Welcome to the Dexcom Second Quarter 2017 Earnings Release Conference Call. My name is Karen, and I will 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 that this conference is being recorded. I will now turn the call over to Matthew Dolan, Vice President of Corporate Development. Mr. Dolan, you may begin.
Thank you, Karen, and welcome to Dexcom's Second Quarter 2017 Earnings Call. With us today is Kevin Sayer, Dexcom's President and CEO, Steven Pacelli, our Executive Vice President of Strategy and Corporate Development, and Kevin Sun, our Vice President of Finance and Interim CFO. We will begin with our prepared remarks and then open the call up for your questions. At that time, we ask that you limit yourselves to one question and one follow-up so we can provide an opportunity for everyone participating today. I'll 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 cash-based operating 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. With that, I'll turn it over to Kevin Sayer.
Thank you, everyone, for joining us today. The first half of 2017 has been very positive for Dexcom. Our revenues have grown 23% year-to-date, and we remain on track with our full-year targets. More and more people with diabetes are adopting CGM as the primary tool to manage their condition, especially as we have seen a substantial uptick in the number of covered lives worldwide in the past 12 months. The CGM first message is being broadcast not only by Dexcom, but by a growing proportion of the clinical community as the body of evidence supporting the value of CGM continues to build. This was the clear takeaway for Dexcom, leaving the American Diabetes Association meeting, the biggest diabetes conference of the year, which was held in our hometown of San Diego during the second quarter.
The second key takeaway was the Dexcom CGM platform continues to generate market-leading performance. Additional presentations from studies like DIAMOND and GOLD reaffirm that Dexcom CGM systems can drive significant clinical outcomes in both MDI and pump patients. We left ADA with the strengthened belief that CGM will represent the standard of care in intensive diabetes management over time, regardless of age or choice of insulin therapy by the patients. Our U.S. business is being driven by these dynamics, where an estimated 2/3 of our new patient additions were using multiple daily injections and approximately 1/3 were on insulin pump therapy. This is consistent with our first quarter results and aligns with the underlying mix in the U.S. Type 1 market. We continue to educate clinicians and patients about the benefits of making Dexcom CGM the first tool prescribed for people with diabetes, and it is working.
Patient adoption in our international markets has also been robust, with OUS revenue growing more than 50% in the first six months of the year. We have seen solid growth across Europe, led by Germany and the Nordic countries. To us, this validates our strategy to focus our commercial efforts on geographies where we have coverage for CGM. It is in these markets that patient adoption is rapidly accelerating. Turning to Medicare, since receiving a CMS ruling in January, we have taken several important steps toward beginning to provide therapeutic CGM devices to Medicare-eligible patients in the United States, including receiving a local coverage decision and establishing a finger stick supplier partnership. As of July 1, there are specific therapeutic CGM billing codes, eliminating the need for Dexcom and our distributors to use miscellaneous codes to try and obtain reimbursement for Medicare patients.
Although we did not generate any material revenue from Medicare patients in the first half of the year, I am pleased to tell you that in recent weeks we have begun shipping our first Medicare bundles. I will provide more color on our Medicare rollout momentarily. Finally, during the quarter, we successfully raised $400 million of convertible senior notes with favorable financial terms. Although Dexcom had already been in a strong financial position, we continue to see multiple growth opportunities ahead of us, both in the intensive and non-intensive diabetes markets. This capital infusion provides us with greater flexibility to leverage our CGM market leadership across a number of key initiatives, including the expansion of our manufacturing capacity to meet anticipated demand, growth and development in key international markets, support for our Medicare rollout and our efforts to make CGM an integral tool in the non-intensive diabetes market.
We believe our strong balance sheet better aligns our capital structure with the opportunities we see in front of us. With that, I will turn the call over to Steve for a review of our financials, after which I will provide a business update.
Thanks, Kevin. Before I dive into the numbers, I would like to make our audience aware of an addition to our reporting as of the second quarter to help with your models. Specifically, we are providing more detail on our revenue performance, including a geographic breakdown of U.S. versus OUS, as well as revenue by category, divided into our sensor consumables, transmitters, receivers, and other revenue. For comparison purposes, we have posted figures for these revenue categories on a quarterly basis back to the first quarter of 2016. You can find this historical data in a supplemental document on the investor relations portion of our website. Now back to the second quarter discussion.
Dexcom reported revenue of $171 million for the second quarter of 2017 compared to $137 million for the same quarter in 2016, a $33 million or 24% increase. Sequentially, revenue for Q2 was up approximately 20%. This result was consistent with our expectations as the U.S. business typically rebounds from the Q1 seasonality we experience due to resetting insurance deductibles. In addition, as we stated on our last earnings call, because of the January CMS ruling, we were again prohibited by law in Q2 from billing our existing cash pay Medicare-eligible patients. We have also seen another good uptick in our international business and remain optimistic about our OUS growth prospects.
Our second quarter gross profit was $118 million, generating a gross margin of 69% compared to a gross profit of $86 million and a gross margin of 62% for the same quarter in the prior year. We do remind investors that in Q2 of 2016, we took a $3.5 million inventory write-down, which negatively impacted our gross margin in that period. Our gross margin rebounded year-over-year and sequentially due to an improvement in our warranty rate, primarily within our receiver line. Some final thoughts on our revenues and our gross profits. Our mix between durable and consumable products was within our normal historical range in Q2 at approximately 30% durable and 70% consumable.
On the durable side, we note that receiver sales continue to be a less significant component of our overall revenue as patients increasingly rely on their smartphones. As anticipated, the ASP for our hardware has remained stable and average sensor pricing came in at around $70. Finally, our international business showed continued year-over-year growth, generating $30 million in revenue during the quarter, up 69% from last year and 14% sequentially. This now represents 17% of our total revenue. Research and development expense totaled $45 million for Q2 of 2017 compared to $36 million in Q2 of 2016 and down approximately 6% sequentially.
Selling, general, and administrative expense totaled $86 million in Q2 of 2017 compared to $69 million during the same quarter in 2016, with the increase due primarily to year-over-year increases in headcount in our field sales and customer support organizations, including support for the initial phase of the Medicare launch, as well as a ramp in our patient-focused marketing expenses and our OUS expansion. SG&A was flat sequentially due to the absence of share vesting payroll tax expenses and one-time charges that we incurred in the first quarter. Our GAAP net income was $3 million, or $0.03 per share in the second quarter of 2017, which included a $17 million non-cash tax benefit related to the issuance of our senior convertible notes in May.
