Welcome to the DexCom First Quarter 2021 Earnings Release Conference Call. My name is Adrienne, and I'll be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note this conference is being recorded.
I'll now turn the call over to Sean Christensen. Sean, you may begin.
Thank you, operator, and good afternoon, everyone. Welcome to DexCom's Q1 2021 earnings call. Our agenda begins with Kevin Sayer, DexCom's Chairman, President and CEO, who will provide a summary of our progress, followed by a financial review and outlook from Jeremy Sylvain, our Chief Financial Officer and then an update from Quentin Blackford, our Chief Operating Officer on the company's strategic initiatives and scaling progress. Following our prepared remarks, we'll open up the call for your questions. At that time, we ask analysts to limit themselves to one question, so we can provide an opportunity for everyone participating today.
Please note that there are also slides available related to our Q1 performance on the DexCom Investor Relations website on the Events and Presentations page. With that, let's review our Safe Harbor statement. Some of
the statements we will make
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 All forward looking statements included in this presentation are made as of the date hereof based on information currently available to DexCom, are subject to various risks and uncertainties and actual 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 ks, 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 With respect to our non GAAP and cash based results, unless otherwise noted, all references to financial metrics are presented on a non GAAP basis.
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 slides accompanying our Q1 earnings presentation for a reconciliation of these measures to their most directly comparable GAAP financial measure. Now, I will turn it over to Kevin.
Thank you, Sean, and thank you, everyone, for joining us. Today, we reported strong Q1 results with total revenue growth of 25% over the Q1 of 2020. As I often tell our employees, our ability to thrive as a company ultimately comes down to solving significant And that is what we continue to see with G6. We hear incredible stories of improved glucose control, Reduce disease burden and people being empowered and those responses have only increased as we've enhanced tools to better drive our customer experiences. These stories are coming from multiple sources as well.
Whether it is coming from G6 users or their family members who are gaining better control and their glucose levels to real time data or clinicians who are empowered by the ability to gather unique insights into the diabetes treatment of their Type 1 or Type 2 patients And optimize therapy accordingly. And even new settings like nurses and doctors in the inpatient setting who are deploying CGM and learning about its Potential to optimize workflows and benefit from our remote monitoring technology. New customer additions are off to a great start in 2021, Especially in the U. S. As we continue to see growth across all channels, building from the increased access that we've gained over the past several years.
This includes continued traction for people with Type 1 diabetes and Type 2 intensively managed diabetes, Both of which have continued the strong growth momentum that we've seen over the past couple of years. We're also seeing a growing number of Type 2 non intensive customers on G6, Not only through our partnerships like UnitedHealthcare's Level 2 program, but also including the other innovative programs and providers that are establishing early access to DexCom We're also progressing our strategic commercial efforts with the remainder of our commercial sales force expansion completed in the Q1 and our direct Consumer marketing efforts generating new levels of brand awareness. The Super Bowl commercial featuring Nick Jonas was a highlight for the company in the Q1. We were able to generate significant excitement for our employees and customers, many of whom have sent us pictures and stories of their pride and feeling represented during one of the Biggest annual events in the world. We also contribute to a broader conversation in the diabetes community that we hope will help facilitate broader access to CGM in the future.
The ad drove a record number of visitors to our website, a record for single day new customer leads And significantly more media impressions than we generated in all of 2020. And we are confident That there will be ongoing benefits that will come from the ad. In fact, according to the independent Harris poll, Dexcom led all Super Bowl advertisers in brand equity growth. Overall, it was a great investment for the company and I'm really proud of our team for pulling it together. Our commercial efforts also include a strong push from our teams to expand access to DexCom CGM technology internationally, both deeper in existing markets as well into new geographies.
With DexCom in the strongest inventory position in the company's history as a result of our scaling initiatives, we are aggressively advocating for broader to our G6 systems for people with Type 1 diabetes and intensively managed Type 2 diabetes similar to what we have done here in the United States. Since we last reported in February, we have received confirmation from 3 additional Canadian provinces that they will begin covering DexCom CGM. This is a great step forward in expanding access for people with diabetes. There is significant demand from customers and clinicians And we are optimistic that we will continue this positive momentum in Canada with both the public and private payers over the coming months. In certain reimbursed markets, we are proactively lowering price to significantly expand access to incremental customer populations.
This positions us well to continue to grow sensor volumes significantly now and into the future and we believe the incremental volumes will More than offset the impact of price in the near term. In conjunction with our commercial initiatives and the growing CGM category awareness, We're advancing the clinical and regulatory path for our next generation G7 CGM system. As a reminder, We expect G7 to improve all aspects of the current customer experience offered with G6 in a disposable wearable that is less than half the size. We are working to prepare the submission for CE Mark in accordance with the new medical device reporting standard in the EU. At this point, we remain on track for our target launch of G7 in the second half of twenty twenty one.
We also plan to present preliminary data on G7 performance at the upcoming ATTD conference in early June. Our trial that will support our U. S. ICGM filing is So well underway and we received outstanding feedback from the investigators and patients involved. We expect to complete that trial in the current And we'll keep you updated as we progress towards regulatory approvals and launch.
