DexCom, Inc. ($DXCM)

Ladies and gentlemen, welcome to the DexCom First Quarter 2026 Earnings Release Conference Call. My name is Abby, and I will be your operator for today's call. [Operator Instructions] As a reminder, the conference is being recorded. I will now turn the call over to Sean Christensen, Senior Vice President of Finance and Investor Relations. Mr. Christensen, you may begin.

Thank you, operator, and welcome to DexCom's First Quarter 2026 Earnings Call. Our agenda begins with Jake Leach, DexCom's President and 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. [Operator Instructions]. Please note that there are also slides available related to our first quarter 2026 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 first quarter 2026 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. Today, we reported first quarter revenue growth of 15% compared to the first quarter of 2025 and organic revenue growth of 12%. This reflected strong demand for DexCom CGM globally as we benefited from broader access, new product launches and continued active base growth. We also continued to drive operational improvement over the course of the quarter, which included an outstanding launch of G7 15 Day, improvements in field performance across all of our products, a good response to our myDexcom Account and enhanced web-based service and support and continued progress on new product initiatives. This helped us deliver solid margin performance, cash flow generation and earnings for Q1. In the U.S., we are generating good momentum across the spectrum of diabetes care. This was especially pronounced across the categories of type 2 diabetes, where our expanded reach and product momentum led to strong first quarter share gains with the biggest increase coming from people with type 2 diabetes who are not on insulin. This performance reflects growing clinical awareness of the greater than 6 million non-insulin lives currently covered for Dexcom CGM across the 3 largest PBMs. Our team has done a great job driving this awareness in the field, and this message will become even stronger as type 2 coverage continues to build. Along those lines, I'm excited to announce another recent reimbursement win for the commercial type 2 non-insulin population. As of this summer, Prime Therapeutics will begin covering DexCom CGM for all people with diabetes. This puts us on track to have commercial coverage for more than 7 million type 2 non-insulin lives by the end of this year. It's also another clear demonstration that payers are recognizing the value of DexCom CGM in driving health and economic outcomes for this population. While this is a great start, we won't be happy until we have coverage for all people with diabetes. And the largest single driver towards that goal would be CMS coverage for the type 2 non-insulin population as around half of those with type 2 diabetes not using insulin sit within the Medicare population. As we've said before, we continue to view this decision as only a matter of time. In recent months, we've seen upgraded recommendations in the ADA standards of care recommending CGM use for all people with diabetes and the level of real-world evidence for CGM-driven health outcomes continues to grow. As one example, at ATTD, we recently provided a full readout of our 12-month type 2 non-insulin registry data. In this real-world study, DexCom CGM delivered a statistically significant A1c reduction over a 1-year period across a broad population of people with type 2 diabetes with strong utilization. These are the types of outcomes that we are consistently demonstrating across this group, which gives us high confidence that the coverage will continue to grow. And to further strengthen our case, we're currently completing our randomized controlled trial for people with type 2 diabetes who are not on insulin. Similar to how our DIaMonD and MOBILE RCTs reshaped clinical perspectives for those using insulin, we expect this trial can become the defining study for the non-insulin population. This readout will also form the cornerstone of our evidence base for any global payer that is waiting to see RCT level data. We look forward to sharing a full readout of this study with you at the ADA's 2026 Scientific sessions in a few weeks. As I mentioned earlier, during the first quarter, we also expanded the launch of our DexCom G7 15 Day system across all channels in the U.S. This broad rollout has been very well received. And most importantly, the feedback from customers and physicians has been excellent. The positive response goes well beyond the longer wear time. One of the most consistent points of feedback is around the new sensor algorithm, which delivers our highest level of accuracy to date. Combined, we believe these updates can attract new customers into our ecosystem, and we're now working to build broader awareness of DexCom G7 15 Day in the market. We're also excited for more of our existing base to shift to this product so they can experience this longer wear time and improve performance firsthand. Of course, we're not stopping there. We're always working to improve the performance across our product portfolio. As one example, we recently began manufacturing with our new patch technology that received FDA clearance earlier this year. We expect this upgraded adhesive to strengthen sensor survivability across our product portfolio and improve wear experience for our customers. We expect this new technology to reach the market in the coming weeks. We also have several software updates planned, including a complete redesign of Stelo. In the coming weeks, we'll introduce this new experience to all customers, which will offer a more consumer-friendly feel, more AI-driven personalized insights and additional food logging capabilities, including detailed macronutrient information. For our G Series products, we're currently expanding access within our pilot KOLs for our DexCom Smart Basal feature. This personalized dosing module has the potential to reinvent basal insulin management by driving more accurate insulin titration, accelerating the time needed to reach optimal dose and delivering improved outcomes for customers and physicians. Each of these updates were built specifically around customer feedback. We will always keep the customer at the center of future product innovation, which we believe can help us build an ecosystem that is more personalized and engaging for all customers. Our international markets provide a great example of what product personalization can do for our business. By offering a portfolio of products that can be tailored to each market and reimbursement system, we've been able to consistently secure broader access and drive growth within these regions. Our first quarter results were another great demonstration of this story. Once again, we delivered some of our strongest growth in markets where we've established broader access in recent quarters. Even in some of our largest markets, recent reimbursement wins have helped us reach a new cohort of customers and drive greater share. We'll continue to build on this international growth strategy, including through the launch of new products. In 2026, this will include the international launch of Stelo as well as a new CGM system that is designed to further extend our market reach. We look forward to going into greater detail on these product launches, software updates and more at our upcoming May Investor Day. You may recall that earlier this year, I laid out my 3 priorities for DexCom's next phase of growth. Number one, be the premier glucose sensing solution for all; number two, set the standard for customer experience; and three, expand international market share. At our Investor Day, I'm looking forward to exploring each of these topics in further detail as we share our vision for DexCom's next chapter. For those joining in person, we're also planning to visit our Mesa manufacturing facility to provide a glimpse into our original high-scale CGM manufacturing location and the level of precision that this work requires. We look forward to showcasing the quality and automation that we have built and that we feel positions us well to lead the CGM category into the future. We hope to see you there. With that, I'll turn it over to Jereme.