Excluding the non-cash tax benefit, non-GAAP net loss was $14 million or $0.16 per share for the second quarter of 2017. Absent $37 million in non-cash charges, primarily share-based compensation and non-cash interest expense, and excluding the tax benefit, our non-GAAP cash-based net income was $23 million for Q2. We ended the second quarter with $497 million in cash and marketable securities on our balance sheet versus $124 million at the end of 2016. During the quarter, we raised $400 million in gross proceeds from our convertible notes offering and paid down the $75 million outstanding on our $200 million credit facility. With respect to 2017 guidance, we continue to expect global revenue of $710 million-$740 million.
For Q3, we anticipate a mid to high single-digit increase sequentially, roughly consistent with 2016. With that, I'll turn the call back to Kevin for a business update.
Thank you, Steve. At the mid-year point, Dexcom has made great progress, and we expect our global priorities will drive continued strong growth through year-end and beyond. In the U.S., our total new patient pipeline continues to be robust, and obviously, our launch into the Medicare population is at the forefront of our commercial efforts. We had originally planned to leverage our existing distributors in an effort to accelerate our ability to service Medicare customers. However, this advantage was diminished by the administrative complexities we outlined during our last earnings call. As a result, we made the decision to build a direct capability to service Medicare patients, and our utilization of distributors will therefore be more limited. Last month, we initiated our first shipments of the therapeutic CGM bundle to initial group of Medicare-eligible patients.
The timing of our Medicare rollout is tracking with expectations, and we are working through the implementation process to ensure we put the right pieces in place to support the billing and fulfillment activities. This is a complicated endeavor and will take time to scale up. Assuming our initial reimbursement claims are successfully adjudicated, we will roll out our Medicare program more aggressively over the course of the second half of the year. The response to Medicare coverage in the field continues to be amazing, and our expanded field team is attempting to manage the significant demand we have experienced along with customer expectations. By the end of the second quarter, we had approximately 20,000 new Medicare-eligible patients in our pipeline, and we remind you that we have not yet started to promote availability to this segment of the population.
Beyond Medicare, as I stated earlier, new patient opportunities remain strong. New MDI patients are driving our U.S. growth in patient additions. Consistent with our first quarter, we have seen continued weakness in new patient additions from pump patients. We believe this is primarily driven by the various challenges encountered by two of our commercial pump partners in recent quarters. Despite this, we believe interconnected diabetes management systems with both pumps and smart pens are an important component of diabetes care in the long term. We have a number of promising strategic partnerships in progress that will deliver highly differentiated Dexcom-enabled solutions. Outside the U.S., our year-over-year growth once again accelerated sequentially, fueled by broader reimbursement in Germany, as well as continued strength in Europe and growth in our direct channels in the U.K. and Canada.
Globally, we still expect to exit 2017 with an installed base at or above approximately 270,000 patients worldwide, as we communicated earlier this year. With respect to our product pipeline, we continue to have regular interactions with the FDA. Our G6 pivotal study is complete, and we plan to submit our PMA by the end of the third quarter. As we have referenced in a number of our recent updates, because of the progress we are making on our G6 submission, we have assessed our launch timing for the new applicator configuration with G5 compared to a full G6 launch and have made the decision to withdraw our FDA filing for the new insertion system in a G5 configuration.
The gap between the launch of this G5 configuration and G6 continues to narrow, reaching a point where the operational strain associated with launching a new applicator and sensor platform less than a year apart no longer makes strategic sense. We remain very excited about bringing G6 to the marketplace, not only by delivering this new applicator and form factor to patients, but also because of G6's improved performance and feature set. On the app front, we launched our Android platform in the U.S. during the second quarter. Our user numbers are rising steadily, and so far it has been well received by our customers. With the availability of Dexcom CGM on a number of iOS and Android handsets, more and more patients are choosing to use their phones to view and share their CGM data.
Turning to our non-intensive strategy, based upon our research to date, we believe a highly accurate, real-time, calibration-free disposable sensor system offered at a lower cost will change the way Type 2 patients can be managed. We continue to make progress with our first-generation device to serve this market and our collaboration with Verily. Right now, our regulatory team is very focused on the G6 submission, and because G6 is a sensor platform that drives the first Verily device, we will give you a more detailed update on the timing of that device on our next call following the G6 submission. As the development of our first-generation Verily product is beginning to mature, we have shifted significant resources to the second generation system. Beyond our product development efforts, we are also formulating our commercial strategy for the non-intensive diabetes market.
Our early experience further supports that Dexcom CGM is intuitive to patients and has the potential to deliver significant value to the healthcare system. As we have stated previously, we anticipate a new business model for the non-intensive market and have seen early interest from prospective payers, providers, and employers. We will continue to update you on our non-intensive strategy as we make progress towards commercialization. I would like to finish with an update on our CFO search. In conjunction with our earnings release, today, we announced that Quentin Blackford has been appointed Dexcom's next Chief Financial Officer beginning in September. Many of you will be familiar with Quentin from his previous role as CFO at NuVasive, where he played a key role in driving the company during a phase of aggressive global growth and improvements in profitability. We look forward to welcoming him into the Dexcom family in September.
I would also like to acknowledge the excellent performance by our interim CFO, Kevin Sayer, and the rest of the finance team, who stepped up during this transition phase and will continue to play an important role in our organization. To wrap things up, I am very happy with the meaningful progress Dexcom has made through the first half of 2017. Globally, we are on track to achieve our major goals for the year, all while making significant headway on the Medicare launch. The message leaving this year's ADA meeting was extremely clear. CGM will become the standard of care, and Dexcom CGM has set the performance standard for the industry. As we make our systems more convenient and easier to use, we believe we are only scratching the surface of our CGM opportunity.
I would like to thank our team as we work tirelessly to capitalize on the potential we see in front of us, both in the intensive and non-intensive markets. We are all driven by the impact we know our CGM technology has on people with diabetes, and we are energized by the many recent positive milestones we have achieved so that we can make Dexcom CGM available to a much larger number of patients worldwide. I would now like to open the call up for Q&A.