Even as we advance our Strategic plans and have seen continued customer growth over the past year. The evidence of the global pandemic remains with us. We continue to navigate certain closures in territories that have seen cases spike and our team remains focused on the three priorities We have emphasized throughout the past year, the health and safety of our employees, continued supply of our customers and service to our communities. Towards this end, we were pleased to recently work with the State of Arizona to open the 1st indoor mass vaccination facility in Arizona to help the community as it transitions to the heat of the summer months. This facility rests within our Mesa distribution facility and has the capacity to support several 1,000 appointments per day.
I am proud to lead a company whose employees are so dedicated to the service of our customers I'm willing to think creatively about what it means to be a leader in the communities that we serve. As we come back to Q1 results, I want to welcome a new voice to our earnings call, Though it's familiar to many of you already. Last month, we announced the promotion of Jeremy Sylvain to the role of Chief Financial Officer, and I am pleased to have Jeremy join Quintin and I for his 1st ex com earnings call this afternoon. Jeremy?
Thank you, Kevin. I'm excited to be with you today and in the new role as we advance our work As a reminder, unless otherwise noted, the financial metrics presented today will be discussed on a non GAAP Reconciliations to GAAP can be found on today's earnings release as well as on our IR website. For the Q1 of 2021, We reported worldwide revenue of $505,000,000 compared to $405,000,000 for the Q1 of 2020, representing Growth of 25% on a reported basis and 23% on a constant currency basis. This is our 7th consecutive quarter of revenue growth of $100,000,000 or more. Impressively, our revenue performance came against our toughest quarterly comparison in 2020 for both our U.
S. And international businesses, As the Q1 of 2020 was largely unaffected by the COVID-nineteen pandemic, we also saw nearly 40% global unit volume growth in the quarter, Representing growth of 30%. Our U. S. Business was the primary driver of growth in the Q1 with our commercial efforts in rising CGM awareness solid volumes and an acceleration from our 4th quarter growth percentage.
We believe that we are well positioned to continue this momentum. Our DTC efforts are driving awareness of DexCom CGM. We have new connected systems coming to market that build from years of collaborative work with And we have an expanded field sales force equipped with the product that our customers love. Our international business reached another quarterly high Watermark with a revenue of $124,000,000 or 10% growth on a reported basis compared to the Q1 of 2020. As we saw in the final three quarters of 2020, The impact of COVID-nineteen lockdowns has had a greater impact on new customer growth in certain international markets, which has a compounding effect on our reoccurring Nevertheless, we delivered growth against our toughest quarterly comp of 2020, where international revenue grew 61% before the pandemic.
We continue to see strong growth across a number of our markets, particularly in countries where the administrative requirements to access CGM are minimized via our e commerce channel or via broad As many of you have seen, we've successfully reduced our manufacturing costs and intentionally increased sensor production capacity. Through these manufacturing efficiencies and increased capacity, we are no longer restricted to focusing on high risk, high reimbursement populations. With this increased commercial flexibility, we are executing on our strategy to broaden access to our CGM technology by pushing deeper into existing markets we previously Through the incremental volumes generated by these efforts, we believe we will be offset in a near term price impact while better positioning the company for long term growth. Our first quarter gross profit was $343,900,000 or 68.1 percent of revenue compared to 63.9 percent of revenue in the Q1 of 2020. The fact that we are driving margin expansion despite absorbing the channel mix impact associated with the acceleration of our U.
S. Business to The pharmacy channel is a testament to the work of our teams to drive down material and production costs. Operating expenses were $297,500,000 for the Q1 of 2021 compared to $215,400,000 for the Q1 of 2020. The increase in operating expenses as Percentage of sales in the Q1 of 2021 is a result of several of the key initiatives that we outlined in our original 2021 guidance in February. This includes our expanded commercial efforts with the doubling of our U.
S. Sales force and increased global DTC marketing efforts, both reflected in the quarterly results. In addition, the Q1 research and development expense includes costs associated with our large U. S. ICGM trial for G7, which will continue into the Q2 as we generate the data necessary to support our regulatory filing.
Offsetting those strategic investments, we continue to gain leverage in our general and administrative expenses in the quarter demonstrating the benefits of our scaling initiatives. To that end, as we've previously indicated, we have launched a Global Business Services Facility in Lithuania, which is now officially live and servicing our customers. Operating income was $46,400,000 or 9.2 percent of Revenue in the Q1 of 2021 compared to $43,300,000 or 10.7 percent of revenue in the same quarter of 2020, With the 150 basis point decrease resulting from our strategic investments offset by our gross margin improvement. Adjusted EBITDA was 94 $400,000 or 18.7 percent of revenue for the Q1 compared to $77,800,000 or 19.2 percent of revenue for the Q1 of 2020. Net income for the Q1 was $32,800,000 or $0.33 per share.
We remain in a great financial position, closing the Q1 with more than 2 point 1,000,000,000 in cash and cash equivalents and well positioned to continue our G7 scale up and remain opportunistic as we look to expand our growth opportunities. Turning to guidance, we expect some impact to new customer starts to continue during the ongoing global vaccine rollout, As well as the currency benefit that we saw in the Q1 and continue to anticipate, we are pleased to be in a position to raise our full year 2021 revenue We now expect 2021 revenue to be between $2,260,000,000 to $2,360,000,000 representing growth of 17% to 22% This growth continues to factor in strong unit growth volumes, which are offsetting the impact of lower revenue per customer channels and our recent efforts to broaden access to G6 in international markets as well as the impact of currency. Turning to margins, we are affirming the full year 2021 targets previously established on our Q4 call. This includes non GAAP results to be approximately at the following levels: Gross profit margins of approximately 65%, operating margins of approximately 13%. We continue to expect that adjusted EBITDA margins to be approximately And finally, as you may have noticed, from a tax perspective, we have transitioned to profitability and we'll have a tax rate applicable to earnings going forward.
