Earnings Call Transcript - DXCM Q4 2025

Operator, Operator

Ladies and gentlemen, good afternoon, welcome to the DexCom, Inc. Fourth Quarter and Fiscal Year 2025 Earnings Release Conference Call. My name is Abby, and I will be your operator today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you have a question, please press star 1 on your telephone keypad. As a reminder, the conference is being recorded. I will now turn the call over to Sean Christensen, Vice President of Finance and Investor Relations. Mr. Christensen, you may begin.

Sean Christensen, VP of Finance and Investor Relations

Thank you, operator, and welcome to DexCom, Inc.'s fourth quarter and fiscal year 2025 earnings call. Our agenda begins with Jacob Steven Leach, DexCom, Inc.'s President and CEO, who will summarize our recent highlights and ongoing strategic initiatives, followed by a financial review and outlook from Jereme M. Sylvain, our Chief Financial Officer. We will then open the call for your questions. At that time, we ask the analysts to limit themselves to one question each to provide an opportunity for everyone participating today. Please note that there are also slides available related to our fourth quarter and fiscal year 2025 performance on the DexCom, Inc. Investor Relations website on the events and presentations page. Now, let's review our safe harbor statement. Some of the statements we will make on 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 on this call are made as of the date hereof, based on information currently available to DexCom, Inc. These statements are subject to various risks and uncertainties, and actual results could differ materially from those anticipated. Please refer to the factors in DexCom, Inc.'s annual report on Form 10-K, our most recent quarterly report 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 call 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. Unless otherwise noted, all references are presented on a non-GAAP basis. This non-GAAP information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Please refer to the tables in our earnings release and the slides accompanying our fourth quarter and fiscal year 2025 earnings call for a reconciliation of these measures to their most directly comparable GAAP financial measure. Now I will turn it over to Jacob Steven Leach.

