德康醫療 (DXCM) 2018 Q2 法說會逐字稿

Hello, and welcome to the DexCom Second Quarter 2018 Earnings Release Conference.

My name is Michelle, and I will be your operator for today's call.

(Operator Instructions) Please note that today's conference is being recorded.

I will now turn the call over to Mr. Matt Dolan, Vice President of the Corporate Development.

Sir, you may begin.

Thank you, operator, and welcome to DexCom's Second Quarter 2018 Earnings Call.

Our presentation today will begin with Kevin Sayer, DexCom's Chairman, President and CEO; followed by Quentin Blackford, our Executive Vice President and Chief Financial Officer; and Steve Pacelli, our Executive Vice President of Strategy and Corporate Development.

We will begin with our prepared remarks, and then Kevin will conclude, and open the call up for your questions.

(Operator Instructions)

I will begin with our safe harbor statement.

Some of the statements that we will make in today's call may constitute forward-looking statements.

These statements reflect management's intentions, beliefs and expectations about future events, strategies, competition, products, operating plans and performance.

All forward-looking statements included in this presentation are made as of the date hereof based on information currently available to DexCom and 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, quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission.

Except as required by law, we assume no obligation to update any such forward-looking statements after the date of this presentation or to conform these forward-looking statements to actual results.

Additionally, during the call, we will discuss certain financial measures that have not been prepared in accordance with GAAP with respect to our non-GAAP and cash-based results.

The presentation of this additional information should not be considered in isolation or as a substitute for results or superior to results prepared in accordance with GAAP.

Please refer to the tables in our earnings release and the Investor Relations portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure.

With that, I will turn it over to Kevin.

Thank you for joining us today.

Before we jump into the quarter and our outlook, I would like to address the additional press release we issued after the close.

Terry Gregg, our Executive Chairman, is retiring, and our board has appointed me to assume the role of Chairman.

I am honored to expand the scope of my responsibilities to DexCom and believe we are making this transition from a position of strength, as you can see in the results we just released.

For the many analysts, investors, clinicians, patients and colleagues who know Terry, it goes without saying that he's had an immeasurable impact on both DexCom and the diabetes industry.

Terry joined DexCom's Board of Directors in 2005, served our CEO from June 2007 through January 2015 and has been our Executive Chairman since then.

This transition is the final step in a vision we shared when I became President of the company in 2011.

Terry and I have worked together in this industry for a long time, and this incredible chapter of DexCom is one that I will cherish forever.

The company and I wish Terry and his family an enjoyable and well-deserved retirement.

If Terry were here participating with us, he would undoubtedly say, "Enough already.

Get on with the quarterly report."

And what a quarter it was.

I'm proud to say that we posted another record revenue performance, with sales up 42% over the same period last year.

Not only did we exceed our annual growth guidance for the second consecutive quarter, but the business continues to accelerate.

All of our key segments demonstrated strong year-over-year growth, with U.S. and OUS revenues up 35% and 78%, respectively.

From a profitability perspective, DexCom continues to demonstrate leverage as revenue growth outpaced the increase in operating expenses by more than 2x for the first half of the year.

Quentin will provide you with more detail around our financial performance and outlook in a moment.

As I left the American Diabetes Association conference in Orlando late in the quarter, it was apparent that CGM awareness and acceptance is stronger than ever, and this trend is driving our growth globally.

Looking ahead, we believe innovations like the Dexcom G6 will continue to push CGM toward the standard of care for intensive insulin management.

As many of you that attended ADA could see, we generated significant excitement around our G6 platform, which was unveiled at the meeting late in the quarter.

By combining market-leading performance with a leap forward in user experience, feedback on G6 has been unambiguously positive so far.

As we have said in the past, G6 represents the most important and complex launch in our history, highlighted by the new applicator, improved form factor, and market-leading performance, all without fingerstick calibrations.

We are well positioned and the team remains intently focused on launching our new G6 system.

Interest for DexCom CGM across both G5 and G6 has been strong to date, and as a result, we have increased our growth outlook for 2018.

However, strong demand has driven delays in processing and fulfilling orders.

To our patient and physician customers, please rest assured the team is working around the clock to get product to you.

Although we had originally planned for a G6 launch in the second half of the year, after the March approval, we recognized the importance of the G6 offering and made the decision to get this product into customers' hands as soon as possible.

This has put a strain on the organization on a number of fronts, but we expect to get ahead of this by the end of third quarter.

Reflecting on the first half of the year, we have had a fabulous 6 months, exceeding our growth targets while continuing to demonstrate leverage.

I'm particularly impressed by our performance in light of the fact that we were only 3 weeks into the G6 launch during the second quarter.

With that, I will now turn the call over to Quentin for a view of our financials.

Thank you, Kevin.

Today, we reported worldwide revenue of $243 million for the second quarter of 2018 compared to $171 million for the same quarter in 2017, representing growth of 42% on a reported basis or 41% excluding the impact of currency, a meaningful acceleration in our growth profile as the awareness of the value of CGM continues to be understood by the diabetes community.

As Kevin mentioned, this acceleration comes just as we begin to introduce G6, which only launched in the last month of the quarter.

The teams have done a tremendous job and I congratulate each of them on driving outstanding results, and note that each of the key growth categories we called out at the beginning of the year improved in the second quarter, after what was already a very strong first quarter.

U.S. revenue again accelerated, growing at its fastest pace in nearly 2 years at 35% over the comparable quarter a year ago driven by both of our commercial and Medicare businesses.

The international business increased 78% year-over-year on a reported basis or 71% excluding the impacts of currency, while all international regions performed very well, the focused efforts of our teams in our direct markets are driving the overall strength in our international results.

And importantly, growth from global sensor and other revenue continued to accelerate and was up 47% over Q2 2017, the fastest pace of growth in more than 2 years.

Our second quarter gross profit was $154 million, generating a gross margin of 63.3% compared to a gross margin of 68.9% in the same quarter last year.

Gross margin experienced approximately 320 basis points of pressure from some nonrecurring expenses as we ramped production volumes more quickly than anticipated due to extraordinary demand, including the startup of our Mesa, Arizona facility, and an earlier-than-anticipated G6 launch, which resulted in unexpected excess in obsolete charges related to our G5 hardware.

Importantly, excluding these near-term impacts, our underlying gross margin for the second quarter remained in line with our prior expectations, which contemplated some expected reduction in gross margin versus the prior year as a result of a greater mix of revenues coming from our lower gross margin international and Medicare businesses.