Our expectation I'll turn the call over to Quentin for a scale and strategy update.
Thank you, Jeremy. It's been a pleasure to work alongside Jeremy for the last 7 years of our careers, and I am thrilled for him as he now steps I look forward to watching him take this next step in his career and look forward to the many contributions that he'll make in his new role, We're also excited by the opportunity to turn my attention much more broadly to our strategic and scaling efforts across the organization. Our teams remain incredibly focused on our strategic initiatives and are making great progress on several fronts. As Kevin mentioned, we are advancing our regulatory and clinical efforts for G7 And we'll present the first set of G7 data at the upcoming ATTD conference in early June. As we press forward toward our G7 goals, we are making steady progress in our effort And we have also broken ground on our manufacturing sites in Malaysia, which we expect to enable us to significantly scale our G7 production To serve meaningfully more customers as we continue to grow our business in the years to come.
Even with G7 on the horizon, We remain committed to building on the leading customer experience that we have established for users of our G6 system. Following the December regulatory approval in the U. S, We rolled out an update to the G6 algorithm in the Q1. We believe this update will drive further reductions to times in which Data is temporarily unavailable and have seen excellent results from the initial launch of this updated algorithm in Canada in 2020. These are the kinds of incremental improvements that we are always looking to provide and they are contributing to our strong customer retention and satisfaction levels reflected in our industry leading Net On the insulin delivery front, we were encouraged to see the great results from the Omnipod V pivotal trial presented at ENDO 2021 and look forward to the upcoming launch of that system for our DexCom customers using the Omnipod pump.
With this launch and Omnipod's differentiated patch pump form factor as well as Tandem's continued market traction with their DexCom connected Control IQ, we believe that we are very well positioned to We continue to benefit from the growing appreciation for these automated insulin delivery systems. Similarly, we continue to advance our development with Eli Lilly, Novo Nordisk and more recently Yipsimed leaving us in a strong position in future years as people with diabetes stand to benefit from greater variety in their choices Bluetooth connected insulin delivery options that integrate DexCom CGM. We've discussed the excellent Q1 performance in our U. S. IIT market as well as some of the key strategic initiatives that we are undertaking to expand access in our international markets.
We are also making excellent progress in our effort to drive The 3rd pillar of near term growth that we highlighted at our 2020 Investor Day, the non intensive Type 2 market. As we've mentioned before, we are taking multi channel approach to enabling access to DexCom CGM in the absence of widespread reimbursement. This involves direct work with payers, digital health programs, health care providers and integrated networks as well as the patients themselves. The early rollout of Level 2 is progressing well as we continue to see that program expand and our teams are working well with UnitedHealthcare team to optimize the experience for members using our G6 We also worked with several partners to expand their use of G6 in their respective Type 2 populations in the first This includes the initiation of commercial pilots with Teladoc Health's Livongo for diabetes platform as well as with WellDoc. Everside Health also announced that it will offer G6 to its members with Type 2 diabetes in its Healthstat business unit and we are proceeding there now in a pilot phase.
This relationship builds from our initial work with Healthstat over the previous 2 years, including the use of DexCom CGM in a pilot for health screenings at on-site clinics. Each of these relationships is expanding the pool of customers who can access our technology, while generating evidence of the utility of DexCom CGM for the broader Type 2 market This includes the hospital market where we are generating data via our patient registry and receiving great feedback as many across America continue to take advantage of the FDA's temporary allowance to use DexCom CGM in the inpatient setting during the pandemic. This also includes several clinical studies assessing the use of DexCom CGM for better management of gestational diabetes, a solution that we believe can enhance the outcomes And finally, we continue to access next generation technologies that we believe can build from the sensor platform that we've established G6 and G7. We look forward to updating you as we progress. With that, I will pass it back to Kevin.
Thanks, Quintin. As you can see, we're off to a great start to the year and working hard to execute on the strategic pathway that we've laid out for 2021. I would now like to open up the call for Q and A. Sean?
Thank you, Kevin. As a reminder, we ask our audience to limit themselves to only one question at this time And then reenter the queue if necessary. Operator, please provide the Q and A instructions.
Thank you. We will now begin the question and answer session. And our first question comes from Jeff Johnson from Baird. Your line is open.
Thank you. Good afternoon, guys. I'll put it into a multipart question, I guess, but Kevin, I think it's officially one question. But on the channel mix headwinds that we've been talking about here 6 to 8 quarters or so. Is it still fair to be thinking around $200,000,000 plus or minus this year and given the exit rate From 4Q of 'twenty, still fair to think a little bit of that is front end loaded.
And then when I look at your 30% U. S. Growth, It would seem like if I ex out the channel headwinds, the pricing headwinds there, volumes must have grown well north of 40%. So if you could just kind of confirm that from a pricing versus
And then I'll take that one, Jeff.
Yes, Jeff. So to your question on what the channel mix headwinds are, We'll just tell you what the numbers were for the quarter. It was about $50,000,000 for the quarter. And if you recall, we talked about it being a little bit more Straight line over the course of 2021 due to comps. The one thing we have talked about, Kevin referred to it on the call as did I, is We are going to be a little more aggressive in international markets.
