Operator: And we will take our next question from Travis Steed with Bank of America.
Travis Steed: Hey, thanks for the question. I just wanted to understand a little bit more, Kevin, that you could give some more clarity on how you think a reimbursement pathway for Stelo to look over the next couple of years, what you think is needed to open reimbursement up for that product, and how you think that would look if it would be done kind of in a more traditional way, or you think it would be done kind of a one -off, like the levels program with UnitedHealthcare.
Kevin Sayer: Our goal is to do this in a more traditional way over time. As we’ve said earlier, we’ll launch the product as a cash pay product and have a cash pay option, a cash pay that people can get into and purchase the product. We will accumulate data from those users over time. We’ll accumulate data, again, from the clinical trials that we see out there, and ultimately build a case for reimbursement for this product. I think over time, we certainly expect to go to CMS and have people with type 2 diabetes who are not insulin-covered at some point in time by that group, because, again, our goal is to spend less money in the healthcare system, and we’re one of the few technologies that enables an outcome of that nature. So we see it being more traditional and working with payers and the various government agencies over time.
The programs we will continue to support, we’re happy to support them and be partners with them. But I think over time, we need a more traditional reimbursement path, and that can be — the partnerships and the relationships can be the only way. On top of that, we’ll continue to develop our tools around Stelo. This first generation that we launch is going to be our first-pass app. We will have numerous iterations over the course of the first 24 months of that product that really make it a much more inviting and engaging product and lead people to better experiences. So stay tuned for what we have to say on that front over the next 12 months. It’s going to be very exciting.
Operator: And we will take our next question from Joanne Wuensch with Citigroup.
Joanne Wuensch: Good afternoon, and nice quarter. A couple of questions, queue are really boring. Can you give us the guidance for tax and how to think about net interest expense? And then the one that strikes me as somewhat more interesting is I think your LRP is for 21% operating margins. And this is the second quarter in a row where you bypassed that number. So why is 21% still the right number to be had? Thank you.
Jereme Sylvain: Sure. Yes, so we’ll start with tax. I think this year we kind of dropped down to closer to that 26% range. Well, we don’t necessarily guide year by year to tax. The goal is over the course of the next three to five years to get down into the low 20s. So I would expect it to continue to come down every year as we grow into the tax structure that we put in place. In terms of net interest income, some of that, it’s one of those, it’s a bit of a difficult one, but just given where interest rate is going to go over time, but it’s pretty straightforward that our cash interest cost is pretty low, just given our converts. And so you can basically take a look at the cash on the balance sheet, multiply it by about 4%. And that gets you to about where you’d be for the year.
Again, we’ll have to keep you updated as interest rates change over time. But that’s the way to think about it. And then from an operating margin perspective, we gave the 2025 LRP, that’s a 21%. Your point is valid. If you take a look at our guide this year at 20% in our gross margin of 63% to 64%, if we hold true to our 65% gross margin in 2025, which is absolutely our belief, you’re already there at a 21% off margin. So I absolutely understand the mathematics. It just means we’re ahead. We’re ahead of our LRP, but we’re not necessarily willing to update it at this point. We’ll come forward and we’ll update it at some point in the future. But I think it’s a good thing. We’ve done a lot of work around this, Joanne, around getting lean and making sure we drive leverage into the business.
And the great news is, is we are ahead. And so that’s a good spot to be in. And we’ll continue to do so. One other maybe caveat is that I think it’s important to note on the year I guess the question a little bit about the year and where we on the year. We’re making some good investments this year in the organization, we’re launching Stelo. And we talked about that being a significant investment in the business. We’re certainly doing a lot of work around our salesforce and if you recall few years ago, we did some work around that we took step back on march, we are going to do all that and still step forward. We’re going to go direct in Japan this year. That’s another thing that we’re making an investment in and then all the work Kevin referenced around the clinical work that we’re doing around continuing to improve our product.
We’re going to make all those investments and still deliver an expansion of operating margin. So I think it just goes to show you we’re building the levers in here that you can see that we’re building and that you can rely on us longer term to continue to drive that through the business.
Operator: And we will take our next question from Matthew O’Brien with Piper Sandler.
Matthew O’Brien: Good afternoon. Thank you for taking my question. Looking at the domestic performance. There’s been a clear acceleration in the back half of ‘23 on a two year stacked basis. And I’m wondering specifically if that’s just basal that’s helping there. It looks like it’s as much as 200, maybe 250 basis points of the acceleration. Is that the primary contributor to the domestic acceleration? What should we think about in terms of basal contribution to the top line this year? And are we inflecting right now as far as basal adoption goes with CGM here in the States? Thanks.
Jereme Sylvain: Yes, that’s a good question. Let me maybe just give some color as to how we’re thinking about the guidance. As you see the performance in the back half of the year, a lot of that has to do with being the most accurate sensor, launching with a G7 form factor, and then of course having the basal coverage there. And so when you think about it, and you can see the share taking when you look at script data, we are taking share and having the sensor, the most advanced sensor on the market is the driver there. So that’s taking share. Now within those spaces, basal is a contributor, no question. As that category expands and we take share within that category, that does contribute to the overall numbers. And so you are right, basal is a contributor, but it has as much to do with us taking share as it does with category expansion.
So think about both of those as contributors. As you think about 2024, we’ve talked a little bit about the adoption rate, basal in total, adopting in the back half of the year around 9% to 10% per year on a per annum basis. The guide assumes about 8% there. And so, I think you can assume that was the case. Our long range plan was more like 6% to 7% per year. So we are seeing basal going faster than what was in our long range plan. And what’s great about that is as we continue to take share and the category grows a little faster than expected, that will help contribute over the longer haul. So hopefully that gives you some context to how we’re seeing basal. It absolutely is a contributor. I don’t want to overstate the fact though that basal because quite frankly, our intensive insulin businesses continue to do really, really well.
And you see us taking share there as well.
Kevin Sayer: Yes, I just add to Jereme’s comments, Matt, if you look at the second half of the year, that’s when G7 rolled out. There’s a direct correlation to G7 launching and the acceleration of our growth. It really was an important event. And the other thing that just as a consequence of what you saw, again, this supports what we’re doing in the U.S. with respect to our field sales expansion. We do need to spend more time with physicians who aren’t as familiar with our technology as they would have been in the past. As I said on the call earlier, where we call on somebody, we win. We do very well. So we need more calls. We needed more feet on the street and more voice, given the acceleration that we saw and the good things that we saw happen over the second half of the year. So it all flows together nicely.
Operator: And we will take our next question from Malgaret Andrew with William Blair.
Malgaret Andrew: Hey, good afternoon, guys. Thanks for taking the question. I wanted to maybe spin back to non-insulin. When we kind of run our market models, non-insulin adoption seems to have meaningfully increased probably for you as well it’s certainly for the market the last couple of years. And again, our numbers probably aren’t perfect, but maybe the market’s not at a million users in the U.S. but could get there this year. That’s a pretty sizable amount. So I guess one, are this meaningful patient adds to Dexcom already in 2023 and what drove that? And going back to the Stelo guidance of $40 million per year, we can obviously throw some assumptions around ASPs or patient adds. But regardless of what those inputs can be, it pretty quickly gets you to $200 million plus sales in 2025, which is a pretty meaningful chunk of the chain.
So I guess, is that correct? Why could it be right or wrong and how much of that could be incremental to the initial LRP that you provided in ‘23. Thanks.