As presented in the tables of our press release, international revenue represented 22% of our global revenue, its highest contribution to date and continues to be a primary area of focus for us where CGM is still significantly underpenetrated.

Average sensor pricing by channel continued to be consistent in the quarter.

Operating expenses were $159 million for Q2 2018 compared to $131 million in Q2 2017.

This reflects an increase of 21% year-over-year and compares favorably to our 42% revenue growth in the quarter.

For the first half of the year, we have realized top line growth of 36%, while operating expenses have grown at less than half of that rate at 16%.

This represents incremental leverage of more than 1,000 basis points versus the prior year, while at the same time, we continue to invest in our strategic priorities.

Adjusted EBITDA, which excludes the impact of share-based compensation and $43 million of investment income, was $27.4 million or 11% of revenue for the second quarter.

Our GAAP net income was $30 million or $0.34 per share.

Adjusting to exclude the investment income previously noted and $3 million of noncash interest expense related to our convertible notes, non-GAAP net loss was $9 million or a $0.10 loss per share.

Our balance sheet remains strong, having ended the quarter with $606 million in cash and equivalents and our $200 million revolving line of credit is still available.

Looking to 2018, our first half performance has exceeded our expectations and we now anticipate total revenue of approximately $925 million for the year or growth of 29% versus our original and prior guidance of 15% to 20%.

With this outlook, we continue to consider a number of variables in the second half including the potential impact of pricing, channel mix shifts and competitive dynamics.

For the rest of the P&L, we now anticipate a gross margin of around 64% for 2018, which now contemplates the impact of the factors I mentioned earlier.

These issues will be remedied over the course of the remainder of the year, but considering the stronger demand, we have made the decision to prioritize our customers receiving product that has slowing production to address these inefficiencies in the near term.

Our gross margin outlook assumes the third quarter will remain under pressure from these items and rebound in the fourth quarter.

We now anticipate that core operating expenses will increase by approximately 14%, up from our original guidance of a 10% increase, which is primarily driven by the much stronger top line performance and the impact on the associated variable cost of the business.

This excludes any additional spend associated with our non-intensive efforts.

With that, I will now turn the call over to Steve for a strategic update.

Thank you, Quentin.

DexCom had a number of important strategic wins late in the quarter.

We received a CE Mark for G6 and we are currently formulating our OUS launch plans for the balance of the year.

We were also very excited to learn that Medicare made the decision to allow patients to use their mobile devices, together with their DME receivers, to view and share their CGM data.

This is a great win for patients and their caregivers, and we applaud CMS for understanding the importance of data sharing for real-time CGM.

As you might expect, our biggest strategic priority for the balance of 2018 is the G6 launch, especially with the demand we have seen out of the gate.

But beyond this all-encompassing effort, we continue to see benefits from the FDA's new ICGM classification, which only DexCom G6 carries today.

In fact, near the end of Q2, and just before the start of ADA, the FDA approved tandems predictive low glucose suspend or PLGS system called Basal-IQ which uses the Dexcom G6 sensor platform.

This represents a great example of why the agency took the step to establish the integrated CGM category.

We applaud the FDA for making this decision and improving the tandem system within 3 months of our own G6 platform being approved.

We have ongoing discussions with our other insulin delivery partners to capitalize on this new environment and we'll update the market when appropriate.

However, the bottom line is we believe this will provide the ability for our industry to bring innovation and choice to the diabetes community more efficiently, all while maintaining the important guardrails that ensure we optimize CGM performance and patient safety.

In the meantime, we are seeing good progress across our insulin delivery partners, including both automated insulin delivery systems and Smartpen platforms, and remain confident that our pipeline of integrated diabetes management systems leaves us in a strong position competitively.

Beyond insulin delivery, we are actively exploring new market opportunities, especially given our belief that the G6 sensor and algorithm truly represent a platform for DexCom.

We continue to make meaningful progress with our fully disposable sensors.

However, in light of an increasingly competitive environment, we're keeping the details of our next-generation product pipeline plans close to the vest.

Our first generation Verily device is in validation and verification, and the second generation device remains on track for a late 2020 early '21 commercial launch.

Let me again remind you that the first device is intended to help us optimize the clinical and commercial rationale for these disposable devices, with the goal of establishing our go-to-market strategy for the second-generation system.

We look forward to bringing you more updates as we continue to make progress.

And with that, I'll pass it back to Kevin.

Thanks, Steve.

Halfway through the year, DexCom's performance has clearly been impressive, with revenue growth accelerating in the face of multiple new market dynamics.

By the numbers, fingersticks still represent a global market leader in glucose management by far.

But as CGM awareness grows and the advantages of real-time CGM drive better diabetes management, we have a tremendous opportunity to convert patients and lead the category to the standard of care.

We have been very pleased with the initial market reaction to the Dexcom G6 system.

The improvements this system brings relative to prior generations are substantial and our feedback so far validates our bullish view of G6.

The biggest complaint that I've received so far is when am I going to get my G6 system?

We get it.

DexCom's CGM technology can have a major impact on diabetes management.

To our customers, we appreciate your patience as we ramp up this great new system.

With respect to our outlook, you heard from Quentin that we have increased our sales growth, guiding significantly given the strength we have seen across the board through the first 6 months of the year.

Our original 2018 revenue growth guidance called for an increase in the mid to upper teens, and we now expect annual growth just under 30%.

Despite our success so far, we continue to execute through a growing number of variables in our marketplace.

This requires us to remain thoughtful around our assumptions for market share and pricing dynamics.

First, CGM is the market in health care, and therefore, an increasingly competitive one.

It remains clear from our latest performance that the benefits of DexCom's real-time solution, such as accuracy, performance, connectivity and consistency, are significant drivers of patient and clinician preference.

Second, and more specifically, G6 affords us the potential opportunity to simplify our distribution channels, which could include the pharmacy channel or Medicare type bundling arrangements.

While this should drive a positive impact on our operating efficiency, it could also impact pricing.

To wrap up, we are having a great 2018 and are still just getting started with bringing DexCom's real-time G6 CGM to our customers.

We look forward to providing you with additional updates next quarter.

I would now like to open the call up for Q&A.

Matt?

Thank you, Kevin.

(Operator Instructions) Operator, please provide the complete Q&A instructions.

(Operator Instructions) The first question in the queue comes from Danielle Antalffy from Leerink Partners.

Quentin, I just wanted to ask a question on the guidance, your updated guidance for the year.

