虽然我也不懂医疗器械，但这么大个公司盘后跌了这么多还是必须勾引了我的注意力，让我康康到底发生了什么，有没有GLP-1的锅？

更多会议纪要可以上知识星球下载：

Transcript : DexCom, Inc., Q2 2024 Earnings Call, Jul 25, 2024

July 25, 2024 at 04:30 pm EDT

Presentation Operator Message
Operator (Operator)

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. [Operator Instructions] As a reminder, the conference is being recorded. I will now turn the call over to Sean Christensen. You may begin.

Presenter Speech

Sean Christensen (Executives)

Thank you, Abby, and welcome to DexCom's Second Quarter 2024 Earnings Call. Our agenda begins with Kevin Sayer, DexCom's Chairman, President and CEO, who will summarize our recent highlights and ongoing strategic initiatives, followed by a financial review and outlook from Jereme Sylvain, our Chief Financial Officer. Following our prepared remarks, we will open the call up for your questions. At that time, we ask analysts to limit themselves to 1 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 & 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 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.

Presenter Speech
Kevin Sayer (Executives)

Thank you, Sean, and thank you, everyone, for joining us. Before we begin discussing Q2 results, let me state that overall category demand remained 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 4 hours per day for nearly 4,000 customers using DexCom CGM at 1 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 3 near-term trends emerge over the course of the second quarter that drove results below our expectations. First, as we've worked through our U.S. sales force 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 2 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 Jereme 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 U.K. 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 and incredible future pipeline and an unparalleled market opportunity. We also have a great team capable of leading this market, but I expect more for 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 One+ system now reaching 18 international markets with our smaller G7 form factor for our DexCom [ wind ] users. We've built on 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's 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 Stelo. 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 Stelo 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. Stelo will be a full launch on stelo.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. sales force 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 Stelo OTC platform. As we take significant steps to broaden our addressable market well into the future with Stelo 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 noninsulin 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 Jereme.

Presenter Speech
Jereme Sylvain (Executives)

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 the slide deck on our IR website. For the second quarter of 2024, we reported worldwide revenue of $1.004 billion compared to $871.3 million in the second quarter of 2023, representing growth of 15% on a reported basis and 16% 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 $732 million for the second quarter compared to $617 million in the second quarter of 2023, representing growth of 19%. As Kevin mentioned, we experienced lower-than-expected new customer starts in conjunction with our sales force expansion and realignment, particularly in the DME channel, as well as the near-term impact from pharmacy eligibility changes, which lowered our revenue per customer relative to our expectation. Together, these dynamics adversely impacted our revenue this quarter by approximately $40 million as compared to our internal estimate. Based on the compounding effect of these lower second quarter new customer starts, we also expect our growth rate in the back half of the year to be impacted. To offset this, our team is working aggressively to improve our execution and deliver the higher market share levels that we believe our product deserves.

International revenue grew 7%, totaling $272 million in the second quarter. International organic revenue growth was 10% for the second quarter. While we anticipated our international growth to slow this quarter as we lapped our very strong performance from Q2 2023, our results came in lighter than expected. Our miss on new customers impacted us by approximately $10 million on the quarter. Our international performance can often ebb and flow based on coverage decision and distributor purchases. But as Kevin mentioned, there remains a long runway ahead for DexCom CGM globally. We continue to invest in infrastructure to expand our geographical presence, provide compelling evidence to expand market access in new segments of key markets and leverage our product portfolio to meet the unique needs of various customers and health systems.

Our second quarter gross profit was $638.1 million or 63.5% of revenue, which was in line with the 63.5% of revenue we delivered in the second quarter of 2023. We continue to see further migration of our customer base from G6 to G7 in the second quarter as we finalize new pump integrations and transition DexCom 1 to the G7 form factor. Between this ongoing customer transition and continued ramp-up of our high-volume manufacturing facilities in Mesa and Malaysia, we are making steady progress towards our long-term cost targets.

Operating expenses were $442.7 million for Q2 of 2024 compared to $395.1 million in Q2 of 2023. Operating income was $195.4 million or 19.5% of revenue in the second quarter of 2024 compared to $158.4 million or 18.2% of revenue in the same quarter of 2023. Adjusted EBITDA was $283.9 million or 28.3% of revenue for the second quarter compared to $232.6 million or 26.7% of revenue for the second quarter of 2023. Net income for the second quarter was $174.3 million or $0.43 per share. We remain in a great financial position, closing the quarter with greater than $3.1 billion of cash and cash equivalents. And based on our strong cash position, consistent free cash flow generation and ongoing growth opportunities, we are announcing an authorization for a share repurchase program of up to $750 million.

Turning to guidance. Starting with full year 2024, we are decreasing our revenue guidance to a range of $4.00 billion to $4.05 billion, representing organic growth of 11% to 13% for the year. As mentioned earlier, the compounding effect of our slower-than-expected new customer growth in the U.S. DME channel and international business as well as increased pharmacy eligibility resulted in the need to recalibrate the guide. Our updated guidance reflects these dynamics and assumes a longer ramp in productivity in our U.S. sales force. For margins, we are reducing our non-GAAP gross profit margin guidance to approximately 63%, while maintaining our prior guidance on non-GAAP operating margin and adjusted EBITDA at approximately 20% and 29%, respectively.