Thank you, Jake. As a reminder, unless otherwise noted, the financial measures 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 first quarter of 2026, we reported worldwide revenue of $1.19 billion compared to $1.04 billion for the first quarter of 2025, representing growth of 15% on a reported basis and 12% on an organic basis. As a reminder, our definition of organic revenue excludes the impact of foreign exchange in addition to non-CGM revenue acquired or divested in the trailing 12 months. U.S. revenue totaled $832 million for the first quarter compared to $751 million in the first quarter of 2025, representing an increase of 11%. As Jake mentioned, in the U.S., we saw momentum build across the spectrum of diabetes care in the first quarter. This reflected both growing awareness of the broader type 2 coverage and the launch of our G7 15 Day product, which has generated a lot of excitement in the market. We have been very encouraged by the initial 15 Day uptake and the market feedback and look forward to seeing the active base continue to transition as we progress over the course of the year. International revenue grew 26%, totaling $360 million in the first quarter. International organic revenue growth was 17% for the first quarter. Our international growth was widespread across our core markets this quarter with some of the largest increases coming from geographies where we have recently expanded access such as France and Canada. Our first quarter gross profit was $757.4 million or 63.5% of revenue compared to 57.5% of revenue in the first quarter of 2025. We are excited by our progress on gross margin performance in Q1, which was up significantly on a year-over-year basis and flat compared to the fourth quarter despite our typical Q1 seasonality. This performance reflected strong execution across our operations and supply chain as we delivered continued manufacturing efficiencies, more normalized freight costs as we've improved our global inventory levels and initial benefit from the switch over to G7 15 Day. Operating expenses were $493.0 million for Q1 of 2026 compared to $453.1 million in Q1 of 2025. Operating income was $264.4 million or 22.2% of revenue in the first quarter of 2026 compared to $143.1 million or 13.8% of revenue in the same quarter of 2025. We are really proud of the team and the discipline demonstrated over the course of the quarter, both on operations, but also all of the support teams that work tirelessly for our customers. This is a demonstration of the ability to deliver for our customers, our employees and our shareholders. Adjusted EBITDA was $364.5 million or 30.6% of revenue for the first quarter compared to $230.4 million or 22.2% of revenue for the first quarter of 2025. Net income for the first quarter was $216.3 million or $0.56 per share, representing 75% growth over the first quarter of 2025. We remain in a great financial position, closing the quarter with approximately $2.4 billion of cash and cash equivalents. This was up over $400 million compared to year-end 2025, which reflected our significant free cash flow performance in the first quarter. This cash balance, along with our growing free cash flow profile continues to provide us with a lot of flexibility as we assess ongoing capital allocation opportunities. Turning to guidance. We are reaffirming our prior revenue guidance of $5.16 billion to $5.25 billion, representing growth of 11% to 13% for the year. For margins, we are reiterating our previous full year non-GAAP gross profit margin guidance of 63% to 64% and increasing our non-GAAP operating profit margin guidance and adjusted EBITDA margin guidance to 23% to 23.5% and 31% to 31.5%, respectively. While our Q1 gross margin performance leaves us tracking well relative to our current guidance, we left gross margin guidance unchanged to account for the current geopolitical environment, including uncertainties with fuel prices and shipping routes. Regardless, our strong cost control over the quarter positioned us to raise our full year non-GAAP operating profit and adjusted EBITDA margin guidance. With that, we can open up the call for Q&A. Sean?

Thank you, Jereme. [Operator Instructions] Operator, please provide the Q&A instructions.

[Operator Instructions] And our first question comes from the line of David Roman with Goldman Sachs.

I guess when we look at the totality of the U.S. market now with 2 major players having reported, it does look like the market is in a period of slower growth. And as your competitor noted, that may be due to no major coverage expansion or new indications. So could you maybe just give us your perspective on how you're seeing the U.S. market unfold here? And what's assumed in your guidance? And any details you can provide, whether it's new patient starts or other metrics to kind of corroborate the health of both the U.S. market and your business would be helpful as we think about the balance of the year.

Yes. Thanks, Dave, for the question. If you take a step back and look at the U.S. market, there's still a pretty significant opportunity. If we think about it about 30% penetration into the covered lives is where we are as a category. That means that only 1 in 3 people that have coverage for CGM are using it. So that other 2/3 is out there today, and that's before we talk about any expanded coverage. So I think as we look at new patients, we are always striving for a record number of new patients every quarter. And this quarter came in, in the U.S., very close to a record and is a global record number of patients. across the entire globe. So we feel like the category, there's a lot of strength here. But if we just focus in on the U.S., there's still a long runway to go. We mentioned a new PBM now covering CGM by the end of the year, that's going to add another 1 million lives to that noninsulin-using population. And so when you think about that, that provides a lot of opportunity. And frankly, our team is getting much better at targeting this new coverage as we saw in some of the share gains that we had in this group. And so I think we're -- there's still a solid rate of growth going forward for the U.S.

