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Item 7. Management’s Discussion and Analysis

2026-02-12 compared with 2025-02-18 · 66 added, 77 removed, 179 unchanged (44% of the section changed)

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You should read the following discussion and analysis together with our consolidated financial statements and related notes in Part II, Item 8 of this Annual Report.

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 G6 integrated Continuous Glucose Monitoring System, or G6, in 2018, and we launched the Dexcom G7, or G7, in 2023.

In August 2024, we launched Stelo, our new 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.

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

We received approval from the FDA and commercialized our first product in 2006.

We launched our latest generation systems, the G7 in 2023, and the 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.

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Partnerships:

We also continue to pursue and support development partnerships with insulin pump companies and companies or institutions developing insulin delivery systems, including automated insulin delivery systems.

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.

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We estimate pharmacy rebates based on contractual arrangements, estimates of products sold subject to rebate, known events or trends, and channel inventory data.

Estimates associated with pharmacy rebates are the most significant component of our variable consideration estimates and most at risk for material adjustment because of the time delay between the recording of the pharmacy rebate and its ultimate settlement, an interval that generally ranges from 30 to 90 days, but can last up to one year.

Pharmacy rebates are the most significant component of variable consideration estimates included in the calculation of the transaction price and most at risk for material adjustment because of the time delay between the recording of the pharmacy rebate and its ultimate settlement, an interval that generally ranges from 30 to 90 days, but can last up to one year.

Due to this time lag, in any given period, our adjustments to reflect actual amounts can incorporate changes of estimates related to prior periods.

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An increase or decrease of 1% in our estimate of products sold subject to rebate during 2025, holding all other assumptions constant, would increase or decrease revenue by approximately $50.1 million.

For more information, see Note 1 “ Organization and Significant Accounting Policies—Revenue Recognition ” to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

Excess and Obsolete Inventory

We assess the value of our inventory on a quarterly basis and write down those inventories based on quality control testing data, obsolescence, or in excess of our forecasted demand to the lower of their cost or net realizable value.

Our estimates of forecasted demand are based upon our analysis and assumptions including, but not limited to, expected product lifecycles, product development plans and historical usage by product.

Inventory Reserves

We assess the value of our inventory on a quarterly basis and write down inventories to the lower of their cost or net realizable value based on quality control data, obsolescence, or excess relative to our forecasted demand.

Significant judgment is applied in evaluating quality control testing data, assessing whether non-conforming inventory can be remediated, reworked, or otherwise partially recovered, and in some cases, estimating our forecasted demand.

If actual market conditions are less favorable than our forecasts, or actual demand from our customers is lower than our estimates, we may be required to record additional inventory write-downs.

If actual market conditions are more favorable than anticipated, inventory previously written down may be sold, resulting in lower cost of sales and higher income from operations than expected in that period.

Similarly, if remediation outcomes differ from our assumptions, additional adjustments may be necessary.

Conversely, if actual conditions are more favorable than anticipated, inventory previously written down may be sold, resulting in lower cost of sales and higher income from operations than expected in that period.

At December 31, 2025, a 1% change in the inventory reserve expense recognized during the year would not have resulted in a material change in inventory and cost of goods sold.

We estimate our income taxes based on the various jurisdictions where we conduct business.

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We are subject to certain legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business.

We review the status of each significant matter quarterly and assess our potential financial exposure.

Significant judgment is required in the determination of whether a potential loss is probable, reasonably possible, or remote as well as in the determination of whether a potential exposure is reasonably estimable.

We base our judgments on the best information available at the time.

As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates.

Any revision of our estimates of potential liability could have a material impact on our financial position and operating results.

Significant judgment is required in the determination of the expected outcome (i.e., whether a potential loss is probable, reasonably possible, or remote), as well as in the determination of whether a potential exposure is reasonably estimable.

We evaluate the nature of the claim, the stage of the proceedings, prior case outcomes, and input from legal counsel.

We base our judgments on the best information available at the time and regularly reassess as new facts emerge.

