven days. Just say this doesn't work anymore. But they depend on that sensor for their life. So they go, okay, this turned off at seven days. I can deal with that. Well, when you're a consumer and you buy a Stella and it turns off at seven days, hey, I just paid for this. Why is this turning off at seven days? So we are learning how to deal with that patient and that individual, that customer to create the proper experience. That's why I said earlier, the most important thing of the Stella launch is that we learn, that we learn a model that will delight our customers when they use this product. And if they choose to use this product three or four times a year, then let's make sure we create an experience that is delightful three or four times a year. If we do a good job, hopefully we can keep on the product all the time and have continuous use. It's still early to tell how usage and retention and all that's going to be because we're just, you know, a couple of months into the launch now. But we're seeing reorders. We're seeing people sign back up on subscription to get more at a rate that it's very, very good with respect to our expectations.

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

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

Yeah, so I think in terms of the LRP, as you're thinking about the splits, the splits are roughly that. I mean, you know, there's a lot that goes on in terms of what those numbers are, including now the new Stella product. And, you know, so we'll, we'll, you know, what I would say is as you're thinking about, um, growth rates, I'd expect the international business to continue to grow, um, you know, based on the trajectory you're seeing today and the additional wins to continue to do well, and obviously the U S to do well, as well as we stabilize, uh, our, our core markets and obviously Stella jumps in. So it's in the general seven to 30 ballpark. I wouldn't draw necessarily 0.0 lines and, get overly stuck up on that. But in general, that's the splits we expect. In terms of how you're thinking about STLO, it's lasting, how long it lasts, what we are seeing is quite a few sensors, most sensors lasting the 15 days. We're seeing the performance in the field mirror that of which we've seen, obviously, in our submissions. It's interesting, as more and more people learn how to use the product and it becomes more and more familiar, you see those numbers go up. So you might have seen in the first couple of days folks unsure of how to use the product, maybe apply it inappropriately, apply it to the wrong place. And we ultimately had to make sure we navigated through some of that education. But we're looking at sensor life and we're seeing sensor life lasting out to those 15 days. seeing so at a pretty common clip. So we're very excited about that. Obviously with the G7 15 day, we got to a survival rate we felt good with. And so you could imagine as we're submitting that it's a number that we feel good with, just like we feel good with the Stella number. We'll wait to give more data on that as that data becomes available through our submission and hopefully approval here in the near future, you guys will see it. But we are comfortable with what we had in terms of survivability in that submission.

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

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

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