And our next question comes from the line of Travis Steed with Bank of America.

I'll start maybe asking on 15 Day, kind of a 2-part on 15 Day where you think about the better algorithm and the better customer experience. Is that something where maybe that product helps new starts as it launches? And also maybe kind of talk about kind of the margin impact. And I know you left gross margin guide unchanged. So I don't know how much inflation you're baking in. But just kind of curious how to think about the margin impact as 15 Day rolls out versus kind of the inflationary impact on margins?

Yes, sure. I'll take the part around the product and the starts and then Jereme will fill in with the margin perspective. So I absolutely believe that the 15 Day product is helping drive the momentum that we're seeing. We did see improved performance across our entire portfolio when it comes to the reliability of our product. But when you think about the 15 Day in particular, it has that new algorithm and the extended wear. And so that is something that patients very much value the convenience of the longer wear and then the algorithm, the performance and reliability of that product is really driving new starts as well as conversions over to it. And we're making good progress towards converting the base over to that product. We estimate nearly 50% will be converted by the end of the year over to this new 15 Day product. Jereme, do you want to fill in on margin?

Yes. So on margin, you're exactly right, Travis. We kept it on hold just because of the impact of oil on both fuels and resins. And obviously, resins play a large part in our product as well. There's probably about 50 to 100 basis points of potential risk associated with fuels and resins over the course of the year. So absent that, we would be raising the gross margin guidance. And you can see in the first quarter, we had a really solid performance. Typically, we step back from Q4 into Q1. And with some of the work that we've done over the course of the year, that was flat coming into Q1, which obviously should give, hopefully, you and everybody else a lot of confidence that the work we've been putting in place to help improve throughput quality and really yields is really starting to play out. So think about it that way. It's about 50 to 100 basis points. Obviously, if oil prices come back down to normal, we'll certainly revisit it and revise it at that point. But right now, we've got a placeholder for that. The underlying performance of the business, though, is outperforming expectations as we got into the year.

And our next question comes from the line of Larry Biegelsen with Wells Fargo.

This is Simran on for Larry. I just wanted to ask on type 2 non-insulin. So we did hear the RCT presentation is slated for ADA. Just wondering, could we see a publication before ADA? And do you plan to share any color on the trial results at the Investor Day? And maybe just a broader question on type 2 non-insulin. Any color on how we should think about this unlocking or recatalyzing the next leg of growth in the U.S. CGM market? Maybe even stepping back to that strong double-digit growth that you've talked about in the past, Jake, in terms of the CGM market going forward?

Yes. Thanks for the question. So speaking of the randomized controlled trial for the non-insulin using population, we are planning to do the full readout at ADA, and we are anticipating the results there are going to be similar to what we've seen when we look at our registry data and all of the other data that we've generated in this population, really significant improvements in the glucose outcomes for these folks that, frankly, aren't usually measuring glucose in any way, and many of them aren't taking fingersticks. So when you provide them with real-time feedback from our CGM. They're making the changes, the behavior modifications. They're learning about how to better manage their diabetes. And so therefore, getting the A1c reduction, which is what that study is powered for. We don't plan on publishing. It will be featured in a major publication, but it won't be before the readout. The readout at ADA will be the first time we do the readouts. And -- as we think about the unlocking of coverage, we've got both continued unlocking of commercial coverage and then obviously, this large population of NIT folks that sit in Medicare. It has the potential to really provide durable growth for a long time here in the U.S. when you think about that opportunity. And we're going to continue to advance access for these folks. And as we think about the field and how we're building out our products and serving this population, we're going to continue to build products that help us grow that active user base. We think about new patients, it's also retention and utilization in these populations. The more we do with the product and the service and the experience, the more that active base is going to grow.

And our next question comes from the line of Robbie Marcus with JPMorgan.

Great. I wanted to ask, you said it was close to a record new patient start, and I think that's been the language of the past 4 quarters. So we're now a full year without a record new patient start. And if I remember on the fourth quarter call, you said the top end of the sales guide assumed a record and the bottom end assumed no new record patient starts. So I guess, sort of a 2-part question. One, do you feel like the lower end is maybe more appropriate if we don't see a record? And then two, do you think you can maintain the current sales growth if you don't put up a new record in the future?

Sure. Thanks, Robbie. Thanks for the question. Let me be clear, globally, we did have a record new patient quarter this quarter. So globally, it was a record. And so I think that's helpful to give that context. In the U.S., it was close to a record in the U.S. Sequentially, it was an improvement from Q4. And so we're certainly seeing the momentum building behind 15 Day and as we move into the year. So I certainly think we're seeing some sprouts in our case of performance there. And we did take share both in the U.S. and internationally. So hopefully, that gives some clarity around record, and that helps at least give you that context. So as you talked about the full year, being the low end would be not records globally. The high end would be records globally. Obviously, we're tracking well given the first quarter is a record. And so I think that's -- that gives you some context for that. So in terms of the year, as you think about the year, I think our goal here is as we move forward over the course of the year, and our goal is to continue to unlock coverage. We talked about one being in Prime Therapeutics in the U.S. commercial space. We haven't talked a lot about outside the U.S., but outside the U.S., we have plans to unlock coverage over the course of the year. Our expectation is to continue to unlock that coverage and help drive that growth algorithm. So I -- now that you kind of have that context, hopefully, it gives you at least our viewpoint on the year, how we started the year. Obviously, it's a good start to the first quarter. Certainly, the momentum building with G7 15 Day. Jake alluded to it a little bit earlier. We have Stelo launching here with a new skin, which will be an excellent new app experience that's going to launch outside the U.S. as well, which I think is going to be an awesome opportunity to bring Stelo outside the U.S. And obviously, we're looking at 15 Day opportunities outside the U.S. as well. And given what we've seen in the U.S. with performance of 15 Day, we're really excited to bring that outside the U.S. So I think we have a lot of irons in the fire as we move into the year with, of course, some big unlocks potentially happening here. We expect them to happen just timing-wise, we're going through with the CMS coverage unlock. So there's just a lot of opportunities here, a lot of catalysts over the course of the year, but it starts with a record in the quarter and it was a record globally in the quarter.