Overview of Financial Results

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Revenue Gross Profit Operating Income Net Income Operating Cash Flow

$4.03 billion $2.44 billion $600.0 million $576.2 million $989.5 million

$4.66 billion $2.80 billion $911.8 million $836.3 million $1.44 billion

up 16% from 2024

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Operating income 911.8 20 % 600.0 15 % 311.8 52 %

Other income (expense), net 109.0 3 % 112.7 3 % (3.7) (3) %

Other income, net 176.6 4 % 109.0 3 % 67.6 62 %

Income before income taxes 1,088.4 23 % 709.0 18 % 379.4 54 %

Income tax expense (benefit) 132.8 3 % 168.9 5 % (36.1) (21) %

Income tax expense 252.1 5 % 132.8 3 % 119.3 90 %

Net income $ 836.3 18 % $ 576.2 14 % $ 260.1 45 %

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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 due to the effects of foreign currency fluctuations, realized and unrealized gains and losses on equity investments, and interest expense related to our senior convertible notes.

Other income, net

Other income, 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.

Twelve Months Ended December 31, 2025 Compared to Twelve Months Ended December 31, 2024

Twelve Months Ended December 31,

2024 2023 Change in Revenues

(In millions) Revenue % of Total Revenue % of Total $ %

United States $ 2,889.8 72% $ 2,625.3 72% $ 264.5 10%

International 1,143.2 28% 997.0 28% 146.2 15%

(In millions) United States

International Total United States International Total

Distributor $ 3,195.7 $ 763.3 $ 3,959.0 $ 2,824.4 $ 605.7 $ 3,430.1

Direct 139.2 563.8 703.0 65.4 537.5 602.9

Total revenue $ 3,334.9 $ 1,327.1 $ 4,662.0 $ 2,889.8 $ 1,143.2 $ 4,033.0

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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 500,000 - 600,000 net users, excluding Stelo customers, to our worldwide customer base in 2024.

The increase in revenue was offset by pricing headwinds due to greater rebate eligibility and channel mix.

Disposable sensor and other revenue comprised approximately 95% of total revenue and Reusable Hardware revenue comprised approximately 5% of total revenue for the twelve months ended December 31, 2024.

Disposable sensor and other revenue comprised approximately 90% of total revenue and Reusable Hardware revenue comprised approximately 10% of total revenue for the twelve months ended December 31, 2023.

Cost of sales & Gross profit Cost of sales and gross profit increased primarily due to an increase in sales volume driven by the addition of approximately 500,000 - 600,000 net users, excluding Stelo customers, to our worldwide customer base in 2024.

The decrease in gross profit margin percentage in 2024 compared to 2023 was primarily driven by product and channel mix changes, higher freight costs, and non-cash charges including a $22.7 million inventory build charge, and $20.6 million in inventory damaged in transit and certain build configurations that lowered production yield.

We added approximately 600,000 - 700,000 net customers, excluding Stelo customers, to our worldwide customer base in 2025.

The increase was offset by pricing headwinds due to greater rebate eligibility and channel mix.

Cost of sales & Gross profit Cost of sales and gross profit increased primarily due to an increase in sales volume driven by the addition of approximately 600,000 - 700,000 net customers, excluding Stelo customers, to our worldwide customer base in 2025.

The decrease in gross profit margin percentage in 2025 compared to 2024 was primarily driven by inefficiencies associated with ensuring supply availability, build configurations that lowered production yield, and total replacement costs.

Twelve Months Ended December 31, 2025 Compared to

Twelve Months Ended December 31, 2024

Research and development expense Research and development expense increased primarily due to $20.5 million in compensation and related costs due to higher headcount, $11.2 million in clinical trials, supplies and other support costs, and $5.9 million in software and data costs.

Research and development expense Research and development expense increased primarily due to $37.3 million in higher compensation and related costs.

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 $33.5 million in advertising and marketing costs, $30.7 million in compensation and related costs due to higher headcount, $18.0 million in software and data costs, and $10.1 million in travel related expenses.

Income tax expense The income tax expense recorded for the twelve months ended December 31, 2024 was primarily attributable to income tax expense from normal, recurring operations, partially offset by excess tax benefits recognized for share-based compensation for employees, net of nondeductible executive compensation, the Verily milestone payment, the impacts of certain foreign tax return filings and generation of research and development tax credits.

The income tax expense recorded for the twelve months ended December 31, 2023 was primarily attributable to income tax expense from normal, recurring operations, as well as income taxes related to an intra-entity transfer of certain intellectual property partially offset by excess tax benefits recognized for share-based compensation for employees (net of disallowed executive compensation) and the Verily milestone payment, and generation of research and development tax credits.

