0001093557-20-000294 | 10-Q | XBRL Viewer

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Cover Page - shares	9 Months Ended
Cover Page - shares	Sep. 30, 2020	Oct. 20, 2020
Cover [Abstract]
Amendment Flag	false
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Entity Central Index Key	0001093557
Current Fiscal Year End Date	--12-31
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2020
Document Transition Report	false
Entity File Number	000-51222
Entity Registrant Name	DEXCOM, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	33-0857544
Entity Address, Address Line One	6340 Sequence Drive
Entity Address, City or Town	San Diego
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92121
City Area Code	858
Local Phone Number	200-0200
Title of 12(b) Security	Common Stock, $0.001 Par Value Per Share
Trading Symbol	DXCM
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		96,027,603

Consolidated Balance Sheets (Unaudited) - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 673.5	$ 446.2
Short-term marketable securities	1,930.3	1,087.1
Accounts receivable, net	370.0	286.3
Inventory	200.7	119.8
Prepaid and other current assets	62.6	30.0
Total current assets	3,237.1	1,969.4
Property and equipment, net	461.8	321.3
Operating lease right-of-use assets	94.3	71.5
Goodwill	19.0	18.6
Other assets	21.0	14.2
Total assets	3,833.2	2,395.0
Current liabilities:
Accounts payable and accrued liabilities	397.0	256.4
Accrued payroll and related expenses	92.1	88.5
Short-term operating lease liabilities	15.8	13.6
Deferred revenue	1.5	1.7
Total current liabilities	506.4	360.2
Long-term senior convertible notes	1,645.8	1,059.7
Long-term operating lease liabilities	103.2	72.4
Other long-term liabilities	78.5	20.1
Total liabilities	2,333.9	1,512.4
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 5.0 million shares authorized; no shares issued and outstanding at September 30, 2020 and December 31, 2019	0.0	0.0
Common stock, $0.001 par value, 200.0 million shares authorized; 96.8 million and 96.0 million shares issued and outstanding, respectively, at September 30, 2020; and 92.4 million and 91.6 million shares issued and outstanding, respectively, at December 31, 2019	0.1	0.1
Additional paid-in capital	2,153.7	1,675.9
Accumulated other comprehensive income	2.8	2.3
Accumulated deficit	(557.3)	(695.7)
Treasury stock, at cost; 0.8 million shares at September 30, 2020 and December 31, 2019	(100.0)	(100.0)
Total stockholders’ equity	1,499.3	882.6
Total liabilities and stockholders’ equity	$ 3,833.2	$ 2,395.0

Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Sep. 30, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Preferred stock, par value (USD per share)	$ 0.001	$ 0.001
Preferred stock authorized (shares)	5,000,000.0	5,000,000.0
Preferred stock issued (shares)	0	0
Preferred stock outstanding (shares)	0	0
Common stock, par value (USD per share)	$ 0.001	$ 0.001
Common stock authorized (shares)	200,000,000.0	200,000,000.0
Common stock issued (shares)	96,800,000	92,400,000
Common stock outstanding (shares)	96,000,000.0	91,600,000
Treasury stock (shares)	800,000	800,000

Consolidated Statements of Operations (Unaudited) - USD ($) shares in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income Statement [Abstract]
Revenues	$ 500.9	$ 396.3	$ 1,357.8	$ 1,013.2
Cost of sales	160.5	149.4	476.8	391.0
Gross profit	340.4	246.9	881.0	622.2
Operating expenses:
Research and development	87.7	66.7	240.7	194.7
Selling, general and administrative	158.6	124.2	444.8	386.7
Total operating expenses	246.3	190.9	685.5	581.4
Operating income	94.1	56.0	195.5	40.8
Interest expense	(24.4)	(15.1)	(60.1)	(45.0)
Loss on extinguishment of debt	(0.5)	0.0	(5.9)	0.0
Loss from equity investments	0.0	0.0	0.0	(4.2)
Interest and other income, net	5.9	4.9	14.2	18.3
Income before income taxes	75.1	45.8	143.7	9.9
Income tax expense	2.9	0.0	5.3	1.5
Net income	$ 72.2	$ 45.8	$ 138.4	$ 8.4
Basic net income per share (USD per share)	$ 0.75	$ 0.50	$ 1.48	$ 0.09
Shares used to compute basic net income per share (shares)	95.8	91.3	93.8	90.9
Diluted net income per share (USD per share)	$ 0.73	$ 0.50	$ 1.43	$ 0.09
Shares used to compute diluted net income per share (shares)	99.5	92.5	96.9	92.2

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Statement of Comprehensive Income [Abstract]
Net income	$ 72.2	$ 45.8	$ 138.4	$ 8.4
Other comprehensive income (loss), net of tax:
Translation adjustments and other	0.4	(0.9)	0.2	(1.0)
Unrealized gain (loss) on marketable debt securities	(1.1)	(0.1)	0.3	0.5
Total other comprehensive income (loss), net of tax	(0.7)	(1.0)	0.5	(0.5)
Comprehensive income	$ 71.5	$ 44.8	$ 138.9	$ 7.9

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

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+ Details

- Definition

Amount after tax and reclassification adjustments of other comprehensive income (loss).

