Dexcom · 10-Q · Item 2 MD&A

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q, including the following Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that are not purely historical regarding Dexcom’s or its management’s intentions, beliefs, expectations and strategies for the future. These forward-looking statements fall within the meaning of the federal securities laws that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “potential” or “continue” or the negative of these terms or other comparable terminology. Forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q, deal with future events, are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in those forward looking statements.

The risks and uncertainties that could cause actual results to differ materially are more fully described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 filed with the SEC on February 12, 2026, together with any updates identified under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, elsewhere in this Quarterly Report on Form 10-Q, and in our other reports filed with the SEC. We assume no obligation to update any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform these forward-looking statements to actual results. You should read the following discussion and analysis together with our condensed consolidated financial statements and related notes in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Overview

Who We Are

We are a medical device company primarily focused on the design, development and commercialization of continuous glucose monitoring, or CGM, systems for the management of diabetes and metabolic health by patients, caregivers, and clinicians around the world.

We received approval from the Food and Drug Administration, or FDA, and commercialized our first product in 2006. We launched our latest generation systems, the Dexcom G7 Continuous Glucose Monitoring System, or G7, in 2023, and the Dexcom G7 15 Day Continuous Glucose Monitoring System, or G7 15 Day, in late 2025. In August 2024, we launched Stelo, our biosensor designed for adults with prediabetes and Type 2 diabetes who do not use insulin, as the first over-the-counter glucose biosensor in the U.S.

Unless the context requires otherwise, the terms “we,” “us,” “our,” the “company,” or “Dexcom” refer to DexCom, Inc. and its subsidiaries.

Global Presence

We have built a direct sales organization in North America and certain international markets to call on health care professionals, such as endocrinologists, physicians and diabetes educators, who can educate and influence patient adoption of continuous glucose monitoring. To complement our direct sales efforts, we have entered into distribution arrangements in North America and several international markets that allow distributors to sell our products.

Future Developments

Product Development: We plan to develop future generations of technologies that are focused on improved performance and convenience and that will enable intelligent insulin administration. Over the longer term, we plan to continue to develop and improve networked platforms with open architecture, connectivity and transmitters capable of communicating with other devices. T1We also intend to expand our efforts to accumulate CGM patient data and metrics and apply predictive modeling and machine learning to generate interactive CGM insights that can inform patient behavior.

Partnerships: We continue to support partnerships with insulin pump companies and companies or institutions developing insulin delivery systems, including automated insulin delivery systems. With the introduction of Stelo, we are also pursuing and supporting development partnerships with consumer technology product companies that seek to provide metabolic health insights to their customers.

New Opportunities: We are also exploring how to extend our offerings to other opportunities, including for people with pre-diabetes, people who are obese, people who are pregnant, and people in the hospital setting. Eventually, we may apply our technological expertise to products beyond glucose monitoring.

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Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which we have prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements as well as the reported revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the estimates, assumptions and judgments involved in the accounting policies described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates. There were no material changes to our critical accounting estimates during the six months ended June 30, 2026.

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Overview of Financial Results

The most important financial indicators that we use to assess our business are revenue, gross profit, operating income, net income, and operating cash flow.

Key Highlights for the Three Months Ended June 30, 2026 include the following:

Revenue

Gross Profit

Operating Income

Net Income

Operating

Cash Flow

We ended the second quarter of 2026 with cash, cash equivalents and short-term marketable securities totaling $1.95 billion.

Results of Operations

Financial Overview

Three Months Ended June 30,

(In millions, except per share amounts)

% of Revenue (1)

% of Revenue (1)

$ Change

% Change

Revenue

$

%

$

%

$

%

Cost of sales

%

%

2

%

Gross profit

%

%

%

Operating expenses:

Research and development

%

%

3

%

Selling, general and administrative

%

%

9

%

Total operating expenses

%

%

7

%

Operating income

%

%

%

Other income (expense), net

—

%

2

%

**

Income before income taxes

%

%

%

Income tax expense

5

%

5

%

%

Net income

$

%

$

%

$

%

Basic net income per share

$

**

$

**

$

%

Diluted net income per share

$

**

$

**

$

%

(1) The sum of the individual percentages may not equal the total due to rounding.