Thank you. We will now begin the question-and-answer session. If you have a question, please press star then one on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch-tone phone.
Our first question comes from Mike Weinstein from JP Morgan. Please go ahead. Your line is open.
Thank you, and good afternoon, everybody. Let me start with two questions. One on your Medicare bundles, in terms of where you are on being able to deliver, in large volumes to Medicare patients and how many you think you'll be able to get to by the end of the year. Second on Germany specifically, where obviously you made a lot of progress this quarter, where are you on the percentage of the market that is now covered? Are you at 50%? Thanks.
Hi, this is Kevin. I'll take that one. On the Medicare side, we have just started shipping bundles in the past, you know, last two weeks of July. Quite honestly, Mike, we haven't been paid for any of the bundles that we shipped yet, so we're moving a little cautiously. Once we get going, we think we can process this quickly and move on. We will use some distributors in this process, but we're projecting right now to process the bulk of it directly. I can't give you a number as to how many we'll do by year-end. We're optimistic we can meet most of the demand, and push it out, and we will hire the people and make the investments necessary to do so. We're not gonna let a customer opportunity go away.
We just need to get the processes down before we go add a bunch of bodies running around, not really sure how to do this. We are learning as we go. On the Germany side, we don't have 50% yet. We're very close to the two big contracts we talked about last quarter. What is happening in Germany as we grow is where we don't have an official contract, we're still getting payment after filling out more paperwork and doing a little, you know, a little extra. I think those bigger contracts will, we're hopeful to land those in the very near future. They haven't been quite as quick as we wanted, but again, we're still making progress and doing very well there. We'll stick with what we have.
Okay. It sounds like, Kevin, just on the Medicare contribution this year, obviously Medicare patients, Medicare-aged patients were a negative to your first half performance. It sounds like still with where you are on the ability to fill and get paid, the contribution over the balance of the year will still be relatively modest. I would throw out there certainly less than $10 million.
You know, Mike, that'll depend upon how quickly we can get this thing going. If we can get these patients certainly in Q3, we don't see it as being a big factor. If we get this thing up and running smoothly in Q4, you know, and as we modeled and talked about last time, the startup revenue for Medicare patient for that first billing for that first month is gonna be much less than what we get for a current commercial patient. So the Medicare play is a longer term, and the subscription model that we have built. We think it could contribute more than $10 million in Q4, but I can't give you a number yet. Let's see what we can get fulfilled.
Okay. Last question, I'll let others jump in. The third quarter commentary would seem to set a relatively low bar. You talked about a mid- to high-single-digit sequential growth, effectively, in line with what you saw last year. Just, you know, recall that last year, you did have the recall and you had the lost receiver revenue. The comparison to last year, shouldn't that be a relatively easy comparison? Shouldn't we be thinking about something maybe a little bit better than mid- to high-single-digit sequentially?
No, I mean, a couple of things. If you look over the past several years, the trends are fairly similar, right? We see some slowdown during the summer months, both in Europe and in the U.S. New patient additions aren't as robust. We've got the Medicare issue that, as you mentioned, is rolling out a little slower. Look, we decided to break out components of hardware just to let you guys know that receivers are becoming a much smaller component of the overall hardware mix anyway. I don't know that the receiver, even as of last year, was not a significant contributor. No, you know, I don't think we're sandbagging in any way. I mean, the historical trends suggest that, you know, the Q1 to Q2 sequential up is usually pretty good.
It's a little flatter going to Q3, and then we get the big bump in Q4. I don't think there's much more to it.
Okay. Thank you, guys.
Thank you. Our next question comes from David Lewis from Morgan Stanley. Please go ahead. Your line is open.
Thanks so much. Just a few quick questions here. Steve, just to follow- up on Mike's question on the guidance and Kevin's commentary on Medicare in the fourth quarter. Your third quarter guidance kind of implies similar growth trends to the second quarter of this year. Are you still comfortable you can get to the upper end of the 25%-30% for the year? Is the way to think about that, you know, if it's all about Medicare, frankly? Because my sense is if you do over 30% in the fourth quarter, you do sort of the low end of 25%-30%. If Kevin's right and you see $10 million plus in the fourth quarter, you could certainly get, you know, close to the mid to upper half of the range.
At this point, does it all kinda come down to Medicare traction in the fourth quarter?
This is Kevin, I'll take that. Certainly some piece of it does, particularly as you get to the upper ends of the range, which is why we kept the range where it was. We think that the Medicare will help. You know, I'd give another perspective on the Medicare side. While it is a help in the fourth quarter, quite frankly, for the first couple of quarters, it's made our lives much more difficult. As you go out into an office and visit with a physician, many of our execs, as we've gone out on trips, we hear a very similar theme. "Go get my Medicare patients taken care of, and I'll give you more." While it is a long-term accelerator, it's been a short-term disruptor, and it will put us in a better place.
David, you got all those things factoring against each other, and that's why we kept our year-end guidance where it is. We always have a much bigger fourth quarter with ordering patterns from our existing patients and new patients as they get reimbursement and get to the end of their deductibles. We don't see that changing. When you add all those factors, and that's why we look at it the way that we do.
Okay. Then just two more quick ones. Kevin, a strategic one for you on just Medicare. I think going direct is the right strategic move for the company clearly. You know, initially, you talked about, you know, Medicare patient per month revenues of kind of $250, maybe $2,800, $3,000 for the year. Now that you're going direct, can you just talk to us about just very generally how you think about those revenues on a per annum, per annual, per patient basis, and how you think that profitability relates relative to third-party payers now that you sort of, you know, are direct, but you also have the bundle?
The gross margins will not be as good with the Medicare patients. We've talked about that before, because we have the bundle where we have to add the strips and the other supplies. We're accepting the Medicare pricing. We'd like to get better. It is what it is, and we'll take it. We are hoping that if we can develop an efficient process, that maybe the operating margins on the Medicare patients will become lower because this will be something routine, and we can just do it in lockstep. The other thing is we look forward to the future in all candor. As you get to a G6 system, for example, that's a 10-day approved sensor. Now we're down to three sensors a month instead of four, and we're hopeful we can have the same fixed monthly charge.
