管理層發言
Ladies and gentlemen, welcome to the DexCom Third Quarter 2025 Earnings Release Conference Call. My name is Abby, and I will be your operator for today's call. 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. You may begin.
Thank you, operator, and welcome to DexCom's Third Quarter 2025 Earnings Call. Our agenda begins with Jake Leach, DexCom's President and Interim CEO, who will summarize our recent highlights and ongoing strategic initiatives, followed by a financial review and outlook from Jereme Sylvain, our Chief Financial Officer. Following our prepared remarks, we will open the call up for your questions. At that time, we ask analysts to limit themselves to 1 question each so we can provide an opportunity for everyone participating today. Please note that there are also slides available related to our third quarter 2025 performance on the DexCom Investor Relations website on the Events and Presentations page. With that, 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, are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in the forward-looking statements. The factors that could cause actual results to differ materially from those expressed or implied by any of these forward-looking statements are detailed in DexCom's annual report on Form 10-K, 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 to financial measures on this call are presented on a non-GAAP basis. This non-GAAP information should not be considered in isolation or as a substitute for results or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and the slides accompanying our third quarter earnings call for a reconciliation of these measures to their most directly comparable GAAP financial measure. Now I will turn it over to Jake.
Thank you, Sean, and thank you, everyone, for joining us. Before we begin, I'd like to take a moment to recognize Kevin Sayer, who is not on the call today, and as many of you know, has taken a temporary medical leave. Kevin, I know you're listening today, and I look forward to catching up with you after the call. Now on to the quarter. Today, we reported third quarter organic revenue growth of 20% compared to the third quarter of 2024. We continue to benefit from category growth, recent CGM access expansion and solid share performance in both our U.S. and international businesses. In the U.S., we again saw more of our new customer starts coming from the entire type 2 population as we benefited from the growing type 2 coverage and expanded reach within primary care. As a reminder, we now have coverage established for anyone with diabetes with the national formularies of 3 of the largest commercial PBMs.
This includes active coverage for nearly 6 million type 2 non-insulin lives, which represents about half of the type 2 non-insulin commercial population in the U.S. Of course, the journey is not done, and we will continue to work tirelessly until we have coverage for this entire population of more than 25 million Americans. What continues to give us confidence is the growing body of CGM outcomes evidence for this population. This leads us to believe that this access expansion is a matter of when, not if. Given the significant level of CGM usage that already exists among this cohort, we have more real-world evidence available today than we have ever had in any of our prior advocacy campaigns. We have already seen positive updates to the latest standards of care for this group, which we expect to be further strengthened as randomized controlled trial data continues to emerge. This summer, we saw the first wave of non-insulin RCT outcomes presented at the annual ADA conference, and we are now working to build on that with our own well-designed RCT.
We built our trial to be representative of the wide spectrum of people with type 2 diabetes and look forward to providing a readout early next year. Similar to our MOBILE and DIaMonD Studies, we believe this data set can become the cornerstone of our ongoing type 2 evidence roadmap. This not only helps us advocate for the remaining type 2 lives in the U.S., but it also helps us as we push for greater type 2 coverage across the globe. As our customer base becomes increasingly diversified with this broader coverage, we have also continued to iterate our product experience to make it more personalized for each of our users. One example that I'm particularly excited about is a new feature called DexCom Smart Basal. As we continue to learn more about the type 2 customers on basal insulin and their health care providers, we've observed several trends. First, there is apprehension to start basal insulin for those who truly need it.
More than 1 in 3 patients avoid basal insulin altogether because of the fear of hypoglycemia. For those who are on basal insulin, about half of the customers who ultimately progress to mealtime insulin never reach an optimal dose of basal insulin. And for those that do, it typically takes several months to find the right dose. We have an opportunity to make this experience so much better for our customers. DexCom Smart Basal is a titration module built within the DexCom app that is designed to make basal insulin titration and management simpler, faster, and personalized for our customers. Our algorithm team designed this new software to learn from the daily glucose patterns of customers and better identify the ideal timing and dose of their basal insulin. With Smart Basal, we also expect to improve adherence and greatly reduce the required workflow for the prescribing community as titration has historically required ongoing manual inputs and frequent office visits.
DexCom Smart Basal is currently under review with the FDA and for CE Mark. Once available, this feature will further advance our value proposition amongst the type 2 basal population and for the physicians that treat them. We also continue to enhance the value proposition of Stelo with ongoing software updates, broader distribution and new metabolic health partners. I'm very proud of how far Stelo has come in such a short period of time. In just the first 12 months in the market, Stelo has surpassed $100 million in revenue and has increased awareness of what CGM can do for everyone to improve metabolic health. We are continuously making the app more personalized and engaging. We simplified ordering and reordering and our growing base of partners has enabled broader health insights for our customers. And this is just the beginning. We'll continue to make this feel like more of a consumer experience over time.
We've also been getting a lot of inbound interest recently in bringing Stelo to the international market and look forward to these extensions in relatively short order. In addition, everyone at DexCom is very excited for the broader launch of our G7 15-day system. Over the past few months, our team has done an incredible job securing reimbursement for this product at the same net price to DexCom and low out-of-pocket cost for our customers. In fact, we now have contracts finalized with Medicare, every major commercial payer and our commercial DME partners. By finalizing these contracts, we've cleared a key step to enable our broad-based launch. As we've previously mentioned, we're currently in our initial launch with our Warrior community as we gather feedback for our broader launch. We are looking forward to our broader rollout in the coming weeks. As we expand this launch, we are also continuing to innovate on the entire customer service experience.
We recently introduced a completely new digital experience called My DexCom Account, which is rolling out country by country as we speak. My DexCom Account is a new online account portal that streamlines and simplifies the DexCom digital experience. Built on direct customer feedback, this new platform will allow instant connectivity for online support, real-time visibility into orders or open tickets and active tracking for sensors. It will also greatly simplify service requests for our customers as the site can autofill necessary user information, including the serial number of a sensor that may require service. Between updates like this, our new pharmacy replacement model, ongoing software investment and our continued focus on product performance, we are demonstrating our commitment to advancing the customer experience. And this is just as true today despite some of the media that has been circulating on this topic.
So let me make one thing clear. The customer is and will always be the North Star for this company. This is what drives us every single day, and it's what's also driven me here at DexCom for over 20 years. That will not change. I recognize the investment community is attempting to interpret data on this topic. As we recently shared, our complaint rates for G7 have been largely stable over the past couple of years, and this continues to be the case across important categories, including sensor performance. But I also want to speak to our loyal customers and prescribing community today. If any of you have an experience with DexCom that does not meet your expectations, we understand and that is not good enough for us. We're always listening and we're always making improvements as a result. For G7, this has included improvements in Bluetooth connectivity, improvements to the adhesive and most recently, addressing deployment challenges that we identified earlier this year.
Through this ongoing work, our product continues to get better. Status quo has not and will never be our guiding light. I'm confident to say that the quality of the sensors coming off our lines today is exceptional and meets our high standards and the expectations of our customers. To close, I just want to note that I am honored and excited to be serving as DexCom's next CEO. During the fall conference circuit, I had the opportunity to lay out my initial vision as the next CEO and share my conviction in this business over the long term. I look forward to sharing even more over the coming months. Our future remains very bright. Our team is incredibly strong, and the opportunity ahead of us to transform metabolic health is unlike that at any company I can think of. With that, I'll turn it over to Jereme for a financial update.
Thank you, Jake. As a reminder, unless otherwise noted, the financial metrics 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 the third quarter of 2025, we reported worldwide revenue of $1.21 billion compared to $994 million for the third quarter of 2024, representing growth of 22% on a reported basis and 20% 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 12 months. U.S. revenue totaled $852 million for the third quarter compared to $702 million in the third quarter of 2024, representing an increase of 21%. As Jake mentioned, we continue to see all areas of type 2 diabetes become a bigger contributor to our U.S. new starts given our broader presence within primary care, significant new coverage within the non-insulin market and the continued growth of the basal market.
We'll work to further build on this momentum, particularly as we push for even broader coverage for this group. International revenue grew 22%, totaling $357.4 million in the third quarter. International organic revenue growth was 18% for the third quarter. This marked our third straight quarter of accelerating growth internationally with particular strength coming from regions where we have expanded access in recent quarters. For example, France continues to stand out as one of our fastest-growing markets year-to-date. In fact, our growth in France has accelerated during every quarter of 2025 as we have built off the significant new coverage that we finalized late last year. Canada also performed very well during Q3 as we saw a nice uptick in demand followed quickly behind our new coverage in Ontario. As a reminder, in both of these markets, we now have coverage secured through basal insulin use, and we expect more markets to move this way over time.
These are great examples of the type of growth we can deliver as this type 2 coverage emerges. Our third quarter gross profit was $741.3 million or 61.3% of revenue compared to 63.0% of revenue in the third quarter of 2024. During the third quarter, we made continued progress in stabilizing our global sensor supply as we were able to fully restock our level of educational samples in the field and further rebuild our finished goods inventory levels internally. Given this progress, we were able to taper back our investment in expedited shipping by the end of Q3. In fact, we recently began shipping via ocean freight once again, beginning the transition back to more cost-efficient methods of transportation as we close 2025. While these supply dynamics have progressed in line with our plan, our third quarter gross margin was impacted by scrap rates at our manufacturing facilities that were higher than expected, albeit an improvement from the second quarter.
As Jake mentioned, earlier this year, our team identified certain third-party components that were contributing to an uptick in deployment issues for our sensors. While we have since addressed that issue directly, we have chosen to provide extra scrutiny to supplied products to ensure the highest quality product gets into the field, even if this results in higher costs in the near term. We expect these scrap rates to continue to improve in the coming months. Operating expenses were $468.4 million for Q3 of 2025 compared to $413.9 million in Q3 of 2024. Despite some of the challenges on gross margin, the company has been incredibly focused on managing operating expenses even as we increase our investment in R&D spend. Operating income was $272.9 million or 22.6% of revenue in the third quarter of 2025 compared to $212.0 million or 21.3% of revenue in the same quarter of 2024. Adjusted EBITDA was $368.4 million or 30.5% of revenue for the third quarter compared to $300.1 million or 30.2% of revenue for the third quarter of 2024.
Net income for the third quarter was $242.5 million or $0.61 per share. This was the highest quarterly earnings per share in the history of our company. We remain in great financial position, closing the quarter with greater than $3.3 billion of cash and cash equivalents. We had a very strong free cash flow quarter, which helped us increase our cash and cash equivalents balance by nearly $400 million, even as we repurchased shares over the course of the quarter. This cash level provides us with significant flexibility. And given where our shares are currently priced, we plan to settle our upcoming $1.2 billion of convertible notes in cash. In addition, we plan to remain in the market this quarter, repurchasing additional shares. Even after settlement of this convert, we'll have plenty of cash on hand to assess ongoing capital allocation opportunities, including additional repurchases. Turning to guidance.
We are raising our revenue guidance to a range of $4.630 billion to $4.650 billion, representing growth of approximately 15% for the year. For margins, we are lowering our 2025 non-GAAP gross profit margin guidance to approximately 61% to reflect the additional scrap dynamics we discussed earlier. For both non-GAAP operating margin and adjusted EBITDA margin, we are now guiding to a range of 20% to 21% and 29% to 30%, respectively, as we expect to offset some of the gross margin pressure through continued operating expense leverage.
Thank you, Jereme. As a reminder, we ask our audience to limit themselves to only 1 question at this time and then reenter the queue if necessary. Operator, please provide the Q&A instructions.
分析師問答
Our first question comes from Travis Steed with Bank of America.
First, I want to send well wishes to Kevin. I hope things are going well. I look forward to having you back. But the question is, there's been a lot of attention on Street '26 estimates and what your growth might look like in '26. And just curious if there's any color you could share with us today as we start to think about our 2026 growth and the modeling at a high level.
Yes. Thanks, Travis. While we won't provide specific guidance for 2026, I can share some insights on how we're approaching our outlook for that year. As we prepare for 2026, we recognize that there are many variables that can influence our operations throughout the year, leading us to frame our expectations within a range. Considering the current global landscape for coverage and access to CGM, we see a strong potential for growth over the next few years, likely in the double-digit range. However, from a baseline perspective, we anticipate that the upper end of our expectations may be a bit lower than what the market currently predicts. There are definitely opportunities for us to exceed these expectations, particularly if we see expanded access and can leverage our innovation pipeline to gain market share. Still, we believe the upper limit of our range will likely fall just short of current market estimates.
And our next question comes from the line of Larry Biegelsen with Wells Fargo.
This is Simran on for Larry. So I just wanted to maybe start off with the commentary around G7 and G7 performance and the noise during the quarter. It sounds like those issues have been resolved from an engineering standpoint or a manufacturing standpoint. So can you just please confirm that? And then has the noise been disruptive to new starts or prescribing patterns in Q3 at all? And do you expect it to be disruptive in Q4 or 2026?
Yes. Thanks, Simran, for the question. So as I mentioned, we feel really good about the quality of the sensors that we're producing, both from accuracy, reliability and also addressing those deployment challenges that we ran into at the beginning of the year. Our team has learned a tremendous amount about those and been able to really solve them in the factory. So we're feeling great about the product. I've actually been out in the field recently talking to customers, spending quite a bit of time with both prescribers and those using our products and really listening and making sure that we're addressing all their concerns and understanding what they're experiencing. And I am hearing from all of them that things have improved since those deployment challenges we experienced in the first half of the year.
Yes. And then to your question on potential impact on patients in the field, around the fringes, we have heard questions out there. And so those are things we're out addressing, as Jacob mentioned, getting out into the field and making sure folks understand what happened. And the reality is we see that the complaint rates, while they're consistent with where they've been in the past, we know those types of complaints are the frustrating ones. So there's likely been a bit of an impact on new starts here over the course of the third quarter. The good news is we're still hundreds of thousands of new customer starts in the U.S. and certainly strong outside the U.S. as well. So while the quarter was impacted by slightly below a record, still really strong performance over the course of this quarter, and really proud of that. I'm really excited about what happens now as we've addressed any of these concerns out there. We're really excited to see how this impact along with our sales force, along with some of the educational samples that are available, along with supply being in a good position, that will impact us here in the fourth quarter and beyond.
And our next question comes from the line of Robbie Marcus with JPMorgan.
I wanted to ask, as you look at the new patients, where are you seeing the most growth? Is it kind of slowing down in type 1 and type 2 intensive and getting most from basal and non-intensive? And do you need to do anything differently out in the market and whether it's advertising or the field force to keep driving uptake of these increasingly new and important patient groups?
Sure, Robbie. Yes, this is Jereme. I can answer that. I think where we see the growth, we still see strong performance really across all the type 2 markets. That includes intensive as well. So we've seen a lot of new patients coming in type 2 intensive basal, and certainly in non-insulin as coverage is out there. We still see a decent amount of type 1 patients. But of course, as you know, type 1 is most penetrated and smallest population. So naturally, as we get bigger and more coverage, you're going to see that. To your question then how do we go to market and where do we go, you're 100% right. I mean our teams are constantly looking at where we call, who we call on, which channels we market in and where folks go. And so we do think about it a little bit differently. I often compare it to shaking a tree, right? Sometimes you shake a tree, you got to move to the next tree to shake it. And so we are doing those kinds of things as we look at where the opportunities are. So well taken, something I know the internal team has been looking at and we'll continue to look at is making sure that we continue to drive the growth and find the patients. I mean when you look at how much coverage is out there, there are many more people with coverage than there are people that are already using CGM. So there's a lot of opportunity out there to go get.
And our next question comes from the line of Danielle Antalffy with UBS.
Jake, I wanted to follow up on Travis' question and thank you for the context you provided. I just want to clarify one point, which is whether this assumes no expanded coverage. What are your current thoughts on the possibility of expanded coverage in 2026? Additionally, will you provide guidance based on your views regarding expanded coverage, or will your guidance only reflect the coverage we have today? I'll stop there.
Yes. Thanks, Danielle. Yes, to be clear, when we think about a base case for next year's guide, it includes the coverage that we have today, what the landscape looks like, both across insulin use and non-insulin use and then as we look globally. So that's really how we're going to think about our base case guide for the year.
Yes. As we progress throughout the year, we will highlight the significant wins. There are always minor successes, but we will focus on the more impactful ones. Danielle, there are potential major wins available, both in non-insulin and basal areas, as well as in emerging markets. So, there are plenty of opportunities for success. However, our base case will not factor these in.
And our next question comes from the line of Matt Taylor with Jefferies.
I guess I'll stay on the thread for a minute. You've gotten the 6 million commercial lives covered. I think based on MOBILE and prior analogies, we might expect it will be natural to see you have that readout, submit it and get non-insulin type 2 coverage by the end of next year around that time frame. But there's been some chatter that maybe that comes earlier. I don't know exactly where that's coming from. Could you talk about the potential to get broader non-insulin type 2 coverage earlier in '26? And what would be the mechanism to do that?
Yes, thank you, Matt. As I mentioned earlier, we expect that it's not a question of if, but rather when this coverage will be established. The advantages for users, particularly among non-insulin users, are very evident as we observe ongoing expansion. This can be seen from both the cost savings for payers in the first year and the positive outcomes for patients. For instance, in a study we conducted in primary care in a specific area of Ohio, we began with over 170 patients, and only one was meeting the ADA's recommended A1c guidelines. However, after a year, more than half of that group achieved the recommended target, all thanks to the use of CGM, again within a non-insulin population. Such significant outcomes contribute to the push for expanded coverage over time. While predicting the timing is challenging, we will be prepared when that coverage becomes available.
And our next question comes from the line of Joanne Wuensch with Citibank.
And Kevin, I hope you feel well soon. My question has to do with the 15-day sensor. It sounds like it's in limited launch right now with the Warriors and then it will expand. What does it take to expand into a broader group? And how do we think about the revenue contribution as well as the operating margin or gross margin potential?
Yes, thank you for the question. We are very excited about this product launch, which is currently being used in the Warrior community. We have several users on the sensors, and the feedback on their performance, extended duration, and accuracy has been very positive. We plan to start shipping with our channel partners in the next couple of weeks to initiate a wider launch. Much of our preparation involved ensuring we had sufficient coverage, collaborating with our insulin partners on integrations, and completing all necessary training to successfully introduce our next innovation.
Yes. And to your question on the margin impacts, given the timing of the rollout, we've never really expected it to be a big contributor this year. It will have a pretty nominal contribution from a gross margin perspective and from a revenue perspective. We do expect next year, it becomes an opportunity to go after additional patients for those folks that certainly are looking for longer wear time. I think it's a great opportunity there. And clearly, from a margin perspective, all of the things we've historically said around the 15-day product, that still all rings true. So I think as that rolls out, we'll be pushing it out into the field. And we'll give you updates over the course of 2026 based on how that rollout is taking place. But we sit here in a great position to launch it because our coverage is going to be robust when we launch it. Obviously, we're going to have partners that are going to be ready to catch it and handle it and integrate it. And so having both of those ready, I think is going to provide for a really exciting 2026.
And our next question comes from the line of David Roman with Goldman Sachs.
I appreciate the feedback and updates regarding the performance of G7 and what you're seeing in your own data. Can you maybe go into a little bit more detail about some of the actions you're going to undertake to ensure that that message is clear within the broader community? And one of the highlights that comes to mind here is the extent to which there is such a consumer element to this category versus some of the other segments that all of us follow. You have a much broader swath of stakeholders to target. So maybe just talk to us about what the plan is to make sure that the message is consistent across all relevant stakeholders and maybe what investments you're making to enable that?
Thank you for the question, David. We are actively in the field, communicating with customers, including both prescribers and users. We want to ensure they are aware of the steps we've taken to address this issue. I would like to highlight that while our complaint rates have generally remained stable over time, we did notice an increase in out-of-box failure complaints at the beginning of the year. However, it’s encouraging that these increases were balanced out by declines in accuracy and Bluetooth complaints, reflecting the improvements we've been working on. As we resolve deployment issues, we expect to see overall complaint rates decrease, which has been our goal. In engaging with consumers, we aim to clearly convey the performance improvements we've made, and this message is being communicated by me, as well as our entire sales team and other staff members, who are focused on direct interactions with our customers.
And our next question comes from the line of Marie Thibault with BTIG.
Just wanted to go back to the scrap rate issue, make sure I understand that better. It sounds like that had to do with materials around deployment. Is that to do with the inserter specifically? And as we think about it improving, is that something we can put in the rearview going into 2026, going into the 15-day rollout? What's kind of the timing on putting that all behind us?
Yes, the way to think about it is that it's related to how the needle ultimately drops the sensor into the skin. You can expect to see improvements as we move into Q4. The underlying standard performance, costs, and margins have been very solid year-over-year, and I think you'll be pleased with those results. The current outcomes reflect a few hundred basis points impacted by freight and some scrapping we've been addressing with these deployments. As we approach 2026, and as Jake mentioned, we're getting past these issues, and we expect a lot of the challenges to dissipate. This will bring us back to a more normalized margin rate, along with contributions from the additional 15 days. We anticipate being in a strong position as we finish this year and enter next year. There are opportunities with lower warranty rates related to Bluetooth, and resolving complaints about accuracy and adhesives could also be beneficial. While there's still work to do, we're making progress. We've improved since Q2, and we expect further improvements in Q4, which is reflected in our guidance for a strong position moving into 2026. We'll provide further clarity when we release our official guidance for 2026 in the coming months.
And our next question comes from the line of Matthew O'Brien with Piper Sandler.
I hope Kevin is recovering. I want to discuss the guidance for Q4. We have seen a deceleration in Q3, particularly in the domestic market. Q4 also suggests another decline on a 2-year stacked basis, which I believe is mainly due to domestic performance, given the strength of international results. What is driving this deceleration? If we analyze the 2-year stack for Q4, the growth is slightly below 10%. Why are we confident in achieving low double digits in 2026 if there is some deceleration at the end of 2025?
Sure, let me discuss the quarter and specifically the guidance, which I believe is your main concern regarding exit rates. It’s important to recognize that we are seeing a normalization in the seasonality of our business. Over the years, the contribution of Q4 to the full year's total has been declining, while the contribution from Q1 has been increasing. I expect this trend to continue this year. When comparing the quarters, it’s crucial to note that Q1 now has a seasonal advantage, which was evident this year. This perspective reveals a solid growth rate. The dynamic we see in Q4 has been consistent over multiple years, so it's important to consider this when analyzing our underlying patient base. Your models should illustrate that user growth remains strong. You can also expect the gap between unit volume growth and revenue to narrow, as we’ve observed in the third quarter and expect to see in the second half of the year. Putting all these factors together, with consistent pricing and the ongoing seasonality impact, you can start to understand our outlook for next year, which serves as a foundational estimate. I hope this provides some clarity. I'm open to further discussions, but I recommend considering these points when modeling seasonality.
And our next question comes from the line of Michael Polark with Wolfe Research.
I wanted to ask on gross margin and the fourth quarter implied guide, which were the last 2 questions. So I guess I'll follow up on the gross margin, Jereme. I heard a few hundred basis points cumulatively from scrap and freight. Can you spike out or remind us on just how much is the freight component, how much is the scrap component as we run that out through the rest of the year into '26?
Yes, it's about evenly split in terms of impact. In the first quarter, we had to expedite some freight, and we projected an overall impact of around 75 basis points for the year. So when you consider the full year, it's roughly evenly balanced. We anticipate returning to more ocean freight, which we have already started towards the end of the third quarter and continuing into the fourth quarter. Our goal for next year is to have most, if not all, of our products transported by ocean, particularly those coming from Malaysia, which should provide some benefits. Additionally, as Jake mentioned, the reduction in out-of-box failures due to our sensor deployment efforts is expected to improve the situation further. So, keep in mind that both factors are about evenly balanced for this year, and that sets a good baseline for thinking about 2026.
And our next question comes from the line of Jayson Bedford with Raymond James.
Maybe just for me on the type 2 uptake, can you just comment on the utilization within this user base versus those type 1 users?
Thank you, Jayson. Regarding the utilization of our system among different customer segments, AID users exhibit the highest utilization, exceeding 90%. This is primarily because they rely on the sensors to operate their systems effectively. For intensive insulin users not on AID, the utilization remains above 85%, again benefiting from the continuous glucose monitoring (CGM) and their insulin regimen, which helps prevent hypoglycemia. Looking at the broader type 2 population, particularly those using basal insulin, utilization historically ranges between 80% and 85%, which is quite comparable to intensive insulin users. This highlights the advantages they experience from our product, as evidenced by the results from our MOBILE Study where 95% of participants expressed a desire to continue using CGM after the study, and we recorded high utilization rates during that period. As we examine non-insulin type 2 users, the utilization is lower than the previous groups but still around 75%. We are also noticing similar trends with our Stelo product, which has a significant number of non-insulin type 2 users who currently lack coverage for CGM. They are utilizing Stelo, making it the highest utilization group for this product.
And our next question comes from the line of Shagun Singh with RBC Capital Markets.
I was just wondering, to what extent are the quality issues impacting new patient starts or did in Q3? When do you expect to return to record levels? And do you need that expanded access to return to record levels again?
Yes. I believe we've touched on this earlier, and I understand you're moving between calls. We expect to see a slight impact in Q3, which we have indeed observed. Overall, Q3 still includes hundreds of thousands of patients, although it's just below a record. As we approach Q4, our internal expectations are aimed at achieving those record levels again. Looking ahead to next year and 2026, we anticipate a record number of patients in 2026, which is part of our base case scenario. Importantly, this expectation is based on existing coverage alone, and we don't anticipate needing new coverage to reach those goals. While additional coverage would create more opportunities, these are our expectations. I hope this provides some clarity.
And our next question comes from the line of Brandon Vazquez with William Blair.
Jereme, you were talking a little bit about the gap between growth in the volume and pricing closing a little bit. I was curious if you could quantify it at all, where if you do the math kind of in the U.S., especially, where our model suggests something like $1,400 to $1,500 annual revenue per patient somewhere in that ballpark, down a lot over the past couple of years, as you've alluded to. Where are we in the ballpark there on that pricing? And then how does that pricing trend over the coming years? Where do pricing declines on a year-over-year basis start to level out?
Certainly. I believe you're on the right track. At the end of the year, we disclose patient numbers, and you can calculate the global figures while considering the various splits we've discussed. So, you're generally in the correct range. The year-over-year price changes do not have a significant impact when looking at different channels. It's crucial to highlight that we do not see major pricing variations from retail to retail or DME to DME annually; these typically range between 2% to 3%. Instead, the changes we observe are related to the mix. We've seen a gradual shift towards the pharmacy over time, which is now stabilizing. This trend is becoming more evident, as we anticipated at the beginning of the year. Moving forward, it's interesting to consider that most new coverage opportunities are emerging through pharmacies, especially regarding type 2 coverage in non-insulin medications, which will drive volume growth.
Meanwhile, the discussions surrounding CMS coverage for type 2 have implications for our DME partners, particularly related to Medicare fee-for-service, which could influence the method over time. In both scenarios, the year-over-year price impact isn't substantial; rather, it's about how patients access their products and the resulting mix. Therefore, I would emphasize that price isn't our main concern; the mix is. The mix has become stable, and when we acquire new coverage, it usually signals a positive outcome. Increased coverage for type 2 is beneficial. We're also hopeful for the time when CMS covers type 2 non-insulin medications, which could shift the dynamics positively. It's essential to structure your model accordingly to keep track of these developments.
And our next question comes from the line of Jon Block with Stifel.
The OpEx leverage has made up for some of the gross margin shortfalls throughout 2025 to help with margin expansion this year. And so I'm just curious, when we think about 2026, is that sort of a pure role reversal due to 15-day? And Jereme, you mentioned the underlying GM getting better? Or are there arguably additional OpEx opportunities that you still have? I guess what I'm getting at is how do we think about catch-up spend, if that's the right way to frame it into '26 on the OpEx line?
This year, our focus has been less about catching up on spending and more about improving efficiency through better tools and leveraging existing investments. We're concentrating on where to hire and how to provide support, maximizing the technologies we've implemented over the years. While I don't expect significant catch-up spending, we've accomplished substantial work in this area. As we prepare to provide guidance for next year, we see potential for gross margin improvements in 2026 and believe that there will be opportunities to enhance operating expenses over time. We want to strike a balance between making investments and seizing potential opportunities, especially if there are plans for expansion next year. Our primary objective is to continually improve operating margins while also ensuring we are growing the business sustainably and delivering value to shareholders.
And our next question comes from the line of Bill Plovanic with Canaccord.
I was wondering if you could discuss the timing of new patient starts throughout the quarter. Was it more weighted towards the beginning or the end, which could give us insight into whether the fourth quarter might set a record? Additionally, while you mentioned attrition rates generally, have there been any noticeable trends in attrition, especially considering the quality issues you've faced?
Yes. I'll start with the second one first. The attrition rates have been relatively stable. It's all within the normal kind of ranges we look at. We pay a lot of attention to it. We track it really every week, and we have a report out. We pay close attention. So we keep a close eye on it, and they've been stable. In terms of trends over the course of the quarter, I think what we're seeing, at least I'll maybe say anecdotally because I think it takes us a little time to get all the patient data in. I think you guys know this, it takes about 45 to get it all in. So I don't want to make any sort of statements about the back half of September other than I think it's very easy to take some of the anecdotal evidence. And we're hearing a lot of very positive anecdotal evidence. As we speak to our sales leadership and as they kind of pulse the field, I think the sensor deployment issues as those have waned in samples in the field and those have waned in the doctor's offices, you're seeing a lot of anecdotal positive feedback.
And obviously, that then typically leads to performance. So it'd be too premature for me to give you a readout on September until I have all the data in the hands, and that's the prudent thing to do. But anecdotally, I think we're very encouraged by what we're hearing. And Jake, you've been meeting with physicians all the time. Maybe you can walk through kind of what you've been hearing out there.
Yes, certainly. So we are hearing from our prescribers that they had some challenges earlier in the first half of this year, in particular, around some of those deployments kind of flowing through into both their offices and then into the customers' hands. And when customers have issues, they tell their prescribers about it, and we heard from everybody. And so when we saw it, we jumped on it and we resolved it. And it's very consistent feedback as I talk to users and prescribers that things have improved dramatically. That being said, issues can still happen, right? You can have an accuracy issue. You can have sensor fall off. All those things, that's why we're making the investment in our service platform and making sure ultimately that it is a competitive advantage for us. The digital investments that we've made are just the beginning around making it easy for customers to get exactly what they need. And that's been a focus of mine, particularly over the last 6 months, looking at how can we improve what we're doing. We've had a lot of plans that have been in place, and I think we've got a lot more coming. So it is a real area of focus for us to make sure that the experience of our users is the best possible.
And our next question comes from the line of Mike Kratky with Leerink Partners.
I'd echo sending our best to Kevin. I'd like to circle back on a prior question, just about the breakdown of price versus volume growth in your U.S. 3Q number. So our expectation is that we would probably start to see you anniversary some of the significant pricing headwinds that you've seen just coming from channel shifts. So to what extent do you really see that in the third quarter? How should we think about that moving forward, both in 4Q and '26?
That's a great question. You can see some of it reflected in the growth numbers. The unit volume growth is linked to our patient base, and overall unit volumes don't tend to fluctuate significantly from one quarter to the next; they rely on the underlying patient growth. What you're observing is a difference in comparison from last year, which was influenced by a channel mix issue that impacted us, and we're now past that comparison. Although the growth rate may seem narrower this year, it's somewhat misleading; it's elevated due to last year's comparisons. Nonetheless, it is evident, especially in the third quarter, and it will continue to show in the next quarter as well, although the comparisons will shift. Monitoring the year-long growth in the U.S., you'll notice that the underlying unit volumes and revenue performance are beginning to stabilize. Throughout the year, we've mentioned this trend. While there may be some fluctuations quarter to quarter due to last year's challenges, the overall pattern will become clearer over time. We anticipate this trend will continue into 2026.
And our next question comes from the line of Richard Newitter with Truist Securities.
I was just wondering, keeping with the very preliminary 2026 commentary, can you describe what's in your base case for any kind of competitive dynamics, possibly even intensifying with Abbott coming out with a dual analyte. Would love to just kind of hear what you're factoring in there. And then same kind of question, just what else are you willing to tell us about 2026 puts and takes as the base case as we're thinking about next year?
Yes, I appreciate the question. Our intention in addressing this is to provide some directional insights into what the base case might look like for next year. The base case doesn't necessarily reflect our long-term aspirations; rather, it serves as a prudent starting point for the upcoming year. We factor in elements such as competitor products, and we are always mindful of various considerations, including known coverage decisions that are already included in these base numbers. We take a global perspective on all these factors. That's why we share this context. When it comes to the specifics, we need to provide you with our official guidance before delving into detailed information, which is why we're a bit cautious about discussing each detail right now. Of course, we have a budget for next year and a long-range plan, which spans five years and is kept in-house. We will be discussing this with the Board in December and will present it to you as next year unfolds. Ultimately, the goal is to ensure everyone understands how we view the base case, and we'll provide those detailed specifics when we officially announce guidance, allowing you to analyze the numbers accurately.
And our next question comes from the line of Josh Jennings with TD Cowen.
I wanted to know if there are any updates on the G8 platform and whether ketone sensing has gained priority. Also, could you provide any timelines for when we might learn more or when G8 could progress towards commercialization?
G8 is a crucial part of our product portfolio and future innovation. It serves as a multi-analyte platform, and our focus is on meeting broad user needs and addressing unmet needs across various areas, including the type 1 space and higher growth segments like our Smart Basal technology. This technology is essential for driving growth in the basal population. While we view multi-analyte as vital for our future platform, we won't discuss timelines at this moment. However, I want to inform everyone that we are planning to host an investor event in the first half of next year at our Mesa manufacturing facility. This event will provide insights into our operations and high-volume manufacturing plant, allowing us to discuss initiatives like LRP and our product portfolio aimed at advancing this business.
And our next question comes from the line of Matt Miksic with Barclays.
Can you hear me okay?
We can hear you.
Terrific. So one question. I'm not sure if this has come up, but it's one of the things we hear in the community recently is some folks holding on to G6 or going back to G6. And I'm just wondering if that's a factor in sort of manufacturing efficiency or line management and what your thoughts are on how and when you'll be able to transition off of that? And I have one quick follow-up, if I could.
We are consistently transitioning customers from G6 to G7, resulting in a steady decline in the number of G6 users. While we have noticed a few individuals going back to G6, this represents a very small fraction and does not significantly impact our overall progress. We are committed to ensuring that G7 meets the needs of all users, leaving no reason for anyone to remain with G6. We understand that some users prefer to stick with what they know when they are satisfied, as has been the case in previous upgrades. Over time, we will continue to move people to G7. We have not yet announced the official end of G6 in the market, but we will do so when the time is appropriate and will provide advance notice to our users.
Okay. That's great. Regarding the general product strategy, the DexCom ONE strategy internationally has been successful in certain regions and has fulfilled the initial goals set for that program. However, DexCom remains focused on a core product line with ongoing innovations based on the existing platform. I'm curious if you are considering exploring adjacent opportunities or alternative methods for assisting patients in managing diabetes or other aspects of their glycemic health using a completely different platform, rather than merely updating versions like G7 or G8. I'd appreciate hearing your thoughts on this.
I appreciate that question, especially regarding the broader market and how we can meet those unmet needs. DexCom ONE+ is performing very well, and much of the growth in France we mentioned is attributed to that platform. It has enabled us to compete in market segments we previously could not access, as we were primarily focused on the G Series products and the more acute aspects of diabetes management. DexCom ONE+ is a crucial part of our strategy to meet various customer needs. The mobile apps and user experiences differ in this regard. Another example is Stelo, which caters to a wide range of users, from those with type 2 diabetes to prediabetics and individuals looking to enhance their metabolic health. We plan to introduce this product internationally next year, targeting several markets where we've seen significant demand for Stelo outside the U.S. Dex Basal is another noteworthy example.
Its clinical study focused on helping prescribers and patients achieve the right outcome safely by quickly determining the optimal dosage without causing hypoglycemia. We also see exciting potential for it to improve adherence. For users starting insulin injections for the first time, there can be some apprehension. However, demonstrating how much better their diabetes control can be with the correct basal insulin dosage can be quite motivating. We anticipate seeing improvements in adherence and overall outcomes. Our goal is to focus on outcomes across the broad population, employing various products and software experiences to achieve this.
And our final question comes from the line of Anthony Petrone with Mizuho.
Best wishes to Kevin as well. Maybe one on gross margin as it relates to the G7 transition and one on just penetration. When you think about the transition to G7, how long do you think it will take to fully roll over the 10-day to 15-day? And what does that do to gross margin once you're kind of on a 15-day heavier user base? And then some chatter just on penetration, even competitive results. When you think about type 2 non-insulin-intensive hypo risk and basal-only, you have basal-only penetration at 20% to 25% and non-insulin-intensive hypo at under 5%. What do you think a reasonable penetration for those 2 segments is over your long-range plan?
I'll begin with the markets. We've always mentioned that basal could reach about 60% penetration over time, based on our historical predictions for type 1 and type 2 intensive insulin users. Having a sensor for someone taking insulin is advantageous, and we have repeatedly demonstrated the effectiveness of combining the sensor with insulin and now the DexCom Smart Basal. This presents a significant opportunity to address an unmet need in a growing market, and we are enthusiastic about how it can aid in management. We anticipate positive developments here. In terms of the non-insulin and type 2 hypo-risk population, it is challenging to determine exact figures since it encompasses a broad demographic, especially among type 2 patients. While individuals at risk of hyperglycemia are included, they typically resemble type 2 patients. We estimate that achieving 60% penetration would be ambitious given the landscape of basal insulin.
Nonetheless, even a rise from the current 5% to 10%, 15%, or 20% would entail millions of users. There is clearly much potential beyond our current figures, especially with improved coverage, and we are genuinely excited about it. Regarding gross margin and the transition to 15-day usage, historical trends from G5 to G6 and G6 to G7 suggest that this transition could take a couple of years. It requires time for users to become accustomed to new technology. Our objective is to expedite this process, and since the form factor for 10-day and 15-day is quite similar, there is potential for smoother changes. However, it does necessitate different scripting. We will continue to provide updates as the product rolls out, and as we approach guidance for next year, we will share more about our assumptions with some operational data. The transition from 10-day to 15-day and the reduction from three sensors to two could significantly impact our margins and our ability to expand into new markets with products like DexCom ONE+ or others. This change positions us to grow both our top-line revenue and margin opportunities, which is truly exciting.
And ladies and gentlemen, that concludes our question-and-answer session. I will now turn the call back over to Mr. Jake Leach for closing remarks.
Okay. Thank you, everyone, for joining us today, and thank you for the well wishes to Kevin. I know he really appreciates that. And I'd like to wrap up the call today by expressing my deep appreciation to all the employees of DexCom. I'm extremely proud of this team and how we've continued to focus on serving our customers and not getting distracted. In the end, our core values are clear, and we will continue to be unrelenting in our mission to empower people to take control of health. We have a remarkable opportunity to improve the lives of millions of people around the world, and I couldn't be more excited about the future. Thanks, everybody.
And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.