The revenue of $925 million, it's very specific.

And so I just wanted to get a little bit more color about some of the puts and takes to that.

What gets you confident that $925 million is the right number versus a range?

And is the right way to think about this is that, that $925 million number is implying that your -- the specificity of it is implying that the growth for the year is really limited by the supply constraints that you guys have talked about on this call?

Thanks, Danielle.

No.

I wouldn't read into it around that way.

What I would say is, obviously, Q2 is much stronger than what we had anticipated.

We like the setup going into the quarter, but the $243 million of revenue was far beyond our expectations.

And I think what you're seeing is that we're at the very early stages of significant awareness being captured around the value of CGM.

And just how quickly that penetration goes into the marketplace is yet to be seen, but we're incredibly bullish around it.

So what we tried to do with our guidance was contemplate those potential headwinds that we knew were out there in the back half of the year.

We know we continue to work through contract discussions with the payers, some moving towards the pharmacy channel, some moving towards the subscription model, dialing in those potential headwinds so that as they end up playing out, they don't result in a downside surprise.

But giving us a baseline then to know that if we execute well from that, then there's upside beyond the numbers.

So that's really how we thought about it.

That was the number we were able to dial into.

We could've provided a range, but like I said, the beat in Q2 was far beyond what we expected, and it's really going to come down to how fast the penetration into the CGM marketplace goes.

But at $925 million, we felt very good with that.

Okay.

And just one quick follow-up on the gross margin guidance.

I just want to make sure that I'm clear on this.

So appreciate that gross margin's excellent time items would've been in line with prior.

Is that true of the lower guidance for gross margins for 2018 as well that, that lower 64% number is really just due to the pressures that you talked about in Q2?

Yes.

Q2, and then Q3, Danielle.

So the way we're thinking about it is the incremental demand that's been placed on to the organization has put us in a position where we're bringing up incremental production lines faster than what we ever expected.

We're bringing the Mesa facility up and online and we're hiring a lot of production workers into the organization, which just bring with it some natural inefficiencies in the early stages of getting them up to speed with what we're trying to do.

We expect that's going to continue to play out in Q3, and I think you'll see it rebound nicely in Q4.

But if you were to exclude those incremental headwinds really driven by the demand, you would see that gross margin for the full year is right in that guidance range that we had provided.

So there's nothing else that's playing out there at all.

It's just trying to work through the pressures of the higher demand and making sure we can fulfill that, and in the near term, expediting product into the hands of our patients that we do think we get turned around in the fourth quarter.

The next question in the conference comes from J.P. McKim from Piper Jaffray.

I wanted to just ask one on kind of the new users you're getting from G6.

Is there anything unique about them in terms of, are you getting more type 2s than you've had before?

Or are you getting more -- now that you have Basal-IQ out there with G6, are you getting more pumpers on?

Is there anything unique about the G6 kind of customer base you're seeing compared to what you had in the past?

This is Kevin.

I would tell you that our G6 new customers is everybody.

If anything, the one thing I would tell you about the G6 product is a little bit different, is it is reaching a broader base of people.

It is reaching more users who have not experienced CGM before because as they walk into their caregivers and learn about its features with no calibration, so an easy insertion.

And the profile, it is more attractive to a broader market of patients than what we've offered in the past.

So we are seeing a broader user group, but I would say it's been very well accepted across the board.

JP, just as a clarification.

I don't think Basal-IQ has launched yet.

I think their guidance is it's going to launch sometime in Q3.

Got you.

Yes.

That's helpful.

And then, just in terms of -- it sounds like your guidance contemplates this, you ramping up inventory and supplies.

So is that the biggest bottleneck right now, is just being able to supply the sensors?

And what gives you confidence in being able to ramp up Mesa fast enough to hit that supply?

Or is that all contemplated in guidance?

And if you can ramp supply faster, that's where the upside happens from.

This is Kevin.

I'll take that.

Again, as I said in my comments and our prepared remarks, we originally anticipated launching this product mid-year -- I mean mid-Q3, sometime there.

We moved that launch up significantly, putting a lot of stress on everybody.

Our guidance contemplates that we work through building up inventories and having more (inaudible) on hand.

We've turned suppliers on, as we also kind of remarked, it's 24/7 all the time right now as far as manufacturing.

We have things coming in.

We have planned the shift from G5 to G6 for a little bit later in the year.

We forced that shift to go earlier, putting pressure on both G5 and G6 from a manufacturing perspective.

So we didn't make it easy for anybody here.

But as we worked through the third quarter, and as we said, again, in our remarks, it will take us 3 months to work through all this, but we believe by the end of 3 months, we'll be in very good shape.

The next question in the queue comes from Travis Steed with Bank of America.

So Quentin, Q2 came in roughly like $35 million ahead of your expectations.

Can you just talk about what specifically drove the upside in the quarter?

Was that new patients?

And then, you raised in the second half by another $35 million.

So just kind of walk through your assumptions in the second half, and to what you're assuming in terms of competition and pricing and the various headwinds.

Yes.

So I can tell you in the second quarter, it was across the board.

I think Kevin indicated that in his prepared remarks and I commented on it as well.

Really, all key revenue factors that I think are most indicative of future growth potential in the company were up strongly over where they were at in Q1 and well beyond what we had expected.

So you can think of that as new patient.

You can also think of that as just further adoption within the existing customer base and really on a global basis both in the U.S. and international.

I think the thing that we try to contemplate in the back half of the year that we've talked about just a little bit earlier was the fact that there are potential headwinds out there around the move towards a pharmacy-type pricing model or a subscription type model as well as some of the competitive headwinds that are out there with -- Libre's got the expanded label we've seen.

You've got Medtronic out there with Guardian Connect.

I can tell you we feel incredibly good about how we're positioned to compete against those folks.

But I think we need to be mindful of the potential impact that could be out there.

So we've tried to dial it on to our guidance.

But outside of that, we're not trying to deliver any other message other than we're very bullish on the year and where the opportunity exists within this marketplace.

I think I'd add too, when we talk about competitive headwinds, when Quentin talked about move to the pharmacy and the subscription model, quite honestly, those are strategic opportunities for us.

We've said launch of the G6 affords us the opportunity to be more flexible with some pricing structures and we're going to continue to explore this.

We don't know the exact timing of when those might come to fruition, but we're certainly hopeful that long side, if we could move the whole business to the pharmacy, that would be a great win for us.

We'd be willing to give up a little top line price.

Can you quantify those headwinds in the second half?