In addition to our annual guidance, we are providing 2 additional data points to help investors and analysts understand some of the unique elements impacting our revised guidance in 2024. First, the impact to new patients from our sales force initiative combined with our revenue per customer trends that Kevin detailed will change the historical seasonality pattern that we have typically experienced. These impacts are expected to reach their peak in the third quarter, with total revenue expected to be between $975 million and $1 billion. In conjunction with this revenue outlook, we thought it would be helpful to provide a midyear update on our global active customer base, which we now estimate to be between 2.5 million and 2.6 million. This represents strong growth over where we finished 2023, though the growth percentage has decelerated slightly. Our hope is these updates will provide additional visibility as our team works to implement several of the areas of focus that we have aligned on over the past month and as our sales force continues to ramp their efficiency. With that, we can open up the call for Q&A. Sean?

Presenter Speech
Sean Christensen (Executives)

Thank you, Jereme. As a reminder, we ask our audience to limit themselves to own 1 question at this time and then reenter the queue if necessary. Abby, please provide the Q&A instructions.

Question and Answer Operator Message
Operator (Operator)

[Operator Instructions] Robbie Marcus with JPMorgan is on the line with a question.

Question
Robert Marcus (Analysts)

I have a lot more than one, but I'll keep it to one. Guidance moving down about $400 million, so I appreciate a few million here or there. But I mean this is such a step change in the business and the outlook and the trends. Medtech companies split sales forces all the time and grow them. You've done it multiple times. I'm just kind of in shock at how big of a disruption and a downward guide it is on a sales force expansion. I feel like there has to be more going on. Maybe you could give us more color into -- are basal patients using it less? Are you seeing GLP-1 fears pop up and type 2 patients not starting on therapy as much? Are you seeing Abbott and Medtronic take a lot more share? I feel like there's just a -- we need more explanation for the third and fourth quarter guidance cut behind it.

Answer
Kevin Sayer (Executives)

Thanks, Robbie. I appreciate the question and understand your position. Let me start with -- let's go back to the numbers and the things we talked about in our script. We're short a large number of new patients as to where we thought we would be at this point in time. And Jereme can provide you with the numbers as to what the new patient miss constitutes. There is a combination of things as far as the new patient shortage. Obviously, disruption on the sales force expansion side. This was a different expansion for us than other ones. In other ones we've done, we literally took territories and just divided them geographically. And this time, we changed roles, we changed physicians people called on. It was a much more disruptive expansion that we've had in the past, and that did lead to a lot of disruption, particularly at the beginning of the quarter. We saw things getting better towards the end.

With respect to the other factors, as far as market share, we said we've lost market share in the DME channel. While we've done well in the pharmacy channel, as you can all see by scripts and scripts are filled in the pharmacy on the DME side. We've lost share, and that has hurt us. And again, that is patients -- it's including new patients, but it's also -- as we're losing in that category, we're also losing the customers who have the highest annual revenue per year as a patient. So you're losing those. And then some of those patients, even though we've lost share in the DME channel, have shipped to the pharmacy. But that is a lower revenue per year number.

The last piece of this is remade eligibility. And again, we expected G7 to have rebate eligibility over schedule that was literally twice as fast as G6. It's been 3x faster. G7 got the full rebate very quickly, quicker than we had planned. So all those things added together, while they had somewhat an effect on Q2, they have a longer range effect on the rest of the year. And so we added all those things together, and that's how we came up with our guide. I'll let Jereme come up with more. You want to add to that?

Answer
Jereme Sylvain (Executives)

Yes. So to give some context on the numbers. You're right, Robbie. At the top end of the guidance, it's about a $300 million decline. In Kevin's prepared remarks, we talked about $50 million really impacting the second quarter. Those end up playing out to be a little bit larger as you expand those over the course of the year. So to give you some context, the new patient miss in Q2, which we expect it to drag out into Q3 as we kind of navigate through those changes, both in the U.S. and outside the U.S. we have some new patient miss is $125 million on the year of that impact.

The channel mix and really the loss of share in DME, that's a big 1 for us, and that's about $100 million over the course of the year, certainly impacted Q2. But we expect it to impact the rest of the year as well as those essentially work in the full quarters. And then the rebate eligibility happened again quicker than we would have expected. Again, eventually, you get there, it happened quicker than we expected. That's about $75 million. So you add those up, that's about the $300 million that you see. Certainly not something we're happy about. But in full transparency, we needed to make sure what we saw as we closed out the second quarter, we're transparent about what the impact is for the balance of the year.

Question and Answer Operator Message
Operator (Operator)

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

Question
Larry Biegelsen (Analysts)

That was a super helpful review of the issues. Maybe, Kevin, if you could go through kind of what you're doing to address each of those issues, when you think they'll be resolved? It's not clear to me, for example, losing share in the DME channel, why that's happening? And -- and how you reverse that? Just lastly, you have an LRP out there for '25. Is that still valid?

Answer
Kevin Sayer (Executives)

Yes. Let me start with the LRP for '25. Yes, we believe our LRP for '25 [indiscernible], but our revenue will probably come in closer to lower end of the range rather than the upper end of the range as we sit here today. But we've achieved incredible progress on the P&L side, operating margin and EBITDA side or gross profit side on that LRP. So from a P&L perspective, we're definitely hitting all our goals on the LRP side.