And so because of that, we're raising what we call channel mixpricing headwinds to about $250,000,000 on the year. And that obviously takes into account the aggressive steps we're taking outside the U. S. In terms of your question in terms of growth and unit volume, we talked about unit approaching 40% on a global basis. When you take the channel mix headwinds we talked about, you are correct.
The U. S. Unit volume growth Was well in excess of that and obviously being the stronger point of the quarter from a growth perspective. So you are seeing that performance on the quarter.
And our next question comes from Joanne Wuensch from Citibank. Your line is open.
Thank you very much. Can we go back to what you just said please? To be clear, the $50,000,000 in the quarter, how much of that was U. S. Versus OUS?
Yes.
So Joanna, we generally don't break down the 2. What we did talk about was $50,000,000 is the global. Now majority of that It's traditionally been the channel mix from pharmacy or from DME into pharmacy. But when we give that number, we give a global number. So that was 50,000,000 on the quarter, again heavily weighted U.
S.
Okay. I'm going to sneak one more in because that was a clarification. Is there any reason That is not possible for G7 to be in the U. S. By the end of this year?
We're not giving any 7 timelines other than we will launch it by the end of the year. As I said in earlier portion of our remarks, our U. S. Pivotal study will conclude this quarter and then we'll file. We're working on our filing in Europe Our MDR rules for CE Mark and we'll go from there.
Time will tell, but everything is going well. We're happy with the Progress of the product. We're extremely happy with the feedback we've gotten from clinicians and patients. In fact, one clinician called me this morning In between our prep for this call, it will tell me how great the product was. So we're very happy with it, but we're not going to give any other timelines on what we have so far.
And our next question comes from Robbie Marcus from JPMorgan.
Great. Congrats on nice quarter and thanks for taking the question. I wanted to talk about the guidance raise. It was more than the beat you had in the Q1. So maybe walk Talk us through your new patient assumptions and what's driving that U.
S. Versus OUS. And if you could comment at all on how the early trends of the Super Bowl and increased DTC spend and Sales force doubling has benefited the company so far and what to expect in 2021. Thanks.
Sure. Yes. We can walk you through it. The guidance raised was approximately $25,000,000 of it was currency. So we referenced some of the foreign currency tailwinds associated with it.
The other Was related to volume growth, expected both in the Q1 and on the balance of the year. In terms of what we saw in terms New patient adds in the Q1. New patient adds were slightly ahead of expectations. And so that's really as we look to the balance of the year, certainly those Repeat customers obviously play through in the balance of revenue for the year and so we've added that to the guidance. We still are bullish on the year.
We still expect to have a very strong year. I don't think there was any question there. And I think if you see the performance in the U. S. Results, I think you're obviously seeing a lot of To your second question, a lot of the DTC, a lot of the Super Bowl ads as well as the new sales force ads starting to really play through, not to mention The fact that we have a sampling program that's out there that is starting to allow folks to trial the product, which we think is garnering interest as well.
So that's It's all been contemplated in the guidance, as we lay it out. And I think what you'd say is for the balance of the year, I do think you are seeing the momentum continue to support raising what we raised it by.
And Robbie, I would just the one thing I'd add to that is, as Jeremy We laid out in the prepared remarks our decision on the international markets with respect to opening up access. I do expect you're going to see that new patient number continue To perform very nicely in the back half of the year as we're accessing markets that are 5 to 6 times larger than what we had coming into the year in some of these markets. So Very excited about where that new patient number potentially goes to.
And our next question comes from Matthew O'Brien from Piper Sandler. Your line is open.
Afternoon. Thanks for taking the question. Just a follow-up on the pricing commentary, the 200 to 250 It's obviously a pretty meaningful increase. We've got Libre III over in Germany. Now you're talking about being more aggressive in terms of lowering pricing.
OUS, I think, for more access. I mean, does that is it a function of Libre 3, you're trying to be aggressive in front of, a more broad There with G6 over there, is that a reason why you're increasing the pricing concessions right now? And then what does that say about When 3 comes to the U. S. And how can G7 kind of offset that?
We've not made our decisions based on Libre's remap. We've looked at what we accomplished in the U. S. Here. What we've done is we've increased access by going to the pharmacy And by looking at Medicare approval, for example, which came in at a lower price than what our DME price was before, as we've set up Medicaid pricing structures In the U.
S. That are yet once again a pricing structure lower than what we had before, but to increase access to a number of patients. We then have looked at our OUS business in several of our key geographies and said, you know what, our access is not broad enough. Our access is very much focused on Very intensively managed Type 1s, oftentimes just children or adults with pumps or adults with We've had hypoglycemia awareness or something along those lines. And it's more important to us to reach more patients.
So we've taken the strategy We've used in the U. S. And we're deploying it in other places as well to increase our access. We won't let Leviath redrive our decisions. We'll drive our own.
I think one important thing to note there is the pricing point, it's always been part of our global pricing strategy and the level that we're going to is still very much in with where we're at in the U. S. Pharmacy channel to be honest with you. So, we're just stepping down as we've had inventory availability now. We're in the best position we've ever been in from that perspective.
We know we got to reduce the burdens to get on the product. We're in a position now to continue to execute against that global pricing strategy. So this is very much part of where we were heading. It doesn't create risk elsewhere globally. Like I mentioned, it's right in line with our U.