And our next question comes from the line of Matt Taylor with Jefferies.

I just wanted to double-click on the CMS coverage. Your competitors said they're not going to call the month, basically implying it could happen soon. I know you don't know exactly when it's going to happen, but what are your thoughts on whether that could come before kind of the usual process of going through the RCT and submitting your application? Kind of what's the range of outcomes for when that could happen, you think?

Yes. Thanks for the question, Matt. At this point in time, the RCT may not be required for that CMS coverage. I think in my conversations with the folks at CMS, it's very clear that they understand the benefit of CGM for this category. So hard to estimate exactly when this coverage is going to come. But as we've said before, it's really just a matter of time. And when that coverage does come, it provides a great opportunity for some durable growth here and also continued patient impact, right? This product does provide significant benefits for all people with diabetes. And so, as I said in my prepared remarks, we're not going to be happy till everybody with diabetes has coverage for this product. And we're looking for that globally. And so again, hard to call exactly, but we do know that the benefits are clear, and we look forward to the decision.

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

Jereme, you talked about some of the coverage unlocks outside the U.S. Are you inching closer? Is there any progress or any, even body language or gut feel on moving towards some basal coverage in some of the other bigger markets out there where we don't have it outside the U.S. at this point? Any update there? And was there anything one-time timing, tender, anything that helped that 17% OUS constant currency organic growth rate, anything that we have to think about as a tough comp for next year in the 1Q or anything like that?

Yes. Thanks, Jeff. Outside the U.S., there's mounting bodies of evidence that continue to grow. Obviously, we've had MOBILE and other studies have come out there. And so the dialogue with a lot of the international bodies has continued to progress in a good way. And so we're continuing to look to unlock that basal coverage. We're in lots of different conversations about how to do so, whether it's in private or payers, and whether those start to make it on tenders. So there's a lot of things moving by country, and I would expect to have wins in pockets here and there over the course of the year. We'll give some updates on those as they come. And then certainly, in markets where basal already exists, clearly, the study we've done around type 2 is going to be some evidence to really keep moving there. As Jake mentioned, around the world, we're not going to stop until everybody has access. So stay tuned, but there's a lot of good underlying work happening there. In terms of any kind of one-timers no, there really wasn't. We pay attention, and we've heard some kind of comments about tenders and timing and onetime. And the reality is the way tenders work is folks use this product repeatedly. It's you don't use it once and then you move away. So most of the time, in fact, all the time, tenders typically allocate our product for some time because people use the product year-round. And so we haven't seen any of that. And any tenders out there, we've been putting up tenders for some time. We've been winning quite a few tenders. Our product portfolio approach has gone into quite a few different tenders that may have been exclusive with a competitor that are now dual formula, and that's happened in many of the cases we've seen over the course of the year. So it's our opportunity to get into these markets with a product portfolio that makes sense and take share, and you're seeing that taking place.

And our next question comes from the line of Marie Thibault with BTIG.

I wanted to drill down a little bit more on your comments about the share gains in the type 2 population this quarter. I wanted to just sort of understand how sustainable some of that momentum feels to you out in the field, what you've seen since the quarter ended, and just how much of it you think is linked to the 15 Day launch versus sustainable momentum from your sales force and making progress that way?

Yes, I can start, and Jake, certainly chime in as you see fit. There's a few things that we've seen playing out, which I think are all good things around share taking and really kind of the outlook longer term. I think, first and foremost, we pay close attention to customer satisfaction. And our NPS scores have jumped up with 15 Day. And we saw that playing out in the first quarter. That is sustainable, right? The customer experience is moving in the right direction. I think that's an exciting moment for us. Certainly, the launch of 15 Day helps. If there was some questions around where we maybe had an opportunity to extend wear length. We've taken advantage of those. And certainly, the new algorithm has wowed customers. So when you have a product like that out into the market, when you have the coverage wins that we've had over the course of time with our low co-pays, it's really providing an opportunity to get in front of physicians demonstrate the value of the product, but also make sure we're letting physicians know we have the lowest co-pays, the most coverage really across the board. And so we don't stop until -- we're not going to stop until we win in these categories. And given we have the best coverage, I don't think there's any reason we wouldn't look to do so. So I think our opportunity is to continue to take share. We continue to take share until we're market leaders in every category. We're obviously market leaders in some of those categories, and we have some room to go in the categories that historically didn't have coverage. I think having the 15 Day product, having the customer satisfaction score is moving and having the best coverage, I think all of those bode well to taking share for some time to come.

What I'd add is when you think about the long run and as we are developing this product portfolio for the different categories of patients, if you think about a feature like our Smart Basal, that is really designed to change the experience around going on to basal insulin. And we're still seeing the majority of our new patients, the largest category of new patients is actually still in that type 2 insulin using population, both the IAT and the basal. And then with that basal penetration still being around 20%, 25% as a category. There's still a lot of opportunity for us to grow and take share there. And so that's what that system is really designed to make that the experience that both users and physicians are looking for in both driving outcomes and ease of use.