We've designed our systems in the future to be very successful in this type of environment, assuming we can keep the monthly charge at a reasonable level. The future, I think we're very fine with this model. I think there'll be a little pain up front with patients as we add them because you're gonna get a receiver. You know, the Medicare price for the receiver in that first billing is, like, $250, and that's not a whole lot above our cost. Margin there won't be great. You'll get a transmitter with your first bundle, but you're only getting billed, again, the return, recurring amounts. Month two, there's no transmitter. Month three, there's no transmitter. In the early phases, profitability will be pretty tough. Over time, we think it'll be, it'll be fine.
It's our job, quite frankly, to get the cost of the devices down to whereby we can make money there, and we will.
All right. Steve, maybe I just quickly jump in one last one. I'll jump back in queue. Steve, the highlight for us obviously this quarter was the international business was very strong. Germany has not sort of fully kicked in yet. Can you just give us a sense relative to the first quarter, you know, some of the factors that contributed to that, you know, strong report here in the international markets? You talked about some pricing experiments in the first quarter, but just sort of what drove the strength here in the second? Thanks so much.
Yeah. I mean, obviously it's reimbursement, right? It wasn't just Germany. I mean, as Kevin mentioned in his closing remarks, you know, in the prepared remarks, you know, the Nordics have done quite well where there's robust reimbursement. The U.K. has done well. Canada's done well. We've quickly moved into a leadership position in Australia. What I would tell you is in the markets where we have robust reimbursement, we're competing quite favorably against any other potential competitors out there. We're even seeing, you know, take Abbott in particular. In the markets where we're paid for, we're seeing quite a few Abbott customers shifting over to the Dexcom platform. You know, it's really nothing more than superior performance.
We've always said, and our clinical data clearly demonstrates that our sensor is just much more accurate than anything else available on the market, and that resonates with patients, particularly when they're receiving reimbursement.
Thank you. Our next question comes from Jeff Johnson from Robert W. Baird. Please go ahead. Your line is open.
Thank you. Good evening, guys. Kevin, wondering when might you know when those initial CMS claims are adjudicated cleanly? Is that something we should get some clarity on that over the next few weeks? Is that something you would openly discuss then as we try to build that model? And then SG&A levels have been holding kind of around 50% for the last 6 quarters or so, give or take a little bit, I guess. As you go the direct model in CMS, where should we be thinking about those SG&A levels going maybe over the next 12-18 months?
Let's start with your expense equations. As we've looked at our direct costs for going to Medicare, we've modeled that out, and we hope that our overall percentage won't increase very much. Because as we continue to grow revenue, we do have money we can continue to invest on the SG&A side, and a lot of that'll be done on building out the Medicare platform and doing that. But we can update you on that further. Now I'm suffering from amnesia. Your first question, Jeff?
Oh, just on, when those initial claims potentially get adjudicated cleanly and then going forward.
Oh. Oh, I can tell you I walk down to Kevin Sun's office pretty much every morning and say, "We got paid yet?" You know, we're out a few weeks on the first one, or not even 3 weeks on the first ones. Once we get that first adjudication and find out, then we'll hopefully kick it up a little bit. You know, this will be the first thing ever paid with a CGM code through the Medicare system, so it'll be a big deal for us. We won't issue a press release or anything, but we'll inform you guys how long it's taking and how it's going on the next earnings call.
All right. Thank you. My follow-up question just on, you made some pump comments about two of the pump companies out there that are obviously struggling a bit at this point. Between those two companies and with the Bigfoot news, I guess my question is: Where do you think your pump relationships need to go? Or is it getting to a point where maybe you need to go with some exclusive arrangements, you need to do something to tie in some of these other pump players more tightly to your business on a go-forward basis, just as that pot maybe dwindles a little bit of different pump companies out there? Thank you.
Yeah. I mean, this is Steve. I'll take that. You know, still of the mindset that we don't believe we need to own a pump. As we mentioned, you know, in the last couple of quarters, we're two-thirds of our new patient additions have been MDI patients. You know. Particularly outside of the U.S., the MDI patient population is where our biggest source of growth will come. You know, I look at, let's take the couple pump partners. You know, Animas hasn't been adding a significant number of patients. Tandem, aside from their potential financial woes, is doing reasonably well in terms of new patient additions.
Keep in mind, the vast majority of pumps that Tandem is selling today are the X2 pump, which is the appropriate pump for them to be selling because as soon as we receive FDA approval for the X2 G5, we'll be able to upgrade those patients immediately, and they can become Gen 5 patients. Then as Tandem moves down the path to a scaled G6 system and ultimately to a hybrid closed loop system, those patients will be able to retain the same hardware and field upgrade their pumps through software changes to accommodate new and better technology. They're going about it the right way. It's just resulted in a couple quarters of softer pump additions on our end from Tandem. You know, we also are seeing great additions from Insulet. I think Insulet's been the big winner here.
We continue to move forward, you know, on the development side with Insulet. I think we're making great progress there. As Kevin mentioned in the prepared remarks, there are a number of other initiatives that we have ongoing that frankly, we can't disclose yet. We'll hopefully within the next, you know, 6-9 months, we'll be able to have some more to tell you about some of the other things we're working on. You know, it's not time to jump into the pump business by any stretch. I think we've got the right relationships in place, and we're just gonna keep pushing forward.
I guess one thing I'd add, Jeff, to your comment, would we consider unique relationships with these partners going forward and something different than what we've done? Yeah, we would. If it benefits the patient, if it helps us expand the market and get more people onto Dexcom sensors, we'll look at a number of business models going forward, and we'll look at them in very creative ways.
Thank you.
Our next question comes from Matt O'Brien from Piper Jaffray. Please go ahead. Your line is open.
Hi. Good afternoon. This is J.P. for Matt. Thanks for taking the question. I think in the prepared remarks, you said that you've got one MAC who put out an LCD. Where are we with the other MACs or how many more do we need, I mean, I guess throughout the remainder of the year to get all of the Medicare covered?
No, I mean, that process is done.
That's done.
There's only the two regions, you know. There's two MACs that cover the four regions. We're done there. It's really from a logistics and processing perspective, making sure that we're submitting claims with the appropriate paperwork to support the medical policy established by the MACs. We're running test cases, we mentioned in our prepared remarks, running some test cases and making sure that we get those processed and paid before we start to turn on the flood a little bit because we want to make sure we're not submitting a bunch of claims that are just gonna be denied by the MACs. The pieces are all in place. Now it's just kind of finalizing some of the logistics.
Gotcha. On the pipeline, you're at 20,000 new patients up from 10,000 in Q1. Do you have any good kind of historical data of when you actually do start promoting aggressively? I think that, you know, is it historically when you start promoting aggressively to those patients, it goes from, you know, it doubles in size to 40 or even triples to 60, I mean. Does your strategy need to be different with how you attack these Medicare patients from a promotional standpoint?
Our strategy for promoting to the Medicare patients will be different. We'll, we've certainly with our DTC campaigns now have directed strategies to our young population, to our young adult population, to adults and then to seniors. We'll go to different markets for seniors. How quickly that will ramp remains to be seen. In our DTC campaigns, as they initially launch, obviously they ramp faster and then some of the effect goes away and you've got to change. The most important thing for us before we launch the campaigns is to fulfill the customers that we have, not only the 20,000 new, but the other several thousand that we were shipping to before who are paying on a cash basis.
We've got a lot of work to do, and then we'll see where those promotions lead.
Got it. Thank you.
As a reminder, if you do have your question and follow-up question, just press star, then one on your touch- tone phone. Our next question comes from Danielle Antalffy from Leerink Partners. Please go ahead. Your line is open.
Thanks so much. Good afternoon, guys, and thanks so much for taking the question. I'll try to limit it to one and one follow-up like you guys asked. Just a question, Kevin, for you on the higher level strategy here, especially now that you know who the next CFO is gonna be. As we approach the Type 2 market, you provided some color in the prepared remarks, but just wondering if you could give any more color on the go-to-market strategy there, how the business needs to change to facilitate supply for such a massive market opportunity.
The first thing we have to do, Danielle, is develop the proper model. For example, we know that all of our Type 2 patients aren't gonna wear sensors 24/seven, 365 days a year. Identifying how many patients wear one sensor, how many get one a quarter, how many go on a 10-week program where they learn to manage their condition better. We're running studies to validate those assumptions and validate that model. Ultimately, somebody with Type 2 diabetes can control their condition through adjusting three factors, exercise, diet, and their meds. We're finding the CGM has an impact on all three. Very frequently, we find patients who when they go on CGM, a very simple example I can give you. If they just change the time they take their metformin pill.
We saw one patient's average glucose in three weeks go down from 190 to 110 simply by changing the time of day they took their metformin. No change in diet or exercise. We see things like this all the time as we get on more patients. We need to develop the models and figure out a way to put these into the system. You've got a number of patients who don't spend that much money on their care. This is not gonna be the revenue model per patient that we have with our existing business. We need to make a revenue model that works for the payers as well, and is easy to administrate by the clinicians.
It's something that we're gonna be thoughtful in developing, and our first step is to obtain a bunch of clinical data to develop the proper models. We'll share some of that data really in 2018 as we develop these programs further. It's gonna start there. Our new CFO, we're really excited to have him. He's had a lot of medical device experience and experience on a number of fronts that we think helps round out our team and he'll be a great addition, so we're very excited about that too.
Okay, that's very helpful. My one follow-up is just as it relates to as new products come closer to market, what you guys are seeing as far as the time to convert a patient. You know, we've heard pump companies talk about that, and I know right now you're the only standalone sensor on the market, but just as the noise around Abbott's Libre gets louder, and regardless of whether the patient ultimately goes on a Dexcom or a Libre or what have you, are you seeing any sort of extended conversion cycle from a patient deciding to go on CGM and ultimately making the choice of what product they go on, or is that sort of status quo? Thanks so much.
You know what, Danielle, I'll let Steve kick in if he wants to. We see a lot of that as dependent upon our reimbursement arrangements. If a patient has pharmacy benefit, for example, and could go to the drugstore and pick it up, that conversion cycle becomes a couple of days, and it becomes very quick. If they require very little documentation, I think there's a direct correlation between the reimbursement criteria and the coverage criteria from the payers and the patient's ability to get on quickly. I'd say from an overall market perspective, so now I'm gonna go much bigger and much more global, whereas in the past, our patient base in my early years here was very, very intensive, people managing their diabetes today as we've got more DTC campaigns and we're further extending into the patient base.
You've got people probably not as committed to going on CGM as the ones we got three and four years ago. That cycle may in fact be extended by them going, "Yeah, I saw this on TV, and I've got an iPhone, or I've got an Android phone now. It might be cool, but maybe," you know. We are getting to a broader base of patients that may in fact take a little more time. At the end of the day, it's still pretty good.
Thank you. Our next question comes from Kyle Rose from Canaccord. Please go ahead.
Great. Thank you very much for taking the question. Can you hear me all right?
Sure.
Yep.
Great. Just kinda to dovetail off of Danielle's question, there. Just, you know, now that we've got a few quarters of CGM adoption that's kind of in line with the broader, you know, MDI versus, you know, pump breakdown, just can you talk about any changes in or any differences in utilization or attrition in this new or more MDI patient population? Just from a bigger picture perspective, when we think about, you know, new products coming to the market, you obviously talk to the FDA a lot, you've done a lot of work with the G6, and it sounds like, you know, the first Verily product there.
Can you just talk about where the FDA stands on with respect to, you know, a factory-calibrated device as well as, you know, going directly to a smartphone as the primary receiver?
Sure. I'll take that one on. With respect to attrition or utilization, I think those factors are relatively similar based on what we see. Again, we never encourage patients to go beyond seven days. Our labeling is seven days. It's a seven-day sensor. The one anecdote I can tell you is in Germany where this is reimbursed, seven days appears to be the norm, which is really good there. I think utilization attrition again oftentimes become a function of reimbursement. You know, in the first quarter, since a lot of patients have bought a bunch of sensors in Q4, they may not be buying as many sensors in Q1.
Over time, as we look at our business models and we've gone to the phone, we learn over and over again. We'll try and develop a model to determine which patients have quit. We'll then go make a bunch of phone calls. Have you left us? No, we haven't left you. Well, we haven't seen your stuff on, you know, in our phone service. I went back to my receiver for a while, or things like that. I think our attrition and our utilization models really require more development over time. It's gonna be, and we'll learn it. Ultimately, when we have everybody on the phone, we'll know a lot more.
With respect to the FDA and no calibration sensors and that type of technology going straight to the phone, you know, in Europe, we have a configuration that does go straight to the phone that doesn't demand the receiver, and the majority of our new patients in Europe, quite frankly, are not buying receivers. They're buying the transmitter and the sensors, and then it's reimbursed that way in Europe, so we're doing very well with that configuration. I think over time, the FDA, we could go directly to a phone, and we could file that configuration and do it. For Medicare right now, since we have the receiver, we continue to sell it and have it part of the system. We have a new receiver we're launching here in the fall that will be good for patients.
We'll see over time, but it does take cost out of the system and it certainly is a feature we'll consider. With respect to no calibration sensors and FDA discussions and where all that is, we've had preliminary and initial discussions. We don't have final confirmation on anything. I can tell you we will run and simulate all our G6 pivotal data to 300+ patients, more like 340 and 30,000 matched pairs. We'll have the opportunity to take that data and simulate it and see how a no calibration system would perform and have discussions directly with the FDA about that. We think we can get very clear guidance. The Verily system will be based upon that algorithm that's in the Gen 6 sensor and that sensor platform.
We'll have a very good indication of how that system is gonna perform long before we launch it, long before we file it. I think it's our job to be very diligent over the next couple of quarters to make sure we present data to the FDA in the best possible manner so we can get very clear rulings and guidance from them.
Great. Thank you very much for taking the question.
Our next question comes from Raj Denhoy from Jefferies. Please go ahead. Your line is open.
Hi, good afternoon. What if I could just start on the competitive landscape a bit? You know, 670G has sort of cast a bit of a shadow over the space, at least, you know, amongst investors anyway. They seem to be a little bit supply constrained now in being able to put sensors in the market, and get patients on that device. So I guess the question is really, do you think we've seen the worst of that in terms of its potential impact on you? Or what's your current thinking about 670G?
You know, I think with consistent with Medtronic's other launches, there is a lot of noise at the beginning, and there's a lot of confusion, and some of that noise and confusion has gone away. I can tell you, as I've talked to physicians in my personal conversations, I'm hearing a very similar tune over and over again that the majority of our patients really will do very well with CGM and shots. That is the solution for the masses, and that's where we wanna be. I think, you know, if and when they launch the thing full tilt and can ship sensors, we'll have to see how it works.
We hear the same thing you just talked about, continued delays and continued patients not being happy, and not getting the systems they signed up and paid for. We'll just have to play it out.
Okay, fair enough. Maybe just my follow-up. You know, we've heard recently that you know JDRF and the Helmsley Trust are gonna be you know embarking on a bit of an advertising campaign to drive CGM utilization. I think they've stated the goal is to you know get the penetration of CGM, I should say, to 50% of eligible users over the next year. I know that's the foundation's goal, but do you have any thoughts around that plan and whether it could impact your numbers?
I'm really happy that they're gonna advertise for us. You know what? I hope it does impact our numbers. I've had discussions with Helmsley Trust and JDRF on the program, and we're certainly happy to be involved and help any way we can. The tools we've given JDRF and Helmsley in this endeavor, when you look at the DIAMOND study, you look at the GOLD study, you look at the COMISAIR study over in Europe as well, for the first time ever, we've got a body of clinical evidence that truly shows that CGM is a great benefit to patients. If you're gonna invest in money that's gonna improve care in a patient's life, there's nothing better to invest in than CGM, and I think they'll capitalize on that message and go.
I think we need to combine their messaging that's going to patients and healthcare providers to the payers as well. I think it's a three-pronged approach. It's not just one or two. We're happy to participate in that, and we will take any efforts to increase awareness. We're thrilled with.
Great. Thank you very much.
Our next question comes from Doug Schenkel from Cowen. Please go ahead. Your line is open.
Hi, this is Ryan on for Doug. Thanks for taking my questions. Last quarter, you noted Germany was 20% of international revenue. What was it in Q2? As we look to the rest of 2017, is there any reason why international revenue wouldn't continue to increase sequentially?
Yeah. You got that, Steve?
Yeah, I think I don't have the number in front of me. I think it was around 25% of international this quarter. Is there any reason to think it won't continue to increase sequentially on an absolute basis? Yeah, of course it will. You know, we continue to grow reimbursement in Germany and other countries. There's no reason to think that international isn't continue to grow. As we've noted directly and indirectly on the call, you know, the U.S. business tends to do a little better in the back half of the year, particularly in Q4, as insurance deductibles are met and patients have a much easier financial means to obtain the product.
I don't know that international will continue to outpace, but it's gonna continue to be a good growth driver for us.
Got it. On G6, can you comment at all on the results of the pivotal trial? Were performance results in line with the preclinical data you've previously presented? Thank you.
To the credit of my team, they've not shown me the results of the pivotal study, so I can't comment. We wouldn't anyway. We'll submit it, and it'll be published later. We're very confident in that system. It's great sensor technology with a very strong algorithm.
Excellent. Thank you.
Our next question comes from Margaret Kaczor from William Blair. Please go ahead. Your line is open.
Hey, good afternoon, guys. First question for me is, I think at the beginning of the call, you mentioned you were taking a look at some of the timing for the Verily first generation product, and that's based on the G6 platform. Are you guys looking at ways to accelerate the timing of that launch, whether it's the first generation or the second generation? What kind of updates should we be looking for?
We are looking for ways to accelerate everything with respect to, you know, our G6 product and the first Verily launch, and as we look forward to our future products. We're looking at international strategies where we can get combinations of those products out and really meet some unmet patient considerations over there. I think next quarter what you can expect is a little clearer guidance from us. We need some more guidance with the Agency. We need to run our data and our pivotal and see what our no calibration data is gonna look like for the Verily product and really have some good discussions with the agency. Look, they've been nothing but cooperative with us as we've reached out to them.
This is gonna be a very good data set for us to base a conversation on. We still have scale up and engineering work to do on the first generation Verily product. If it got approved tomorrow, we certainly couldn't manufacture 10 million of them. But we do—we have scale up work to go. There's a whole timeline here of things that have to fall into place when we go. I think we'll just give you more clarity and talk about more of the tasks and things we have going on. I think we can talk about clinical study schedules and everything like that. We're hoping to be able to do that in the next earnings call so we can let you know where we are.