S. Pharmacy pricing if you get into the I'm so excited about what this has the potential to create for us.
And our next question comes from Bob Hopkins from Bank of America.
Great. Thank you and good afternoon. I just wanted to ask a question on G7. I was wondering if you could On two things. First thing, I just want to clarify, when do you expect to file CE Mark in Europe?
I thought that was something that was going to happen or And then secondly, I was wondering if you just could comment on the upcoming data that we're going to see on G7. Just maybe help give us a sense of Just what we're going to see and how meaningful it might be and just
a little more detail there would be great. Thank you. Well, G7, we have not filed yet. We will file it in the not too distant future. We want to we We need all our ducks in a row.
For example, we want to file both the Android and the iOS app at the same time, not file 1 and then do another filing. So making sure our software is validated and verified is really one of the bigger tasks. The clinical data is in and we're ready with that part of the filing We've had direct discussions with our authorities over there and we feel we're in good shape, but we'll file when we're ready. We don't want to do it Twice and spent a lot of time answering questions. With respect to the data that we'll present here in the summer, it will be On some of the smaller studies that we've done, it will not be on any of the U.
S. Pivotal data obviously, but you'll see how the product performs and how How consistent and how happy we are with it. Obviously, I'm happy with the data and as is our team. I've made the comment on several times when all said and done, everything you love about G6, you're going to love more about G7. And when that product comes to market, that's exactly how we're going to feel about it, not only from the smaller wearable and the easier insertion and all the other wonderful patient You know, ease of use features we're putting in there, but the software, the app and the performance of the system, we believe is going to be spectacular And again, Seth, a real standard for people to go over.
And our next question comes from Kyle Rose from Canaccord. Your line is open.
Great. Thank you very much.
We wanted to talk about
a few of the commercial initiatives in the U. S. I mean, obviously, still early in the sampling program. You've just completed the doubling of the sales And kind of shifting some of the focus to more on the primary care. So maybe just help us understand how some of those initiatives have played out in the early With respect to the Q1 and early in the Q2 and just are there any metrics or is there any sort of goalpost you can help you frame the early execution on those initiatives for us and how do we think about that as we move through 2021?
Sure. I'll take a quick shot at the sampling and then hand it Kevin here. There aren't any metrics that we're going to disclose particular to sampling in and of itself. Although I will tell you, The early response to this program has been beyond our expectations, both from a physician's Perspective of just how easy we've enabled these PCPs to get product into the hands of our patients And then also from a patient perspective when they realize just how easy it is to use the DexCom product. So the sampling program has been beyond what we imagined coming out of the gate.
It will continue to be a big part of what we do into the future. But in terms of giving specific metrics around it, that's not something we will do. I will tell you it's one of the Better investments that we look to make at this point.
Yes, I'd agree with that. With respect to the sales force, we've added everybody we're going to add. Everybody's in place And everybody is getting up to speed. And some of the people came from a diabetes background, so they get up to speed easier Because they have relationships already established in these offices possibly from another company. Others, it's going to take a little while longer and we plan for that as We do this expansion.
But as far as calling on more voices, we are learning that in all fairness, we've been underserved with respect to our Ability to call on people. There's a great story we heard from down in Texas. 1 of our reps called on a physician And talk to him about our product and the doctor said, I know nothing about your product. I put people on your competitors' product because They come and ask me for it. So again, using the sample program that Quinn described with Hello Dexcom, We put this patient on the system, introduced the physician to it and now he's prescribing DexCom all the time Because of the experience that patient had, we needed a deeper reach.
We'll get that deeper reach with what we've done and we'll continue to evaluate over time. And we've got tremendous metrics on our sales people. We have an incredible commercial organization that monitors that, but we also very much understand it takes a while To get up to speed, the other great thing I can tell you about this expansion, we literally have thousands of people apply for these jobs and A lot of very, very qualified people that we did not hire. This is a place that people want to work and a product that they really want to represent and we want to continue that culture and maintain that.
And our next question comes from Matthew Blackman from Stifel. Your line is open.
Hi, good afternoon everybody. Thanks for taking my question. I want to follow-up on the OUS pricing strategy And sort of a multipart question here, but is the incremental $50,000,000 headwind you called out isolated to 2021 or Will these price headwinds continue beyond 2021 outside the U. S? And then if I think about the full year guidance range, A raise of about $50,000,000 I think about half of that you said is underlying outperformance, but that's also in the face of another $50,000,000 headwind On price, so is it fair to say that the guidance raise is actually closer to call it $75,000,000 ex FX on an underlying basis?
Thanks.
Yes. So good question. So let's go step by step. So in terms of your question on the international pricing, A majority of the raise is our strategy outside the U. S.
And so what you are seeing is we are taking an incremental $50,000,000 of Call it mix headwinds as a result of going into there. And we still yes, you're right, we did raise guidance in the face of that by $50,000,000 of which $25,000,000 was currency. Absent that incremental, yes, you would have seen a $75,000,000 Now we are going to be taking those pricing headwinds And we're going to be taking those pricing headwinds and making up for it in incremental volume. So it's obviously net neutral to the full year guide. But you are correct.
Absent taking on that strategy or because of that strategy, we expect to add new patients to the point Where it increases our full year outlook.
And our next question comes from Nate Taylor from UBS, your line is open.
Hi, thanks for taking the question.
Okay, so I'd like to ask one just about the U. S. Momentum improvement that was impressive and you called out the factors. Is it possible for you to say which of the DTC, Snap Plan and Salesforce, do you think contributed more to that? And which of those is still more to come?
Or is it just all equal?
I think there are all more to come and I think they're relatively equal. As I called out on the call, the effect The Super Bowl ad was more than just short term sales growth in our minds. The awareness we generated, the text messages I was getting during the Super Bowl from Industry and Technology executives that I've met over the years made it all worth it. I'm just sitting on the couch saying, hey, this is really cool. It really created a lot of awareness for our company, awareness we hadn't had before and that was really the goal as we talked about.
We developed more brand equity from our ad Than anybody else. So that was important to us. The DTC remains important. As you watch our ads, you'll see Certainly more with Nick and certainly other campaigns as well. And on top of that, having more feet on the street is good.
We needed it, but it will take time to develop those relationships. I think of the 3, I couldn't quantify one of them, but I think ultimately the sales force expansion will be extremely helpful in this. We probably got less bang out of that just because we were ramping it up In the Q1, but the DTC work and the Super Bowl ad, that was probably the biggest. And then Hello, DexCom and the reps will come more throughout the rest of the year.
And our next question comes from Jayson Bedford from Raymond James.
Hi, good afternoon. Somewhat similar to the last question. The Q1 strength in the U. S. Much better than historical seasonality.
I'm just wondering is this more a function of just channel shifts that have gone on in the business or a function The new momentum that you've seen kind of perhaps from some of these new initiatives. I know it's a tough question, but if there's any way to parse that out that would be helpful.
Sure. Yes. So, good question. Some of that is a bit of a change and shift in dynamics and you're absolutely right as more and more goes to the pharmacy, I think you are seeing that neutralization, if you will, of the Q4, Q1 dynamic. One thing we did see this quarter and we thought it was certainly a testament to the work that our customer experience team is doing is we saw a slight decline in attrition Slight decline in attrition and a slight increase in utilization.
And so as you think about the customer experience that we're trying to create here, we've been talking about increases in net promoter scores. That's starting to play through in customer utilization habits. So that's certainly something we saw a little bit of. And then I think what we also saw It's just a little bit of incremental performance. We saw some of the performance outpace expectations.
I think what we talked about expectation of new patient growth slightly outpacing it as a result of increased awareness as a result of DTC. So I think it's all three of those coming together.
And our next question comes from Chris Pasquale from Guggenheim. Your line is open.
Thanks. Two quick questions for Jeremy on the margin First, just given how strong gross margin was in 1Q, I was hoping you could talk about why 65% is the right number for the full year. And then, your audio cut out a little bit when you were talking about the tax rate. If you could just go back to that and what you're expecting for an overall tax rate this year, that'd be great. Thanks.
Sure. I'll start with the latter first. We expect the tax rate for the year to be between a non GAAP tax rate between 23% 25%. Back to your question on margins, we did have a great quarter in Q1. Certainly, we're very proud of the 68%.
The one thing we do want to do is first off is the Q1. So we think about it from a Q1 and really thinking about for taking a look at changing anything, being mindful that we won't see things play out over time. But there's really 2 components you have to be aware of. We do expect to take on incremental Channel mix headwinds in our international markets for the back half of the year. So we have to contemplate that in light of some of the efficiencies you're starting to see.
And then getting back to our previous discussions about the drivers when we set guidance is, in the back half of the year, it's when we're going to launch When we launched G7, the yield that you get on some of these lines generally is a little lower. You saw it also happen with our launch of G6. There's a little bit of step back as you start to Work out the kinks of these lines and the yields start to play out. So as those play out in the back half of the year, that's why we don't we feel comfortable very comfortable with our guidance, but we didn't feel Any need to raise it at this point and let the year play out.
And our next question comes from Cecilia Furlong from Morgan Stanley.
Great. Thanks for taking our questions. I guess I just wanted to go back to the pricing headwinds, but just in light of increasing ex U. S. Headwinds, Should we expect your 2Q ex U.
S. Results to look more like they did in 2019 just in terms of relatively flat Can you really still grow ex U. S. Revenues quarter over quarter before G7?
Yes, I don't think we're going to get into details of providing specific guidance around U. S. Versus OUS, particularly at a quarterly level. I think we're incredibly bullish on where the international There's so much runway that continues to sit in front of us. A big part of that is continuing to step into this global pricing strategy that we've laid out Over a multiyear basis and really what you're seeing with the pricing decisions today is that we're in a position now where we can pull some of those decisions forward Where we couldn't have historically and a lot of that comes down to having inventory available to us being highly confident in the ability to continue to grow and scale The levels of production as we go into the future.
So I'm confident you're going to see terrific results coming out of that international business over time. And with some of these decisions that we've made, we're now opening up access to patient volumes that are 5 or 6 times larger than what we were Really addressing historically. So I think all of that sets up very well for a very strong international business here into the future.
And our next question comes from Danielle Antalffy from SVB Leerink. Your line is open.
Hey, good afternoon everyone. Thanks so much for taking the question. I was just wondering if you could talk a little bit about the potential impact from doubling the sales And specifically as it relates to the primary care physician, I'm curious if you guys have this detail as to what percentage of your prescribing physicians are coming from primary care today, so we can sort of have a sense of with the sales force doubling and better calling on the primary care, How many more physicians you could potentially capture? Thanks so much.