As far as fixing all these things and what fixes we have in place, obviously, it's going to be a bit of a process. On the rebate eligibility front, we believe that cap out in Q3, and we plan for this to cap out in Q4. It just happened a couple of quarters earlier than we planned. So that is very much a temporary thing and accelerated. With respect to DME market share, 1 of the factors that has actually happened that created part of this is several of the Medicare Advantage programs went to pharmacy reimbursement. So patients who were being served by the DME channel shifted to the pharmacy, and that is a piece of our lost DME share. I can't quantify exactly how much, but that's some of it.

Adding to that, we need to refocus on those relationships. We need to do better. And we will talk with them. We have some plans and some things in place to start off there. But it's early, we have to implement them. And again, DME data is really the last piece of the puzzle as far as our revenues. And as far as where we get by the end of the year, just given the data sources that we all look at, it's not as simple as the -- the scripts on the pharmacy side. So we're addressing that. We will put more emphasis in time there. We'll send more customers through that channel and do better by those guys. So we'll keep looking on the international front, another piece to remember, we've got a few things going on there. Timing of some of the tenders affects the numbers. There are some tenders that kick in July 1 that will help on the international growth. And that will be helpful there.

We're also looking for type 2 expansion, as I said on the call. We just got basal coverage in France as kicking in. We know some of the other countries are moving towards basal coverage very quickly, and we can play there with our Dexcom ONE+ product. Dexcom ONE+ is still early in the game, and we're seeing that begin to pick up. So there are a number of levers to pull and a number of things we're working on, Larry. I can't quantify each 1 of them, but suffice to say, we're not just sitting here. Jereme, you want to add to that?

Answer
Jereme Sylvain (Executives)

Yes. And then maybe below the hood a little bit in terms of how we allocate the investment dollars, Larry, we are reprioritizing and reallocating investments to where we know that it ultimately drives the most banks. So the team is working on that diligently in terms of refocusing where those dollars and those efforts go. So not giving the specifics, just giving the competitive nature of it. But rest assured, there are changes being made underlying the business to ensure that we get back on top of our new patients.

Question and Answer Operator Message
Operator (Operator)

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

Question
Jeffrey Johnson (Analysts)

Kevin, maybe following up on your DME comments. You say you need to maybe work on some relationships there. Any color you can give there? And -- and not to air dirty laundry, but I guess in 1 of our DME checks here recently, we kind of won off the conversation, but it heard that maybe some of the comments you made about CMS changes and who would bear the brunt of the -- any kind of reimbursement change in 2026 or 2027 would maybe be borne more by DME than you guys? Is it things like that that kind of strain some relationships? What else might have strained relationships? And have there been any kind of formulary changes or anything in DME where they have just wholeheartedly moved patients to Abbott, and it's going to be harder for you to get those patients back going forward?

Answer
Kevin Sayer (Executives)

I don't think it's been anything formulary or systematic along those lines. I think I need to take -- I'll let Jereme take some more details, but let me move you guys back a little bit in time. When we started this journey down pharmacy coverage, we had as a company, 0 relationships in the pharmacy channel. We worked very hard to develop those relationships because as you can all see by our numbers and our largest competitors' numbers, that is where a large portion of the business has moved at this point in time. We put a tremendous amount of effort there because we've never been there before. We didn't have any infrastructure. We didn't have other products there. We didn't have relationships there. I think in creating and building those relationships, we ignored other relationships that were very important to us more than we should have. And so we need to balance that a little better and make sure that our customers get their product through a source that's easy, efficient and economical for them. We felt to a large extent, we were doing that, but we think we need to do more. Jereme, you want to take some more on?

Answer
Jereme Sylvain (Executives)

No, that's it. And Jeff, to your comment on if there's any CMS changes in terms of reimbursement down the road, we certainly did not say that. I think that was maybe a competitor that said that. What we had said was we're partners. And so if there's any changes in CMS reimbursement, as partners, we would look at it as partners. And that would be our expectation going forward. So that was not how we positioned it. But nevertheless, to the extent that those have caused frayed relationships, Kevin alluded to, we pay more attention to it irrespective.

Question and Answer Operator Message
Operator (Operator)

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

Question
Margaret Kaczor (Analysts)

I guess I just wanted to follow up and be clear on the dynamics on the guidance increase. The way you described it maybe wasn't super clear at least for me. Are you assuming and continuing to assume lower new patient adds for the rest of the year? Or was that a new patient miss in Q2 alone driving $125 million decrease for the year? And then continuing on that thread, are you seeing any change in some of those new patient add dynamics or rep productivity on a month-by-month basis that would maybe give you that confidence and recovery, if that is what you're assuming?

Answer
Jereme Sylvain (Executives)

Yes. Let me -- it's a good question. Let me start on that. So Margaret, the answer is we do expect to see disruption continue into the third quarter, and that's 1 of the reasons why you're seeing the impact. It's really a bit of a cumulative impact. Obviously, Q2 was a big impact. We've sized it in terms of patients. It was a pretty sizable disruption relative to expectation, it was around 70,000 patients. So it was a pretty big number. Obviously, that rolls through the rest of the year, but we do expect it to take a little bit of time to recover that. And so there will be -- we have lower new patient expectations into Q3. And then into Q4, our expectation is we start to get to back to where we were. But think about it as a quarter delay effectively as a result of some of this disruption on our longer-term plans.