Jacob Steven Leach, President and CEO

Thank you, Sean, and thank you everyone for joining us. It's an honor to join you today for my first earnings call since officially stepping into the role of CEO last month. As many of you know, in more than twenty years at DexCom, Inc., I've had the privilege of helping build the CGM category and redefine diabetes care. But as I reflect on all the innovation and impact we've delivered, I believe we are still early in our journey. There remains a massive opportunity to help improve metabolic health for our customers globally, and I'm excited to lead DexCom, Inc. into our next chapter. I recently had the opportunity to share my initial vision as CEO and highlight three key areas of focus for our organization. First, we will be the premier glucose sensing solution for all. Glucose remains central to all stages of metabolic health management, and we still see significant opportunities to improve the experience of glucose sensing. This will include greater sensor accuracy, improved reliability, stronger connectivity, and more. We will always keep pushing to enhance this experience for our customers and further entrench our position as the market innovator. A great example of this can be seen today with the broad rollout of our DexCom G7 15-day system. As of early January, this product is now available across all channels in the US. And while it's still early, the initial feedback has been excellent. Customers and physicians have been thrilled with the longer wear time, which reduces the number of sensor changes required each month, as well as the new algorithm, which offers our greatest accuracy to date. We are currently in the process of building greater awareness of this product's availability in the market, and we will be working hard to get G7 15-day into the hands of as many people as possible. Our second strategic priority is that we will set the standard for customer experience. This includes raising the bar for all of our customers. Not only the individuals that wear our sensors, but also prescribers, caregivers, distribution partners, payers, and more. We want DexCom, Inc. to consistently create experiences that delight our customers and make their lives easier. We recently highlighted several new products and features that do just that. This includes My Dexcom Account, our newly launched digital support system, which is significantly streamlining the customer support experience and saving valuable time for our customers. We also have additional offerings planned as we further integrate AI into this customer experience in the near future. We are also excited to start the early access launch for DexCom Smart Basal this month. We have always looked for ways to ease customer burden and improve outcomes, and Smart Basal has the potential to become the new standard for any person managing type two diabetes with basal insulin. We believe this personalized dosing module can lead to more accurate basal insulin titration, accelerate the time to reach optimal dose, significantly simplify workflows for the prescriber, and most importantly, improve outcomes for those using our products. Our DexCom Direct EHR integration, which is now live, or onboarding 160 health systems, provides a quick and easy connection to customer CGM data across multiple EHR platforms. This is something that the prescribing community has been requesting for years, and we are happy to be the first to provide this in our industry. For Stelo, we recently announced a comprehensive nutrition database that will be launched shortly in our smart food logging feature. Following this update, Stelo can provide a detailed breakdown of macronutrient information for each meal, giving customers a better understanding of how food choices impact their glucose. We will also be following this up with a completely redesigned app experience later this year, which will offer a more consumer-friendly experience and enhanced customer insights. Just last week, we received clearance for a new patch technology that we believe will provide an even better experience for customers across our entire product portfolio. This technology has demonstrated in clinical trials the ability to strengthen sensor survival on our G7 system, including G7 15-day. This is the type of customer-focused innovation that we need to continuously deliver. We want to create meaningful, seamless experiences for our customers that drive greater satisfaction, engagement, and utilization. Ultimately, this can also increase customer lifetime value and serve as a growth driver for our business. Our third strategic priority is that we will expand international market share. The core pillars of our international playbook remain the same. We can drive growth and share through broader DexCom awareness and by expanding CGM access for more people globally. In recent years, we've also broadened our market reach with the expansion of our CGM product portfolio, which can be tailored to the needs of each market and reimbursement system. We plan to add to our portfolio in 2026 with Stelo and a new CGM system in international markets. I could not be more excited about the significant opportunity across our international markets. In fact, as we look across the evolving market landscape internationally, there is a path for this opportunity to become even larger than our core US market. As you can tell, there is a lot to be energized about as I step into the role of CEO. I am also very encouraged by how we closed out 2025. In the fourth quarter, we delivered revenue growth of 13%, which brought our full year revenue above the high end of our most recent guidance. This reflected continued strong new customer demand and encouraging sell-through trends as the quarter progressed. We will now look to build on this momentum as we move into the new year. I also want to call out continued progress from our manufacturing and logistics teams, which left us exiting the year at an operational high note. Over the course of Q4, we built our inventory toward preferred levels of finished goods, reestablished more efficient shipping routes through ocean freight, and continued to strengthen performance throughout our supply chain. As expected, this helped us deliver nice sequential improvement in gross margin and drove the expected reduction in the sensor deployment issues that we identified earlier last year. Our team was able to manage all of this while simultaneously preparing for our G7 15-day product launch. We know that first impressions matter, so we have been incredibly focused on product performance and ensuring a great initial experience. It has been rewarding to now see that effort be recognized in the market. In summary, we have a lot to be excited about in both 2026 and in the coming years. Along those lines, we are currently planning an investor day for May 2026 where we plan to provide additional details on our outlook. We hope to see you there. With that, I will turn it over to Jereme.