Well, this is Kevin. I'll take that. Very low comes That channel right now, that's why we added them and that's why we've expanded. If you take a look at the Type 2 Intensive insulin users, most of them are found in those offices. And that's why we needed to get out there.
Over time, this will certainly Increase, we expect it to and those are the expectations of the team we brought on board. We're hearing good anecdotal stories and things are starting To heat up in an all reality and with a large book of business we already have and the recurring orders from our current patients, it's we got a ways to go. We think they'll do great and we'll monitor it. If we see great returns, we'll just keep giving them tools to get great returns is the best way to describe it. And I think Hello DexCom is going to be the best one that we have for that group.
And our next question comes from Ravi Masroff from Berenberg Capital. Your line is open.
Hi, thanks for taking the questions. Congrats Jeremy and Quentin on the move. So a lot of The question I had, I guess, I wanted to go after the gross margin and pricing commentary from maybe a different angle. When you look at the And pricing commentary from maybe a different angle. When you had the similar type of pricing impact in the U.
S, when you Started going to pharma channel, we really saw a pretty strong level of uptake through that arena, albeit Pricing headwind continues. So I guess what I'm trying to ask is, do you does guidance factor in that type of kind of immediate impact From the price cut, I guess, in Europe. And do you think that $50,000,000 is the kind of extent of it as we kind of go forward here. Thanks.
Yes, sure. I can take that. So our gross margin certainly contemplates The impact of pricing impacts in our international markets, and so I wouldn't expect any changes there. In terms of the extent of it, as we go after these incremental markets and open up access, We almost look at that as new patients. And so when we go after new patients in new markets, certainly pricing is going to change over time.
So there could be impacts that drag out over time into future years as a result of just going after incremental pockets of patients And any sort of knock along impact, certainly not anything that we would expect to be significant, but that will always be contemplated in our guidance and it will all be something that we Certainly talk to on these calls. I wouldn't expect anything that we provide hasn't been thought through and contemplated in any of the targets that we provide to you guys.
And our next question comes from Marie Thibault from BTIG. Your line is open.
Hi, good evening. Thanks for taking the questions and congrats to you as well, Jeremy. I wanted to ask a question on OUS. I understand that the impact of COVID last year obviously having an impact on revenue this year, but curious if you're still seeing a COVID impact And this Q1 quarter as well as the existing quarter here, in terms of that still affecting new patient starts, we certainly heard from other companies that Europe is Lagging on the vaccine rollout, so I'd love to hear if that's been contemplated in guidance and if so, how you expect that to change over the year? Thanks.
Yes, I think from our perspective, all that we know right now is kind of the environment we operate within with respect to COVID, which we know from an international Perspective has certainly created some incremental pressure in pockets of that business, particularly those that require in clinic visit to get onto the product Or some of those administrative hurdles that have been put there in other channels where we have e commerce, for example, we're seeing incredible results. And so I think one thing to point out on that Q1 international result is that when you look at it from a 2 year The initial result is that when you look at it from a 2 year growth perspective, it's an incredibly strong number. Last year was an absolute record growth for us in that first Quarter from an international perspective. So I think you got to normalize that when you're looking at that Q1 growth. But in terms of the remainder of the year on an international basis and patient Adoption, a big part of stepping price down in line with kind of our global pricing strategy was the fact that we had to see of requirements reduced or eliminated altogether to get patients onto the product.
And so in these markets where we've done that, The hurdle to get onto the product has been removed and so we absolutely would expect to see new patient acquisition become much easier for us I see that start to take off in a very positive way. So I do think you're going to see that uptake over the course of the year even in the COVID environment With of course the caveat being that it kind of stays stable to where it's at today. If it were to get worse in some case then we might have to think about that differently. But we're trying To look at the future based upon what we see today and how it's impacted the markets here in the moment.
And our next question comes from Larry Biegelsen from Wells Fargo. Your line is open.
Hey guys, thanks for taking the question. So On pricing, once G7 and Libre 3 are competing with each other, how much of a price premium do you think is sustainable? And how close do you think you are to that premium today in the U. S. And outside the U.
S? And do you see the opportunity to price G6 as a value brand? Thanks for taking the question.
Larry, thanks for your question. We have numerous opportunities here, but I'm not going to give our pricing strategy On earnings call. We're very thoughtful about this. We run several models. We know what our technology is worth and we know what great benefit we provide.
We'll price it accordingly, but we're also going to price our Products in a manner to where buyer patients have access to it as well. And I think our commercial team combined with our finance team and everybody has done a wonderful job balancing that We'll continue to balance, but we'll continue to grow as well. I mean, look at the volume growth versus Our dollar growth this quarter and we already said our U. S. Volumes were in excess of the overall volume growth.
We've managed it extremely well and we'll continue to do so.
And our next question comes from Anthony Petrone from Jefferies. Your line is open.
Thanks. A couple of questions, one on G7 and one on margins as well. Just on G7, trying to get a sense when you look at U. S. Timing To entry and efforts to get ICGM, do you think the market actually behaves differently?
In other words, New patient starts potentially slow a bit as the new form factor is coming to market. And then on margins, taking the other side, the COGS side Specifically breaking down breaking ground in Malaysia, maybe just an update on timing as to when FDA inspections will take place for that And just a recap of what that can do on the COGS side for sensors on a per unit basis? Thanks a lot.