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

This is Anna on for Matt. I know there's always a focus on new patient starts, but I also wanted to ask on the retention side. What trends you're seeing there today, particularly in the domestic market and how that contributed to the results in the quarter? And then how you expect this metric to evolve from here? That would be super helpful.

Anna, when we think about retention, it's been fairly consistent within a band. And as we look at both retention and utilization because both of those really helped drive the active base, and when we look at that, we targeted increasing our experience in really setting the standards, both with the product and also the service behind it. And as Jereme mentioned, our NPS scores have been going up quite a bit. And I do think that bodes well for the future when we do think about things like retention and utilization. But it's been fairly consistent for a period of time now, but one of our goals is to improve it so that we can continue to improve the active base growth.

And our next question comes from the line of Joanne Wuensch with Citi.

I'm curious how we should think about the next couple of quarters? And if you can sort of comment on thoughts for revenue growth rate throughout the remainder of the year and in particular, for the second quarter, if there's anything else we should be aware of as we think of our models?

Yes. So while we don't necessarily guide to quarters, it's a good question. And I'll give you maybe some things to think about over the course of the year. As we think about -- and I think it's best to give maybe a little bit of comps and then just kind of reset on where the guidance was. So when we guided the year, we're obviously 11% to 13% organic growth. And we said it'd be relatively split across U.S. and OUS, and that really hasn't changed. What you do see is the U.S. comps are a little bit more difficult in the first part of the year and a little bit easier in the back half of the year. And vice versa, you see the international comps are a little bit easier in the first half of the year and a little bit more difficult in the back half of the year. So we still are anchoring around the same commentary around the split across the 2. And that's the way I think we would think about it. Hopefully, that gives some context. That really hasn't changed. We'll certainly be happy to talk about the way, the way folks have typically thought about it over the course of the year, I think, for the most part, folks are thinking about the cadence relatively well. There's a few folks that are perhaps outliers. But for the most part, I think most folks the way they're thinking about our business with the pretty consistent over the course of the year have done a really nice job.

And our next question comes from the line of Jayson Bedford with Raymond James.

Just I apologize if I missed it. The Smart Basal launch, I think it was early access in 1Q. When do you expand this launch?

Yes. Thanks, Jayson. So the -- we are still in a pilot launch and what -- the idea of what we're doing is we're really making sure that the system as design fits into the workflow because it's designed to be a very broad use product. And so we're talking about lots of different clinical environments. You got endos offices, large diabetes clinics and then small primary care offices. And so the work that we're doing right now is learning as we've done this pilot launch in a number of sites is really making sure that, that is flowing well. And we actually learned a couple of things, right, made some updates to the system. We're not validating the algorithm. We know that the patient experience around this system is excellent. It's more around how does it fit into the clinical workflow because as when we broaden the launch, we want it to be extremely easy and very successful for users and physicians. We do plan to do that throughout the year. And we just want to make sure that we've got all the bases covered on that workflow before we do it. But once we figure all of that out, we're going to launch it in a very big way.

And our next question comes from the line of Jonathan Block with Stifel.

Great. Maybe if I could just go back to the prior question and push a little bit on the 11% to 13% organic revenue growth being, essentially evenly weighted or split, pardon me, between U.S. and international. Just pushing there like why, if you would. If you look at 1Q, 17% international, I think you said there was nothing sort of abnormal in terms of tenders. T2NIT seems certainly more of a '27 event than the '26. And I'm just looking at what seems to be a high level of sensitivity from investors around that U.S. number. Maybe if you can just tell us why you've got the conviction and why wouldn't it be more -- I hate to split hairs, but like 10%-plus U.S. this year poised to maybe accelerate next year with T2NIT instead of that equally weighted specific to '26.

Yes. Look, I think the question you're asking is fair. If you think about what as we exited last year, we exited last year with a relatively split U.S. and OUS business. And when you look at the comps year-over-year, you can see where there's some wins, and you can see some opportunities there as we saw a ramp in the international business into the back half of last year and obviously as we comp some easier first half, you can see where -- looking at Q1 in isolation can be sometimes one quarter in isolation can be sometimes a bit of a challenge as you kind of zoom out and you look at our performance over the course of last year. And to us, as we look at the opportunities ahead of us, I mean, we still feel very, very excited about the opportunities in the U.S. business. We still feel very, very excited about the opportunities in the international business. We see a continued momentum really across both. If we come back to you and at the end of the year, it's slightly different. We'll certainly keep you posted over the course of the year. But as we look at it, we still see a lot of opportunity in the U.S., especially when you think about the coverage wins, when you talk about prime therapeutics and some opportunities to get out in front of that as well as some of the tender wins that we'd expect to win over the course of the year. So we still think it's balanced. If the numbers are slightly off by 0.5% or something like that by the end of the year, we'll always look back and have a conversation about it. But as we looked into the crystal ball when we started the year, nothing's changed, that we felt it was going to look about split, and we continue to believe that both businesses can operate quite strongly over the course of the year.

And our next question comes from the line of Issie Kirby with Redburn.

I wanted to ask about Stelo and just how that's tracking. What has really prompted, I guess, the redesign there? And then with the international launch, just how broad do you expect to go? And is this a product that you could see pushing into markets where you're not currently present?

Thanks, Issie. Yes, we have seen Stelo as a fantastic opportunity to reach more patients. And it's tracking well to our estimate that we kind of set up at the beginning of the year. We did, though, as we've launched it, it's been out there for over a year, and we've learned quite a bit. And one of the main things that we're hearing from users is they want more context around the real-time glucose data. And so over time, we started adding features to the current version of Stelo particularly focused around capture of nutrition. So feel the meal logging using AI to analyze those meals. And then as we took a step back, we looked at the current version of Stelo and how we were implementing that. And it gave us an opportunity to really look at redesigning the experience to better match what customers are looking for, both in the aesthetics of the mobile app, but also in the functionality. So this new Stelo app that we're going to launch here very shortly is a complete redesign of the user interface. It has a much more technology forward aesthetic as well as the insights that are provided to users around basically adding context to their glucose experience, their glucose excursions, their glucose variability as well as their nutrition. We're finding that nutrition is actually a really important part of helping users connect the dots in how to make sense of their glucose data and then also how to make healthy lifestyle changes. And so this new version of the app puts those insights front and center, and has a pretty significantly overhauled insight engine. I think the insights that the Stelo app provides today are helpful, but we wanted to make them much more personalized and take more advantage of data that we're integrating into the system such as what comes from the different activity trackers people are using, the Oura Ring, the sleep scores, all of that, bringing more context and more analysis of that personalized data for each user. And so that's built into Stelo, the new version that we're going to launch here. And so really excited about that being a great opportunity for people who maybe tried Stelo, but wanted -- didn't meet their needs. And so this is a great opportunity for them to try it again. Also a great opportunity to enhance the experience of our current customers and future customers. So speaking of the international launches. So we are looking at countries both in EMEA and APAC region. We'll start with a smaller number and then continue to expand it, but I do feel like it is an opportunity for many, many markets for us to have an entry point with a product that really meets the needs of the users.

And our next question comes from the line of Mike Kratky with Leerink Partners.

This is Brett on for Mike. Just wanted to go back to T2NIT. I hate to be a broken record here, but going into the Analyst Day, obviously, we're going to see the data at ADA, and you say it's a matter of time there in CMS. But for your LRP and thinking long term about the algorithm, would you expect to have the assumption that CMS coverage is coming within that number? Or do you think we would need to actually have that coverage in hand before that's included within your long-range plan?

Look, I think for long-range plans, I would expect us to include our assumptions around that. And so while I don't want to get into what we're going to do at our Investor Day, I think it's an opportunity for us to talk about it. When we talk about things like if -- when not if, I mean, obviously, we'll have some line of sight into when we'll give our thoughts around it in terms of how we think about it. And then from there, obviously, it doesn't stop the fact that we'll push hard to go as soon as possible to getting the coverage because at the end of the day, there's a lot of folks who need this product. So I would expect us to talk about it, talk about our assumptions. And if those assumptions end up differing based on timing of approval, great, we'll have that conversation at that point. But yes, we will give kind of our viewpoint into the next -- into the future and assumptions around that. So you can expect to get more information around that Investor Day.

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

One's a clarification, and then I have a follow-up. Just on -- did you say that you have an incremental 150 basis point headwind that you're now contemplating in Q2 to 4Q that's getting absorbed in your reiterated gross margin guidance. Did I hear that correctly?

It's 50 to 100 basis points.

Okay. Got it. Okay. So 50 to 100 basis points incremental to what you had heading into the year. Okay. And then just on the Prime Therapeutics win, congratulations on that. I guess how long does it take for these things usually to work into having an impact, if you could give us something there. And I know that you brought that up as one of the factors that gives you confidence in the 11% to 13% also applied to the U.S. I guess, does that mean that you're banking on contribution from that incremental coverage to get there? Or is that something that has been largely left as upside?

Yes. So I think -- so I'll start with the coverage in the way it typically works. So as you kind of go on typical, what I'd say, national formularies and Prime has a national formulary, the second, it's turned on, if you have a script and you go to the physician, you're covered. And so it's generally immediate on those national formularies. And so you should see it here essentially this summer. It's going to be turned on for everybody that's covered there. And so that will ultimately help. And I think you know that new patients, while they are certainly helpful and they're helpful for a long-range engine, New patients aren't the only driver, obviously, retention utilization, price mix, all of that plays into the guide. So while this is certainly helpful, and I think it gives us a lot of bullishness around the business and penetration adoption going forward. At the end of the day, it wasn't necessarily counted on something that was a major contributor to the original guide. We talked about the original guide saying normal kind of nominal wins over the course of the year, but really coverage for the most part as is. And so as we get more unlocks, that certainly helps over the course of the year. So I hope that gives you some context. Obviously, we're excited as we start to unlock more and more over time. The one thing that always comes up and our sales force has seen it across, by the way, multiple different coverage expansions is when you go see your physician today, if you have 6 million covered lives in the space, but 24 million people impacted, 25 million people impacted with type 2 diabetes. That means 25% of the people that see their physician that have type 2 diabetes have coverage. And the faster we can go to get coverage to where there's a much higher likelihood that, okay, you have commercial coverage, okay, now you have a greater than 50% chance of having coverage great. It really unlocks the ability for physicians to then go deeper into existing coverage opportunities. So they feel like much more comfortable writing scripts and allowing folks to go to the pharmacy where they have coverage there. Certainly, we'd expect a similar type phenomenon with CMS coverage as that can help kind of a rising tide. So hopefully, it gives you some context why it's helpful across the board, but also gives you some context to how we thought about the guide and the timing and the process.

And our next question comes from the line of Chris Pasquale with Nephron.

Jereme, you touched on the gross margin strength, but leverage in the middle of the income statement was excellent this quarter as well. I know you tweaked up the high end of your operating margin EBITDA ranges a little bit there. But does seem pretty conservative given where you're starting and the normal cadence we see throughout the year. So did some spending get pushed out from 1Q that's going to come back later that might make this year look a little bit different? I look in particular at R&D being flat in dollar terms is a bit of an outlier. Any color there would be great.

Yes. I'm glad you brought it up because it's been a lot of work by the team to get there and to do the work. We do a lot of that work in the back half of last year. And one of the reasons we felt good about raising the guidance, we typically don't like to raise guidance after 1 quarter. But on operating expenses, you saw it in the fourth quarter as well as now in the first quarter. So you saw some good performance there. What I would say is in terms of the way to think about the operating margin guide, obviously, raised the midpoint by 75 basis points. It's a pretty big raise considering just 1 quarter behind us. What we'd expect is we do expect R&D spend to continue to increase. And so we did some good work around, I think, managing expenses and taking on some initiatives. We've leaned into things like AI to be more efficient. We're not going to pull back on spend into R&D. So you're right, being flat year-over-year. I wouldn't expect that to continue. We're going to continue to invest in Ireland. In Ireland, we'll keep ramping up over the course of the year as that manufacturing facility continues to ramp up. And if you think about it, you really start to ramp a manufacturing facility right before you turn it on. And we turn it on in the fourth quarter. So you can probably imagine Q2 and Q3, we ramp up a little bit going into that. So I don't know that it's necessarily pushed back. It's always been part of the plan and there's things going on underneath it. that make a ton of sense. But I do appreciate you acknowledging it. There's been a lot of leverage. We had 300 basis points leverage in operating expenses spend last year. That's playing through a little bit this year. And ultimately, our underlying business is continuing to get leverage just like the investments in Ireland, and that's the reasons we brought it up.

Our next question comes from the line of Joshua Jennings with TD Cowen.

This is [ Colin ] on for Josh. I wanted to come at the CMS. People seem to be treating it as a binary event, but is it possible that there's any language around stipulating that patients are on orals or other diabetes medications? And would that change your expectations for the adoption trajectory over the next couple of years?

Yes. Thanks for the question. I think there's -- it's a question that's out there, which is to say what are the stipulations CMS would require in order to get coverage. And CMS has always had a requirement. I mean it's one of the ways that they make sure that you qualify for coverage, right? When it was intensive insulin, you had to prove that you were taking multiple shots per day. You need to submit glucose logs when it moved to basal, or modifications of restrictions, but you had to demonstrate you were taking 1 shot a day and that's the way you ultimately had to document it. So CMS has always put things in there to make sure that folks qualify. I think our big takeaway is, there's a lot of conversation, what if you require a metformin or something along those lines to demonstrate it. Most folks who are diagnosed with diabetes are ultimately then diagnosed with medication. So from our point of view, whether it's all folks or all folks with some sort of form of medication, this is a massive expansion and a massive opportunity to help serve this population. I wouldn't be surprised if CMS put something in there just to make sure you prove you have it, whether it's script or whether it's script plus that. But either way, that's the majority of the diabetes population. That's going to be who you cover there. So not necessarily all that concern from that perspective. And when you say is it binary or not, I mean typically, the way the CMS does it, it's coverage expansion. And so it is a bit binary in terms of how they expand it, the process in which they expand it. But in terms of the thought process around whether there's limiters, I wouldn't expect that any limiters really truly limit the ability to impact the population in a meaningful way or that it changes the opportunity for us to grow in this space.

And our next question comes from the line of Daniel Markowitz with Evercore ISI.

It's great to hear the call out on share gains in type 2 non-insulin. It sounds like the 15 Day is helping a bit. But is there anything you're doing to the organization or the sales force in order to prepare for this market unlock, maybe more focus on PCPs versus endos? And also attached to that, how should we think about the OpEx impact related to increasing contribution from type 2 non-insulin market going forward?

Yes. Thanks, Daniel. Yes, we're continually evolving both the product portfolio and the service and also the way our field team is calling to make sure that we're serving all the people that have coverage for this product. And those that don't have coverage, we have our Stelo over-the-counter product available. And so we have continued to advance the service. And so as I mentioned in the prepared remarks, we've made a lot of updates to our technical support, our web forms, the digital tools that folks can use, and that's one of the reasons why we believe we see our user satisfaction scores improving. And it is a big deal for this population, this type 2 NIT population. And so we do feel that it's the product, as you mentioned, the 15 Day is definitely helping us here in driving share gain, but it's also the experience they're having with DexCom and making sure that we meet all of their needs. And so we're going to continue to do that. When we talk about the sales force, we are using some advanced tools to analyze the data that's out there and target find these patients, find their prescribers and really, the #1 thing we need to do is continue to educate all the different pockets here around the coverage that exists because, as Jereme mentioned, when only 25% of this population is covered today, it can be complicated, particularly for those primary care physicians that aren't prescribing CGM every day for many, many patients, right? They don't know. So we -- that's what our skill team is doing. We're finding the folks that are seeing these patients, making sure they're aware of the coverage. And then helping make sure they know how to write the prescription for CGM because many of it -- it's new for many of these folks. And so as we continue to expand, we're going to continue to look for efficiencies and productivity across the sales force, but as you mentioned, primary care is the main location where these folks are being seen. It's why we expanded our sales force in 2024 was really to gear up so that we could call on this broader group of physicians.

