Executive Summary / Key Takeaways

• DexCom (NASDAQ:DXCM) is extending its leadership in continuous glucose monitoring (CGM) by aggressively expanding access to the broader Type 2 diabetes population and pioneering over-the-counter solutions, positioning itself for sustained double-digit growth.
• The company's G7 system, coupled with the upcoming 15-day wear time and advanced software features like DexCom Smart Basal and AI-powered meal logging, reinforces its technological edge in accuracy, convenience, and integrated diabetes management.
• Despite recent operational challenges, including manufacturing yield issues and an FDA warning letter, DexCom demonstrated robust Q3 2025 financial performance with 20% organic revenue growth and strong operating cash flow, leading to an upward revision of its full-year 2025 revenue guidance to $4.630 billion to $4.650 billion.
• DexCom is strategically leveraging its strong financial position, including over $3.3 billion in cash and equivalents, to fund innovation, expand global operations, and execute a $750 million share repurchase program, while preparing to repay $1.21 billion in convertible notes.
• The competitive landscape is intensifying, but DexCom's focus on user experience, continuous innovation, and expanding reimbursement for non-insulin users provides a durable moat against rivals like Abbott and Medtronic, particularly in the rapidly growing metabolic health market.

The Unfolding Story of Glucose Monitoring Leadership

DexCom, Inc. has long been at the forefront of continuous glucose monitoring (CGM), transforming diabetes management since its inception in 1999 and the launch of its first product in 2006. The company's core business revolves around designing, developing, and commercializing CGM systems for patients, caregivers, and clinicians globally. This foundational strength, built on a history of innovation, has positioned DexCom as a pivotal player in the evolving landscape of metabolic health. Its overarching strategy is clear: to expand access to its technology across a broader spectrum of users, from Type 1 to Type 2 non-insulin dependent individuals, and to continuously innovate its product portfolio to drive superior health outcomes.

The industry itself is experiencing a profound shift, driven by increasing awareness of metabolic health, the rise of health wearables, and a growing body of evidence demonstrating the clinical and economic benefits of CGM. This has led to significant expansion in reimbursement policies, particularly for Type 2 diabetes patients. DexCom's journey reflects this trend, with strategic investments in 2024 leading to a 25% increase in its global customer base, reaching over 2.8 million users. This expansion was fueled by a broadened U.S. commercial reach, adding over 50,000 prescribers, and making early inroads into emerging care points like maternal fetal medicine.

Technological Edge and Innovation Pipeline

DexCom's competitive advantage is deeply rooted in its proprietary CGM technology, which consistently pushes the boundaries of accuracy, reliability, and user convenience. The Dexcom G7, launched in 2023, is a testament to this, offering a smaller form factor and enhanced performance. The company's commitment to innovation is further exemplified by the recent FDA clearance of its G7 15-Day CGM System in April 2025. This extended-wear product boasts an impressive MARD (Mean Absolute Relative Difference) of 8.0%, setting a new industry standard for sensor accuracy and wear time. This advancement directly translates into tangible benefits for patients, reducing the frequency of sensor changes and enhancing the overall user experience, which in turn can lead to improved adherence and better glycemic control. For investors, this technological lead supports premium pricing power and strengthens customer loyalty, contributing to higher recurring revenue streams.

Beyond current offerings, DexCom is actively developing its next-generation G8 platform, a multi-analyte system that will be 50% smaller in wearable size while packing even more functionality. This platform is designed with a next-generation custom chipset that supports multiple analyte sensing, indicating a strategic move beyond glucose alone. The company also introduced DexCom Smart Basal, a titration module integrated into the DexCom app, currently under review with the FDA and for CE Mark. This software is designed to learn from daily glucose patterns to identify ideal basal insulin timing and dosage, aiming to simplify titration, improve adherence, and significantly reduce the workflow for prescribing physicians. These R&D initiatives are critical for expanding DexCom's competitive moat, enabling it to address broader user needs and potentially unlock new market segments in metabolic health.