I'll take the latter part of that with respect to Malaysia. We're clearly well into that project We'll have a building in place as we exit the year, with plans in place to have a clean room up and ready for validation right at the turn of the year into the Q1, Sorry, Q1 of next year. So the expectation is we'll be producing product out of that in In the first half of next year, they're in Malaysia. So very excited about what we're seeing there.
Yes. And I'll take the G6, Kevin and the cut over question. Again, with respect to U. S. Timing, we've not disclosed anything.
One of our great learnings on G6 was have enough product ready to go when you go and really be fully ready for launch and we've made that commitment To our customers that we will be ready when we do launch this product that we will be able to literally flip the switch and go over as far as patients Slowing your purchases of G6 in particular in the pharmacy channel, you're buying 1 month of product at a time. So it's not like you're going in there and loading up with 3 to 6 As we did in the past in the DME channel and even in the DME channel today, there's less of that loading up by patients with G6 Than there was in G5 and G4 prior to that. We don't view that that people will quit Purchasing their G6s when G7 is announced because in all fairness, our customers can't live without it. And when we have the opportunity to take care of them all, we'll do as organized, but as rapid a migration as we possibly can. And as far as G6 future plans, we do see a lot of opportunity here, but we really haven't disclosed anything.
And our next question comes from Steven Lichtman from Oppenheimer. Your line is open.
Great. Thanks for taking our questions. Just had a question on your international expansion efforts. What are some of the key countries and focus for you here over the near term? And Are you anticipating any contribution from these new regions in this year's guidance?
Or is that more really more of a driver for 2022? Thanks.
Yes, I think that will be more of a driver for future years. We've talked about our launch in Japan with Terumo and that's scheduled In the second half of the year, we got reimbursement in France as many of you know. So we do expect France to be a bigger part of our business Than it has in the past, but the large numbers in our businesses, things have gotten so big, they can't give us a whole lot, that moves the needle when we start. Hence, the discussion we've had about increasing access in our more mature markets and looking at how we follow similar paths in these other geographies. With the operating capability we have now, there's no sense in going through and selling just The top end of this market, we want to get more aggressive and be more broad.
So I think you'll see as we go into these geographies over time, We'll start as we've started in the past, but we are going to get more reimbursement and try to get more patients more rapidly.
And our next question comes from Brandon Vazquez from William Blair. Your line is open.
Hi, thanks for taking the question. I just wanted to go back to one of the comments made during the prepared remarks. And it sounded like there was maybe a little hinting at new Active systems coming this year. Just curious if you could talk about those and specifically what Those kind of products, I'm thinking is there something outside of the regular hardware upgrades that we see maybe somewhere on the software side That could be a catalyst maybe for growth within maybe some of the TAM expansion opportunities like the Type 2 non intensive Or gestational diabetes or anything like that. So is there anything we're kind of not thinking out of the box here from the normal hardware that will be important in the coming 12 months or so?
I don't think that there's anything that you guys are missing in terms of the prepared remarks and speaking to some of those systems. The one thing that we certainly are excited about has to be the Omnipod 5 product in the back half of the year and We'll let Insulet speak to the exact timing of when we're ready to put that product into the marketplace, but having connectivity into a product like that is something that We're very excited about and believe that they'll have success with and we'll have success with as well. I think with respect to the whole Type 2 And the opportunity there, we couldn't be more bullish on the opportunity that sits in front of us. And I think by the day we learn more and more that increases that bullishness for us and the confidence that there's going Real opportunity there to create value coming from it. And you're going to see a study a little bit later this year, mid year at some of the mid year society meetings That's going to start to really lay out the benefit of using CGM relative to BGM in this Type 2 population, particularly the non intensive population That just demonstrates the sort of impact we can have on patients say they're on basal only.
And that's a 4,000,000 Patient population in the U. S. So I think that sort of data starts to really accumulate in favor of opening up a whole another market segment that doubles the existing Core U. S. Intensive market today that we're very excited about.
So you'll see that data here mid year, but I think all of it starts to point to the fact that This Type 2 space is going to open up in a significant way and we're well positioned to take advantage of it.
And that concludes the question and answer session. I'll turn the call back over to Kevin Sayer for final remarks.
Thank you, and thanks everybody for participating. As we wrap up our call today, I want to take a minute to acknowledge some very important recognition that DexCom received this week. Forbes recently published their 100 company list of America's Best Employers for Diversity. DexCom was honored to be number 66 on that list. While we consider this a perpetual We're very happy to have been recognized for some of the work that we've done so far.
As far as our outlook on the business Going forward, our great quarter fuels our continued belief that best is yet to come. I recently caught up with a friend who is a long time healthcare industry executive and the gist of his message to me It was very simple. Everything important in diabetes care is going to revolve around CGM. For example, there are numerous But there's only one CGM commercially capable of delivering the patient experience and outcomes that we've all envisioned for a very long time, And that's only the beginning. There are incredible new compounds, treatments and programs stepping forward for the treatment of Type 2 diabetes And we are very confident that the right CGM experience will become an integral part of all these solutions and we haven't even started talking about The difference we can make as part of our prediabetes program.
We've never been more excited and engaged in our opportunity than we are today. Thank you again everyone and have a great day.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating and you may now disconnect.