You referenced the FDA's view on calibration, and you talked a little bit about dosing. In your view and in your recent discussions, are alerts and alarms and that fingerstick-like accuracy the sticking point at this point in order to get that dosing claim? In terms of calibration, you know, have you had discussions with them about factory calibrated devices? What do you think the FDA's view of that is today?
You know, I'm not gonna speak for them. I can talk to you about our view and my view in particular. With respect to our intensively managed patients, we need to deliver a safe experience. We were looking at, and quite candidly, the Abbott user guide the other day, and it talks about, and there's a statement right in the user guide. It says, when this thing says 60 or below, the chances are 40% you're between 80 and 180, and you can't rely on this for accurate measurement in the lower range. With our G5 505 software, if our device reads 60 or below, the chances of you being above 80 are 2%-3% and above 120 are zero. I'd take 2%-3% over 40% any day.
The FDA has already seen non-adjunctive sensors where they've given a label with that level of accuracy. We know we're gonna have to perform. I don't know if they're waiting for fingerstick accuracy, Margaret. It'd certainly be lovely if we could get it. We know, as we run our pre-pivotal with no calibration data, quite honestly, we actually get better performance in the first day because of the occasional outlier from a calibration, at this point in time. I think the industry is gonna mature. I think we need to have really robust technology and algorithms and systems with no calibration sensors to keep patients safe. We've talked with the FDA, we've talked with others about is there a different class of product for non-intensively managed Type 2s. I think that type of product can develop over time as well.
You know, we're at the very beginning on this. We're kind of at the same place we were many years ago when we first started, and we're looking forward to the challenge and I'm pretty confident we can deliver the technology to get us there. It's gonna be a process. The FDA has been nothing but cooperative, but I think they're proceeding with caution, and that's okay. They should. It's important to these patients that they're safe.
If I can squeeze one more in. In terms of patient demand trends outside of Medicare, I think you mentioned earlier that MDIs were two-thirds of your new patient adds, maybe in the first half. I assume that's true in the quarter as well. What kind of indicators are you guys looking at that can continue to drive that double-digit growth, let's say, over the next few years in the MDIs? Thanks.
You know, I think one thing that'll drive that double-digit growth is we'll have systems for MDI patients where there will be Bluetooth apps on phones where we can combine MDI data with CGM data and really give a patient a good view of their overall diabetes picture, similar to what they get on the face of their insulin pump today, when they have a glucose sensor. I think those will be helpful. I think from a cost perspective, in all honesty, as you look at payers and what they're spending on the cost of diabetes, an integrated pen solution is gonna be a less expensive alternative than going on the insulin delivery systems that we have today, and a CGM.
I think there's a number of ways we can drive this. I think there will be new technology and devices that will make it much more accessible and much better for the patients.
Our next question comes from Chris Cooley from Stephens. Please go ahead. Your line is open.
Hey, good afternoon, guys, and I appreciate you squeezing me in here at the end. Just two quick ones from me. One, maybe either Kevin or Steve, could you just remind us? I realize that as we see the growth in this, in the Medicare opportunity, that this is a script model. But are there any variances to the cadence or the order patterns that we should expect in the early penetration of that opportunity that you'd wanna make sure that we're all mindful of? I realize we're still, I guess pre first inning in that regard. Then secondly, I just wanted to clarify, and I think, Kevin, your prior response in the cost to serve or the cost to acquire those patients, saying it was essentially just a little bit above the commercial pay patient today.
I just wanna make sure I fully understand the puts and takes there.
Mm-hmm.
with the incremental product you have to ship as well as the, well, I would assume the added handholding their time, from an administrative level. Thanks so much.
Yeah. I'll take the first part. I think it's a great question 'cause there are two critically important points to keep in mind about the Medicare patient. Kevin spoke to one in one of his responses, which is the initial contribution from a Medicare patient will be substantially lower than a commercial private payer patient. Because, you know, best case, we're gonna get close to $500 out of the gate from a new Medicare patient based on the receiver and a first month bundle. Whereas we might get, you know, $1,000 or $1,500 or more from a private payer patient, depending on how many boxes of sensors their insurance company would let us ship on an initial sale. That's when you're modeling, it's really important not to get ahead of yourself on the initial contribution.
The follow up to that is we love the model that Medicare has set forth, where it's effectively a subscription model. You know, this $200, around $250 a month, it once we have the systems in place, it's great. We can pick up the phone and reach out to that patient every month and figure out exactly what supplies we need, and we ship them. Once the initial paperwork is done, once we've got them up and running over the course of a 12-month period, the Medicare patient becomes a great patient in terms of our ability to fulfill them on a more consistent basis. I think that's.
Yeah.
Those are important points.
As far as time, Chris, we know and we've done logistics studies. We know, for example, a call from a Medicare patient takes us longer to respond to than a call from a non-Medicare patient. In Arizona, where we set up our second call center in our new building, we have a Medicare call team set up ready to go with the Medicare patients. Now they're answering other calls now and dealing with folks who haven't got their systems yet, who wanna know when they're coming. Ultimately, we're building a structure around this to try and figure it out. As Steve said, with the monthly cost, you know, with the monthly opportunities to interact, we believe over time it'll be a very good business model.
We just gotta get the systems in place and get our cadence down and whereby we understand how it works. It is different than what we do today with our current patients. It really is.
Thanks, Chris. Next question, please.
Our next question comes from Tao Levy from Wedbush. Please go ahead. Your line is open.
Great. Thank you. Maybe first off, you know, in terms of the new patient trends that you're seeing in the U.S., you know, any general comments you can provide? I know, you know, you obviously, you know, had a good quarter here in the second quarter, but, you know, versus, you know, Q4 first quarter, how are things shaping up, in the field as new patients start coming on board?
You know, new patients are hitting us. That's certainly a big portion of our numbers. I would tell you, on an overall basis, the amount new patients contribute now that we have this much bigger installed base isn't as big in the overall revenue picture as servicing the ones that we have. Our opportunities for new patients continue to grow rapidly. We get a lot of leads. I would tell you the only thing we've seen, and it just is what it is more of our leads come from social media and our DTC campaigns. It takes a little longer to close those than it does to close some of the ones we've gotten from physicians directly, where your physician says, "You're a candidate for CGM. You need this.