And so when you run those numbers plus you run some expected numbers here in Q3 and disruption relative to expectation, that's ultimately how you get to the figures. In terms of improvement over the course of time, ultimately, you do expect to see that, and we've seen some of that over time. Now we always expected perhaps a little bit of disruption and some recovery. I would say the disruption is bigger than we would have anticipated and the recovery is there. But when the disruption is bigger than anticipated, even as you have some of that recovery, again, you're a quarter behind where you'd expect to be, and I expect that to play out as we come next to the year. So we revised that. We've included that in the guidance. High level, Kevin, don't know if you have anything to add?

Answer
Kevin Sayer (Executives)

No, I think that's good.

Question and Answer Operator Message
Operator (Operator)

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

Question
Travis Steed (Analysts)

I guess maybe could you just kind of explain what is the rebate eligibility, what it is, what it means, kind of why it's temporary? Why it happened? I think a lot of confusion on that aspect. And I don't know if something happened kind of late in the quarter, like you guys, I think we're comfortable with the consensus in June. So I just wanted to ask, is this all kind of come up late in the quarter?

Answer
Jereme Sylvain (Executives)

Yes, I can take that. So when you think about rebate eligibility, over time, you kind of get closer and closer to this 100% eligibility, and it takes a little bit of time. So plans as they opt into coverage opt-in. So we saw this take place over G6, to a lesser extent, G5, but we weren't really in the pharmacy then. But you saw it take place over the course of G6. And when we launched G7, we assumed it happened about as twice as fast as G6. So the assumption is, as more and more folks get access, therefore, more and more folks are moving through that program. Therefore, you're subject to more and more rebates. And then the offset, of course, is by having more access, you have more volumes.

As you can tell by our new patient numbers, we didn't have the volumes, but also the existing patient base was also subject to rebates. And so effectively it's timing of price as you run through this. It's temporal, meaning you can only rebate up to your entire population and eventually it gets there. But that's why it's a timing thing. And it just happened, like Kevin was alluding to, 3x as fast as G6, not 2x as fast as G6. So that's a big piece there.

In terms of the understanding of how the quarter was rolling up, you are correct. It did roll up later into the second quarter. You can see our results in the second quarter, while not up to expectations, did not impact the quarter as much as it impacted the full year. And obviously, that was driven by what you saw the dynamics that played through really the second quarter. Kevin was alluding to DME, where there's a big -- I'm sorry, not bigger -- a change in what I would say is the share and where we certainly missed. And that data comes in a little delayed. That's about a 4- to 6-week delay before we [indiscernible]. So as we've tallied that data as we're moving into really the close of the quarter and into the weeks leading into the call, not only did it make us aware of certainly the impact on the quarter, but it was really important for us then to reflect that in the guidance on the year. And so a lot of that data, you're right, it obviously took place over the course of the quarter. We became aware of it really as we closed out the quarter. But that's why it's really important to get it in front of it for the guidance for the full year.

Question and Answer Operator Message
Operator (Operator)

Your next question comes from the line of Matt Taylor with Jefferies.

Question
Matthew Taylor (Analysts)

Right. So I guess I wanted to ask if you could give us a little more color, at least qualitatively on when you expect these issues to begin to heal, to rebound. I don't know if you want to address them separately or together. You've given the back half guidance. But conceptually, what kind of impact is this going to have on the first half of 2025 when you're comping more normal periods? And when do you think you're going to see the sales force really find its footing, the rebates kind of flushed through? Maybe you could flesh that out a little bit more to help us model the future.

Answer
Kevin Sayer (Executives)

Yes, I'll start. And again, Jereme, you can add more color. With respect to the rebates, this really caps in Q3. We'd estimated our own models that we would have full rebate eligibility by the fourth quarter of this year. It just happened again a couple of quarters faster than we had planned. With respect to our field sales team and the disruption there, we believe we'll work through that in Q3 and early Q4. And by the time we start 2025, this group should be clicking on all cylinders and things should go very well there.

Another thing that Jereme talked about is reallocation and really examining where we're going to spend the dollars that we spend and the investments we're going to make to maximize the commercial effect of those. Those programs and those decisions are being made now will roll into Q3, into Q4. And we believe will set us up nicely for 2025. We're obviously not giving 2025 guidance today. But we feel by the end of the year, the things that we've talked about today, we should have worked through, and we should have a very good idea as to where we're going in the future.

Answer
Jereme Sylvain (Executives)

Yes. And Kevin alluded to it earlier, we talked about -- the question was how do you feel about the 2025 LRP and is it still valid. And again, we said, look, we feel it's still valid, albeit at the lower end of it, Matt. So I think that gives you some context. Obviously, this year is going to be impacted by these factors. As we work out of those and we work into them next year, Kevin alluded to it, rebates shouldn't be an impact next year. So as we work out of it and as we get to closer to the end of the year, we'll give 2025 guidance, but that hopefully gives you some context to our confidence as we move out of this year into next year and getting these things behind us.

It shouldn't go unnoticed, obviously, we're bullish on the business longer term, clearly not happy with the quarter and certainly not happy with the revised guide. So don't mistake it for that. But we do are bullish on the business longer term, hence, the $750 million share repurchase authorization. So hopefully, that helps square up how we're at least thinking about 2025.

Question and Answer Operator Message
Operator (Operator)

Your next question comes from the line of Danielle Antalffy of UBS.