And then, also, in terms of Q3, it's usually about 8% above Q2 sequentially.

How does that play out?

Is that a decent level this year?

Or does the G6 launch change that in any way?

Well, I will tell you this.

We've contemplated the headwinds to be more heavily weighted towards the fourth quarter.

Obviously, we're into the third quarter.

We see how that's playing out.

There is some pressure dialed into Q3, but more heavily weighted into Q4.

It's about 700 basis points of headwind that we've dialed in to the back half of the year in total.

So that gives you a sense of just how we've quantified it internally.

Obviously, Q2 was incredibly strong.

So if you look at historic seasonality and anticipate that Q3 is going to look similar in terms of sequential change off of what we believe is an incredibly strong Q2 and we're not quite ready to call that a trend just yet, I think you should expect that seasonality is going to look different in the back half of the year than what you would've seen in the past couple of years.

The next question in the queue comes from Margaret Kaczor from William Blair.

So just to follow-up on the G6 conversion process.

I think in the past, you've talked about that being a little bit faster -- expected it to be a little bit faster than G5.

Now that you guys are a few months into the process, is there any update on that progress?

Are we 10% of patients in G6 for example, and then, are you assuming any kind of change to your prior assumptions on G6 utilization, given the 10-day hard shut-off?

Margaret, we only were 3 weeks into the launch by the end of Q2.

So we really don't have a good number to give you as to how many patients are switching over.

The second quarter was largely driven by G5.

As we go into Q3, we are flipping patients over at their request, when they want to, and we are moving rapidly.

I really don't have a good percentage to give you.

We believe, over time, this is a technology that will replace the other one, as you said earlier, more rapidly than before, simply because it is so different from a user perspective.

We haven't given data as to when we think everybody is going to be flipped over to G6.

With respect to utilization, we'll do that again.

We're very early into the process and we'll see where it ends up, and we don't have enough data to answer those things -- those questions, completely, right now.

Okay.

And then, as a follow-up to some of the discussion earlier on subscription contracts and the pharma contracts.

At the private payer level, is this something that you guys are seeing happen at a faster rate?

Or are you saying more of these discussions happened right now?

And is that related to the G6?

I mean, if we look out over the second half of this year, it sounds like you're expecting more of an impact from that maybe in Q4.

But how should we think about '19 and the revenue rec impact from that there?

One of our great policies is we don't give guidance for '19 today.

So that I won't answer.

With respect to these contracts and our efforts with managed care, we've used G6 as an opportunity to get in front of people -- I've even been out on the field by myself, just to gauge and to learn and see what goes on.

There's still very much an educational process with payers that we have to go beyond just pricing as to what the outcomes our system offers, the protection and dangerous lows that we offer and the A1c improvement outcomes that we see in all the studies that we do that our competitors do not.

So we are going through all those things.

I would tell you we've been very creative and very aggressive in structures.

A lot of those are pending.

Some have been accepted.

Some we would've done their directions.

We have a goal to make this successful to everybody who wants it, at a price that's reasonable for DexCom and reasonable for our company to make a profit.

We're going to try several different bottles over the next year or so to see what is the most efficient way to get this product to our patients, and we'll keep learning.

If we find something that we hit on, we'll go there.

We started pharmacy several years ago, and we haven't got full reimbursement there.

Yes, we do have -- we have improved there.

We've got some, but it's not all there yet.

We've improved in the DME channel somewhat with some payers; with others, we haven't.

And it's a process.

As Quentin said earlier, as we look at pricing headwinds and things like that, it would have an impact more in the fourth quarter and into 2019 than into the third, and has not impacted us this year as much as we'd originally planned, when we gave our guidance, hence why we beat so much.

And we have really strong volumes as well.

So we'll just play it by ear, but we are -- we're aggressively proposing these structures, to make this easier.

And the next question in the queue comes from Jeff Johnson with Baird.

I know you don't give patient add numbers, but -- and this is a lot more art than it is science.

But when I try to back-end the numbers, Quentin, would it be crazy to think about your Medicare patients sequentially?

The adds in 2Q were twice what they were in 1Q?

And your international patient adds might have been 2 to 3x what they were on kind of the last few quarter average.

Just trying to figure out what would have driven such a big sequential move in both those patient adds, if I'm anywhere close to being right on those numbers?

Yes.

Jeff, we're not going to give any color around patient adds at this point.

Obviously, we've talked about moving away from that.

So we're not going to give any incremental color around those kind of things.

I think it's safe to say, the awareness of CGM is growing meaningfully in the marketplace, and you've got not only ourselves, but you've got other folks out there who continue to educate on the value of it, and it's being heard.

And you're seeing that show up through the fact that new patients are coming in to realize that CGM has value.

So we're not going to get the specifics of the numbers, but absolutely new patient volumes are a big driver.

Okay.

Maybe the corollary there, were there any onetime bills or adds to pay?

And anything at all that was more onetime in nature in the quarter?

No.

Nothing in particular.

I will tell you, we ended up -- we talked about the deferral potential back in Q2 -- or sorry at the end of Q1, when we talked about the Q2 guidance associated with our G6 promotion program.

That came in a little bit lighter than what we thought.

We said that there could be $10 million of headwind.

It ended up being about $5 million of headwind.

So maybe you had $5 million of upside to that expectation that played through the numbers, but obviously, that doesn't explain the big beat.

The big beat is really driven by underlying volumes across all segments or all channels in the business.

All right.

Great.

And just on my last question, just on ICGM.

Are you seeing any progress from a competition standpoint on getting towards ICGM designation?

How long do you think you might have that advantage?

It looks like the [15 15] numbers from the updated approval on Abbott probably will fall short of that designation.

So just wondered what you're seeing on the competitive with movement towards ICGM.

Yes.

I mean, just reviewing the data that Abbott -- that was published, I think, on Monday, on the next generation Libre.

I don't think they're closed clearly in hypoglycemia range.

Their performance just isn't good enough to meet the ICGM standards.

So I don't -- we've looked at Medtronics' data on the Guardian Connect stand-alone, it falls a little short.

So at this point, I don't think there's anybody coming.

The next question in the queue comes from Jayson Bedford with Raymond James.

I just have a couple here.

I think, Quentin, you mentioned that the G6 demand has driven delays.

Is there any way to quantify the delays in terms of the impact on 2Q revenue?

Yes.

I don't know that it's necessarily delayed revenue.

What we've said is it's created tremendous strain on the organization to keep up with that demand.

