Executive Summary / Key Takeaways

• DexCom, a leader in continuous glucose monitoring (CGM), is strategically expanding its addressable market beyond intensive insulin users into the large Type 2 non-insulin population through new products like Stelo and securing broad payer coverage.
• The company's core technological advantage, demonstrated by the G7 system's accuracy (MARD 8.0% for 15-day version) and user-centric features, provides a strong competitive moat against rivals like Abbott (ABT) and Medtronic (MDT), supporting premium positioning and customer retention.
• Despite recent operational challenges related to sales force realignment, channel mix shifts, and supply dynamics impacting 2024 performance, DexCom is showing signs of reaccelerating growth, evidenced by record new customer starts (excluding Stelo) in Q1 2025 and improving sales force productivity.
• Management has reaffirmed its full-year 2025 revenue guidance of $4.6 billion (14% growth) and operating/EBITDA margin targets, signaling confidence in offsetting gross margin pressures through operational efficiencies and leveraging investments made in prior periods.
• Key catalysts for future growth include the ongoing expansion of Type 2 non-insulin coverage across major PBMs, the rollout and enhancement of the Stelo platform, the upcoming launch of the 15-day G7 system, and continued international market penetration.

The CGM Revolution: DexCom's Strategic Expansion

DexCom has established itself as a pioneer in the continuous glucose monitoring (CGM) market, fundamentally changing how people manage diabetes. From its first product launch in 2006, the company has been on a journey of relentless innovation, culminating in the highly accurate and user-friendly G7 system. This technological evolution has not only improved the lives of intensive insulin users but has also paved the way for DexCom's ambitious strategy to unlock vast, underserved populations within the metabolic health spectrum.

The core of DexCom's offering lies in its sensor technology, which provides real-time glucose data without the need for frequent fingersticks. The G7 system, launched in 2023, represents a significant leap forward, featuring a smaller wearable, faster warm-up times, and enhanced connectivity. The recently FDA-cleared 15-day G7 system for adults further pushes the boundaries, demonstrating an impressive Mean Absolute Relative Difference (MARD) of 8.0%, setting a new standard for accuracy in the industry. This technological edge is a critical component of DexCom's competitive moat, enabling it to command a premium in the market and foster strong customer loyalty.

Beyond the core G-Series, DexCom is actively investing in its future technology roadmap. The development of the G8 platform aims for even smaller wearables with greater capability, including multi-analyte sensing. While specific timelines and quantifiable targets for G8 are not yet fully disclosed, the strategic intent is clear: to build a versatile platform capable of monitoring multiple biomarkers, potentially expanding DexCom's reach beyond glucose into broader metabolic health and chronic disease management. R&D investments also focus on software enhancements, adding features like medication logging and activity data integration into the G7 app, and developing a proprietary Generative AI platform, initially launched in the Stelo app, to provide personalized insights based on user data patterns. These technological advancements are strategically designed to enhance the user experience, improve clinical outcomes, and strengthen DexCom's competitive position against rivals like Abbott and Medtronic, who also offer CGM solutions with varying features, wear times, and price points. DexCom's focus on real-time data, accuracy, and ecosystem integration (including partnerships with AID system providers like Tandem (TNDM) and Insulet (PODD), and data partnerships like Nanowear and Oura) differentiates it from competitors who may prioritize affordability (Abbott's FreeStyle Libre) or integrated pump solutions (Medtronic's Guardian).

DexCom's strategic narrative is now centered on leveraging this technological foundation to expand its addressable market. The launch of Stelo, the first over-the-counter glucose biosensor in the US, is a pivotal moment, directly targeting the large population of adults with Type 2 diabetes not on insulin, pre-diabetes, and those interested in general metabolic health. This move significantly broadens access to DexCom technology and provides a new channel for growth. Complementing this is the company's success in securing broader payer coverage. As of early 2025, two of the three largest PBMs cover DexCom CGM for anyone with diabetes, regardless of insulin use, with the third major PBM expected to add similar coverage by summer 2025. This represents a "true step change" in the coverage landscape, potentially opening access to nearly 6 million people with Type 2 non-insulin diabetes by the end of 2025. To further support this expansion and advocate for even broader coverage, DexCom is conducting a randomized controlled trial for the Type 2 non-insulin population, aiming to build a robust evidence base similar to its successful studies in insulin-using populations.

Performance, Challenges, and Strategic Responses

DexCom's financial performance over the past year reflects both the underlying strength of the CGM market and the impact of strategic and operational challenges. Q1 2025 saw organic revenue growth reaccelerate to 14% year-over-year, building on an 8% organic growth in Q4 2024. This growth was primarily driven by increased sales volume of disposable sensors, fueled by the continued expansion of the worldwide customer base. The US market, representing 72% of revenue in Q1 2025 ($750.5 million, up 15%), benefited from strong new customer demand, particularly from the Type 2 non-insulin population, demonstrating the early impact of expanded commercial reach and coverage wins. International markets, comprising 28% of revenue ($285.5 million, up 7% reported, 12% organic), showed pockets of strength in regions with recent access wins like Japan and France.

However, 2024 presented notable headwinds. Q2 2024 performance was below expectations, attributed to disruption from a complex US sales force realignment and expansion, which impacted new customer starts, especially in the DME channel. This realignment, which involved changing roles and targeting new physician call points like primary care, proved more disruptive than prior expansions. Compounding this were faster-than-expected G7 rebate eligibility and unfavorable channel mix shifts, particularly a trailing performance in the DME channel compared to the pharmacy channel, which negatively impacted US revenue per customer. International performance also saw some softness in Q2 2024 due to category growth dynamics and timing of tenders.

These challenges led management to lower the full-year 2024 revenue guidance to 11-13% organic growth. The impact of lower Q2 new customer starts and the revenue per customer dynamics were expected to peak in Q3 2024. DexCom reported a 3% organic growth in Q3 2024, with US revenue declining 2%, reflecting the compounding effect of Q2 issues, including approximately 6 points of negative impact from rebate eligibility. While DME share loss continued incrementally in Q3, trends stabilized late in the quarter.

In response to these operational hurdles, DexCom has implemented several corrective actions. The company has refocused on strengthening relationships and collaboration with DME partners, encouraging its sales team to be more channel-agnostic to ensure patients can access products efficiently. Efforts to improve sales force productivity have shown results, with metrics improving in Q3 and Q4 2024, and new customer starts (excluding Stelo) returning to record levels in Q3 and Q1 2025. Management believes the rebate eligibility impact peaked in Q3 2024 and will moderate.

Operationally, the company faced supply dynamics in Q1 2025 related to damaged inventory in Q4 2024, requiring incremental costs for expedited freight to ensure supply availability and minimize customer disruption. This contributed to a decrease in gross profit margin percentage in Q1 2025 (56.9%) compared to Q1 2024 (61.0%). Management is working to rebuild internal inventory levels and expects some of these costs to continue until inventory normalizes.

Despite these gross margin pressures, DexCom has demonstrated strong financial discipline, reaffirming its full-year 2025 operating margin (approx. 21%) and adjusted EBITDA margin (approx. 30%) guidance. This is expected to be achieved by offsetting gross margin impacts through OpEx control, prioritizing investments in high-return areas like R&D and commercial expansion, and leveraging efficiencies gained from past investments in manufacturing scale and operational processes. The company's strong liquidity position, with $2.70 billion in cash and short-term investments as of March 31, 2025, and robust operating cash flow generation ($183.8 million in Q1 2025), provides significant financial flexibility, underscored by the authorization of a $750 million share repurchase program.

Comparing DexCom's financial health to its peers using TTM ratios, DexCom exhibits strong profitability with a Net Profit Margin of 12.90% and EBITDA Margin of 21.45%. While Abbott shows a higher Net Profit Margin (32%) and EBITDA Margin (35.5%), this reflects its diversified business model. Medtronic and Tandem have lower or negative Net Profit Margins (11% and -10% respectively) and EBITDA Margins (26.6% and -8.6% respectively), indicating DexCom's relative efficiency in its core CGM business. DexCom's Debt/Equity ratio of 1.14 is higher than ABT (0.32) and MDT (0.52) but lower than TNDM (1.80), suggesting a balanced approach to leverage compared to its direct CGM/diabetes tech focused peers.

Outlook and Risks

DexCom's outlook for 2025 is centered on executing its strategic plan to capitalize on expanded market access and product innovation. The company has guided for full-year 2025 revenue of $4.6 billion, representing 14% growth. This guidance assumes continued strong category growth, stabilization of DME share, successful integration of new international access wins, broader distribution and adoption of Stelo, and the phased rollout of the 15-day G7 system in the second half of the year. Management expects US revenue and volume growth to converge as the year progresses, lapping the rebate and channel dynamics that impacted 2024.

The reduction in 2025 gross margin guidance to approximately 62% reflects specific, near-term cost pressures, including the lingering impact of Q1 dynamics, ongoing expedited freight costs to rebuild inventory, inflationary pressures (estimated 50 basis points impact from tariffs in the supply chain), and FX fluctuations. However, the reaffirmation of operating and EBITDA margins signals confidence in the company's ability to manage operating expenses effectively and benefit from scale efficiencies as volumes grow.

Key catalysts for achieving this outlook include the realization of growth from the expanded Type 2 non-insulin coverage across major PBMs, the successful rollout of Stelo through new channels like Amazon and DME partners, and the market adoption of the 15-day G7 system, which is expected to provide greater gross margin leverage beyond 2025 as the installed base transitions. International expansion, particularly in markets opening up basal coverage, is also expected to contribute meaningfully.

However, several risks could impact DexCom's ability to achieve its targets. The FDA warning letter received in March 2025, while not currently restricting sales or new product clearances (as evidenced by the 15-day G7 clearance), cites deficiencies in manufacturing and quality systems. Failure to fully satisfy the FDA's concerns could lead to future regulatory actions that could disrupt operations or delay approvals. Ongoing supply chain and inventory management challenges, while being addressed, could continue to impact costs and potentially affect product availability if not fully resolved. The securities class action and derivative litigation pose legal and financial risks, with uncertain outcomes. While the share repurchase program signals financial strength, its execution and impact on stock value are subject to market conditions. Finally, while the sales force realignment and DME relationships are showing signs of stabilization, fully regaining momentum and market share in these areas will take time and sustained effort. Competitive pressures from Abbott and Medtronic, particularly as they enhance their own offerings and distribution, remain a constant factor influencing market share dynamics.

Conclusion

DexCom stands at a pivotal juncture, leveraging its technological leadership and expanding market access to drive future growth. Despite facing operational headwinds in 2024 that impacted near-term performance, the company has demonstrated resilience and strategic agility, implementing corrective actions and showing signs of reaccelerating growth in early 2025. The core investment thesis remains compelling: DexCom's highly accurate and innovative CGM technology, coupled with its strategic push into the vast Type 2 non-insulin market and expanding international footprint, positions it for significant long-term growth. While challenges such as regulatory scrutiny, supply chain complexities, and competitive dynamics persist, management's reaffirmed 2025 guidance and commitment to operational efficiency underscore confidence in the company's ability to execute its strategy and deliver on its financial targets. Investors should monitor the successful rollout and adoption of Stelo and the 15-day G7, the continued expansion of payer coverage, and the effective navigation of operational risks as key indicators of DexCom's trajectory in the evolving diabetes and metabolic health landscape.