Financial Performance and Operational Resilience

DexCom's financial performance in 2025 reflects its strategic momentum, even while absorbing operational challenges. For the third quarter of 2025, the company reported worldwide revenue of $1.21 billion, representing a robust 22% reported growth and 20% organic growth compared to Q3 2024. U.S. revenue increased by 21% to $851.9 million, while international revenue grew 22% (18% organically) to $357.4 million. This growth was primarily driven by increased sales volume of disposable sensors, which constituted approximately 97% of total revenue.

Despite this strong top-line performance, gross profit margin faced headwinds. The third-quarter gross profit margin was 61.3%, a slight decrease from 63.0% in Q3 2024. This was primarily due to higher-than-expected scrap rates at manufacturing facilities, stemming from issues with certain third-party components that contributed to deployment problems earlier in the year. The company implemented extra scrutiny on supplied products to ensure quality, even at a higher near-term cost. For the nine months ended September 30, 2025, the gross profit margin was 59.1%, down from 61.1% in the prior year, also impacted by these inefficiencies and increased freight costs from expedited shipping to stabilize supply. Management expects these scrap rates to improve in the coming months, and the transition back to ocean freight for international shipments will help reduce costs.

Operating expenses for Q3 2025 were $468.4 million, up from $413.9 million in Q3 2024, reflecting increased investments in R&D and higher compensation costs. However, the company demonstrated strong OpEx leverage, with operating income reaching $272.9 million (22.6% of revenue) in Q3 2025, a significant increase from $212.0 million (21.3% of revenue) in Q3 2024. Adjusted EBITDA also improved to $368.4 million (30.5% of revenue) from $300.1 million (30.2% of revenue) in the same period. Net income for the quarter was $242.5 million, or $0.61 per share, marking the highest quarterly earnings per share in the company's history.

DexCom maintains a robust financial position, closing Q3 2025 with over $3.3 billion in cash and cash equivalents. Net cash provided by operating activities for the nine months ended September 30, 2025, was $1.15 billion. The company plans to repay its upcoming $1.21 billion of convertible notes in cash upon maturity in November 2025 and intends to continue repurchasing shares under its $750 million share repurchase program. This strong liquidity provides significant flexibility for ongoing capital allocation, including further strategic investments and potential acquisitions.

Strategic Initiatives and Future Outlook

DexCom's strategic roadmap is centered on expanding market access and driving continuous innovation. The company has made significant strides in the U.S. Type 2 diabetes market, securing coverage with the national formularies of the three largest commercial PBMs for nearly 6 million Type 2 non-insulin lives. This represents a substantial portion of the 25 million Type 2 non-insulin population in the U.S., and DexCom is actively pursuing coverage for the remaining individuals, supported by an ongoing randomized controlled trial (RCT) expected to read out early next year.

Internationally, DexCom is replicating its U.S. success, with strong organic growth in markets like France and Canada, driven by expanded basal insulin coverage. The company plans to bring its Stelo over-the-counter biosensor, which surpassed $100 million in revenue in its first year, to international markets in the near future. Stelo's distribution has also expanded to Amazon (AMZN), further broadening its reach in the health and wellness segment.

For 2025, DexCom raised its revenue guidance to a range of $4.630 billion to $4.650 billion, representing approximately 15% growth for the year. While the non-GAAP gross profit margin guidance was lowered to approximately 61% due to the aforementioned scrap rates and freight costs, the company reaffirmed its non-GAAP operating margin guidance of 20-21% and adjusted EBITDA margin of 29-30%, demonstrating confidence in its ability to leverage operating expenses. Looking to 2026, management anticipates continued double-digit growth, with a base case assuming existing coverage and opportunities for outperformance through expanded access and innovation. The G7 15-day system, with its finalized reimbursement contracts, is expected to be a key driver of growth and margin leverage beyond 2025.