Question
Danielle Antalffy (Analysts)

Just a question on the pharmacy component. And 1 of the sort of long-term risks here has always been that this becomes a more commoditized market. You look at fingersticks and blood glucose meters and they're commoditized at this point. And when we hear things like rebates and pressure in the pharmacy, I just want to make sure I understand. Is this a competitive dynamic in the pharmacy as well? What's going on there? And why is Q3 the peak? Where is the bottom, I guess, from a pharmacy rebate perspective as you do broaden coverage? Because if this is going to be standard of care, which I still think it is, like, does that mean -- at what price? And how should we be thinking about this over the long term? Sorry if that didn't make too much sense.

Answer
Kevin Sayer (Executives)

No. No, it made perfect sense to me. With respect to our overall pricing, our pricing within channels when you look at the prices remains relatively consistent. What has happened in this quarter and what has happened now is more and more people have become eligible for rebates, hence bringing our value per customer down. This was the price that we assumed we would be targeting at the end of the fourth quarter and we'd be rolling into '25 with. In other periods, we haven't had anything severe as we have today, obviously, but our new patient growth number would be so high and our volumes will be so high. If something like this happened, we grew through it. And so of the plan lengths accelerating our new patient numbers are so big, Danielle, that we managed through it. In this quarter, you combine the 2 of them. The increase in the rebates, which gets again to a net price very near what we had expected and modeled. That doesn't mean the bottom of the price is falling out on an overall basis in the channel. It just means more people were subject to rebates than we had before. And we shifted patients from a more profitable DME channel over to that pharmacy through some -- again, as I talked earlier, the 3 largest Medicare Advantage plans adopted pharmacy coverage this year. A lot of the Medicaid plans have gone to pharmacy coverage as well. So those plans moving there necessitated a bit of that move in a bit of those rebates going up.

So no, we don't believe we have a price falling out. We believe what we do continues to provide tremendous value to people and does a lot to improve -- help save their lives and all the things we've talked about forever. So this is still a very valuable component in somebody's health and we'll continue to treat it as such.

Question and Answer Operator Message
Operator (Operator)

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

Question
Joanne Wuensch (Analysts)

Want to pivot a little bit to Stelo. It was 1% of your '24 revenue at 1 level, and it's still 1% of your '24 revenue, which has been lowered by a couple of hundred million. Does this indicate your change in your expectations for the year? Or anything that we should read into it? I'm just sort of a little curious about that and -- anything else that you can share as how you think about that as building revenue?

Answer
Jereme Sylvain (Executives)

No. It's an integer. And so the whole point there is, yes, while the top has come down 1%, 43 versus 40, at the end of the day, it was all that kind of general contribution. So there was nothing insinuated by that, Joanne. It was -- it's just -- it's rounded to that integer.

Question and Answer Operator Message
Operator (Operator)

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

Question
Matthew O'Brien (Analysts)

All right. It is 1 question, but it's long enough, and I'll tie it all together, I promise. Just clearly, Kevin, your comment about next year as staying the LRP. Do you mean the 15% growth? Or do you mean $4.6 billion at the low end? Because if it's $4.6 billion up to [ 4.057 ], that's 12% growth. And then within their the low end of the range, 15% off of even a 12% number this year is the deceleration versus -- is it easier comps -- is a deceleration still factored in there? So what has changed to get us from the kind of 17.5% growth we expect from you guys, typical growth rate guidance to now that's more like 15% or even lower? What's the difference there that we can really anchor onto because that's, I think, the biggest challenge for the stock as we think about how it will trade tomorrow?

Answer
Jereme Sylvain (Executives)

Sure. Maybe I can start with maybe the next year question. I don't think we've necessarily guided to a number. What we really tried to do is say, here's our LRP, it's still in play. When I say to the lower end, it's not necessarily the low end or a point estimate within there. It's really to some context too. As we've already made plans and are looking at next year, we have some -- there's confidence in meeting that low-end number. And so really, that's really what the goal here is rather than to set a guide number.

Now your question then coming back to, which is this year's growth, which the organic growth number, obviously, 11% to 13% is lower than we've historically seen. Kevin alluded to it a little bit in the script. This year, a little bit of what I would say is execution, where I think we need to execute better on new patients and execute better in various channels. And so that's something as a team, we have to get our arms around. This year was impacted by a quicker, as we mentioned, a quicker rebate dynamic than we expected. And that's a part of it. Obviously, we lap that next year, and you can only rebate 100% of your units. So obviously, it stops at some point.

And so that piece of it will be transitory. But I think the big key then is getting back to execution and execution on new patients and executing in the DME channel and making sure we have good partnerships there and executing on our channel mix, that's really the work we have to do. And back to that point, that's 1 of the reasons we had a little bit of a lapse here. And to the extent that we can get back to it, that allows us to get back to what we hope is what our traditional performance has been.

Question and Answer Operator Message
Operator (Operator)

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

Question
Unknown Analyst (Analysts)

This is Sam on for Marie. Maybe I can ask on the DME channel. I recall when you guys are making that trip a few years ago, that volume mix would peak around 20%. And I guess, is the right way to think about it closer to 15% now? And then as we think about more MA plans shifting pharmacy, I mean is there any risk that that could go even lower?