So we're doing everything we can to bring incremental lines up from a production perspective, hiring folks in to run those lines, introducing automation into the production facilities, setting up our Mesa manufacturing facility.

But I would say we're meeting the demand at this point in time.

We're not missing opportunities, but it's putting a lot of strain on the business.

And to be clear, it's not just G6 that's driving that, the G5 demand in the second quarter is far and away what drove the outperformance.

Okay.

That's helpful.

And just maybe to piggyback on the last line of questioning, in terms of the Medicare opportunity, do you expect the new CMS regulations around the use of a mobile phone to have an impact on demand and uptake within the Medicare population?

No.

I think it's just a good win for patients.

I mean, we don't -- we've long said that we don't think that patients -- that folks in the Medicare population were deferring -- going on to DexCom CGM because they couldn't use their phone.

But what everybody in the community was saying this is just silly because the share feature functionality is one of the critical aspects to the technology of real-time CGM.

So obviously, we were pleased that Medicare will allow patients to actually use that technology now.

This is Kevin.

I've been out in the field right along a couple of times over the past few months.

And I think this will help us drive more Medicare interest, more demand.

I don't know how many were sitting on the bench waiting for this, but I do think the ability for us to market through this and say, look, we can now share your data with those who are caregivers with you.

I think it can be very powerful, just like it's been for us in pediatrics.

So it will take some time, but let's see how it plays out.

The next question in queue comes from Robbie Marcus with JPMorgan.

Two questions, one on volumes, one on pricing.

First, can you help us in international, still relatively small but impressive growth in the quarter?

Can you help us break down sort of what's driving that there?

Is there an uplift in reimbursement?

Or mix?

Or utilization?

How -- what's driving that strong growth there?

Yes.

So international, as we noted, 22% of total revenue contribution in the quarter, up 78% year-over-year, one of the strongest quarters that we've seen to date and what is still an incredibly unpenetrated or underpenetrated market opportunity.

I would tell you that the strength is across the board.

It's across all of Europe.

It's across all of the rest of the world for us, with every one of the regions really performing well.

Pricing is holding steady.

Utilization, I would say, is improving, but a lot of it is driven by new patient interest and just continued further adoption within those marketplaces.

So it really is across the board and not any one particular geography that's driving it.

It is across the regions.

okay and then, on pricing, can you spend a minute and talk about what your negotiations since the G6 has been approved have been like?

Are insurance plans looking at this as a total cost to therapy?

Or versus a -- the lowest cost therapy?

Or are they evaluating this more on a per-day basis in the avoidance of hypoglycemia or other hospitalization events?

Maybe give us some insight into how your contract negotiations have been and how they're addressing it.

And maybe give us an update into what's baked into guidance because I remember last quarter, it was $70 per sensor.

Is that still what's assumed in guidance?

Robbie, this is Kevin.

I'll let the other guys kick in after I take a bit of this.

One thing you can understand for sure is we do not have any difficulty explaining to third-party payers the difference between our product and others.

Our product with no calibrations and connectivity and sharing data and the ease of use.

As a feature set, they incorporate anything good that any other products do and we've got it all.

So that is not difficult for us to explain with G6.

I would tell you with the payers, it varies payer to payer, payer and meeting to meeting, some of them look at cost per day.

Some of them look per member per month.

Some of them look at annual therapy.

Some of them -- and so whatever the presentations are geared towards, the people that we meet with, some, quite frankly, are geared towards Medicare.

Here's Medicare pricing.

Where do we go from here?

It all depends on who we're talking to.

We tailor our approach with everybody we meet with, and we'll see how these things play out over the next several months, particularly now that we have G6 approved in the market, that's another thing we all have to remember.

While we're selling G6, a lot of the G6 reimbursement now is grandfathered in from a G5 contract that we had before.

And in those cases, we got paid per sensor per day, and that will change over time and that will change as we put new arrangements and new plans in front of payers, but that's how we approach it.

We approach it strategically in each and every individual meeting.

The best way to go about it, we approach it from pharmacy channel, from DME channel depending upon the payer and what they have an appetite for.

So this is very much -- it's a wide-scale effort.

It's -- unfortunately, I'd love it not to be a shotgun approach, but it is an approach where we have to address each audience the way they want to talk to us.

Okay.

So when you list pricing as a potential headwind or a concern in second half, it's more -- you're not seeing a pricing headwind?

Or there's no immediate concern of pricing, but given that there are other competitors out there, it's something that we should all be aware of?

Is that the way to think about it?

It's something we should be aware of.

And as I also said in my prepared remarks, and I believe Quentin mentioned earlier, where we have an opportunity to go to pharmacy and increase access and availability for patients, we are willing to give some price to increase volume and get the technology to more people.

That's just one example, and we've done the same thing with some DME plants as well.

So we know there may be some plans accepted that would have an effect on what we're doing.

And competition can drive some of that also.

Both Medtronic and Abbott have talked about -- Medtronics said they're going to price lower than what we've been in the past.

But we all know that Libre's priced much lower than where we are.

We see that market -- and add another factor onto that.

Medicare got approved in 2017 and that pricing is lower than where we've been in the past as well.

So pricing pressures are not an if, they're a when.

We're addressing it very proactively and building business models that will work best for us.

At the end of the day, look at the numbers we just put up.

They're pretty strong.

The next question in the queue comes from Doug Schenkel with Cowen and Company.

This is Ryan on for Doug.

Any update on your plans to extend the (inaudible) time of G6 to 14 days?

And you do still expect to run that trial this year?

We're working on that right now.

We have several alternatives in the pipeline, but going out to 14 days.

ICGM is an important consideration for us.

We do believe that is a very important development with the FDA having 510(k) and the ability for us to move faster within the structure where we play.

When we got the ICGM rules and the standards and the accuracy guidelines, we have to make sure our 14-day product will perform there.

So we're doing work on that.

I think for us right now, getting the 10-day product out to everybody, getting G6 launch is most important.

We are looking at 14 days, but I don't really have an update or a timeline for you right now.

Got it.

And then, maybe just a follow-up on the pharmacy channel and monthly bundles that you've been talking about.

Can you give us a sense of what proportion of your U.S. commercial business you've already committed to deals with?

Is that still a very small proportion?

And is this potential headwind in the back half really conceptual at this point, if more deals are struck?

We've never broke out those percentages as to what we sell through the pharmacy and what we sell through other channels.

A lot of this is very conceptual at this point in time, and we'll leave it at that.