Jereme M. Sylvain, CFO

Thank you, Jacob Steven Leach. As a reminder, unless otherwise noted, the financial metric presented today will be discussed on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release as well as the slide deck on our IR website. For 2025, we reported worldwide revenue of $1,260,000,000 compared to $1,110,000,000 for 2024, representing growth of 13% on a reported basis and 12% on an organic basis. As a reminder, our definition of organic revenue excludes the impact of foreign exchange in addition to non-CGM revenue acquired or divested in the trailing twelve months. US revenue totaled $892,000,000 for the fourth quarter, compared to $803,000,000 in 2024, representing an increase of 11%. As Jacob Steven Leach mentioned, we saw sell-through trends build over the course of the fourth quarter, which we are now also seeing carry into the new year. This is correlated well with our broader G7 15-day product launch, which has already generated a lot of interest among customers and prescribers. International revenue grew 18%, totaling $368,000,000 in the fourth quarter. International organic revenue growth was 15% for the fourth quarter. Our international business finished the year well, with particular strength in some of our largest markets, including Germany, the United Kingdom, and France. France ended the year as one of our fastest-growing markets as we benefited from significant type two access expansion at the end of last year. This is a great example of our ability to drive growth and market share as broader type two coverage forms across the globe. Our fourth quarter gross profit was $799,800,000 or 63.5% of revenue compared to 59.4% of revenue in 2024. As expected, we drove more than 200 basis points of sequential gross margin improvement during the fourth quarter. This reflected continued progress in our freight expense as we were able to reestablish ocean shipping during the quarter as well as continued improvement in our scrap rates as we strengthened supply chain performance throughout the quarter. Given some of the supply challenges we had in 2025, this demonstrates the dedication and incredible work by our team for our customers. Operating expenses were $4683,000,000 for 2025, compared to $451,700,000 in 2024. Operating income was $331,500,000 or 26.3% of revenue in 2025 compared to $209,500,000 or 18.8% of revenue in the same quarter of 2024. Adjusted EBITDA was $422,200,000 or 33.5% of revenue for the fourth quarter compared to $300,100,000 or 27% of revenue for 2024. Net income in the fourth quarter was $265,100,000, or $0.68 per share. We remain in a great financial position, closing the quarter with approximately $2,000,000,000 of cash and cash equivalents. Our strong cash position provides us with significant financial flexibility. This was evident during the fourth quarter as we settled our expiring $1,200,000,000 convertible notes in cash and repurchased another $300,000,000 of stock in the open market. Even after this activity, we remain in a great financial position. This is also supported by our growing free cash flow profile. In 2025, we surpassed $1,000,000,000 in free cash flow for the first time. Turning to 2026 guidance. As we stated last month, we anticipate total revenue to be in a range of $5.16 to $5.25 billion, representing growth of 11% to 13% for the year. This guidance assumes continued strong category growth and incremental growth contribution from Stelo and new product advancements across our platform. It also assumes the coverage landscape remains predominantly the same as it stands today, but we will continue to push for additional CGM access globally. From a margin perspective, we expect full year non-GAAP gross profit margin to be in a range of 63% to 64%, non-GAAP operating profit margin to be approximately 22% to 23%, and adjusted EBITDA margin of approximately 30% to 31%. Our guidance assumes gross margin will improve 200 to 300 basis points in 2026 as we benefit from lower freight expenses, additional manufacturing efficiencies, and the growing contribution from G7 15-day. We expect that gross margin expansion will play through to an operating margin expansion in 2026 even as we have incremental hiring and spending planned to support sales, innovation, and the launch of our Ireland manufacturing facility late in the year. These investments will better position us to capitalize on broader global coverage, including our expectation for Medicare coverage for the type two non-insulin population. With that, we will now open for questions.

Sean Christensen, VP of Finance and Investor Relations

Thank you, Jereme M. Sylvain. As a reminder, we ask our audience to limit themselves to only one question at this time and then reenter the queue if necessary. Operator, please provide the Q&A instructions.

Operator, Operator

Thank you. And we will now begin the question and answer session. If you have a question, please press star 1 on your telephone keypad. If you wish to be removed from the queue, press star 1 a second time. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Again, it is star 1 if you have a question. And our first question comes from the line of Matthew Charles Taylor with Jefferies. Your line is open.

Matthew Charles Taylor, Analyst

Hi, great. Thanks for taking the question. Jake, I wanted to ask you on your first call as CEO to talk a little bit more about some big picture items. You mentioned in your comments that you feel like the company is early on the glucose journey, on the fencing journey. I guess I'd imagine a lot of that has to do with the potential coverage to come here in the future. So I wanted to have you talk a little bit more about where the existing legacy and core markets could go in the coming years, but also with an eye to non-intensive type two coverage that we could see coming over the next twelve to twenty-four months. Thanks.

Jacob Steven Leach, President and CEO

Thanks, Matt. You know, I really do think we are in the early innings of a game here when you think about the size of the problem out there with metabolic health and the growth of diabetes globally. Then you look at the solutions that we provide with our technology and the outcomes that we can drive. If you look across every segment of patients that we serve, whether it is type one, type two insulin users, or type two non-insulin users, we drive significant health outcomes for the user and their prescribing physician, but also financial outcomes for the health systems. The awareness of those outcomes continues to grow, and we have been generating evidence for years to help unlock access for millions of users. As we look at the landscape of coverage, we have started to see coverage unlocked commercially for type two non-insulin users, and we are on the verge of expansion into a broader group of type two that are covered by Medicare. When that expansion happens, almost 12 million people will then suddenly get access to CGM. When I think about the road ahead and the durable years of growth we have, there is a tremendous opportunity to cut across the lives of many people. As you think internationally too, the opportunity is pretty significant. As I mentioned in my comments, we see this being larger than the US over time. Now internationally, typically, the coverage trails a bit from the US, but with the evidence and awareness we continue to generate, we are confident that over time, this access is going to continue to open and provide opportunities for us to impact more lives.