The decrease in our effective tax rate for the twelve months ended December 31, 2024 compared to the same period in 2023 is primarily attributable to impacts of the prior year tax restructuring and the Verily milestone payment.

Selling, general and administrative expense Selling, general and administrative expense increased primarily due to $83.7 million in higher compensation and related costs, $9.1 million in higher software and data costs, offset by $87.2 million in lower legal expense primarily related to a patent infringement lawsuit that was settled in December 2024.

Other income, net Other income, net, increased primarily due to $79.5 million in higher net gains on equity investments and $8.7 million in higher net foreign currency gains, offset by $21.5 million in lower interest and dividend income on our cash, cash equivalents, and marketable securities portfolio.

The decrease in interest income was primarily related to a change in market interest rates, as well as a decrease in the average invested balances compared to the same period in 2024.

Income tax expense The income tax expense recorded for the twelve months ended December 31, 2025 was primarily attributable to income tax expense from normal, recurring operations increased by shortfalls recognized for share-based compensation for employees, net of nondeductible executive compensation, offset by the tax benefit related to the commencement of our Malaysia tax holiday.

The income tax expense recorded for the twelve months ended December 31, 2024 was primarily attributable to income tax expense from normal, recurring operations, partially offset by excess tax benefits recognized for share-based compensation for employees, net of nondeductible executive compensation, the Verily milestone payment, the impacts of certain foreign tax return filings and generation of research and development tax credits.

The increase in our effective tax rate for the twelve months ended December 31, 2025 compared to the same period in 2024 is primarily attributable to impacts of shortfalls on share-based compensation, a non-recurring benefit related to the Verily milestone payment during 2024, offset by the tax benefit related to the commencement of our Malaysia tax holiday.

Liquidity and Capital Resources

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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.

We will be exposed to additional foreign currency exchange risk related to our international operations as we expand our manufacturing internationally and as our business continues to increase in international markets.

As we continue to expand our manufacturing sites in Ireland and Malaysia, we will be subject to additional foreign exchange currency risk.

See “ Foreign Currency Exchange Risk ” in Part II, Item 7A of this Annual Report on Form 10-K for more information.

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Cash flows from Operations

For the twelve months ended December 31, 2024, we had positive cash flows of $989.5 million from operating activities.

For the twelve months ended December 31, 2025, we had positive cash flows of $1.44 billion 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 $1.19 billion in May 2020 from the 2025 Notes offering, and net proceeds of $1.23 billion in May 2023 from the 2028 Notes offering.

We used $282.6 million of the net proceeds from the offering of the 2025 Notes to repurchase a portion of our senior convertible notes due in 2022.

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 from the 2025 Notes offering and 2028 Notes offering for general corporate purposes and capital expenditures, including working capital needs.

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;

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Short-term Liquidity Requirements

Our short-term liquidity requirements primarily consist of regular operating costs, interest payments related to our senior convertible notes, capital expenditures for the development of our manufacturing facilities and office spaces, and short-term material cash requirements as described below.

As of December 31, 2024, we had a working capital ratio of 1.47 and a quick ratio of 1.22, which indicates that our current assets are more than enough to cover our short-term liabilities.

As of December 31, 2025, 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 December 31, 2025, we had a working capital ratio of 1.88 and a quick ratio of 1.50, 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.

As of December 31, 2024, we have outstanding senior convertible notes classified as current that will mature in November 2025.

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 5 “ Debt — Senior Convertible Notes ” to the consolidated financial statements in Part II, Item 8 of this Annual Report for information on conversion rights prior to maturity.

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 below, and other liquidity requirements associated with our operations for at least the next 12 months.

We may use cash to repurchase shares of our common stock or for other strategic initiatives that strengthen our foundation for long-term growth.

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.

We may continue to use cash to repurchase shares of our common stock, including pursuant to the 2025 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 senior convertible notes, capital expenditures for the development of our manufacturing facilities and office spaces, and long-term material cash requirements as described below.

As of December 31, 2024, we had a debt-to-assets ratio of 0.38, which indicates that our total assets are more than enough to cover our short-term and long-term debts.

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 December 31, 2025, we had a debt-to-assets ratio of 0.20, 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.

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See Note 5 “ Leases and Other Commitments — Purchase Commitments ” to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information.

