DXCM Medical Devices · CGM · Diabetes tech · Recurring revenue · Thesis updated August 5, 2026

Gross margin expands as Dexcom targets non-insulin patients

Disposable sensors made up about 97% of revenue in the June 2025 quarter, meaning repeat use drives the business.
U.S. sales accounted for 72% of 2025 revenue, with international markets making up the remaining 28%.
Q2 2026 gross margin rose 400 basis points year over year, prompting management to raise full-year guidance to about 64%.
The company is pushing for Medicare coverage of Type 2 non-insulin users after a trial showed a 1.6% A1C improvement.
The main risks are a pending Medicare price cut in 2028 and an unresolved FDA warning letter from early 2025.

01 Running thesis

Efficiency gains fund new growth bets

Dexcom has a strong baseline. More people are using continuous glucose monitors, and most sales come from sensors that customers replace again and again. That gives the company a recurring sales model rather than a one-time device sale.

The investment thesis improved again after Q2 2026. Gross margin expanded 400 basis points year over year, and management raised full-year margin guidance to about 64%. This suggests the company has fixed the manufacturing and supply chain problems that hurt profits in 2024 and early 2025. The rollout of the G7 15-day sensor is also helping efficiency.

Growth has a new lane. Dexcom is pushing into adults with Type 2 diabetes who do not use insulin. A recent clinical trial showed these patients saw a 1.6% improvement in A1C levels. Dexcom submitted this data to Medicare, hoping to unlock a massive new market by mid-2027.

The bear case is no longer focused on factory struggles. It is now about whether outside costs and policy changes will erase those operational gains. Medicare reimbursement is expected to fall beginning in 2028 due to competitive bidding, and an FDA warning letter from early 2025 remains unresolved.

Jul 2026▲Q2 2026 showed a 400 basis point gross margin expansion and 13% revenue growth. Management raised full-year margin guidance to about 64% and submitted strong trial data to Medicare for non-insulin coverage.

Apr 2026▲Management guided full-year non-GAAP gross margin to 63% to 64% and raised operating margin guidance to 23% to 23.5%. That made the Q1 margin rebound look more durable.

Apr 2026▲The Q1 2026 10-Q showed gross margin rose to 62.9% from 56.9% a year earlier. Management tied the gain to higher sales volume, better manufacturing efficiency, higher production volume, and better fixed-cost absorption.

Feb 2026▼The FY2025 10-K confirmed that Medicare reimbursement is expected to fall beginning in 2028 after CMS added CGMs to competitive bidding. It also kept the March 2025 FDA warning letter as an unresolved risk.

Oct 2025▲Q3 2025 revenue growth re-accelerated to 22% year over year, and gross margin expanded to 60.5% from 59.7%. That was the first clear sign that the operational reset might be working.

Jul 2025▼The Q2 2025 filing showed continued gross margin pressure and introduced a proposed CMS competitive bidding risk for CGMs. Disposable sensors still improved to about 97% of revenue.

May 2025▼The Q1 2025 filing disclosed an FDA warning letter tied to manufacturing and quality systems. Gross margin fell to 56.9%, raising the execution risk.

Feb 2025▼The FY2024 10-K showed revenue grew 11% to $4.03 billion, but gross margin fell from 63.2% to 60.5%. Management cited pricing headwinds, freight costs, inventory charges, and G7 manufacturing challenges.

02 Business model

Sensors drive repeat sales

Dexcom makes continuous glucose monitoring systems, called CGMs. A CGM uses a small sensor on the body to track glucose through the day and send readings to a phone, receiver, insulin pump, or health app.

The money comes mostly from disposable sensors. In the June 2025 quarter, disposable sensor and other revenue was about 97% of total revenue, while reusable hardware was about 3%. This acts like a razor and blade model. The device ecosystem matters, but the repeat sensor sale is the core engine.

Demand depends on doctors, insurers, pharmacies, distributors, and patient habits. Better coverage can open new groups of users. Worse reimbursement can cut prices, even if unit demand stays healthy.