Operator, Operator

And our next question comes from the line of Lawrence H. Biegelsen with Wells Fargo. Your line is open.

Lawrence H. Biegelsen, Analyst

Good afternoon. Thanks for taking the question. I guess I will follow up on type two non-insulin. Jake, based on your response there, it sounds like you think it is coming soon. The CMS I am asking about the CMS proposal. Your main competitor is saying first half of 2026. Are you in agreement with that? When should we expect to see the RCT data, and just maybe lastly, how do you want us to think about the potential impact from CMS coverage of type two non-insulin?

Jacob Steven Leach, President and CEO

Yeah. Thanks, Larry. You know, we continue to work with CMS, and while waiting for the coverage decision, we had the ADA update their guidelines for type two non-insulin, and really further recommending the product for that group. I think this is clearly based on the real-world outcomes that we have been generating. We mentioned at JPMorgan around the registry we have started for non-insulin users. At those outcomes, we are seeing great sustained outcomes in terms of health improvement and high sensor utilization. This gives us confidence that we can impact this population, and clearly, the private payers have seen that and started moving toward coverage. We will continue to support a coverage decision here with Medicare. The randomized control trial in type two non-insulin users, we are excited to read that trial out towards the middle of this year. It is a trial about 300 people, and we have got two arms, those who are not using CGM and those using standard care methods. We are excited to share the results as we get towards the end of the study.

Operator, Operator

Our next question comes from the line of Travis Lee Steed with Bank of America. Your line is open.

Travis Lee Steed, Analyst

Hey, everybody. Wanted to ask about fifteen days, and how we should think about the rollout of that, the impact on margins, and the use of that to open up new markets. I heard you mention new products launching internationally and talking about international getting to be bigger than the US. That is only 30% of your company today. So just wanted to touch on those two topics.

Jereme M. Sylvain, CFO

Yeah. Sure, Travis. This Jereme. I can certainly start on the margin side, and then I can turn it over to Jacob Steven Leach in terms of long-term opportunities outside the US. So, as we think about the fifteen-day product, clearly in the US, it is launched today, and we expect it to contribute to margins over the course of this year. The reality is it starts to contribute to margins even more in future years because this is a year about getting folks interested, making sure they understand the benefits, and really converting a base over time. Start with new patients, and we will convert the base. There will be some help this year, as you can see in our gross margin guidance. The real opportunity starts as you get further out. Obviously, Stelo is on a fifteen-day platform. G7 has moved to that platform, and as we launch new product platforms, that is obviously the focus. You can see where that becomes a basis for launching. This cost ultimately becomes a bit of an advantage in terms of going into new markets. It is really hard to get into this space, and there are really only a few companies that can produce it at scale. That is how you build the product at a cost, and as you move into emerging markets, you can take advantage of those opportunities, both wear length and cost, while delivering the highest quality product.

Jacob Steven Leach, President and CEO

Sure. Yeah. Absolutely. The fifteen-day product wear time will be extending that to the portfolio globally. We have launched it on Stelo and in the G7. In the US, we are going to extend it globally. The feedback from users has been pretty incredible. It is important to note that, over the time frame that we have had G7 in the market, we have made a lot of enhancements to the product and the technology. The fifteen-day product got all of that from day one. Seeing great feedback about both the longevity of the sensor and its reliability, as well as its accuracy. This is the most accurate sensor we have ever produced. Users are noticing this. You can see it out there in the blogs and in customer feedback. They really are seeing that this algorithm enhancement we have made is having an impact.

Operator, Operator

And our next question comes from the line of Robert Justin Marcus with JPMorgan. Your line is open.

Robert Justin Marcus, Analyst

Great. Thanks for taking the question. Jereme, I wanted to ask on the OpEx guide. You have a 63% to 64% gross margin, and when I do the math, it looks like you are getting about 100 basis points of deleverage on OpEx to get to the range. So what are you spending it on, after such a great year of expense control?