+ References

+ Details

Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) shares in Millions, $ in Millions	Total	Adjustment	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit	Accumulated Deficit Adjustment	Treasury Stock
Balance at beginning of period (shares) at Dec. 31, 2018			90.0
Balance at beginning of period at Dec. 31, 2018	$ 663.3	$ 2.1	$ 0.1	$ 1,560.6	$ 1.5	$ (798.9)	$ 2.1	$ (100.0)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under equity incentive plans (shares)			1.3
Issuance of common stock under equity incentive plans	0.3			0.3
Issuance of common stock for Employee Stock Purchase Plan (shares)			0.2
Issuance of common stock for Employee Stock Purchase Plan	11.6			11.6
Share-based compensation expense	79.1			79.1
Net income	8.4					8.4
Other comprehensive income (loss), net of tax	(0.5)				(0.5)
Balance at end of period (shares) at Sep. 30, 2019			91.5
Balance at end of period at Sep. 30, 2019	764.3		$ 0.1	1,651.6	1.0	(788.4)		(100.0)
Balance at beginning of period (shares) at Jun. 30, 2019			91.2
Balance at beginning of period at Jun. 30, 2019	688.3		$ 0.1	1,620.4	2.0	(834.2)		(100.0)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under equity incentive plans (shares)			0.2
Issuance of common stock for Employee Stock Purchase Plan (shares)			0.1
Issuance of common stock for Employee Stock Purchase Plan	6.8			6.8
Share-based compensation expense	24.4			24.4
Net income	45.8					45.8
Other comprehensive income (loss), net of tax	(1.0)				(1.0)
Balance at end of period (shares) at Sep. 30, 2019			91.5
Balance at end of period at Sep. 30, 2019	764.3		$ 0.1	1,651.6	1.0	(788.4)		(100.0)
Balance at beginning of period (shares) at Dec. 31, 2019			91.6
Balance at beginning of period at Dec. 31, 2019	882.6		$ 0.1	1,675.9	2.3	(695.7)		(100.0)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under equity incentive plans (shares)			1.0
Issuance of common stock under equity incentive plans	0.3			0.3
Issuance of common stock for Employee Stock Purchase Plan	15.0			15.0
Equity component of 2025 Notes issuance, net of issuance costs	289.4			289.4
Repurchase and conversions of 2022 Notes, net of tax (shares)			3.4
Repurchase and conversions of 2022 Notes, net of tax	87.8			87.8
Share-based compensation expense	85.3			85.3
Net income	138.4					138.4
Other comprehensive income (loss), net of tax	0.5				0.5
Balance at end of period (shares) at Sep. 30, 2020			96.0
Balance at end of period at Sep. 30, 2020	1,499.3		$ 0.1	2,153.7	2.8	(557.3)		(100.0)
Balance at beginning of period (shares) at Jun. 30, 2020			95.4
Balance at beginning of period at Jun. 30, 2020	1,353.9		$ 0.1	2,079.8	3.5	(629.5)		(100.0)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under equity incentive plans (shares)			0.2
Issuance of common stock for Employee Stock Purchase Plan	8.6			8.6
Repurchase and conversions of 2022 Notes, net of tax (shares)			0.4
Repurchase and conversions of 2022 Notes, net of tax	34.6			34.6
Share-based compensation expense	30.7			30.7
Net income	72.2					72.2
Other comprehensive income (loss), net of tax	(0.7)				(0.7)
Balance at end of period (shares) at Sep. 30, 2020			96.0
Balance at end of period at Sep. 30, 2020	$ 1,499.3		$ 0.1	$ 2,153.7	$ 2.8	$ (557.3)		$ (100.0)

Consolidated Statements of Stockholders' Equity (Unaudited) (Parenthetical)	9 Months Ended
	Sep. 30, 2019
Statement of Stockholders' Equity [Abstract]
Accounting Standards Update	us-gaap:AccountingStandardsUpdate201602Member

- Definition

Indicates amendment to accounting standards.

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Reference 24: http://www.xbrl.org/2009/role/commonPracticeRef
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+ Details

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Operating activities
Net income	$ 138.4	$ 8.4
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	46.7	34.4
Share-based compensation	85.3	79.1
Loss on extinguishment of debt	5.9	0.0
Non-cash interest expense	52.0	37.0
Realized loss on equity investment	1.4	4.2
Other non-cash income and expenses	4.1	0.6
Changes in operating assets and liabilities:
Accounts receivable, net	(83.8)	(9.2)
Inventory	(80.9)	(49.7)
Prepaid and other assets	(11.8)	(0.5)
Operating lease right-of-use assets and liabilities, net	(1.3)	(2.1)
Accounts payable and accrued liabilities	126.6	78.2
Accrued payroll and related expenses	4.3	(1.2)
Deferred revenue and other liabilities	16.7	(8.4)
Net cash provided by operating activities	303.6	170.8
Cash flows from investing activities:
Purchases of marketable securities	(2,143.1)	(1,556.8)
Proceeds from sale and maturity of marketable securities	1,298.5	773.0
Purchases of property and equipment	(138.8)	(135.9)
Other investing activities	(10.6)	(1.2)
Net cash used in investing activities	(994.0)	(920.9)
Cash flows from financing activities:
Proceeds from issuance of convertible notes, net of issuance costs	1,188.8	0.0
Repurchase of convertible notes	(282.6)	0.0
Net proceeds from issuance of common stock	15.3	11.9
Other financing activities	(4.5)	(1.1)
Net cash provided by financing activities	917.0	10.8
Effect of exchange rate changes on cash, cash equivalents and restricted cash	0.8	(1.7)
Increase (decrease) in cash, cash equivalents and restricted cash	227.4	(741.0)
Cash, cash equivalents and restricted cash, beginning of period	446.4	1,137.1
Cash, cash equivalents and restricted cash, end of period	673.8	396.1
Reconciliation of cash, cash equivalents and restricted cash, end of period:
Total cash, cash equivalents and restricted cash	673.8	396.1
Supplemental disclosure of non-cash investing and financing transactions:
Common stock issued for repurchase and conversions of senior convertible notes	1,350.9	0.0
Acquisition of property and equipment included in accounts payable and accrued liabilities	27.8	22.3
Right-of-use assets obtained in exchange for operating lease liabilities	34.8	57.2
Right-of-use assets obtained in exchange for finance lease liabilities	$ 33.4	$ 0.0

Organization and Significant Accounting Policies

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Significant Accounting Policies

1. Organization and Significant Accounting Policies

Organization and Business

DexCom, Inc. is a medical device company that develops and markets continuous glucose monitoring, or CGM, systems for the management of diabetes by patients, caregivers, and clinicians around the world. Unless the context requires otherwise, the terms “we,” “us,” “our,” the “company,” or “DexCom” refer to DexCom, Inc. and its subsidiaries.

Basis of Presentation and Principles of Consolidation

We have prepared the accompanying unaudited consolidated financial statements in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission, or SEC, Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included.

Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. We expect that revenues we generate from the sales of our products will fluctuate from quarter to quarter. We experience seasonality that is typical in our industry, with lower sales in the first quarter of each year compared to the fourth quarter of the previous year.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2019 included in the Annual Report on Form 10-K that we filed with the SEC on February 13, 2020.

These consolidated financial statements include the accounts of DexCom, Inc. and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The functional currencies of our international subsidiaries are generally the local currencies. We translate the financial statements of our foreign subsidiaries into U.S. dollars using period-end exchange rates for assets and liabilities and average exchange rates for each period for revenue, costs and expenses. We include translation-related adjustments in comprehensive income (loss) and in accumulated other comprehensive income in the equity section of our consolidated balance sheets. Gains and losses resulting from certain intercompany transactions as well as transactions with customers and vendors that are denominated in currencies other than the functional currency of each entity give rise to foreign exchange gains or losses that we record in interest and other income, net in our consolidated statements of operations.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the amounts reported in our consolidated financial statements and the disclosures made in the accompanying notes. Areas requiring significant estimates include transaction price, net accounts receivable, excess or obsolete inventories and the valuation of inventory, and accruals for litigation contingencies. Despite our intention to establish accurate estimates and use reasonable assumptions, actual results may differ from our estimates.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are generally recorded at the invoiced amount for distributors and at net realizable value for direct customers, which is determined using estimates of claim denials and historical reimbursement experience without regard to aging category. Accounts receivable are not interest bearing. We evaluate the creditworthiness of significant customers based on historical trends, the financial condition of our customers, and external market factors. We generally do not require collateral from our customers. We maintain an allowance for doubtful accounts for potential credit losses. Uncollectable accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a customer account is uncollectable. Generally, receivable balances greater than one year past due are deemed uncollectable.

Concentration of Credit Risk

Financial instruments which potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, short-term marketable securities, and accounts receivable. We limit our exposure to credit risk by placing our cash and investments with high credit quality financial institutions. We have also established guidelines regarding diversification of our investments and their maturities that are designed to maintain principal and maximize liquidity. We review these guidelines periodically and modify them to take advantage of trends in yields and interest rates and changes in our operations and financial position.

Revenue Recognition

We generate our revenue from the sale of our reusable transmitter and receiver, collectively referred to as Reusable Hardware and disposable sensors. We refer to Reusable Hardware and disposable sensors in this section as Components.

Policy Elections

•We report revenue net of taxes collected from customers, which are subsequently remitted to governmental authorities;

•We account for shipping and handling activities that are performed after a customer has obtained control of a good as fulfillment costs rather than as separate performance obligations;

•We do not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer; and

•If we expect, at contract inception, that the period between the transfer of control and corresponding payment from the customer will be one year or less, we do not adjust the amount of consideration for the effects of a significant financing component.

Contracts and Performance Obligations

We consider customer purchase orders, which in most cases are governed by agreements with distributors or third-party payors, to be contracts with a customer. For each contract, we consider the obligation to transfer Components to the customer, each of which are distinct, to be separate performance obligations. We also provide free-of-charge software, mobile applications and updates for our DexCom Share^®remote monitoring system. The standalone selling prices of our free-of-charge software, mobile applications and updates are estimated based on an expected cost plus a margin approach.

Transaction Price

Transaction price for the Components reflects the net consideration to which we expect to be entitled. Transaction price is typically based on the contracted rates less an estimate of claim denials and historical reimbursement experience by payor, which include current and future expectations regarding reimbursement rates and payor mix.

Variable Consideration

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

Product Returns. In accordance with the terms of their distribution agreements, most distributors do not have rights of return outside of our limited warranty. The distributors typically have a limited time frame to notify us of any missing, damaged, defective or non-conforming products. We generally provide a “30-day money back guarantee” program whereby first-time end-user customers may return Reusable Hardware. Product returns have historically been immaterial.

Revenue Recognition

The timing of revenue recognition is based on the satisfaction of performance obligations. Substantially all of the performance obligations associated with our Components are satisfied at a point in time, which typically occurs at shipment of our products. Terms of direct and distributor orders are generally Freight on Board (FOB) shipping point for U.S. orders or Free Carrier (FCA) shipping point for international orders. For certain of sales transactions, control transfers at delivery of the product to the customer.

In cases where our free-of-charge software, mobile applications and updates are deemed to be separate performance obligations, revenue is recognized over time on a ratable basis over the estimated life of the related Reusable Hardware component.

Our sales of Components include an assurance-type warranty.

Judgments and Estimates

In determining how revenue should be recognized, a five-step process is used, which requires judgment and estimates that can have a significant impact on the amount and timing of revenue we report. These judgments and estimates include identifying performance obligations in the contract, determining whether the performance obligations are separate, allocating the transaction price to each separate performance obligation, determining the timing of revenue recognition for separate performance obligations and estimating the amount of variable consideration to include in the transaction price.

Contract Balances

Contract balances represent amounts presented in our consolidated balance sheets when either we have transferred goods or services to the customer or the customer has paid consideration to us under the contract. These contract balances include accounts receivable and deferred revenue. Payment terms vary by contract type and type of customer and generally range from 30 to 90 days.

Accounts receivable as of September 30, 2020 included unbilled accounts receivable of $8.3 million. Unbilled accounts receivable consists of revenue recognized for Components we have delivered but not yet invoiced to customers. We expect to invoice and collect all unbilled accounts receivable within 12 months.

We record deferred revenue when we have entered into a contract with a customer and cash payments are received or due prior to transfer of control or satisfaction of the related performance obligation. The table below shows revenue that we recognized as a result of changes in the contract liability balances in the periods shown.


	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	$	1.0	$	2.9	$	1.8	$	2.6

Our performance obligations are generally satisfied within 12 months of the initial contract date. The deferred revenue balance related to performance obligations that will be satisfied after 12 months was $7.1 million as of September 30, 2020 and $2.1 million as of December 31, 2019, and is included in other long-term liabilities in our consolidated balance sheets.

Deferred Cost of Sales

Deferred cost of sales are associated with sales for which revenue recognition criteria are not met but product has shipped and released from inventory. Deferred cost of sales are included in prepaid and other current assets in our consolidated balance sheets.

Incentive Compensation Costs

We generally expense incentive compensation associated with our internal sales force when incurred because the amortization period for such costs, if capitalized, would have been one year or less. We record these costs in selling, general and administrative expense in our consolidated statements of operations.

Net Income Per Share

Basic net income per share attributable to common stockholders is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares outstanding during the period and, when dilutive, potential common share equivalents.

Potentially dilutive common shares consist of shares issuable from restricted stock units, warrants, and our senior convertible notes. Potentially dilutive common shares issuable upon vesting of restricted stock units and exercise of warrants are determined using the average share price for each period under the treasury stock method. Potentially dilutive common shares issuable upon conversion of our senior convertible notes are determined using the if-converted method. In periods of net losses, we exclude all potentially dilutive common shares from the computation of the diluted net loss per share for those periods as the effect would be anti-dilutive.

The following table sets forth the computation of basic and diluted net income per share for the periods shown.


	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Net income	$	72.2	$	45.8	$	138.4	$	8.4

Net income per common share
Basic	$	0.75	$	0.50	$	1.48	$	0.09
Diluted	$	0.73	$	0.50	$	1.43	$	0.09

Basic weighted average shares outstanding	95.8		91.3		93.8		90.9
Dilutive potential common stock outstanding:

Restricted stock units	1.0		1.2		1.1		1.3
Warrants	2.7		—		2.0		—
Senior convertible notes	—		—		—		—
Diluted weighted average shares outstanding	99.5		92.5		96.9		92.2

Outstanding anti-dilutive securities not included in the diluted net income per share attributable to common stockholders calculations were as follows:


	Three Months Ended September 30,			Nine Months Ended September 30,
(In millions)	2020	2019	2020	2019
Restricted stock units	—	—	—	0.3
Warrants	—	5.2	—	5.2
Senior convertible notes	7.2	9.2	8.8	9.2
Total	7.2	14.4	8.8	14.7

Recent Accounting Guidance

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods, and early adoption is permitted. Our adoption of ASU 2016-13 at the beginning of the first quarter of 2020 did not have a significant impact on our consolidated financial statements. In addition, the outbreak of the novel strain of coronavirus, SARS-CoV-2 ("COVID-19"), has not had a significant impact on our expected credit losses or our consolidated financial statements during the first nine months of 2020. We are continuing to monitor the impact of COVID-19 on expected credit losses.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). This new guidance eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. ASU 2017-04 is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. Our adoption of ASU 2017-04 at the beginning of the first quarter of 2020 did not have a significant impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public business entities will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. ASU 2018-13 is effective for public business entities for fiscal years beginning after

December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. Our adoption of ASU 2018-13 at the beginning of the first quarter of 2020 did not have a significant impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other – Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (ASU 2018-15). This new guidance requires a customer in a cloud computing arrangement to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. ASU 2018-15 is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. Application of this guidance can be applied either prospectively or retrospectively. We adopted the new standard on January 1, 2020 on a prospective basis. Our adoption of ASU 2018-15 at the beginning of the first quarter of 2020 did not have a significant impact on our consolidated financial statements, however, the adoption of the standard resulted in an increase in capitalized assets related to qualifying cloud computing arrangement implementation costs incurred after the adoption date.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted. We are currently evaluating the impact that this guidance will have on our consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This new guidance is intended to reduce the complexity of accounting for convertible instruments. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments. Entities may adopt ASU 2020-06 using either a partial retrospective or fully retrospective method of transition. This ASU is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the impact that this guidance will have on our consolidated financial statements.

Fair Value Measurements

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

2. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

We estimate the fair value of our Level 1 financial instruments, which are in active markets, using unadjusted quoted market prices for identical instruments.

We obtain the fair values for our Level 2 financial instruments, which are not in active markets, from a primary professional pricing source that uses quoted market prices for identical or comparable instruments, rather than direct observations of quoted prices in active markets. Fair values obtained from this professional pricing source can also be based on pricing models whereby all significant observable inputs, including maturity dates, issue dates, settlement date, benchmark yields, reported trades, broker-dealer quotes, issue spreads, benchmark securities, bids, offers or other market related data, are observable or can be derived from, or corroborated by, observable market data for substantially the full term of the asset. We validate the quoted market prices provided by our primary pricing service by comparing the fair values of our Level 2 marketable securities portfolio balance provided by our primary pricing service against the fair values of our Level 2 marketable securities portfolio balance provided by our investment managers.

The following table summarizes financial assets that we measured at fair value on a recurring basis as of September 30, 2020, classified in accordance with the fair value hierarchy:


	Fair Value Measurements Using
(In millions)	Level 1		Level 2		Level 3		Total
Cash equivalents	$	463.1	$	40.0	$	—	$	503.1

Debt securities, available for sale:
U.S. government agencies	—		1,549.6		—		1,549.6
Commercial paper	—		290.7		—		290.7
Corporate debt	—		90.0		—		90.0
Total debt securities, available for sale	—		1,930.3		—		1,930.3

Other assets ⁽¹⁾	2.9		—		—		2.9

Total assets measured at fair value on a recurring basis	$	466.0	$	1,970.3	$	—	$	2,436.3

⁽¹⁾Includes assets which are held pursuant to a deferred compensation plan for senior management, which consist mainly of mutual funds.

The following table summarizes financial assets that we measured at fair value on a recurring basis as of December 31, 2019, classified in accordance with the fair value hierarchy:


	Fair Value Measurements Using
(In millions)	Level 1		Level 2		Level 3		Total
Cash equivalents	$	110.1	$	144.9	$	—	$	255.0

Debt securities, available for sale:
U.S. government agencies	—		676.0		—		676.0
Commercial paper	—		248.2		—		248.2
Corporate debt	—		162.9		—		162.9
Total debt securities, available for sale	—		1,087.1		—		1,087.1

Other assets ⁽¹⁾	0.7		—		—		0.7

Total assets measured at fair value on a recurring basis	$	110.8	$	1,232.0	$	—	$	1,342.8

⁽¹⁾Includes assets which are held pursuant to a deferred compensation plan for senior management, which consist mainly of mutual funds.

There were no transfers between Level 1 and Level 2 securities during the three and nine months ended September 30, 2020 and 2019. There were no transfers into or out of Level 3 securities during the three and nine months ended September 30, 2020 and 2019.

We hold certain other investments that we do not measure at fair value on a recurring basis. The carrying values of these investments are not significant and we include them in other assets in our consolidated balance sheets. It is impracticable for us to estimate the fair value of these investments on a recurring basis due to the fact that these entities are often privately held and limited information is available. We monitor the information that becomes available from time to time and adjust the carrying values of these investments if there are identified events or changes in circumstances that have a significant adverse effect on the fair values.

Fair Value of Senior Convertible Notes

The fair value, based on trading prices (Level 1), of our senior convertible notes were as follows as of the dates indicated:


	Fair Value Measurements Using Level 1
(In millions)	September 30, 2020		December 31, 2019
Senior Convertible Notes due 2022	*		$	890.8
Senior Convertible Notes due 2023	$	2,151.8	1,260.0
Senior Convertible Notes due 2025	1,279.5		*
Total fair value of outstanding senior convertible notes	$	3,431.3	$	2,150.8

* Not applicable as no notes were outstanding at this date.

For more information on the carrying values of our senior convertible notes, see Note 4, “Debt.”

Foreign Currency and Derivative Financial Instruments

From time to time we engage in limited hedging transactions to reduce foreign currency risks. The fair values of these derivatives are based on quoted market prices, which are Level 1 inputs, and the derivative instruments are recorded in current assets or current liabilities in our consolidated balance sheets consistent with the nature of the instrument at period end. Derivative gains and losses are included in interest and other income, net in our consolidated statements of operations.

As of September 30, 2020 and December 31, 2019, notional amounts of $39.0 million and $8.0 million, respectively, were outstanding to hedge certain foreign currency risk. The resulting impact from the hedging activity on our consolidated financial statements was not significant for the periods presented.

Our foreign currency exposures vary but are primarily concentrated in the British Pound, the Euro, and the Canadian Dollar. We monitor the costs and the impact of foreign currency risks upon our financial results as part of our risk management program. We do not use derivative financial instruments for speculation or trading purposes or for activities other than risk management. We do not require and are not required to pledge collateral for these financial instruments and we do not carry any master netting arrangements to mitigate the credit risk.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Certain non-financial assets and liabilities are measured at fair value, usually with Level 3 inputs including the discounted cash flow method or cost method, on a nonrecurring basis in accordance with authoritative guidance. These include items such as non-financial assets and liabilities initially measured at fair value in a business combination and non-financial long-lived assets measured at fair value for an impairment assessment. In general, non-financial assets, including goodwill, intangible assets and property and equipment, are measured at fair value when there is an indication of impairment and are recorded at fair value only when any impairment is recognized. We recorded no significant impairment losses during the three and nine months ended September 30, 2020 and 2019.

Balance Sheet Details

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Balance Sheet Details

3. Balance Sheet Details

Short-Term Marketable Securities

Short-term marketable securities, consisting of debt securities, were as follows as of the dates indicated:


	September 30, 2020
(In millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
Debt securities, available for sale:
U.S. government agencies	$	1,549.1	$	0.5	$	—	$	1,549.6
Commercial paper	290.5		0.2		—		290.7
Corporate debt	90.0		0.1		(0.1)		90.0
Total debt securities, available for sale	$	1,929.6	$	0.8	$	(0.1)	$	1,930.3


	December 31, 2019
(In millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
Debt securities, available for sale:
U.S. government agencies	$	675.6	$	0.4	$	—	$	676.0
Commercial paper	248.1		0.1		—		248.2
Corporate debt	163.0		—		(0.1)		162.9
Total debt securities, available for sale	$	1,086.7	$	0.5	$	(0.1)	$	1,087.1

As of September 30, 2020 and December 31, 2019, all of our debt securities had contractual maturities of less than 12 months. Gross realized gains and losses on sales of our debt securities during the three and nine months ended September 30, 2020 and 2019 were not significant.

We periodically review our portfolio of debt securities to determine if any investment is impaired due to credit loss or other potential valuation concerns. For the debt securities where the fair value of the investment is less than the amortized cost basis, we have assessed at the individual security level for various quantitative factors including, but not limited to, the nature of the investments, changes in credit ratings, interest rate fluctuations, industry analyst reports, and the severity of impairment. Unrealized losses on available-for-sale debt securities as of September 30, 2020 were not significant and were primarily due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities. Accordingly, we have not recorded an allowance for credit losses. We do not intend to sell these investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

Inventory

Inventory was as follows as of the dates indicated:


(In millions)	September 30, 2020		December 31, 2019
Raw materials	$	64.7	$	64.9
Work-in-process	17.1		11.1
Finished goods	118.9		43.8
Total inventory	$	200.7	$	119.8

During the three and nine months ended September 30, 2020, we recorded excess and obsolete inventory charges of $6.4 million and $13.2 million, respectively, in cost of sales as a result of our ongoing assessment of sales demand, inventory on hand for each product and the continuous improvement and innovation of our products. During the three and nine months ended September 30, 2019, we recorded excess and obsolete inventory charges of $6.8 million and $10.1 million, respectively, in cost of sales primarily as a result of our ongoing assessment of sales demand and inventory on hand.

Property and Equipment

Property and equipment was as follows as of the dates indicated:


(In millions)	September 30, 2020		December 31, 2019
Building and land ⁽¹⁾	$	49.1	$	15.5
Furniture and fixtures	15.0		12.8
Computer software and hardware	35.6		32.7
Machinery and equipment	186.7		130.2
Leasehold improvements	131.1		102.5
Construction in progress	181.0		132.6
Total cost	598.5		426.3
Less accumulated depreciation and amortization	(136.7)		(105.0)
Total property and equipment, net	$	461.8	$	321.3

⁽¹⁾Represents our finance lease right-of-use assets.

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities were as follows as of the dates indicated:


(In millions)	September 30, 2020		December 31, 2019
Accounts payable trade	$	147.6	$	102.3
Accrued tax, audit, and legal fees	20.2		14.0
Accrued rebates	186.9		93.3
Accrued warranty	10.9		7.4

Other accrued liabilities	31.4		39.4
Total accounts payable and accrued liabilities	$	397.0	$	256.4

Other Long-Term Liabilities

Other long-term liabilities were as follows as of the dates indicated:


(In millions)	September 30, 2020		December 31, 2019
Finance lease obligations	$	53.7	$	14.4
Contractual obligations	12.6		—
Other liabilities	12.2		5.7
Total other liabilities	$	78.5	$	20.1

Debt

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Debt

4. Debt

Senior Convertible Notes

The carrying amounts of our senior convertible notes were as follows as of the dates indicated:


(In millions)	September 30, 2020		December 31, 2019
Principal amount:
Senior Convertible Notes due 2022	$	—	$	400.0
Senior Convertible Notes due 2023	850.0		850.0
Senior Convertible Notes due 2025	1,207.5		—
Total principal amount	2,057.5		1,250.0
Unamortized debt discount	(391.4)		(177.2)
Unamortized debt issuance costs	(20.3)		(13.1)
Carrying amount of liability component	$	1,645.8	$	1,059.7

Carrying amount of equity component	$	461.0	$	242.2

Remaining amortization period of debt discount on the liability component:
Senior Convertible Notes due 2022	*		2.5 years
Senior Convertible Notes due 2023	3.2 years		4.0 years
Senior Convertible Notes due 2025	5.1 years		*

* Not applicable as no notes were outstanding at this date.