Answer
Jereme Sylvain (Executives)

Yes. We've always kind of got -- at least in the commercial channels, and we talked -- this is really more about the commercial channels. We had always assumed it'd be about 75-25. That was kind of our crystal ball. And then as we got there, it started to skew a little bit more. But it was -- it didn't drift off of that 75-25 all that much. However, this quarter, as we started to see really what I would say is loss of share, which for us in that channel is a bit unique and something we got to get our arms around. The split in our business was a little more. It doesn't necessarily mean that the overall market split ultimately ends up that way, but it does mean that the shift of our business certainly shifted that way. And so does that number shift down to 85-15? Well, if we take share, no. And that's really on us. So that gets back to the execution question. We need to execute in that channel, and that channel, it's a very important channel for us, and these are very important partners, and they serve a very, very important partnership to our customers. And so we've got to get back into that channel and make sure that we're getting our fair share there. That's really the big driver.

Answer
Kevin Sayer (Executives)

I'd also add though there has been a shift in government payer activity from the DME channel to the pharmacy. That actually has happened, and we have to figure out how much that has impacted -- excuse me, our DME mix versus pharmacy mix as well.

Question and Answer Operator Message
Operator (Operator)

Your next question comes from the line of Mathew Blackman with Stifel.

Question
Mathew Blackman (Analysts)

Everybody, can you hear me okay? Okay. Great. Maybe, Jereme, I think I heard you mention that the new patient shortfall was something in the neighborhood of 70,000. Is there any way to tease that out? I'm sure it's challenging by indication. I mean the DME share, while it sounds like it maybe is skewed more to basal patients potentially. Is that fair? And then what about on the sales force dislocation? Just any help on sort of the different pieces of the business.

Answer
Jereme Sylvain (Executives)

Yes. So the 70,000, the way to think about it is there's a good chunk of that is OUS. And so there's a portion that's outside the United States. There's a portion that's inside the United States, and it's usually reflective of our patient base in total. So you kind of have our split there. In the U.S. really, a lot of it is driven by the sales force. Now 1 of the challenges, of course, is the sales force services all different indications. And so as you service all in different indications, you can probably imagine if we're not doing well in the DME, it gets back to your point, we're not doing wonderful in the basal space. That's a big piece of the DME, certainly DME Medicare and the patient base that they service.

So that's the way -- it's really hard to parse out by category. But when we look into it and we say, gee, we're not doing -- we're not taking share in the DME space. You can presume that a lot of that is in that Medicare space. And I think it is fair to say that really across the board disruption, you can assume there's a little bit really across the board, but the biggest piece there, the best way to put it.

Question and Answer Operator Message
Operator (Operator)

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

Question
Jayson Bedford (Analysts)

Just 2 quick ones. I appreciate the color on the installed base, but can we assume there's no -- there's been no notable change in attrition? And then just on the 3Q guidance, is there not a healthy contribution from Stelo in 3Q? Or is the $40 million more fourth quarter weighted?

Answer
Kevin Sayer (Executives)

Yes. This is Kevin. The Stelo guidance, the Q3 contribution is not overly large. Most of the Stelo revenue is fourth quarter weighted as we, again, plan to launch Stelo in later August. So that is -- that's how that 1 works. With respect to attrition, our retention and attrition by patient category remains similar to what we had in our plans. We know that our type 1 patient with an [ nonmandatory ] system is certainly our stickiest and patients with the highest utilization factors as we go down the acuity curve to people on MDI or basal users or even those who are non-insulin users. Utilization goes down, but our retention numbers are still industry standard by a very large margin. And so we're still doing very well there.

Question and Answer Operator Message
Operator (Operator)

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

Question
Steven Lichtman (Analysts)

I wanted to ask again about the sales force integration and just where you are today. Are you seeing signs of stabilization now? And what are you assuming on that front for the guide? And then can you remind us what opportunities do you see with this larger sales force that obviously can turn this into a positive ultimately?

Answer
Kevin Sayer (Executives)

We are seeing things beginning to stabilize, but we're also seeing things slower than we had projected in our own internal models at the start of the year. And as we developed our guidance earlier, hence, as Jereme said, the guidance coming down a bit. So we are seeing things beginning to stabilize. And they're stabilizing across different categories and geographies. I think the biggest thing to anticipate for us and 1 of the things we missed in our plans, we sent a whole bunch of new reps into offices we've never called on before. And there's a get-to-know-you period that we probably didn't estimate being long enough. And so we're taking steps to assist our team and better interactions with those physicians and getting to know them and getting them to trust and use DexCom. Somebody hasn't prescribed Dexcom, they've got to prescribe 1 to see how it goes. And we've been going through that cycle during this quarter, and we should be able to increase the prescription patterns of those new physicians a lot more going forward. But there was a lot of getting to know you, for lack of a better word, going on here in the second quarter as this group got out there. We'll have a lot more data at the end of the third quarter. We saw better interactions in May and June, and we'll see how things go from here on out.

Question and Answer Operator Message
Operator (Operator)

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

Question
Michael Polark (Analysts)

I want to ask on your relationship with distributors in the concept of stocking last year, obviously, it was a big year with the G7 launch and the basal coverage expansion, and there's always a lot of stuff going on OUS. Is there any -- as you look back at '23 as the baseline for building '24, would you frame any of kind of this setback as stocking last year that kind of caused the snafu in your modeling? Or this year, if you can comment on inventory levels with key partners, is there -- are you observing a drawdown of inventory? If there's anything to frame around that, I'd appreciate the color.

Answer
Jereme Sylvain (Executives)

Yes. If anything, usually you have these challenges when you launch a product, given inventory levels of the old and inventory levels of the new. In all fairness to our partners last year, they did a pretty good job of balancing G6 and G7 inventory levels as they went through their transition. So we didn't have a whole lot in the prior year. This year, it's pretty normal. And we have inventory levels that generally range in between pretty normal levels. We keep an eye on what's in the channel. And they always stay within this really relatively tight band. And we keep it in that band intentionally. And so we've been in that band now, and we generally stay in that band. I don't recall a time we've been outside of that band, quite frankly.

And so nothing to call out specifically. The bigger issue, and I get you're getting at the bigger issue would have than, say, last year, during a window when you had a launch of G7 and folks were gearing up given not sure how much demand would come in. We didn't really have that last year. And again, kudos to everybody that was holding inventory, they did a nice job.

Question and Answer Operator Message
Operator (Operator)

Your next question comes from the line of Shagun Singh with RBC Capital Markets.

Question
Shagun Singh Chadha (Analysts)

Just a follow-up on the sales force disruption here. You said it was more disruptive than historically because you changed roles. So can you elaborate on that? And then you talked about physicians -- changed physicians people are calling on. So is this -- are you referring to the PCP channel? And then you also referred to longer time to productivity. Can you give us a sense of how long does it take to get fully productive? It sounds like about 2 quarters or so because you said you expect them to be fully productive getting into 2025. So is that the case? And then just finally, can you give us an update on the extended wear?

Answer
Kevin Sayer (Executives)

I was waiting for a science question, so I'll start with extended wear. We've been committed to launching a 15-day product in 2025, and we intend to. Things are progressing well on that front. Stelo will be a 15-day product as well. We will learn a great deal from Stelo with our launch and how that goes. With respect to the sales team, again, that reorganization is much different than what we've done in the past. What we've done in the past is we would look at an area and this total sales volume in an area and the physicians there and kind of just divide it up geographically and make various sub areas. So the reps in those areas would call an endocrinologists and primary care physicians and primarily, their efforts we're focused on those that are the highest prescribers in the territory. What we did this time is we took our territories and we said, okay, we are going to have specialty reps or 1 force who calls primarily on the high-prescribing physicians, endocrinologists and high-prescribing primary care doctors who are very familiar with the product and service them more in that type of role. And that's 1 group of our sales force, then we have more people who are prospecting who are going down and talking to more of PCPs who don't prescribe as much product, places where we have not been before. Because what we've noted in our data is we obviously don't win in offices we don't call on. And so we needed to get into those offices and develop relationships. A lot of the time that has been spent in this first quarter and going forward in Q3 is beginning to develop and cultivate those relationships so we can get prescriptions from those health care professionals. They need to learn to trust us, and they need to learn to and have some experiences with our products.

So that is how that is going, and that is why this is different. So we really did things differently than we've done in the past. We believe over the long term, it's absolutely the right thing to do, and we have confidence in this team that they'll work through this. We believe it will start to turn near the end starting into Q4 and be in a very good position by 2025. And that is the time frame that we are looking at, if things go faster, great, but that's how we model our business. As Jereme said earlier, we've decelerated our new patient number from what we had in our original models for Q3 as to what we have now, and we see things picking back up in Q4 as the group gets more involved. So that's where it is.

Question and Answer Operator Message
Operator (Operator)

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

Question
William Plovanic (Analysts)

Just wanted to ask, so the pharmacy is good, DME is slowing. Do you think this is potentially a slowdown in penetration into the type 1 and type 2 markets? You -- hitting about 60% type 1, 40% type 2 in the U.S. I mean, are you just starting to get a saturation point where each incremental market share or market penetration is that much tougher to come by? Or do you think this -- so it's a broader challenge? Or is this purely specific to sales force and DME and what have you?

Answer
Jereme Sylvain (Executives)

Yes. So the -- it's a good question. In the U.S., we don't think so. There's still quite a bit of 1 way, and we're still seeing the growth patterns relatively steady there. If you look at the overall total market growth in the second quarter, I think what you can see is if you add up all the various players, it's still a very robust growth. I think in our case, certainly, in the DME channel, it was a share loss. And I think we just held our own retail channel this quarter.

And so that -- I don't necessarily know that I would say that. I think it's more about us getting in charge of really our go-to-market and making sure with our leading technology, and we're getting our fair share there. As you zoom outside the U.S., as Kevin alluded to a little bit in the script, outside the U.S., it's really chunks of coverage and chunks of approval. And while we got a bit of a chunk here in France basal, there are some chunks we are waiting on. And so it can slow a bit as an overall market. I think you see it. When you combine the results, globally, there is a bit of a slowdown outside the U.S. We don't think that it's a long-term issue because as chunks of approvals come in, you find that there's still certainly pent-up demand. So really, it's about coverage. And we are working on coverage in various different areas, both type 2 intensive, certainly in basal. And there's even some countries where we're still working on type 1 coverage in some of the more emerging markets.

So maybe outside the U.S., you see a temporal slowdown, but not in the U.S. I think the U.S. is still a very robust market. We're still seeing basal grow at the same rates that we expected as a total category, still seeing the intensive insulin category still growing well and obviously, with noninsulin opportunities with Stelo and the OTC products, I think it's a market that can continue to grow for some time.

Answer
Kevin Sayer (Executives)

Yes. I'll add to that. You talked about a 60% penetration. I said several years ago, 80% for type 1 insulin users, and I believe the same with type 2 intensive insulin users. There is no reason somebody shouldn't be on a CGM. It's up to us to create the experience and the access structure whereby everybody can get to it. And those are the things we have to take on, Bill. And I agree on Jereme's comments, our efforts this quarter focused on our execution a lot more than a market slowdown. It's up to us to be better.

Question and Answer Operator Message
Operator (Operator)

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

Question
Christopher Pasquale (Analysts)

I wanted to just clarify 2 points. One, on the rebate issue. Do you need to anniversary that before revenue per patient becomes less of a drag? In other words, is that a period impact? Or is it a resetting the bar then you have to lap before you get back to normal? And Jereme, you touched on international briefly in the last question. Most of the focus thus far has been on U.S., but OUS also disappointed. Am I right in interpreting you think that the slower growth there is more normal until you get some of these new coverages to come through? That's really going to be the catalyst for a reacceleration.

Answer
Jereme Sylvain (Executives)

Yes. So in terms of your rebate dynamic, I think we talked about it coming faster because it's come faster, certainly here into Q2 and to a lesser extent in Q1. It'll happen pretty darn early next year. So we're going to lap it pretty darn quick. Obviously, it's going to impact us at a more acute number. We expect it to be gradual over the course of this year into next year, which still would have been faster than G6. So to that point, it does help for next year's comps because we will lap it pretty darn quick.

In terms of the question on OUS, 1 of the things we've done historically there is -- it's a market where we've taken share and obviously has been growing. And this quarter, I would say we didn't take share, and that's part of it. The other part then is in the chunks. And so there's 2 opportunities there. Certainly, there's chunks of reimbursement which would help accelerate it. But our expectation with the product launches we've had and the quality of the product that we have is to take share. And so I think there's 2 opportunities. One is within our control, which is taking share. And then the other is that then the industry's control, which is coverage, and we're going to execute on that which we can control and certainly aid in helping the industry coverage as well.

Question and Answer Operator Message
Operator (Operator)

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

Question
Matthew Miksic (Analysts)

So there's a couple of things that I think investors are trying to pin down here and understand, given the announcement and the display change in trajectory here in the back half. And the first is around this -- the channel mix indication mix and their impact on pricing, maybe given that you're building out a field force that's growing into areas where you haven't traditionally called, as you talked about. Potentially, maybe the margin impacted that. But is that something where channel mixes and these pricing factors have sort of set off on a new trajectory that that we now have to think about an equation of like patient growth and price mix? What does that translate into growth over the next couple of years? Should we be thinking differently about that?

And then I guess the other -- just -- you cross it off the list, it doesn't sound like it's a factor, it's just around competition. Is there any shift given the places where you're going into new accounts in the PCP channel or elsewhere? Is there -- are you feeling like you're [indiscernible] into a slightly tougher competitive challenges? It didn't sound like it, but just if you could maybe cross that off the list and provide any color on the first, that would be terrific.

Answer
Jereme Sylvain (Executives)

Yes. So I'll maybe go to the crossing of the list. There's always competition. And certainly, as we go into all of these categories, you're always going to have that. We've always had competition. So this is an area that's been -- we've been competing for some time. So I don't think that's necessarily a new dynamic. When you expand the sales force, clearly, your first call points -- you've got to go through that, but this is no different than what we had in 2021 last time we expanded the sales force. We went into new locations, it's building familiarity. And yes, there's always competition, but that's not a new thing. So I think you can cross that off the list.

To your question then on mix, I'd say this in the U.S., I don't think the market has moved all that much. I think it gets back to our performance within that market, and we have to perform in those areas. And so when you talk about -- is this a new -- price -- year-over-year pure price, it hasn't really changed all that much. Certainly in the DME channel, it hasn't changed all that much, and we talk about that often. But when you have less performance in your highest reimbursed channels and better performance in a lower reimbursed channel, we've always talked about DME being higher than pharmacy. And then you don't outperform on new patients. You kind of combine all those up, that's what you really saw.

So the opportunity is for us to get out there and get the new patients and get the new patients in all of the channels and the channels that we've been in and get our fair share in those channels. So I think that's the best way to think about it is we can do it. It's within our purview to go do so as opposed to necessarily a shifting in market itself.

Question and Answer Operator Message
Operator (Operator)

This concludes the question-and-answer session. I will turn the call to Kevin Sayer for closing remarks.

Answer
Kevin Sayer (Executives)

Well, thanks, everybody, for participating today. This is a tough call for us. And it's a tough call for all of you who supported us. We've provided the best view that we have going forward. We obviously will work hard to do better and provide you with more color and more things. Going forward, we are extremely excited for our Stelo launch later this quarter, and we certainly expect to hear from you as we do that. I just want to also point out, we talked a lot about our commercial team today, they're fabulous. They've done very well and they will rebound from this. I have every confidence they will. When you have something like this, it's on everybody in the company, it's not just on those guys. We're all going to -- going to put our heads down and focus more. So you can count on that. Thank you very much for being with us today, and we'll see you all soon.

Question and Answer Operator Message
Operator (Operator)

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect. Speakers, please stand by for your debrief.