Our obligations under the 2025 Notes and 2028 Notes include both principal and interest payments.

Although the 2025 Notes and 2028 Notes mature in November 2025 and May 2028, respectively, they may be converted into cash and/or shares of our common stock prior to maturity if certain conditions are met.

Our obligations under the 2028 Notes include both principal and interest payments.

Prior to the maturity of the 2028 Notes in May 2028, they 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 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, in the open market, in privately negotiated transactions, by exchange transaction or otherwise.

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 2025 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 9 “ Stockholder’s Equity — Share Repurchase Program and Treasury Shares ” to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information about our 2024 Share Repurchase Program.

See Note 8 “ Employee Benefit Plans and Stockholders’ Equity — Share Repurchase Program and Treasury Shares ” to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information about our 2025 Share Repurchase Program.

See Note 4 “ Debt ” to the consolidated financial statements in Part II, Item 8 of this Annual Report 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 December 2030, excluding any renewal options.

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.

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See Note 5 “ Leases and Other Commitments—Leases ” to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information about our leases.

The following table sets forth a summary of our cash flows for the periods indicated.

See the consolidated financial statements in Part II, Item 8 of this Annual Report for the complete consolidated statements of cash flows for these periods.

As of December 31, 2025, we had $2.00 billion in cash, cash equivalents and short-term marketable securities, which is a decrease of $580.7 million compared to $2.58 billion as of December 31, 2024.

The primary cash flows during the twelve months ended December 31, 2024 and 2023 are described below.

See the consolidated financial statements in Part II, Item 8 of this Annual Report for complete consolidated statements of cash flows for these periods.

The decrease in cash, cash equivalents and short-term marketable securities was primarily due to the repayment of our unsecured senior convertible notes due 2025, or 2025 Notes, upon maturity in November 2025.

The following tables set forth a summary of our cash flows and the primary changes in cash flows for the periods shown.

See the consolidated financial statements in Part II, Item 8 of this Annual Report for the complete consolidated statements of cash flows for these periods:

Twelve Months Ended

December 31, 2024 December 31, 2023

Operating Cash Flows + $576.2 million of net income and $304.5 million of net non-cash adjustments, and a net increase of $108.8 million in changes of working capital balances

+ $541.5 million of net income and $203.8 million of net non-cash adjustments, and a net increase of $3.2 million in changes of working capital balances

Net non-cash adjustments were primarily related to share-based compensation and depreciation and amortization.

Investing Cash Flows + $248.1 million in net proceeds from marketable securities

- $253.0 million in net purchases of marketable securities

- $358.8 million in capital expenditures

- $236.6 million in capital expenditures

- $81.3 million in purchases of non-marketable equity securities

- $19.5 million in purchases of non-marketable equity securities

Financing Cash Flows + $28.2 million in proceeds from issuance of common stock under our employee stock plans

+ $1.23 billion in proceeds from issuance of senior convertible notes, net of issuance costs

- $750.0 million in purchases of treasury stock

+ $26.6 million in proceeds from issuance of common stock under our employee stock plans

- $787.3 million in payments for conversions of senior convertible notes

- $688.7 million in purchases of treasury stock

- $101.3 million in purchases of capped call transactions

(In millions) 2025 2024 $ Change

Net cash provided by operating activities $ 1,440.7 $ 989.5 $ 451.2

Net cash provided by (used in) investing activities 536.0 (207.5) 743.5

Net cash used in financing activities (1,686.4) (734.8) (951.6)

Effect of exchange rate changes on cash, cash equivalents and restricted cash 21.5 (7.4) 28.9

Increase in cash, cash equivalents and restricted cash $ 311.8 $ 39.8 $ 272.0

Twelve Months Ended December 31, 2025 Compared to Twelve Months Ended December 31, 2024

Operating Cash Flows $260.1 million increase in net income

$196.5 million increase in net non-cash adjustments primarily due to adjustments to deferred income taxes, partially offset by gains on equity investments

Investing Cash Flows $670.0 million increase in net proceeds from marketable securities due to the management of our liquidity

$62.1 million decrease in purchases of non-marketable equity securities

Financing Cash Flows $250.0 million decrease in cash used to repurchase our common stock

$1.21 billion increase in cash used upon the maturity of our 2025 Notes

Recent Accounting Guidance

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis