# How Dexcom makes money

CXProWealth Business Lens · Dexcom (DXCM) · Q3 FY2026

Read from the 10-Q for the period 2026-07-01 to 2026-09-30, filed 2026-10-29 with the SEC (accession 0001093557-26-000195): https://www.sec.gov/Archives/edgar/data/1093557/000109355726000195/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $1.3B (+11.2% on the year)
- Operating income: $327.2M (operating margin 24.3%)
- Net income: $275.1M (net margin 20.5%)
- Gross margin: 64.3%
- Free cash flow: $272.7M (20.3% of revenue)
- Cash conversion (operating cash flow / net income): 1.18x
- Capital expenditure: 3.9% of revenue

## Where the money goes (Q3 FY2026)

- Revenue → Cost of sales: $480.1M
- Revenue → Gross profit: $864.4M
- Gross profit → Total operating expenses: $537.2M
- Total operating expenses → Selling, general and administrative: $375.6M
- Total operating expenses → Research and development: $161.6M
- Gross profit → Operating income: $327.2M
- Operating income → Income before income taxes: $327.2M
- Other income, net → Income before income taxes: $7.5M
- Income before income taxes → Income tax expense: $59.6M
- Income before income taxes → Net income: $275.1M

## Where the revenue comes from

### ContractWithCustomerSalesChannel (Business Segment and Geographic Information - Schedule of Disaggregation of Revenue (Details))

| Member | Value | Share |
|---|---:|---:|
| Distributor | $1.1B | 85.4% |
| Direct | $196.5M | 14.6% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q3 FY2026 | Of revenue |
|---|---:|---:|
| Revenue | $1.3B | 100% |
| Cost of sales | $480.1M | 35.7% |
| **Gross profit** | $864.4M | 64.3% |
| Research and development | $161.6M | 12.0% |
| Selling, general and administrative | $375.6M | 27.9% |
| **Total operating expenses** | $537.2M | 40.0% |
| **Operating income** | $327.2M | 24.3% |
| Other income, net | $7.5M | 0.6% |
| **Income before income taxes** | $334.7M | 24.9% |
| Income tax expense | $59.6M | 4.4% |
| **Net income** | $275.1M | 20.5% |
| Basic net income per share (in USD per share) | $1 | 0.0% |
| Shares used to compute basic net income per share (in shares) | 374,700,000 |  |
| Diluted net income per share (in USD per share) | $1 | 0.0% |
| Shares used to compute diluted net income per share (in shares) | 383,500,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2009 | $29.7M | -$45.8M | -$53.5M | -$39.4M | $3.0M | -$42.4M |
| FY2010 | $48.6M | -$45.3M | -$55.2M | -$42.7M | $6.9M | -$49.6M |
| FY2011 | $76.3M | -$44.8M | -$44.7M | -$30.1M | $8.0M | -$38.1M |
| FY2012 | $99.9M | -$55.7M | -$54.5M | -$33.1M | $9.5M | -$42.6M |
| FY2013 | $160.0M | -$28.9M | -$29.8M | $2.4M | $7.9M | -$5.5M |
| FY2014 | $259.2M | -$21.5M | -$22.4M | $23.6M | $16.2M | $7.4M |
| FY2015 | $402.0M | -$57.1M | -$57.6M | $49.0M | $33.3M | $15.7M |
| FY2016 | $573.3M | -$63.9M | -$65.6M | $56.2M | $55.7M | $500.0K |
| FY2017 | $718.5M | -$42.5M | -$50.2M | $92.0M | $66.0M | $26.0M |
| FY2018 | $1.0B | -$186.3M | -$127.1M | $123.2M | $67.1M | $56.1M |
| FY2019 | $1.5B | $142.3M | $101.1M | $314.5M | $180.0M | $134.5M |
| FY2020 | $1.9B | $299.5M | $549.7M | $475.6M | $199.0M | $276.6M |
| FY2021 | $2.4B | $265.8M | $216.9M | $442.5M | $389.2M | $53.3M |
| FY2022 | $2.9B | $391.2M | $341.2M | $669.5M | $364.8M | $304.7M |
| FY2023 | $3.6B | $597.7M | $541.5M | $748.5M | $236.6M | $511.9M |
| FY2024 | $4.0B | $600.0M | $576.2M | $989.5M | $358.8M | $630.7M |
| FY2025 | $4.7B | $911.8M | $836.3M | $1.4B | $363.5M | $1.1B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +15.6% (year before +11.3%): accelerating
- Operating income: +52.0% (year before +0.4%): accelerating
- Net income: +45.1% (year before +6.4%): accelerating
- Free cash flow: +70.8% (year before +23.2%): accelerating

## Key insights

### Gross margin climbed from 56.9% to 64.3% in six quarters

Revenue grew far faster than the cost of making sensors, so cost of sales fell from 43.1% of revenue to 35.7%.

Six quarters ago, in the first quarter of the prior fiscal year, revenue was $1.04 billion and cost of sales $447.0 million, 43.1% of revenue, for a gross margin of 56.9%. In the latest quarter revenue was $1.34 billion and cost of sales $480.1 million, 35.7% of revenue, for a gross margin of 64.3%. Against the same quarter a year earlier, revenue rose 11.2% while cost of sales rose 0.5%, and gross margin moved up from 60.5%. _(from the filing)_
The filing attributes the gain to higher sales volume, the benefits of the longer-wear version of its newest sensor, manufacturing efficiencies, higher production volumes and a more favorable manufacturing mix, "which resulted in better absorption of fixed costs." It names higher inventory reserve charges, tied mainly to the planned end of manufacturing of its older sensor, as a partial offset. _(from the filing)_
The longer view puts the level in context. Gross margin was 64.4% seven fiscal years earlier and 60.1% in the last full fiscal year, so the current 64.3% is a return to an earlier level rather than a new high. _(from the filing)_
Analysis: because the gain rests on fixed-cost absorption rather than on price, it depends on volume continuing to fill the factories. The dip and recovery look like the cost of launching and ramping a new sensor generation, which is consistent with the filing's account but not stated by it. _(analysis)_

### Operating profit rose 34.9% while net profit fell

Last year's quarter had other income equal to 45.3% of operating income; this year it was 2.3%, so net income fell 3.1%.

Operating income rose to $327.2 million from $242.5 million. Other income, net fell to $7.5 million from $109.8 million, which the filing explains by the absence of a prior-year gain on equity investments and lower interest and dividend income, the result of a smaller average invested balance and changes in market interest rates. Income before income taxes fell 5.0% to $334.7 million. _(from the filing)_
Income tax expense fell to $59.6 million from $68.5 million, 17.8% of pre-tax income against 19.4% a year earlier, which the filing ties mainly to the release of reserves for uncertain tax positions as statutes of limitations expired. Net income was $275.1 million against $283.8 million, a net margin of 20.5% against 23.5%. _(from the filing)_
Analysis: the business earned more from its own operations; the lower net figure reflects a one-off gain in last year's base, not a weaker quarter. Operating income is the cleaner read of how the company performed. _(analysis)_

### Fewer shares lifted earnings per share as profit fell

Diluted shares fell to 383.5 million from 407.4 million, so diluted earnings per share rose to $0.72 from $0.70 despite lower net income.

Net income fell 3.1%, yet basic earnings per share held at $0.73 because basic shares fell to 374.7 million from 391.1 million. The company completed its share repurchase program in the quarter. The diluted count fell further, to 383.5 million from 407.4 million, partly because convertible notes that matured and were repaid in cash last year no longer add potential shares. _(from the filing)_
The board approved a further repurchase program in October, and the filing states an intention to allocate at least half of cash generated from operations, net of planned capital expenditures, to share repurchases over its long-range plan. The only risk factor this report adds concerns that program: the company cannot guarantee it will be completed or that it will lift the share price or earnings per share. _(from the filing)_
Analysis: per-share results now depend partly on capital allocation, not only on the business. Comparing growth in earnings per share with growth in operating income separates the two. _(analysis)_

### Cash flow halved against an unusually strong base

Operating cash flow of $325.6 million was 1.18 times net income; the year-earlier quarter's $659.9 million was more than twice net income.

Operating cash flow was $325.6 million against $659.9 million in the same quarter a year earlier, when net income was $283.8 million. Free cash flow was $272.7 million against $579.4 million, a free cash flow margin of 20.3%. _(from the filing)_
Quarterly cash flow swings. This year it was $525.6 million in the first quarter, $269.2 million in the second and $325.6 million in the third, above net income of $199.5 million, $249.1 million and $275.1 million in each. For the nine months, the filing attributes the change in working capital mainly to the timing of payables and higher inventory, partly offset by customer collections. _(from the filing)_
Capital spending was $52.9 million, 3.9% of revenue, against $80.5 million a year earlier. In the heaviest investment year of the last eight it was $389.2 million, 15.9% of that year's revenue, and free cash flow fell to $53.3 million. The filing says it expects significant capital expenditures over the next year for equipment and manufacturing facilities. _(from the filing)_
Analysis: single-quarter cash comparisons are noisy for this company; conversion across several quarters is the steadier read, and the capital spending line is where a new build phase would show first. _(analysis)_

### Competitive edge

- **A disposable sensor turns patients into repeat buyers** Revenue grew every fiscal year, from $1.03 billion to $4.66 billion over seven years, built on sensors that patients replace and reorder.
- **Operating costs grow slower than gross profit** Gross profit rose 18.2% and operating expenses 9.9%, lifting the operating margin to 24.3%, up 4.3 points from a year earlier.
- **Partners build the sensor into insulin and health systems** The filing describes partnerships with insulin pump makers and automated insulin delivery developers, and with consumer technology companies for its over-the-counter Stelo.

### What to watch

- **Revenue growth has slowed in each quarter this year** Year-on-year growth eased from 15.0% to 13.1% to 11.2%, while the margin gain rests on volume keeping the factories full.
- **Payers and distributors stand between Dexcom and its users** Distributors carried 85.4% of quarterly revenue, and the filing names pharmacy rebates and third-party reimbursement among its key estimates and dependencies.
- **Product quality and a sensor changeover weigh on costs** Inventory reserve charges for quality data and retiring the older sensor offset part of the margin gain, and sensor class actions remain unresolved.

## Investor view

**Dexcom sold 11.2% more in the quarter while its cost of sales barely moved**

### How it makes money

Dexcom makes continuous glucose monitors: a small sensor worn on the body that reads glucose levels and sends them to a receiver, a phone or an insulin pump. In the filing's words, it generates revenue "from the sale of disposable sensors and reusable transmitters and receivers." The sensor is used up and replaced, so a patient who stays on the system buys again and again. The company reports one segment. Of $1.34 billion in quarterly revenue, cost of sales took $480.1 million, a gross margin of 64.3%. _(from the filing)_
Most of that revenue does not come from patients paying Dexcom directly. Distributors accounted for $1.15 billion, or 85.4% of the quarter's revenue, and direct sales for $196.5 million, or 14.6%. The filing lists pharmacy rebates among its significant estimates, and accrued rebates are the largest single item among its liabilities. It also lists third-party reimbursement of its products among the factors its future depends on. _(from the filing)_
What is left after making the product goes mainly to selling and engineering. Selling, general and administrative expense was $375.6 million, 27.9% of revenue, and research and development $161.6 million, 12.0%. That left $327.2 million of operating income, an operating margin of 24.3%. A newer product, Stelo, sold over the counter to people with diabetes or prediabetes who do not use insulin, extends the same sensor beyond the insulin-using base. _(from the filing)_
Demand follows the U.S. insurance calendar. The filing says sales are typically lower in the first quarter than in the fourth, a pattern that "relates to U.S. annual insurance deductible resets and unfunded flexible spending accounts." It shows this year: first-quarter revenue of $1.19 billion came in below the prior fourth quarter's $1.26 billion. _(from the filing)_

### What shifted

The margin step-up came mostly from the factory. Revenue grew 11.2% to $1.34 billion while cost of sales rose 0.5%, to $480.1 million from $477.9 million. Gross margin reached 64.3%, up from 60.5% a year earlier. The filing attributes this to higher sales volume, benefits from the longer-wear version of its latest sensor, manufacturing efficiencies, higher production volumes and a more favorable manufacturing mix, "which resulted in better absorption of fixed costs," partly offset by inventory reserve charges tied to the planned end of manufacturing of its older sensor. _(from the filing)_
Operating costs grew more slowly than gross profit. Total operating expenses rose 9.9% against 18.2% for gross profit, so operating income rose 34.9% to $327.2 million and the operating margin widened to 24.3% from 20.1%. Selling, general and administrative expense grew 13.3%, faster than revenue, which the filing attributes mainly to more advertising and marketing, higher facilities costs and consulting fees. Research and development grew 2.6%, which the filing puts down to "the timing of project spend." _(from the filing)_
Below the operating line the comparison runs the other way. Other income fell to $7.5 million from $109.8 million, which the filing explains by the absence of a prior-year gain on equity investments and lower interest income on a smaller invested balance. Income before taxes fell 5.0% to $334.7 million and net income fell 3.1% to $275.1 million. The net margin of 20.5% sits below last year's 23.5% even though the core business earned more. _(from the filing)_
Fewer shares carried the result. Diluted shares fell to 383.5 million from 407.4 million, a 5.9% decline, because the company bought back stock, completing its repurchase program in the quarter, and because convertible notes that matured last year no longer count as potential shares. Diluted earnings per share rose to $0.72 from $0.70 while net income fell. The board approved a further repurchase program in October, and the filing states an intention to put at least half of operating cash flow, net of planned capital spending, into repurchases over its long-range plan. _(from the filing)_
Cash generation was lower than a year ago but still above profit. Operating cash flow was $325.6 million against $659.9 million in the same quarter last year, and free cash flow $272.7 million against $579.4 million. Operating cash flow was 1.18 times net income. Capital spending fell to $52.9 million, 3.9% of revenue, from $80.5 million a year earlier. _(from the filing)_

### Risks in the filing

The only risk factor this quarterly report adds concerns the new repurchase program. The company says it cannot guarantee the program will be completed or that it will lift the share price or earnings per share, that buybacks can raise the stock's volatility, and that it may cut or stop them because of market conditions, the share price, other investment opportunities or the availability of funds. All other risk factors are those in its last annual report. _(from the filing)_
Discussing its capital needs, the filing names the factors its future depends on: third-party reimbursement of its products, the quality levels of its products, the cost and timing of further regulatory approvals, competing technologies, its ability to scale manufacturing to meet demand, the success of its research, and the cost of defending its patents. _(from the filing)_
It also names litigation whose outcome it cannot yet estimate: a securities class action, derivative actions, and class actions concerning its two most recent sensor generations, which it says it will defend vigorously. Its convertible notes could be converted into cash or shares before maturity if certain conditions are met, and international expansion adds foreign currency exposure. California and federal tax authorities opened audits this year, though the company does not expect significant adjustments. _(from the filing)_
Two of these already show in the numbers. Product quality and the generation change show in cost of sales, where the filing records higher inventory reserve charges tied to quality data and the retirement of the older sensor, an offset against the 64.3% gross margin. Reimbursement shows in the seasonal pattern, where first-quarter revenue of $1.19 billion came in below the prior fourth quarter's $1.26 billion as insurance deductibles reset. _(analysis)_

## Founder view: mechanisms

### Disposable sensors make a recurring sale

Dexcom sells a device that is used up. Each sensor is worn for a fixed period and replaced, while the transmitter and the software stay. A patient who starts on the system becomes a stream of repeat purchases rather than a single sale, so revenue in any quarter is mostly the installed base reordering, plus new patients added. Growth compounds because last year's new patients are this year's reorders. _(analysis)_

### Volume through a fixed factory widens the margin

Much of the cost of making a sensor is factory overhead: facilities, quality assurance, manufacturing engineering, supervision. Those costs do not rise one for one with output. When volume grows and lines run at higher utilization, each unit carries less overhead, so gross margin rises without any change in price. Dexcom's quarter is a clean example: more units through roughly the same cost base. _(analysis)_

### Insurance and distributors set the price and the rhythm

Dexcom's product is mostly paid for by insurers and moved through distributors rather than sold to the user at a list price. Coverage decisions, rebates and the patient's deductible become part of the product. The price is effectively negotiated with payers, and the patient's out-of-pocket cost decides when they buy, which is why sales dip each first quarter as deductibles reset. _(analysis)_

### Spending grows slower than gross profit

Once the sales organization and the engineering base exist, each extra dollar of gross profit needs less new operating spend. Dexcom let operating expenses grow, but more slowly than gross profit, so most of the gain reached operating income. The trade-off sits inside the mix: marketing rose faster than sales while research and development held near flat. _(analysis)_

## Member research

Signed-in members read, on the page: what Dexcom's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Dexcom 10-Q for the period to 2026-09-30: https://www.sec.gov/Archives/edgar/data/1093557/000109355726000195/ (2026-10-29)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02