The model breaks if Dexcom cannot make high-quality sensors efficiently, if coverage weakens, or if rivals take share with cheaper systems. The current thesis credits the company for better manufacturing efficiency but keeps the FDA warning letter and future Medicare pricing cuts in view.

03 Product portfolio

From insulin users to metabolic health

Growth engine

Dexcom G7

G7 is the main newer CGM system for intensive diabetes management. Dexcom is rolling out a 15-day version for adults in the U.S., targeting nearly 50% user conversion by year-end 2026.

Cash cow

Dexcom G6

G6 is the older integrated CGM platform. It still supports the installed base and helps keep patients inside the Dexcom ecosystem.

Option

Stelo

Stelo is an over-the-counter glucose biosensor for adults with prediabetes and Type 2 diabetes who do not use insulin. The recent Nutrisense acquisition adds nutrition software to this platform.

Steady

Reusable hardware

Receivers and related reusable hardware are a small part of revenue. In the June 2025 quarter, reusable hardware was about 3% of total revenue.

Steady

Open device and app connections

Dexcom builds platforms that connect with insulin pumps and digital health apps. These links make the sensor more useful and harder for users to abandon.

04 Business segments

Mostly U.S., still global

United States72%modest

International28%growing fast

The geographic mix is from the twelve months ended December 31, 2025. The United States was 72% of revenue and international markets were 28%, meaning U.S. reimbursement rules remain a major driver.

05 Risk factors

What could break the story

Margin targets miss

High impact · Medium odds

Dexcom raised its full-year gross margin guide to roughly 64% in Q2 2026. If shipping, fuel, mix, or factory issues pull results below that range, the recovery story weakens.

We watchQuarterly gross margin versus the 64% full-year non-GAAP guide.

CMS pricing cut in 2028

High impact · High odds

Medicare extended competitive bidding to include CGMs, with payment changes effective January 1, 2028. Dexcom expects reimbursement to decrease as a result, which could pressure revenue per user.

We watchFinal Medicare bid terms, 2027 contracting updates, and management comments on price impacts.

FDA warning letter remains open

High impact · Medium odds

Dexcom received an FDA warning letter in March 2025 tied to manufacturing processes. The company submitted responses, but the matter is not yet resolved. Failure to satisfy the FDA could lead to tougher actions.

We watchCompany disclosure that the FDA warning letter has been resolved or that new limits have been placed on Dexcom.

Type 2 non-insulin adoption stalls

Medium impact · Medium odds

Stelo and the Connect trial results give Dexcom a path into adults with Type 2 diabetes who do not use insulin. If Medicare denies broad coverage or consumers do not keep using the product, growth could slow.

We watchMedicare coverage decisions expected by mid-2027 and Stelo user trends.

G7 15-day conversion falls short

Medium impact · Medium odds

The G7 15-day sensor helps Dexcom improve margins and defend share. Management is targeting nearly 50% conversion in the U.S. by year-end 2026. A slow switch could signal competitive pressure.

We watchManagement updates on the 50% conversion target for the G7 15-day sensor.

06 Quick answers

In one breath

How does Dexcom make money?

Dexcom sells CGM systems, but most revenue comes from disposable sensors that users replace over time. In the June 2025 quarter, disposable sensor and other revenue was about 97% of total revenue.

Why do margins matter so much for Dexcom?

Dexcom had been hurt by manufacturing inefficiencies, freight costs, and lower yields. Recent quarters showed improvement, and management guided full-year non-GAAP gross margin to about 64%, so investors are watching to ensure the fix lasts.

What is Stelo?

Stelo is an over-the-counter glucose biosensor for adults with prediabetes and Type 2 diabetes who do not use insulin. It is meant to expand Dexcom beyond its core intensive diabetes management market.

What is the biggest long-term policy risk?

Medicare added CGMs and receivers to the DMEPOS competitive bidding program. Dexcom expects Medicare reimbursement for its CGM systems to decrease beginning in 2028.