** Not meaningful

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Revenue

We generate our revenue from the sale of disposable sensors and reusable transmitters and receivers. We expect that the revenue we generate from the sales of our products will fluctuate from quarter to quarter. We typically experience seasonality, with lower sales in the first quarter of each year compared to the immediately preceding fourth quarter. This seasonal sales pattern relates to U.S. annual insurance deductible resets and unfunded flexible spending accounts.

Cost of sales

Cost of sales includes direct labor and materials costs related to each product sold or produced, including assembly, test labor and scrap, as well as factory overhead supporting our manufacturing operations. Factory overhead includes facilities, material procurement and control, manufacturing engineering, quality assurance, supervision and management. These costs are primarily salary, fringe benefits, share-based compensation, facility expense, supplies and purchased services. All of our manufacturing costs are included in cost of sales. In addition, amortization of certain licensing related intangibles are also included in cost of sales.

Research and development

Our research and development expenses primarily consist of engineering and research expenses related to our sensing technology, clinical trials, regulatory expenses, quality assurance programs, employee compensation, and business process outsourcers.

Selling, general and administrative

Our selling, general and administrative expenses primarily consist of employee compensation for our executive, financial, sales, marketing, information technology and administrative functions. Other significant expenses include commissions, marketing and advertising, IT software license costs, insurance, professional fees for our outside legal counsel and independent auditors, litigation expenses, patent application expenses and consulting expenses.

Other income (expense), net

Other income (expense), net consists primarily of interest and dividend income on our cash, cash equivalents and short-term marketable securities portfolio, foreign currency transaction gains and losses resulting from the effects of foreign currency fluctuations, realized and unrealized gains and losses on marketable and non-marketable equity investments, including changes in fair value, and interest expense related to our senior convertible notes.

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Three Months Ended June 30,

(In millions)

United States

International

Total

United States

International

Total

Distributor

$

$

$

$

$

$

Direct

Total revenue

$

$

$

$

$

$

Three Months Ended June 30, 2026 Compared to

Revenue

The T2revenue increase was primarily driven by increased sales volume of our disposable sensors due to the continued growth of our worldwide customer base. We added approximately 600,000 to 700,000 net customers, excluding Stelo customers, to our worldwide customer base in 2025. The increase was also driven by favorable revenue per customer primarily due to payor mix and utilization. These favorable impacts were partially offset by channel and product mix and rebate eligibility.

Cost of sales & Gross profit

The T3increase in gross profit and gross profit margin percentage in the second quarter of 2026 compared to the second quarter of 2025 was primarily driven by increased sales volume, G7 15 Day benefits, improved manufacturing efficiencies, higher production volumes, and a more favorable manufacturing mix, which resulted in better absorption of fixed costs. The increase in gross margin was attributable to the implementation of additional quality testing and material validation efforts relative to the prior year. These favorable impacts were offset by higher excess and obsolete inventory charges primarily associated with the planned discontinuation of G6 manufacturing. Cost of sales increased primarily due to higher sales volumes.

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Three Months Ended June 30, 2026 Compared to

Research and development expense

Research and development expense was relatively flat due to the timing of project spend.

We continue to believe that focused investments in research and development are critical to our future growth and competitive position in the marketplace, and to the development of new and enhanced products and services that are central to our core business strategy.

Selling, general and administrative expense

Selling, general and administrative expense increased primarily due to $12.1 million in incremental investments in advertising and marketing costs, $6.7 million in higher compensation and related costs, and $6.3 million in higher facilities-related costs.

Other income (expense), net

Other income (expense), net, decreased primarily due to $11.1 million in lower interest and dividend income, $10.3 million in net foreign currency losses, and $9.6 million in net losses on equity investments. The decrease in interest income was driven by a decrease in the average invested balances and changes in market interest rates.

Income tax expense

The income tax expense recorded for the three months ended June 30, 2026 and June 30, 2025 was primarily attributable to income tax expense from normal, recurring operations.

The decrease in our effective tax rate for the three months ended June 30, 2026 compared to the same period in 2025 is primarily attributable to the commencement of our Malaysia tax holiday and higher pretax income in the current period.