Jereme M. Sylvain, CFO

Yeah. It is a fair question, Robbie. We had a really great year this year in terms of OpEx control. In fact, if you look at the spend profile sequentially from Q3 to Q4, spend is essentially flat. The goal is not necessarily to deleverage, as leverage in the P&L next year predominantly will flow through gross margin. The point is not to delever. What is running through the P&L is the launch of our Ireland manufacturing facility. We will be hiring and staffing up, and we will obviously be running validation samples across those lines. We expense that, and there is a big investment in that manufacturing facility. We will turn that on in the fourth quarter of this year. Those costs will come out of OpEx and up into COGS. As we ramp up, those expenses over the course of the year, you will see those playing through. This is a bit of a one-time thing when you open a facility. Those will dissipate as we move into 2027. Underneath that, we are still getting leverage. Gross margin is going to do a little bit of work while there are some temporal things running through OpEx.

Operator, Operator

And our next question comes from the line of Danielle Joy Antalffy with UBS. Your line is open.

Danielle Joy Antalffy, Analyst

Hey. Good afternoon, guys. Thanks so much for taking the question. Jake or Jereme, whichever one wants to take this, I had a question on how you guys are thinking about utilization. As basal ramps, I suspect utilization is coming down a bit. As we do get coverage for non-insulin using two utilization, it will also look different there. I am just curious how you guys are sort of thinking about not only 2026 but beyond and obviously do not want to front-run the analyst day, but even qualitatively, how to think about utilization based on what you know today.

Jacob Steven Leach, President and CEO

Thanks, Danielle. As we look at the spectrum of users, we see the highest utilization in those AID users, type one on automated systems. They are well north of 90% utilization, which makes sense because those AID systems do not operate without the sensor connected to them, and the outcomes they drive are so powerful. Type two insulin and non-AID type ones are also in that 90 to 85% range, and those utilization rates have remained fairly consistent over time. Regarding basal and non-insulin using type twos, we have seen a long time frame with those users since coverage opened up some years ago, maintaining an 85 to 80% utilization rate. Recent learnings from our registry show high utilization rates among newly covered type two non-insulin users, similar to those of basal users. When our patients have coverage, we see the best utilization. So far, those rates have remained stable and will be important as we think about global expansion. Type two is our largest opportunity long-term, and we aim to drive further utilization through increased engagement and software updates. We will keep those in mind as we progress.

Jereme M. Sylvain, CFO

To think about utilization trends, just ensure you model that by cohort instead of thinking that utilization by cohort is going down. Focus on the mix.

Operator, Operator

And our next question comes from the line of David Harrison Roman with Goldman Sachs. Your line is open.

David Harrison Roman, Analyst

Thank you. Good afternoon, I wanted just to dig a little bit more into the 2026 revenue outlook and maybe specifically around just the new patient dynamic. Sometimes we get wrapped around the axle on this record new patient dynamic that may or may not be significant as we look forward. Can you give us some broader perspective on what is assumed from underlying volume growth at different ends of the guidance range? What are some of the factors operationally that need to play out at the 13% level, and what would put you at the 11% level?

Jereme M. Sylvain, CFO

Thanks. It is a fair question. At the end of the day, revenue is driven by your patient base. A key component is how many new patients you add, but also retention and utilization. We exit the year, and I will reference the G and D series business. Our patient base is growing at about 20%. That is your starting point for volumes moving into the year. Over the course of the year, we expect a couple of points of price consistency. The remainder in unit volume growth will be around mix; while smaller now, there is still new coverage for type two non-insulin. Outside the US, we are winning tenders. This mix is there; however, it provides a final output closer to the mid to upper teens for unit volume growth, as that assumes coverage remains the same. Hitting the low end of the guidance would not require a record new patient year, but the top end would. We aim for high targets internally and want to see how the user base grows year over year.

Operator, Operator

And our next question comes from the line of Jeff Johnson with Baird. Your line is open.

Jeff Johnson, Analyst

Jereme or Jake, you pointed out in your prepared remarks about strengthening U.S. sensor uptake trends in the fourth quarter and said those continued into the first quarter. Can you flesh that out a little? Was that some of the recovery from the central deployment issues midyear? Was that continued strength in T2 AID uptake? Anything you can point to there? And Jeremy, you also mentioned the installed base being an important driver of growth. Just how stable has that T1 and IIT T2 user base been now as Libre 3 is starting to launch in the U.S.? Thanks.

Jereme M. Sylvain, CFO

Thanks, Jeff. We look at what we call sell-through trends, how many are ultimately going to the pharmacy or the DME to pick up product, and we saw improvement throughout Q4 and continuing now. Part of this comes from advances we've made around sensor deployment. We have seen warranty rates and complaint rates coming down, which is encouraging. It helps to have launched our fifteen-day product, which we only launched in the DME in Q4. That is not a large piece yet, but we expect it to be a strong opportunity. As our Salesforce visits physicians to share updates on coverage for non-insulin users, that also helps the trends. The factors in play—fifteen-day products, improved deployment challenges, and our sales efforts—have all worked together well.

Jacob Steven Leach, President and CEO

Concerning retention, we have seen stability in our user base. We have not noticed many changes at all. There was some noise during the summer, but we have focused on making sure we have positive experiences for users. This reflects on how DexCom, Inc. has built an incredible product based on accuracy, driving passion for usage and ensuring people get the benefits they need.

Operator, Operator

And our next question comes from the line of Marie Yoko Thibault with BTIG. Your line is open.

Marie Yoko Thibault, Analyst

Hi, good evening. Thanks for taking the questions. Jeremy, on pricing, you mentioned a couple of points of pricing as factors being some of the commercial unlock of the type two non-insulin patient population. Are there any potential facing headwinds as we think about the potential Medicare unlock that could be coming in the next twelve months or so? Volume will be an offset, but how should we think about that in relation to the couple of points that you referenced?

Jereme M. Sylvain, CFO

Every year, during negotiations, we ask for more coverage, and for good reason—there are many folks who ultimately need it, and we can deliver value across many patient segments. Pricing is typically handled separately from coverage, but you have a natural mechanism via competitive bid for fair value. We anticipate this to kick in more in 2028. So, that is how we are thinking about how that unlock would play statutorily. Should something change, we will keep you posted. We are excited about CMS coverage, and we are building for it. We are building capacity now as if it came tomorrow because we are quite bullish about it.

Operator, Operator

And our next question comes from the line of Matthew Oliver O'Brien with Piper Sandler. Your line is open.

Matthew Oliver O'Brien, Analyst

Jason and Jeremy, I would love to double-click on that commentary on international, where you mentioned that you'll make up the $2 billion delta between your US and OUS business. I know it is going to take time. Can you talk about how you plan to close that revenue gap? Over what time frame? Five years? Fifteen years? Also, Jeremy, what kind of impact do we anticipate on the margin side as you scale that business? Is there more margin weakness as it becomes a bigger portion of the overall revenue base? Thanks.

Jacob Steven Leach, President and CEO

When I look at the international opportunity, continuing within the markets we are already present in is a big piece. We have established strong businesses throughout Europe and are just getting started in Asia Pacific. Going deeper in patient populations and continuing to unlock coverage across international markets is key, as type two basal coverage is only beginning. We have seen progress in France and Japan, and we are looking to expand that in Germany. With millions around the world impacted by diabetes, the potential for our technology remains immense. Our team has focused on driving the evidence and awareness that leads to advocacy from clinicians and patients, and we will continue doing this globally. It requires hard work as each healthcare system is slightly different, but we have created a substantial product portfolio to meet diverse user needs, and we will continue to expand it.

Jereme M. Sylvain, CFO

The timeframe will take a while. It will not happen in the next five years. The US has a long runway ahead of it, and our focus remains there until we see the broader coverage with CMS expansion. While we need to look into additional markets, we will have plans in place to go deeper and drive share. The international opportunities are not captured in our P&L today, but we can foresee them ahead. We will share plans in May during our investor day.

Operator, Operator

And our next question comes from the line of Jason with Raymond James. Your line is open.

Jason Bedford, Analyst

Good afternoon. I had a question on Basal, which seems to be the segment of the market that is taking a little longer to evolve. What has been the hurdle to deeper adoption in this segment? Do you view Smart Basal as a tool to reintroduce G7 to this population and drive better growth?

Jacob Steven Leach, President and CEO

Thanks for the question. We do feel like Smart Basal has significant potential to meet patient needs. We have seen good growth in basal, and as we work to expand it globally, we will employ this tool to enhance the user experience for both patients and prescribers. Smart Basal is specifically designed to improve patient journeys toward basal insulin therapy, making G7 the logical product choice alongside the Smart Basal system. We are eager to pilot this technology this month in several clinics across the United States and learn from those experiences to drive better outcomes.

Operator, Operator

And our next question comes from the line of Michael K. Polark with Wolfe Research. Your line is open.

Michael K. Polark, Analyst

Hey. Good afternoon. I have a gross margin question. In 2025, I think there were 325 basis points of one-timers called out, scrap freight, and small receiver recall. If I look at the '26 guide, the midpoint calls for 270 bps of expansion—not even accounting for all the one-timers—and also not considering credit for fifteen-day, which is starting. So the question is, why is this the right gross margin guide? Where are we on the scrap and freight overhangs? Also, on hardware mix in the US, excluding Stelo, for 2025 what was G6 versus G7 ten-day, and by the end of '26, what will G6 mix be versus G7, ten-day, G7, fifteen-day?

Jereme M. Sylvain, CFO

Got it. You are thinking about the math associated with that a bit too much. The reality will be less than that, so you should see improvements across our cost of goods. Some of that will spill in Q1 just because as we roll in variances, freight and scrap will be there. You have to be mindful it does not immediately disappear. But expect to see improvements play through. You will also see the fifteen-day contribute, which will bring you out at the top end of our guidance range. Remember, we will turn on the Ireland facility in the fourth quarter, so all fixed costs will transition into COGS. We expect a decrease in gross margins as we ramp. Just remember there is a lot of fixed overhead that you won’t recognize until production levels increase, but you should still see leverage as gross margins grow.

Jacob Steven Leach, President and CEO

Just a bit on our customer base and the products they are using. We have seen the rapid declines in G6 users transitioning to G7. The vast majority of our base in the US is on G7, and as we launched the fifteen-day product in December, we have seen upgrades from G6 to G7 15-day. We anticipate this trend continuing, and our intent is towards the middle of the year when G6 will start phasing out, allowing us to build more capacity for G7.

Operator, Operator

And our next question comes from the line of Joanne Karen Wuensch with Citi. Your line is open.

Joanne Karen Wuensch, Analyst

Good evening, and thank you for taking the question. Could you tease out what the Stelo contribution was to the 2025 results and what is embedded in your 2026 guidance? Any color you can give on how that is going would be wonderful. Thank you so much.

Jereme M. Sylvain, CFO

Sure. We talked about a $130,000,000 contribution from Stelo in 2025, which puts us at the top end of our two to three percent number. We are happy to see that and are excited about the new advancements we have shared at JPMorgan. In terms of 2026, we expect Stelo to contribute about a point to growth. So you can do the math there. Stelo will still be a nice contributor, albeit with a base to compare it to versus previous years.

Jacob Steven Leach, President and CEO

As for Stelo, we're really excited about the new innovations, including a redesigned app that enhances smart food logging. We're also seeing a diverse range of users adopt Stelo, especially type two non-insulin users. Those without CGM coverage are using Stelo over-the-counter, which provides an important opportunity for transition to G7 as coverage opens up. Stelo will be a key part of our portfolio for prediabetes and health and wellness.

Operator, Operator

And our next question comes from the line of Brandon Vazquez with William Blair. Your line is open.

Brandon Vazquez, Analyst

Hey, everyone. Thanks for taking the question. I wanted to focus a little bit on the innovation pipeline, but there is still a lot to be done on the hardware side. We are talking about a G8 and things like that. But there is also a lot of software you guys are coming out with, like Smart Basal and Stelo's meal tracking. Can you spend a minute discussing what is left in the pipeline on the software side? What else can you leverage from the software side? Also, do you think you will need to validate these features in clinical trials to drive larger-scale adoption?