You need to wear it." Versus somebody who goes online, and we have to go through conversations and then call their doctor and say, "Your patient wants the system and wants to use the system," and go through that versus a patient who gets a script directly from their doctor then reaches out to us. I'd say close time on some of those leads is a little longer, and they may not be as committed as the others. We have more opportunities than we've ever had. Our close rate is probably not as high as it used to be, but that's expected, as you expand your market and do what we're doing. New patients are good.
I think the limiting factor on new patients, and I said it earlier, has been the ability of our field team to focus on new patients as they've dealt with the Medicare issues and the physicians saying, "I want my Medicare patients taken care of. We need to get those folks taken care of." But our team's doing well.
Okay. Great. Thanks. Just as a quick follow-up. Steve, you made an interesting comment in your prepared remarks where you kinda talked about you know, patients in Europe who initially were on Libre now transitioning to your system. I mean, what type of insight is that, I guess, anecdotal information providing you? How does that you know, make you feel, or how do you think about how that might impact things here in the U.S. or even internationally over time? Thanks.
Yeah. Don't really wanna comment on the U.S. 'cause we still don't know if Abbott gets approved, what their labeling is gonna look like, et cetera. Frankly, what our field folks is, as we've gone direct in a number of these markets, and even with the distributors who we're closer to, they say once reimbursement's put in place, patients, clinicians, everybody involved absolutely prefers real-time alerts and alarms, and they absolutely prefer the improved accuracy of our system over what Libre is able to provide them, particularly when you look at performance accuracy, performance in the hypoglycemic range.
You know, when Libre was competing purely on a cash basis and offering it, you know, on a per day basis, a slightly less expensive product, it was tougher. When patients are able to get it paid for, they're becoming Dexcom users.
Great. Thank you.
Our next question comes from Joanne Wuensch from BMO Capital Markets. Please go ahead.
Thank you very much for taking my question. A lot of them have already been answered. Last quarter, you had quantified, I think it was 2.5 million of sort of a Medicare patient loss associated with the implementation of the program. Should we think a similar number happened this quarter?
Sure. Yeah. Well, what we said, just to clarify for everybody, is we had several cash paying Medicare patients that was between $2-$3 million in Q1, and we had the same thing again in Q2. We're not billing any of these people and not collecting any money.
Should we anticipate that's a headwind for the remainder of the year or just sort of ease off as you get more paperwork and process in place?
Our goal is to get our existing patients up and running quickly, and then take on the new ones as well. You know, we'd love to say we're gonna get a lot more than $2.5 million in Medicare revenues in Q3, but I really can't quantify a number today, and I think we would be wildly unsuccessful if we didn't get more than $2.5 million in Q4. You know, I think over time, it will reverse itself, and the trend will be positive.
Excellent. Congratulations on hiring Quentin. Is there something that he will be tasked with that you can explain as we think about him coming on board?
You know, we're excited to get him, and I think if you look at what we've done over the past couple of years at our company, I believe, and I firmly believe this, I'm taking away from my closing remarks, but I'll take it now. I've compared us to other diabetes companies for a long time and never seen a team as good as the one that we have here. What we've done in the past couple of years is we've added, for example, a new HR person, a new head of quality, a new head of IT. We just brought in a payer person from the pharma world. We have added really strong talent because we have learned to go to the next level, we need some new skills.
We've been very good at diabetes and very good at what we've done, but there are other skills that these new folks have brought to the table that are gonna make us a better company, combined with the excellent team that we have now. I think Quentin will fit into our team very nicely. Yeah, I got a list for him, but I'm not gonna go over it on the phone.
Thank you very much. Have a great evening.
Thank you. Our last question comes from Jayson Bedford from Raymond James. Please go ahead.
Thanks for squeezing me in. Just a couple of quick ones. The incremental cost going direct for Medicare, is that absorbed into the expense guidance that you laid out earlier this year?
Yes.
Okay. Second, on the Type 2 market, has the DIAMOND data or even CMS's willingness to cover intensive Type 2 patients had any influence with commercial payers in potentially getting broader coverage for Type 2s?
We're just starting to write that story now, but we hope that it does.
All right. Thank you.
We have no further questions. Turning it back over to you, Kevin.
Well, a lot of the things I was gonna say in my close, we've covered, but I'll just hit the key points anyway. You know, three takeaways from this call that you should all remember. Our international growth has been really strong, and it's really confirmed what we always knew. CGM is gonna be a worldwide solution. It's not just gonna be domestic. Example after example come in where we're doing very well. In Italy, we're growing nicely. In Israel, we're doing very well. As Steve talked about earlier, in Australia, reimbursement came out early this year, and in four months, we've already become the dominant player there with a wonderful distributor. Our international investments were well timed and are paying off.
In spite of our international success, the U.S. is still where more than 80% of our business remains, and it's still a great opportunity. Remember, you know, while we talked about all these Medicare implementation difficulties, the fact is we've gained access to 30% more Type 1 patients in the U.S. than we had before. For the first time, with a very large market, we have access to Type 2 intensive insulin users. We will continue to drive awareness. I think our marketing teams have been very good there, but we're gonna be making big investments in access as well. We need to get more patients covered and more lives covered. As we look at our international successes and what we have here, that's important to us. Finally, I just wanna remind everybody, we're built for the long haul here at Dexcom.
Our R&D investments are gonna pay tremendous dividends. Our product focus on our reduced costs, increased adherence, and convenience, and finally, continued world-leading performance will get us where we need to be. Glucose monitoring as a product category is in its infant stages, and we intend to grow far beyond the markets where we play today, and our strategies are taking shape. Think about what we're talking about. The new factory we've put up in Arizona, 180,000 sq ft. Our relationship with Verily to bring literally telecom technology and microelectronics to diabetes. Our thoughtful approach to our new markets and our Type 2 efforts. Our strength and balance sheet. With our $400 million in cash we just raised and even more capacity for debt if we had a great opportunity. Finally, the strength of this management team that we continue to build.
This opportunity remains exceptional. It's got a lot of legs. Thank you very much.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.