Competitive Landscape and Positioning

DexCom operates in a dynamic and increasingly competitive market, primarily contending with Abbott Laboratories (ABT) and Medtronic (MDT) in the CGM space, and to a lesser extent, niche players like Senseonics (SENS). DexCom's core competitive advantage lies in its specialized focus on CGM, allowing for rapid innovation and a user-centric design that prioritizes accuracy and real-time data. The G7 system's MARD of 8.0% is a significant differentiator, positioning it as a leader in sensor accuracy.

Compared to Abbott's FreeStyle Libre, DexCom's offerings emphasize seamless data integration with digital health apps and a strong direct-to-consumer presence, fostering robust customer loyalty. While Abbott benefits from its broader healthcare ecosystem and potentially lower manufacturing costs, DexCom's focus on continuous wearability and advanced features like Urgent Low Soon alerts provides a qualitative edge in safety and user experience. Against Medtronic, which focuses on integrated diabetes management systems (CGM with insulin pumps), DexCom's standalone CGM offers advantages in simplicity and broad accessibility. DexCom's extensive partnerships with insulin pump companies, boasting over 2 million patient-years on AID systems powered by DexCom CGM, further solidify its position in the integrated therapy market.

DexCom's strategic response to competition involves not only product innovation but also expanding its commercial reach and advocating for broader reimbursement. The launch of Stelo, the first over-the-counter glucose biosensor, directly addresses the unmet needs of the Type 2 non-insulin, prediabetes, and health and wellness populations, a segment where traditional CGM players have had limited penetration. This move, coupled with integrations like the Oura Ring for broader metabolic health insights, allows DexCom to capture new customer segments and build a more diversified revenue base. While the company faces pricing pressure from third-party payers and potential competitive bidding processes (earliest impact expected in 2027), its demonstrated value in improving outcomes and reducing healthcare costs provides a strong argument for maintaining its market position.

Risks and Challenges

Despite its strong position, DexCom faces several pertinent risks. The company received an FDA warning letter in March 2025, citing deficiencies in manufacturing processes and quality management systems. While this does not restrict product distribution or new product clearances, resolution requires ongoing effort and could lead to further regulatory action if not addressed to the FDA's satisfaction. Additionally, the company experienced an uptick in G7 deployment issues earlier in 2025, leading to higher scrap rates and increased costs, although these issues have been addressed and complaint rates are expected to decrease.

Legal challenges, including securities class action and derivative lawsuits, also present a risk, with allegations concerning past revenue guidance and G7 device accuracy. Furthermore, the competitive landscape is dynamic, with rivals continuously innovating. While DexCom aims for stable DME share, aggressive moves by competitors or significant shifts in reimbursement policies could impact its market share and profitability. Inflationary pressures and global trade fluctuations also pose risks to supply chain costs, though DexCom's diverse manufacturing footprint helps mitigate direct tariff impacts.

Conclusion

DexCom stands as a compelling investment opportunity, firmly entrenched as a leader in the rapidly expanding continuous glucose monitoring market. Its core investment thesis is built on a foundation of relentless technological innovation, a strategic drive for broader market access, and a demonstrated ability to execute against ambitious growth targets. The company's G7 system, with its industry-leading accuracy and the upcoming 15-day wear time, along with pioneering products like Stelo and advanced software such as DexCom Smart Basal, underscores its commitment to enhancing user experience and expanding its addressable market.

While operational hurdles, including an FDA warning letter and temporary manufacturing inefficiencies, have presented challenges, DexCom's robust financial performance in Q3 2025, marked by strong organic revenue growth and record earnings per share, highlights its resilience. The company's proactive approach to expanding Type 2 non-insulin coverage in the U.S. and internationally, coupled with its strong liquidity and disciplined capital allocation, positions it for sustained double-digit growth. DexCom's technological leadership and strategic focus on customer outcomes provide a durable competitive advantage, making it a key player in the ongoing revolution of metabolic health management.