Jacob Steven Leach, President and CEO

Great question. We have so much more to do, particularly on the software side. Our goal is to be the premier glucose sensing solution for everyone, which involves enhancing all aspects of the user journey—raising the bar on customer experience. We can keep enhancing digitally through software, whether for the patient or the physician, to ensure a smooth onboarding experience. We aim to remove friction and provide the highest-caliber experience, which will retain users and increase their lifetime value. We have been proactive about gathering real-world evidence, showcasing how our new features drive outcomes; we have seen positive results in type two users. Smart Basal has undergone the necessary pathways. Expect us to continue validating features while working on new and innovative ways to integrate them more quickly into our user experience.

Jereme M. Sylvain, CFO

Expect our team to focus on bringing more innovation at a faster pace, enhancing user engagement and ultimately improving health outcomes.

Operator, Operator

And our next question comes from the line of Joshua Thomas Jennings with TD Cowen. Your line is open.

Joshua Thomas Jennings, Analyst

I wanted to ask a two-parter on G7 fifteen days. The early patient experience has been strong with great durability with the sensors lasting up to fifteen days. Can you provide any more detail on durability? Does the new adhesive approval enhance the percentage of sensors that reach fifteen days? Lastly, what rebate dynamics should we be considering in 2026 as G7 fifteen day enters the pharmacy channel?

Jacob Steven Leach, President and CEO

Sensor survival longevity is crucial for our CGM portfolio. As we extend sensor wear, we closely monitor performance. Feedback in the field is consistent across patient segments with what our clinical studies showed. We recognize that from the early days of CGM, not all sensors lasted long, often due to adhesive issues. Innovations in that area have improved survival rates, particularly with the new patch approved for G7, which will positively impact all our products. For any sensors that underperform, we maintain a robust program to ensure patients have access to what they need, emphasizing our desire to provide impactful service. Regarding rebates, we follow consistent strategies with pricing and slot each sensor as G7 ten-day. The revenue per month remains the same for both G7 ten-day and fifteen-day products.

Jereme M. Sylvain, CFO

We expect 100% of all sensors, both G7 ten-day and G7 fifteen-day, to be covered with no change in rebate trends.

Operator, Operator

And our next question comes from the line of Richard Newitter with Truist Securities. Your line is open.

Richard Newitter, Analyst

I just wondered if you could comment on revenue cadence, specifically in Q1, but throughout the year. Some estimates suggest a 6% sequential decline in Q1 versus Q4. Is that a reasonable estimate?

Jereme M. Sylvain, CFO

That is a fair question. Cadence-wise for the full year, we expect a bit less in Q4 and more into Q1. It’s a slow evolution over time, as more goes pharmacy channels. The expectation would be Q1 showing a 6 to 7% decline, with Street likely sitting a little higher, but overall reasonable. That aligns with what we are seeing as well.

Operator, Operator

And our final question comes from the line of William John Plovanic with Canaccord Genuity. Your line is open.

William John Plovanic, Analyst

I just wanted to confirm where we stand today in terms of covered lives for type two non-insulin users. Last I heard, you were at 6 million and potentially could get to 25 million, with Medicare at around 12 million. Can you provide an update on the cadence of covered lives?

Jereme M. Sylvain, CFO

Sure. We mentioned 6 million lives covered from the big three PBMs. We’re in progress on more coverage through renewals and developing partnerships with smaller PBMs. With continuous efforts, you could suggest we have reached around 6.5 million lives currently but there's still work ahead to gain access to additional commercial lives. That number will keep rising as we chip away at expanding access.

Jacob Steven Leach, President and CEO

Thank you, operator, and I would like to take this moment to thank our employees around the world. This past quarter, and frankly, this past year, demanded focus, resilience, teamwork, and our people really delivered. What makes DexCom, Inc. special is not just our technology, but the people behind it. Our team's commitment reflects our execution and the trust that millions of people place in DexCom. On behalf of the leadership team and our board, thank you to our employees for everything you do, and thank you all for joining us today. We look forward to updating you next quarter.

Operator, Operator

And ladies and gentlemen, this concludes today's call. We thank you for your participation and you may now disconnect.