And our next question comes from the line of Bill Plovanic with Canaccord Genuity.

So I mean really impressive free cash flow in the first quarter, especially considering the first quarter is typically not so good for free cash flow. I mean with that cash balance, the commentary in the press release on priority exploring new opportunities. Just help us understand what does that mean? Does that mean you're -- I mean, you have more than enough to pay back the convert if you choose to do so at that time, like another $1 billion and $1.2 billion. Are you looking to buy something? What's that use of cash?

Yes. Thanks for the question. I appreciate the comment. Obviously, that's something near and dear to my heart, and we worked obviously quite hard on that. In terms of uses of cash, you're certainly right. As we're able to generate cash, we paid down our convert last quarter, and that's one of the reasons to isolate cash. We did $500 million of share buybacks in the last -- back half of last year. Having the extra cash on the balance sheet, I think, provides us multiple opportunities. I think it does provide us the opportunities to look at -- which we've always talked about, tuck-in M&A that makes sense, whether it's geographic expansion or capabilities we don't have. So we'll certainly always look at that and having the capital to do that's important. But it's also important to have it in the event that we do want to do things around capital markets, and we haven't been shy about share buybacks. What I think we plan to do is talk to you a little bit more about it here in a couple of weeks at Investor Day. Obviously, we're going to have a section there talking about capital allocation. So I expect to dig into it a little bit more there. But thank you for noticing. I think it's important. I think it's important that folks understand we are able to generate quite a bit of cash in this business, and it's something that we'll be focused on here for the foreseeable future.

And our next question comes from the line of Shagun Singh with RBC Capital Markets.

I was just wondering if you can talk a little bit about what the right growth rate in your view is for your U.S. and OUS business, excluding Stelo. How should we think about those underlying growth rates? And also as we think about the NCD and the type 2 non-insulin intensive market opening up? Any comments you can make if you haven't already on just lifetime patient value and how does that impact financials going forward?

Yes. Let me -- I'll anchor on what we said this year. And I think as we get out beyond this year, I'll really punt it to Investor Day because we'll start to get into more longer-term conversations. This year, we talked about the 11% to 13%. We talked about it being split across U.S., OUS and about 1 point contribution from Stelo. So it really gets you down to what the core clinical markets are. Stelo won't be a meaningful contributor outside the U.S. this year in terms of total dollar value. So you can assume it's de minimis in terms of contribution to the overall business. What's most important is we get outside the U.S. because this starts to roll up over time. In terms of lifetime value of customer, ultimately, when you think about folks getting on our product, it's why retention and utilization is something we pay so much attention to and it varies based on how you play with those variables over time. And that's why we spend so much time thinking about product launches. Jake alluded to Smart Basal. That's a real valuable long-term way to titrate basal and make sure that you're always getting the most out of insulin usage. So I think it, clearly, the longer we keep folks on, the better lifetime value of customer. You've seen our bands, if you will, of utilization, type 1, type 2 intensive, basal and we have that on our website. Obviously, you can imagine utilization then plays into it. And so therefore, the lifetime value of customer differs based on the use cases. And so as we move into more use cases that are maybe, say, 70% to 80% utilization. The value is a little bit less, but still it's a massive unmet need and the economics per purchase are generally around the same. So the goal here is ultimately making sure that we're always keeping a close eye on our cost to acquire, and we have a whole team that does that. And making sure we meet the unmet need and keep patients on our products. So happy to go into more details if it makes sense. But we are paying attention to that, making sure we balance our operating expenditures along with what that value is over time. And then as we get into the longer out years, we can talk about that at Investor Day.

And the final question comes from the line of Anthony Petrone with Mizuho.

Just one on the RCT and just looking at some of the historical data out there. The MOBILE study a few years back, there's Libre studies out there, there's registry data. There's meta-analyses. And you look at the A1c reductions across that sample and you can see an A1c reduction as low as 50 basis points, let's say, up to 2.5%. This is a less intense population. So I'm assuming that the starting A1c levels are a little bit lower. So how do you level set the expectation on what we should be looking for, for a statistically meaningful A1c reduction out of the RCT.

Yes, I appreciate the question. It's an important question when we think about care and also the A1c reduction. And so I think our registry data is a good example of this population. They do come in kind of as you noted, with a spectrum of A1c, some are quite high actually because they have not yet progressed to insulin, and they're on some other glucose lowering medication. But a big part that we know of managing diabetes is there's a behavior component to it. There's also a medication adherence component to it. And so those are 2 things that CGM absolutely targets, and that's why we see the improvements that we see. So I think as we looked at our registry data, that is a reasonable estimate for what we expect. I think the main thing we're expecting is a statistically significant improvement that meets the threshold for reimbursement. I think we're confident that CGM will drive that type of an outcome in these patients. And so we do really look forward to sharing the full readout with everybody at the ADA here coming up next month.

And that concludes our question-and-answer session. I will now turn the call back over to Mr. Jake Leach for closing remarks.

Thank you, operator. And as we close out the call, I just want to take a moment to say thank you, first, to our employees. The results that we shared today are a direct reflection of your execution, your resilience and your commitment to doing the hard work the right way. I'm incredibly proud of what you've delivered and how you show up for our customers every day. I also want to thank the Customer Advisory Council. We met multiple times this past quarter and your candid input and your partnership is playing a critical role in shaping our strategy and improving the experiences that we deliver. The progress we're making is stronger because of your voice. And so with that, I'd like to thank all of you for joining us. We look forward to seeing many of you at our Investor Day in a few weeks. Thanks, everybody.

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