The operator introduces the Dexcom Fourth Quarter and Fiscal Year 2023 Earnings Conference Call and introduces the speakers, Kevin Sayer and Jereme Sylvain. The speakers will provide a summary of highlights and strategic initiatives, followed by a financial review and outlook. The call will then be opened for questions. A safe harbor statement is also mentioned, reminding listeners that some statements may constitute forward-looking statements and are subject to various risks and uncertainties.

In 2023, Dexcom achieved significant success, with 24% organic revenue growth and a record number of customer starts. They added over 600,000 users and ended the year with 2.3 million customers globally. This growth was achieved while improving operational efficiency.

In 2023, Dexcom had a successful year with the opening of a new manufacturing facility in Malaysia and achieving $1 billion in revenue and adjusted EBITDA. They also launched G7, the most accurate CGM ever, in multiple new markets and saw a positive reception from customers, clinicians, and payers. This led to a change in prescribing patterns and the largest expansion of coverage in the company's history, including Medicare coverage for people with type 2 diabetes and certain non-insulin users.

The decision to expand commercial coverage for basal markets has doubled the company's reimbursed population in the US and attracted more primary care physicians to their ecosystem. This has led to a 40% increase in their prescriber base and the company plans to continue investing in their US salesforce. The company is also introducing a new product, Stelo, designed for people with type 2 diabetes who are not on insulin. This product will leverage their leading sensor platform and provide a tailored software experience for this population.

The company Dexcom is launching a new product called Stelo with a 15-day wear time and plans to gather evidence for broader coverage from payers. They have filed with the FDA and are on track for a summer launch. The company is also focused on innovation and improving their software and hardware technology. They are optimistic about the future and will now turn to Jereme for a financial update.

In the fourth quarter of 2023, the company reported a 27% growth in worldwide revenue, with U.S. revenue increasing by 27% and international revenue growing by 27%. The company's gross profit was $664 million, or 64.2% of revenue, and operating expenses were $421 million. The company's gross margin declined due to a larger percentage of G7 products in their mix, but they expect this to improve as G7 reaches scale. The company remains committed to being disciplined with their spending.

The company's operating expenses grew at a slower rate than revenue, resulting in operating expense leverage for the eighth consecutive quarter. Operating income and adjusted EBITDA also increased compared to the previous year. The company remains in a strong financial position with over $2.7 billion in cash and cash equivalents, allowing for flexibility in taking advantage of opportunities. Free cash flow grew by 70% in 2023 and is expected to continue to increase, providing more financial flexibility for future investments and strategic uses of capital. The company projects organic growth of 16% to 21% for 2024, driven by momentum in the US type 2 basal only population, expansion into new markets, and the launch of a new product.

The paragraph discusses the assumptions and expectations for the company's financial performance in the upcoming year, including the divestiture of a non-diabetes distribution business and the impact on revenue and margins. The company also plans to be strategic with spending while investing in growth opportunities. The Q&A portion of the call addresses the potential impact of the 15-day sensor on operating margins in the future.

The company is currently conducting clinical testing and scientific evaluation to make changes to their sensor that will make it more reliable for a 15-day period. They have a strong track record of delivering on their promises and want to ensure that the 15-day experience is just as good as the current 10-day experience. They are also focused on leveraging this change to improve their operating margins and potentially grow the business in profitable areas. However, they are not ready to disclose specific details about their plans until they have filed for approval.

In response to a question about potential competition, Dexcom CEO Kevin Sayer highlights the company's strong technology and connectivity features, as well as its ongoing efforts to improve and innovate. He also mentions the company's recent filing for direct-to-watch features with the FDA. Overall, Sayer believes that Dexcom is well-positioned to defend its market share and continue to deliver value to shareholders.

The company has evolved from a medical device software company to a world-class software organization, and has made significant investments in technology and automated factories. They are confident in the launch of their new product, Stelo, which is expected to add 100 basis points to growth in 2024. The goal of the launch is to learn and the company is comfortable with their investments and position in the market.

The company is confident in their product, Stelo, and believe it will become a large portion of their business. They are focused on learning and growing in this new market. They have a model for reaching 1% of revenue, but exceeding it is not crucial. They will invest in launching the product and expanding operating margins while still improving profitability. They also mentioned partnerships with Salesforce and the PCP channel.

The company plans to expand its Salesforce coverage for primary care physicians and endocrinologists, with a focus on promoting their CGM product. The expansion will involve hiring more sales reps, with the majority of hiring taking place in the first quarter. This investment is factored into the company's overall guidance and will be spread out over the course of the year.

The speaker discusses the company's plans for the rest of the year, including ramping up sales and expanding internationally. They mention selling a non-CGM business in Australia and going direct in Japan, which will have a significant impact on the first quarter but are expected to contribute to growth throughout the year. The Dexcom ONE platform is also being launched in four countries and will continue to roll out in more countries throughout the year.

The company expects to see significant growth in their international business in the coming year due to the launch of Dexcom ONE. They anticipate that this growth will be a major driver of long-term success. However, in the last quarter, international growth was below that of the US due to factors such as the transition in Japan and flat non-diabetes business. Excluding these factors, the core international markets continue to grow consistently.

The company expects their international business to grow faster than their US business, but they are still confident in both. They have a competitive advantage in their AID systems with unique features like Bluetooth connectivity and years of experience. They believe they are the top choice for physicians, endocrinologists, and parents of children who need an AID system.

The speaker discusses the company's confidence in their international book of business and their expectation of doing well despite competition. They also mention the upcoming data on GLP-1 and Stelo, and how it will demonstrate the benefits of using continuous glucose monitoring. They expect this data to be published by investigators over the next few months.

The speaker, Kevin Sayer, explains that the company's goal is to launch their product, Stelo, as a cash pay option and collect data from users and clinical trials to build a case for reimbursement. They plan to work with payers and government agencies in a traditional way to achieve this goal. They will also continue to improve and develop the product over the next 12 months.

During a conference call, Joanne Wuensch from Citigroup asked the operator about the company's tax guidance and net interest expense. She also noted that the company has surpassed its 21% operating margin target for the second quarter in a row and questioned why it is still the right number. The operator, Jereme Sylvain, responded that the company's goal is to lower its tax rate to the low 20s over the next three to five years. He also explained that the net interest income can be estimated by multiplying the cash on the balance sheet by 4%. Regarding the operating margin, Sylvain acknowledged that the company is currently ahead of its 2025 target of 21%, but they are not ready to update it yet.

The company has been focused on becoming lean and driving leverage into the business, and they are currently ahead of their goals. They are also making investments in the organization, including launching Stelo and improving their salesforce and product. Despite these investments, they expect to continue expanding operating margin. In terms of domestic performance, there has been a clear acceleration in the back half of the year, with basal contributing around 200-250 basis points. The company is also seeing an inflection in basal adoption for CGM in the US.

The company is seeing strong performance in the back half of the year due to launching a new, accurate sensor with a G7 form factor and having good basal coverage. This has led to an increase in market share. While basal is a contributor to this growth, it is not the only factor, as the company's overall intensive insulin business is also performing well. The company's long-term plan for basal adoption is being exceeded, which will contribute to future growth. The launch of G7 has directly correlated with the company's growth acceleration.

The speaker discusses the increase in non-insulin users and how it supports the company's expansion plans. They mention the success they have had when calling on physicians and the need for more sales representatives. The speaker also addresses the growth potential for non-insulin users and the potential impact on the company's sales in 2025.

The company has a cash pay program for non-insulin users, but it has not been a significant driver of growth. They are committed to learning and are interested in generating $200 million in revenue in 2025. They have flexibility in pricing and are changing their business model to serve this market. The gross margin did not decrease as expected in the second half of the year.

Jereme Sylvain explains that last year's assumption on gross margin was based on the G6 to G7 transition, which took longer than expected. This resulted in outperforming on margin due to the lower cost of G6 compared to G7. However, with the launch of Tandem and Control-IQ integrated with G7, as well as the limited launch of Omnipod 5, the transition to G7 is expected to happen quicker. This will lead to a shift in costs, causing the margin to decrease in the beginning of 2024 but then improve in the second half of the year. This trend will continue into 2025 and beyond.

The company expects the transition to basal insulin to occur in the first half of 2024, which will result in a cost equilibrium. The majority of new revenue will still come from intensive insulin for type 1 and type 2 patients, but basal insulin is catching up and is expected to do well in the long-term. More updates will be provided closer to 2025.

The company's core business is driving most of the growth, but there are also opportunities for growth in the long term with basal, hypo, and Stelo. The company wants to move as quickly as possible with the 15-day product, but they are still learning and gathering data from Stelo users. The 15-day product is built on the same platform as the current G7, so the time from finishing a pivotal trial to filing will not be as difficult as with the last product.

The company is currently focused on refining the science and achieving a 15-day reliability and quality level for their patients. They are aiming for a speed of 25 days but do not have a specific end date in mind due to various factors. The company is more concerned with getting things done and will provide updates along the way. In terms of Dexcom ONE, they expected it to account for 30% of new patient starts in 2023 but it ended up being closer to 25%. They expect it to be a bigger contributor in 2024 with the launch of G7 in four countries.

The speaker, Jereme Sylvain, is responding to a question about the company's progress in penetrating the type 2 hypo indication market. He acknowledges that it has been a slower process compared to type 2 basal, but the company's commercial team is focused on raising awareness and educating physicians about the benefits of their technology for patients who have experienced hypo events. The challenge lies in identifying these patients and ensuring they meet the requirements for reimbursement. The company is actively working on improving their messaging and reaching out to physicians to increase penetration in this market.

The company is working on arming their salesforce and community with information to help grow the business faster. They see this as a big opportunity, but it will take some time to penetrate the market. They believe this will be a meaningful contributor in the long term. They are also investing in educating physicians and patients, which will make it easier to gain traction in the market. In terms of penetration within the basal population, the company expects it to reach about six to seven points of adoption in the US by 2025.

Kevin Sayer, CEO of Dexcom, discusses the company's first few quarters of sales for their new product, Stelo, which has been mirroring the success of their previous product, the Dexcom G6. However, the company is being cautious in their guidance for 2024, assuming an 8% penetration rate for Stelo. They are also evaluating different business models for Stelo, as it targets a larger non-insulin patient group. This may require different distribution methods and investments in back office support. Stay tuned for updates on their plans.

The speaker responds to a question about margins and the profitability of the G7 product line. They explain that the G7 product currently costs more than the G6, but they expect the cost to decrease and eventually reach $10 per sensor by early 2026. The cost of the hardware is the same for all versions of the product, but the support models and software development contribute to the overall cost.

The speaker discusses the different service models and costs associated with their various products, including the G-Series, Dexcom ONE, and Stelo. They mention the potential for profitability and opportunities for improvement in each product line. They then shift focus to the year 2023, which they believe will be a significant year for the company.

The company has achieved impressive numbers in terms of revenue growth, EBITDA, new customers, and product launches. The CEO thanks the company's more than 10,000 employees for their hard work and dedication. The call has now ended.

This summary was generated with AI and may contain some inaccuracies.