Next question in the queue comes from Joanne Wuensch from BMO Capital.

Can we just take a second about competition?

It's a little surprising to me as we go around talking with investors that there's still concern regarding the next generation Abbott product, the next generation Libre, or what may happen with other products coming on to the market.

What is your experience as you go out there and you talk to people?

And what are the pros and cons as you position G6 now against them?

Well, I'll speak.

There's nothing that Libre does that we don't do better.

I can leave it at that or I can go on.

With respect to the physicians that we meet with, when we meet with them, G6 has so many features, with connectivity, with its performance in the high and the low range, with its consistency, with the form factor, the ease of insertion.

This product is a home run for us.

So I mean look at how our business -- and this growth this quarter was without G6.

There's a very, very broad acceptance for G6 right now.

I guess the other thing to remember that I think everybody else who gets very hung up about, there's a lot of patients out here that have diabetes.

The world's not just going to be one CGM company.

It's going to be numerous ones.

So there's opportunities for all of us.

Our market is still very underpenetrated regardless of what Abbott does or says or Medtronic does or says, what we do or say or what startups do or say.

We have a lot of room to grow.

This platform with G6 really gives us the opportunity to grow into areas where we haven't gone before because it is so much easier to use, and the thought of not sticking your finger anymore given the -- combined with the performance of the system really is very appealing to people.

And so we're excited with what we have going on and we're not going to spend a lot of time worrying about the others.

The next question in the queue comes from Anthony Petrone from Jefferies.

Maybe just a little bit on something that the company spoke a bit about just as it relates to Abbott's presence, in other words, their launch of Libre has actually opened up the discussion around CGM.

I'm just wondering, is any of that reflected in the numbers this quarter?

Was it really just the anticipation of G6?

Did you get more G5 users to adopt -- to bridge to the pathway to G6?

And then, I'll have a follow-up.

Well, we can tell you, the strength in the quarter, as I mentioned earlier, was really driven by G5.

And I think just the natural uptick in the awareness being created in the marketplace by having more competitors here is what's fueling that opportunity.

And then, obviously, you have the G6 launch, which creates -- or peak's people's interest and they start to look and feel good more about it, and it brings them our way as well.

So I guess I would just leave it at that.

Fair enough.

And the follow-up would be just on, as you look at the revised guidance into the second half, I'm just wondering -- there's a lot of discussion on price.

It sounds like the gross margin shift was more on the manufacturing.

I just want to confirm if there's anything in gross margin guidance as it relates to price.

And then, again, lastly, the t:slim X2 launch, does the revenue outlook contemplate anything from that launch as well?

Well, I'll take the gross margin question on price.

You may have to repeat the last question there.

But from a pricing perspective, we haven't seen that play out any different than what we had originally anticipated in the broader range of 65% to 68%.

In Q2, price or mix depending on what you want to call it, I guess, is revenue per patient associated with the lower revenue per patient in the Medicare channel and the international business, that did weight out margins year-over-year by a couple of hundred basis points.

But that was in line with what we would have anticipated.

Last quarter -- or sorry last year, same quarter, we were at 68.9%.

If you take a couple of hundred basis points off of that, you're down around 66%, 67% right where we thought we would be.

So price is coming together just like we anticipated and we've dialed in the back half of the year to be relatively consistent with what we expected in that 65% to 68% range, but now you're dealing with some of the headwinds of the incremental demand that we're trying to ramp up the organization to be able to fulfill.

So that's the only real difference in the gross margin.

And the next question comes from David Lewis of Morgan Stanley.

I had just one quick question on pricing, then a follow-up on guidance.

Steve or Quentin, I think I heard you say pricing in the quarter was stable.

Is that inclusive of the G6 launch?

Or exclusive of the G6 launch?

Well, the G6 launch only contributed for about 3 weeks.

And this quarter was largely driven -- as Quentin mentioned, it was largely driven by G5.

I mean, this quarter was actually all about G5.

So even if G6 pricing were higher, would that necessarily have moved pricing up in the quarter?

No.

Not enough to see it in the overall results yet, David.

Okay.

Very helpful.

And then, Quentin -- or actually, maybe one for Kevin and one for Quentin.

They're kind of related.

Kevin, I think everyone's trying to figure out sort of what drove the inflection in the U.S. market this quarter.

Obviously, it's underlying demand, but could you help us just force rank, if I gave you sort of 3 options, market expansion, Medicare, or G6, how you'd force rank those in terms of impact it had on U.S. market this quarter?

And then, for Quentin, just look at the back half, I think everyone looks at that number and says, it looks conservative.

You talked about some of the pressures in the U.S. potentially.

Is there a way to think about the back half U.S. ex U.S., some deceleration that these pressures do materialize, but a more stable environment ex U.S.?

I'm just trying to think of the relative terms here as you move into the back half.

Well, I'll take the easy one, where I get to think about force ranking 3 variables.

I would tell you, first, the overall market expansion.

Second would be Medicare and third would be G6 because you're back to Steven and Quentin's earlier comments, we only had about 3 weeks' worth of G6 to ship.

And it's been our experience over time that very seldom do patients with DexCom buy our old technology because of the upgrade program and move on.

If they really want the new product, our patients, to their credit, manage their money and their finances as closely as they can because this disease is not inexpensive.

So if I had to rank the 3, I would say overall market expansion and stickiness of our current patients combined with new patients then I would add Medicare in the U.S. as a second driver and third would be G6.

Then I'll turn the other one over to Quentin.

You go ahead.

Yes.

So in terms of the back half of the year, David, I would say we feel like the international markets are quite stable, yet at the same time, 78% growth that we put up in the second quarter, we're not ready to call that a trend just yet.

So I think when you look at your models and I understand when you drive them into the $925 million guidance, you're going to come up with first half growth rate of 36% slowing to potentially 23% in the back half of the year.

I think a couple of things to keep in mind.

One, the comp in the back half of the year is just -- it's going to be more difficult.

We started to see acceleration in the business last year, particularly in Q4, but that's about 400 basis points of a headwind if you're just trying to quantify the impact of the tougher comp.

And then, we've noted that we've got 700 basis points in there relative to revenue per patient or kind of pharmacy subscription, mix shift in the commercial business.

So between those 2, you start to work yourself back into a growth rate that's pretty comparable to the first half of the year after contemplating those headwinds.

So that's how we think about it.

That's how we've dialed into our expectations.

And to the degree that we can navigate it well, terrific.

We're all going to be very happy.

The next question comes from Kyle Rose with Canaccord.

And I got a sentiment on the robust quarter here.

I just wanted to quickly touch on your market awareness in some of the DTC campaigns and activities you guys are doing.

I know that you've got a number of digital, but then also some TV advertising.

So just wanted to kind of see how you think about DTC as a way to drive patient awareness and kind of your ability to throttle some of your campaigns on an inter-quarter basis, particularly given we're still only in the first 3 to 6 weeks of G6.

Then I have one follow-up.

Yes.

This is Kevin.

I'll take that.

We monitor those campaigns very closely.

We've had a great deal of success with our DTC, our digital efforts and our television efforts, everything that we tried.

We monitor their effectiveness.

We adjust.

We move, and change our approach literally on a real-time basis.

We think that's very helpful in driving new patient demand.

I would tell you, on the G6 front, we've had significant demand from our traditional channel, driven by our field sales team and their physicians, educators and nurse practitioners.

So those are our 2 major channels for getting patients.

I would tell you that once it come from the field have a higher percentage of turning into a sale, but we have very detailed systems as far as qualifying leads that come into our digital sources and from our TV programs to determine how strong our lead is and very, very detailed programs to call them within a very short period of time to keep their interest going.

These are systems we've been building out over time.

That's been a long road for us.

We're really proud of that team.

They've done a really good job.

And then, last question just on the non-intensive population.

I mean, I know that you have the pilot program going on with UnitedHealthcare.

I mean, when we were at ADA, we saw a big focus, particularly on the clinical data front as far as diabetes prevention program data.

I just want to see if you've given any thought to the non-intensive population and how you see that business model evolving, say, over the course of the next couple of years as we think about Verily Gen 1 starting to come in.

We give a lot of thought to that population because it's a very large market and we believe CGM can be a very, very powerful tool there.

The question for us and the things we have to develop our models to whereby that tool is used most efficiently.

On our current structure, for example, a Type 2 non-intensive patient wearing CGM all the time at today's prices is not feasible.

But it is feasible for them to have an experience whereby they wear a CGM intermittently.

One, 2, 4, 6x a year to determine that those meds they're taking are working properly and that -- and to see if there are improvements we can make in overall diabetes health with respect to diet and exercise.

We have the UnitedHealthcare pilot.

We have other pilots we're working on.

We have the Verily Gen 1 product and also Verily's joint venture with Sanofi, Onduo, has made a lot of progress in that area too.

We speak with a number of type 2 programs that are ongoing.

And one of the things we see evolving over time is with the API platform we've built there may be in fact an opportunity for us to provide data feeds to some of these programs and develop an entire new business model that way.

It's a very exciting area for us.

I think the big question is the business model, what is the revenue per patient?

How do we monetize our asset and our product?

And how do we make it to whereby those who pay the bills can see the benefit for it because it's not just going to be throw devices at these people.

There's going to have to be returns on it, and we're excited to demonstrate that and we've talked a lot about our UHC pilot.

We think that will certainly demonstrate returns over time and there are others that we think will be beneficial as well.

It's going to take a while, but it is going to be a very large market for it.

And the next question in the queue comes from Steven Lichtman from Oppenheimer.

So given the accelerated demand you're seeing, are you contemplating an expansion of the sales force here?

And is that factored into the old OpEx guidance?

Or was that solely higher variable, expenses on the higher revs?

It's variable expenses on the higher revs across the board.

There's a number of areas.

We're not contemplating a field sales force increase for 2018.

Right now our field team is performing spectacularly, as is, we will evaluate the size and structure of the field sales force as part of our 2019 planning, which is going to be starting very soon, and we'll see how that goes.

But for now, we're happy with the group that we have.

Got it.

And then, just one quick follow-up.

Can you remind us on the timing of the second gen transmitter and the benefits of it?

Our next-generation transmitter is literally complete electronics redesign.

There will be significant cost advantage to that.

I don't think we've disclosed the numbers, but it will be significant, and it will perform.

As far as its range of transmission and user experience, we think it will be even more consistent, better than what we have now.

We're working really hard to get that through validation or verification, so we can launch that sometime next year.

That will have a very positive impact on our business.

And the next question in the queue comes from Chris Pasquale with Guggenheim.

Quentin, a 700 basis point headwind from channel shift seems like an awfully big number.

Can you give us any help on the math you're doing there?

And why that scenario is a realistic possibility?

Look, what we said was there's potential channel shifts in there.

So again, pharmacy subscription model as well as some of the competitive headwinds that could exist out there as well.

So we're not going to break it down any more than that or quantify it any differently than that, but that's how we got into that number.

Okay.

Okay.

And then, the average wait time for a new patient today, if they want to get G6, what's that running at?

I don't have that number off the top of my head.

I don't think the total average waiting time is a whole lot higher than before, but there are times when -- and you can see this online where we've had certain components where you're going to have to wait 3 to 5 days for a little while.

And then, we've had other times when you've had to wait a little bit longer.

Our situation with having supply constraints has been very much more short term than a long-term situation where we've had to say, "Hey, you're not getting anything for a month".

It's been more of "Here's a few days, and wait a few days on that." We're trying to manage this as close as we can and certainly keep everything as low as possible.

But there are wait times and it varies.

It literally varies based on production, and when we get goods in the inventory.

The next question in the queue comes from Suraj Kalia with Northland Securities.

Kevin, can you help me reconcile your comments about 3 weeks of G6 launch in the quarter?

And I believe you also said there was inability to supply enough product, and there was an impact, nonrecurring impact, on gross margins.

I don't think so I got the number down.

But can you just tie both of those together and help us understand the 3 weeks and why the impact -- such a big impact from gross margins from G6?

Yes.

Suraj, this is Quentin.

I'll jump in and take that for you.

What Kevin was alluding to was G6 really was only available in the last 3 weeks or so of the quarter.

The demand was really driven out of the G5 product lines.

But if you can imagine, as you're starting to ramp or anticipating the ramp in G6, you're starting to slow down some of your G5 production line.

At the same time, you have demand going the other way.

So they'd have to reignite those or to bring other lines back up to meet that demand is highly inefficient.

So we're doing it to get product into the hands of the patients, which is the right thing to do, but you're doing it in a less efficient way than what you had anticipated being able to do it had everything moved to G6 more quickly or if the demand hadn't come in as strongly as they had.

But we had produced a whole lot more throughput through the plan that we had originally anticipated.

So that's what's driving the inefficiency.

Fair enough.

And Kevin, I was asked this question by a client, and I've completely confessed it stumped me.

I've never heard of this through my field checks.

But maybe you can just kind of see if this is in the realm of possibility.

And the question was, like UnitedHealthcare paired up with Medtronic as a preferred pump supplier.

And Medtronic is offering risk-sharing programs.

And I was asked specifically, can you anticipate any of the payers going down this route on the CGM side.

And I confess I had no idea how to respond to that question.

Love to get your thoughts on this.

I appreciate the question.

We don't have Medtronic's balance sheet.

I wish we did.

With respect to risk-sharing, the risks that we prevent are severe hypoglycemia and the outcomes that we generate are reduced A1cs.

To the extent a payer has a very, very accurate mechanism for measuring those things, we would invite the opportunity to make those type of proposals.

The other thing that we all need to be cognizant of is we certainly haven't read how those risk-sharing arrangements work for other companies.

With respect to being a preferred CGM provider, I know people ask for that and look for that.

With our current market share, if you -- like the T1D data that was, I think, near 80% from those patients and stuff.

We appear to be the preferred CGM provider of patients.

Anyway, so we'll continue to push that and being a leader here.

We don't anticipate being aced out there, but we are not afraid to take make those types of proposals ourselves.

We just don't have any -- that have won.

Not afraid of that.

The next question in the queue comes from Ravi Misra from Berenberg.

I'll go to the next question.

Next question in the queue comes from Isaac Ro with Goldman Sachs.

Quentin, just a question on what happened in the quarter and what it implies for the back half?

So if I look at the growth rate, sequentially, the huge acceleration, the biggest in years.

And at the same time, the first quarter sequential growth rate from fourth quarter was actually down, right?

So it was a big inflection in the short period of time.

And I would appreciate a little bit more detail as to why the market would inflect so much this quarter.

I know there's a lot of things happening in the marketplace, but it just seems like a really acute dynamic in the market.

Well, sequentially, Q1 has always been down from Q4.

I think you just naturally have that, particularly with the heavy weight of our business that flows through the U.S. commercial business where insurance deductibles kind of -- from that kind of behavior.

So that's natural to see.

You're right.

The sequential increase from Q2 or off of Q1 into Q2 was far beyond anything you've seen historically, and I think that's part of what we're articulating here is that we're incredibly bullish on where this has the opportunity to go and just the early aspect of CGM adoption.

But at the same time, we're not going to call it a trend just yet.

That's 90 days of experience that was far beyond your expectations and it just puts a strain on the organization.

We're responding to it, and we'd love to have that challenge continue to be played out in Q3 and Q4, but we're not going to call it just yet.

We want to see that play out further.

Okay.

Helpful.

And then, just a follow-up on the product.

If I look at the same conversation from a product mix standpoint, you guys have mentioned that -- on the call here, that the demand was mostly for G5.

And I'm curious it seemed to be the market or these patients were aware that G6 was coming.

It was, obviously, going to be a big improvement.

So why would demand for G5 ramp so much sequentially, if patients knew G6 was around the corner?

It comes back to general awareness.

I just think awareness in this marketplace is increasing significantly.

You've got big players out here who are putting big dollars to work to advertise and create awareness around the space.

And I think as we've said from day 1, multiple players are going to have success here.

It's not going to be one player or another.

All of us are going to win together and I think that's exactly what you just saw play out in Q2.

And the question in the queue comes from Ravi Misra from Berenberg.

So just to piggyback on Isaac's question there.

I'm just curious, just versus our numbers at least, the sensor outperformance was pretty significant, suggesting transmitter and receiver beats -- while (inaudible) were not as strong as that.

Just curious, given that G5 and G6 is going to have some transition at some point, are you seeing any higher reorder rates from existing customers?

Particularly stocking up on sensors given that they know a fixed life is coming down the pike?

And then, secondly, my follow-up is, I think in the past, you've referred to the Abbott Libre performance has created a patient population for you to siphon off some customers once they realize that, that technology isn't as capable as yours.

A little bit more color around the new patient starts.

Is that still continuing?

And how should we think about that?

Well, I'll talk to the revenue growth rate across kind of the categories that you mentioned, transmitters, receivers being a bit slower than what you saw on the sensor side.

I think, for a couple of reasons.

One, in this international space, it's receiver-optional for us.

So you don't necessarily always see folks purchasing the receiver as they come to become a DexCom user, and that plays out in the results.

We talked about this promotional program of G5 into G6.

That played out in the quarter and there's still a bit of deferral that would come back in the back part of the year over the next 6 months at some point roughly $5 million or so that didn't come in Q2.

You normalize for that and you got a growth rate in your transmitter business that's right back up in line, close to that sensor business, which I think you can triangulate that back to a combination of, obviously, a ramp in new patients coming in to the business that awareness is being created in the space and continued strong utilization from your existing user base.

And then, just around that -- the Abbott commentary.

Is that awareness that they're creating there creating an expanding group of patients for you to kind of siphon off from them?

Ravi, we don't have exact numbers saying how many patients have come to us from that.

We can anecdotally tell you, we've heard this, and we've heard this for years in Europe.

Particularly, as you get somebody intensively managing their diabetes, they tried the Abbott technology and aren't getting the experience that they're looking for, the experience of alerts, alarms and continuous readings.

So yes, that happens, but I can't quantify it.

We have no further questions at this time.

I'll turn the call back over to Kevin Sayer for closing remarks.

Well, we'd like to thank everybody for listening in and participating in our call today.

As you can see in our results, the diabetes community remains bullish on DexCom, and our outlook going forward is stronger than it's ever been.

G6 is not just a product launch for us, but it's a generational platform shift.

This platform provides us with the technological foundation to take CGM across all of health care.

There's no technology out there that can provide a glucose management experience that cannot be achieved through the G6 platform, only G6 does it better.

That being said, rest assured, we'll never sit still.

We're already driving the team to get going on our next-generation systems to expand our manufacturing, transactional capacity and provide more meaningful tools for our patients and partners, all the while trying to navigate the day-to-day realities of launching our new system, and to this much more competitive and complex global marketplace.

I want to once again recognize all the substantial efforts of all the DexCom teams through this time.

And once again, thanks, Terry.

Thank Terry for his leadership, mentorship, and vision, over the past 13 years.

This ride isn't going to slow down anytime soon.

Thank you, everybody.

Thank you.

Ladies and gentlemen, this concludes today's teleconference.

Thank you for participating.

You may now disconnect.