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Results of Operations

Financial Overview

Six Months Ended June 30,

(In millions, except per share amounts)

% of Revenue (1)

% of Revenue (1)

$ Change

% Change

Revenue

$

%

$

%

$

%

Cost of sales

%

%

1

%

Gross profit

%

%

%

Operating expenses:

Research and development

%

%

2

%

Selling, general and administrative

%

%

%

Total operating expenses

%

%

8

%

Operating income

%

%

%

Other income, net

1

%

2

%

%

Income before income taxes

%

%

%

Income tax expense

6

%

5

%

%

Net income

$

%

$

%

$

%

Basic net income per share

$

**

$

**

$

%

Diluted net income per share

$

**

$

**

$

%

(1) The sum of the individual percentages may not equal the total due to rounding.

** Not meaningful

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Six Months Ended June 30,

(In millions)

United States

International

Total

United States

International

Total

Distributor

$

$

$

$

$

$

Direct

Total revenue

$

$

$

$

$

$

Six Months Ended June 30, 2026 Compared to

Revenue

The revenue increase was primarily driven by increased sales volume of our disposable sensors due to the continued growth of our worldwide customer base. We added approximately 600,000 to 700,000 net customers, excluding Stelo customers, to our worldwide customer base in 2025. The increase was also driven by favorable revenue per customer primarily due to payor mix and utilization. These favorable impacts were partially offset by channel and product mix and rebate eligibility.

Cost of sales & Gross profit

The increase in gross profit and gross profit margin percentage in 2026 compared to 2025 was primarily driven by increased sales volume, G7 15 Day benefits, improved manufacturing efficiencies, higher production volumes, and a more favorable manufacturing mix, which resulted in better cost absorption of fixed costs. The increase in gross margin was attributable to the implementation of additional quality testing and material valuation efforts relative to the prior year. These favorable impacts were offset by higher excess and obsolete inventory charges primarily associated with the planned discontinuation of G6 manufacturing. Cost of sales increased primarily due to higher sales volumes.

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Six Months Ended June 30, 2026 Compared to

Research and development expense

Research and development expense was relatively flat due to the timing of project spend.

We continue to believe that focused investments in research and development are critical to our future growth and competitive position in the marketplace, and to the development of new and updated products and services that are central to our core business strategy.

Selling, general and administrative expense

Selling, general and administrative expense increased primarily due to $27.2 million in incremental investments in advertising and marketing costs, $22.6 million in higher compensation and related costs, and $11.5 million in higher facilities-related costs.

Other income, net

Other income, net, decreased primarily due to $20.1 million in lower interest and dividend income and $13.6 million in net foreign currency losses. The decrease in interest income was driven by a decrease in the average invested balances and changes in market interest rates.

Income tax expense

The income tax expense recorded for the six months ended June 30, 2026 was primarily attributable to income tax expense from normal, recurring operations at an estimated annual effective tax rate of 21.8%, which includes the tax benefit related to the commencement of our Malaysia tax holiday, increased by discrete shortfalls recognized for share-based compensation for employees, net of nondeductible executive compensation.

The income tax expense recorded for the six months ended June 30, 2025 was primarily attributable to income tax expense from normal, recurring operations at an estimated annual effective tax rate of 24.3%, increased by discrete shortfalls recognized for share-based compensation for employees, net of nondeductible executive compensation.

The decrease in our effective tax rate for the six months ended June 30, 2026 compared to the same period in 2025 is primarily attributable to commencement of our Malaysia tax holiday and higher pretax income in the current period.

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Liquidity and Capital Resources

Overview, Capital Resources, and Capital Requirements

Our principal sources of liquidity are our existing cash, cash equivalents and marketable securities, cash generated from operations, proceeds from our senior convertible notes issuances, and access to our Credit Facility. Our primary uses of cash have been for research and development programs, selling and marketing activities, capital expenditures, acquisitions of businesses, and debt service costs.

We expect that cash provided by our operations may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, working capital requirements and capital deployment decisions. We have historically invested our cash primarily in U.S. dollar-denominated, investment grade, highly liquid obligations of U.S. government agencies, commercial paper, corporate debt, and money market funds. Certain of these investments are subject to general credit, liquidity and other market risks. The general condition of the financial markets and the economy may increase those risks and may affect the value and liquidity of investments and restrict our ability to access the capital markets.

Our future capital requirements will depend on many factors, including but not limited to:

The evolution of the international expansion of our business and the revenue generated by sales of our approved products and any future products;

Our ability to efficiently scale our operations to meet demand for our current and any future products;

The success of our research and development efforts;

The expenses we incur in manufacturing, developing, selling and marketing our products;

The costs, timing and risks of delays of additional regulatory approvals;

The costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

The quality levels of our products and services;

The emergence of competing or complementary technological developments;

The terms and timing of any collaborative, licensing and other arrangements that we may establish; and

The third-party reimbursement of our products for our customers;

The rate of progress and cost of our clinical trials and other development activities;

The acquisition of businesses, products and technologies and our ability to integrate and manage any acquired businesses, products and technologies.

We expect that existing cash and short-term investments and cash flows from our future operations will generally be sufficient to fund our ongoing core business. As current borrowing sources become due, we may be required to access the capital markets for additional funding. As we assess inorganic growth strategies, we may need to supplement our internally generated cash flow with outside sources. In the event that we are required to access the debt market, we believe that we will be able to secure reasonable borrowing rates. As part of our liquidity strategy, we will continue to monitor our current level of earnings and cash flow generation as well as our ability to access the market in light of those earning levels.

A substantial portion of our operations are located in the United States, and the majority of our sales since inception have been made in U.S. dollars. As we continue to expand internationally, we will be subject to additional foreign exchange currency risk. See “Foreign Currency Exchange Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, for more information.

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Main Sources of Liquidity

Cash, cash equivalents and short-term marketable securities

T4Our cash, cash equivalents and short-term marketable securities totaled $1.95 billion as of June 30, 2026. None of those funds were restricted and $1.56 billion (approximately 80%) of those funds were located in the United States.

Cash flows from Operations

For the six months ended June 30, 2026, we had positive cash flows of $794.8 million from operating activities. We anticipate that we will continue to generate positive cash flows from operations for the foreseeable future.

Senior Convertible Notes

We received net proceeds of $1.23 billion in May 2023 from the 2028 Notes offering. We used $289.9 million of the net proceeds from the offering of the 2028 Notes to purchase capped call transactions and repurchase shares of our common stock in May 2023. We intend to use the remainder of the net proceeds for general corporate purposes and capital expenditures, including working capital needs. We may also use the net proceeds to expand our current business through in-licensing or acquisitions of, or investments in, other businesses, products or technologies; however, we do not have any significant commitments with respect to any such acquisitions or investments at this time.

In connection with the 2028 Notes offering, we purchased the 2028 Capped Calls. See Note 4 “Debt” to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about our senior convertible notes and the 2028 Capped Calls.

Amended Credit Agreement

As of June 30, 2026, we had no outstanding borrowings, $8.7 million in outstanding letters of credit, and a total available balance of $191.3 million under the Amended Credit Agreement. We monitor counterparty risk associated with the institutional lenders that are providing the Credit Facility. We currently believe that the Credit Facility will be available to us should we choose to borrow under it. Revolving loans will be available for general corporate purposes, including working capital and capital expenditures. The Amended Credit Agreement will mature on October 13, 2026. See Note 4 “Debt” to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Amended Credit Agreement.

Short-term Liquidity Requirements

As of June 30, 2026, our short-term liquidity requirements primarily consist of regular operating costs, interest payments related to our 2028 Notes, capital expenditures for the development of our manufacturing facilities and office spaces, and short-term material cash requirements as described below. As of June 30, 2026, we had a working capital ratio of 1.73 and a quick ratio of 1.36, which indicates that our current assets are sufficient to cover our short-term liabilities. We expect to incur significant capital expenditures for the next year as we continue to invest in equipment and our manufacturing facilities.

We believe that our cash, cash equivalents, and marketable securities balances, projected cash contributions from our commercial operations, and borrowings under our Credit Facility will be sufficient to meet our anticipated seasonal working capital needs, all capital expenditure requirements, material cash requirements as described herein, and meet other liquidity requirements associated with our operations for at least the next 12 months. T5We currently intend to continue to use cash to repurchase shares of our common stock, including pursuant to the 2026 Share Repurchase Program, or for other strategic initiatives that strengthen our foundation for long-term growth.

Long-term Liquidity Requirements

Our long-term liquidity requirements primarily consist of interest and principal payments related to our 2028 Notes, capital expenditures for the development of our manufacturing facilities and office spaces, and long-term material cash requirements as described below. As of June 30, 2026, we had a debt-to-assets ratio of 0.19, which indicates that our total assets are sufficient to cover our debts. As demand grows for our products, we will continue to expand global operations to meet demand through investments in manufacturing and operations. We expect to meet our long-term liquidity requirements from our main sources of liquidity as described above to support our future operations, capital expenditures, acquisitions, and other liquidity requirements associated with our operations beyond the next 12 months. Further, we expect to allocate at least 50% of cash generated from operations, net of planned capital expenditures, to share repurchases over the course of our long-range plan.

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As of June 30, 2026, we have outstanding senior convertible notes classified as long-term that will mature in May 2028. However, the outstanding principal of our senior convertible notes could be converted into cash and/or shares of our common stock prior to maturity once certain conditions are met. See Note 4 “Debt—Senior Convertible Notes” to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on conversion rights prior to maturity.

Material Cash Requirements

From time to time in the ordinary course of business, we enter into a variety of purchase arrangements including but not limited to, purchase arrangements related to capital expenditures, components used in manufacturing, and research and development activities. As of June 30, 2026, we had approximately $1.42 billion of open purchase orders and contractual obligations in the ordinary course of business, the majority of which are due within one year.

Our obligations under the 2028 Notes include both principal and interest payments. Prior to the maturity of the 2028 Notes in May 2028, the notes may be converted into cash and/or shares of our common stock if certain conditions are met. Any conversion prior to maturity may result in repayment of the principal amounts due under the 2028 Notes sooner than the scheduled repayment.

As market conditions warrant, we may, from time to time, repurchase our outstanding debt securities or shares of our common stock, including pursuant to the 2026 Share Repurchase Program, in the open market, in privately negotiated transactions, by exchange transaction or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity and other factors and may be commenced or suspended at any time. The amounts involved and total consideration paid may be material. See Note 7 “Stockholders’ Equity—Share Repurchase Program and Treasury Shares” to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about our 2026 Share Repurchase Program.

See Note 4 “Debt” to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about the terms of the Amended Credit Agreement, our senior convertible notes, and the 2028 Capped Calls.

We are party to various leasing arrangements, primarily for office, manufacturing and warehouse space that expire at various times through 2040, including any renewal options that we are reasonably certain to exercise. We also have land leases in Penang, Malaysia that expire in 2082 and Athenry, Ireland that expire in 3023 related to our international manufacturing facilities. T6We anticipate incurring significant expenditures related to the build-out of our manufacturing facilities and investment in equipment. See Note 5 “Leases and Other Commitments—Leases” to the consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 for more information about our leases. There were no material changes to our lease obligations during the six months ended June 30, 2026.

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Cash Flows

As of June 30, 2026, we had $1.95 billion in cash, cash equivalents and short-term marketable securities, which is a decrease of $51.7 million compared to $2.00 billion as of December 31, 2025.

The following table sets forth a summary of our cash flows and the primary changes in cash flows for the periods shown. See the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for the complete condensed consolidated statements of cash flows for these periods.

Six Months Ended June 30,

(In millions)

$ Change

Net cash provided by operating activities

$

$

$

Net cash provided by investing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash, cash equivalents and restricted cash

Increase in cash, cash equivalents and restricted cash

$

$

$

Operating Cash Flows

$163.4 million increase in net income

$94.0 million increase in net changes in operating assets and liabilities primarily due to the timing of sales and customer collections in accounts receivables

Investing Cash Flows

$41.2 million increase in cash used for an acquisition in the second quarter of 2026

Financing Cash Flows

$603.6 million increase in cash used to repurchase our common stock

$37.6 million increase in payments for taxes related to net share settlement of equity awards

Recent Accounting Guidance

See Note 1 “Organization and Significant Accounting Policies” to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding recently issued accounting pronouncements and the potential impact on our condensed consolidated financial statements, if any.