For our senior convertible notes for which the if-converted value exceeded the principal amount, the amount in excess of principal is as follows as of the dates indicated:


(In millions)	September 30, 2020		December 31, 2019
Senior Convertible Notes due 2022	*		$	486.2
Senior Convertible Notes due 2023	$	1,293.6	372.4


Total by which the notes’ if-converted value exceeds their principal amount	$	1,293.6	$	858.6
* Not applicable as no notes were outstanding at this date.

The following table summarizes the components of interest expense and the effective interest rates for each of our senior convertible notes for the periods shown.


	Three Months Ended September 30,									Nine Months Ended September 30,
(Dollars in millions)	2020			2019			2020			2019
Cash interest expense:
Contractual coupon interest ⁽¹⁾	$	2.4		$	2.4		$	7.1		$	7.1
Non-cash interest expense:
Accretion of debt discount	20.0			11.5			48.3			34.1
Amortization of debt issuance costs	1.1			0.9			3.1			2.7
Total interest expense recognized on senior notes	$	23.5		$	14.8		$	58.5		$	43.9

Effective interest rates:
Senior Convertible Notes due 2022 ⁽²⁾	5.1		%	5.1		%	5.1		%	5.1		%
Senior Convertible Notes due 2023	5.6		%	5.6		%	5.6		%	5.6		%
Senior Convertible Notes due 2025	5.5		%	*			5.5		%	*

⁽¹⁾Interest on the 2022 Notes began accruing upon issuance and was payable semi-annually on May 15 and November 15 of each year. Interest on the 2023 Notes began accruing upon issuance and is payable semi-annually on June 1 and December 1 of each year. Interest on the 2025 Notes began accruing upon issuance and is payable semi-annually on May 15 and November 15 of each year.

⁽²⁾The effective interest rate presented represents the rate applicable for the period outstanding. The Senior Convertible Notes due 2022 were fully redeemed by July 31, 2020 as described below.

* Not applicable as no notes were outstanding at this date.

0.75% Senior Convertible Notes due 2022

In June 2017, we completed an offering of $400.0 million aggregate principal amount of unsecured senior convertible notes with a stated interest rate of 0.75% and a maturity date of May 15, 2022 (the 2022 Notes). The net proceeds from the offering, after deducting initial purchasers’ discounts and costs directly related to the offering, were approximately $389.0 million. The initial conversion rate of the 2022 Notes was 10.0918 shares per $1,000 principal amount of notes, which was equivalent to a conversion price of approximately $99.09 per share, subject to adjustments. The 2022 Notes could be settled in cash, stock, or a combination thereof, solely at our discretion. We used the if-converted method for assumed conversion of the 2022 Notes to compute the weighted average shares of common stock outstanding for diluted earnings per share.

Since upon conversion by the holders we could elect to settle such conversion in shares of our common stock, cash, or a combination thereof, we accounted for the cash conversion option as an equity instrument classified to stockholders’ equity. As a result, we recognized $72.6 million in additional paid-in-capital during 2017.

No principal payments were due on the 2022 Notes prior to maturity. Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2022 Notes included customary terms and covenants, including certain events of default after which the 2022 Notes could be due and payable immediately.

Conversion Rights at the Option of the Holders

In the event of a fundamental change (as defined in the indenture related to the 2022 Notes), holders of the 2022 Notes had the right to require us to repurchase for cash all or a portion of their notes at a price equal to 100% of the principal amount of the 2022 Notes, plus any accrued and unpaid interest. Holders of the 2022 Notes who would convert their notes in connection with a make-whole fundamental change (as defined in the indenture) or following the delivery by DexCom of a notice of redemption were, under certain circumstances, entitled to an increase in the conversion rate.

Prior to 5:00 p.m., New York City time, on the business day immediately preceding February 15, 2022, holders of the 2022 Notes could convert all or a portion of their notes, in multiples of $1,000 principal amount, only under the following circumstances:

(1)during any calendar quarter commencing after September 30, 2017 (and only during such calendar quarter), if the last reported sale price of DexCom’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price of the 2022 Notes on each such trading day;

(2)during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2022 Notes for each day of that five day consecutive trading day period was less than 98% of the product of the last reported sale price of DexCom’s common stock and the applicable conversion rate of the Notes on such trading day;

(3)if we call any or all of the Notes for redemption, at any time prior to the close on business on the scheduled trading day immediately preceding the redemption date; or

(4)upon the occurrence of specified corporate transactions.

On or after February 15, 2022, until 5:00 p.m., New York City time, on the business day immediately preceding the maturity date, holders of the 2022 Notes may convert all or a portion of their notes regardless of the foregoing circumstances.

Circumstance (1) listed above occurred during the quarter ended March 31, 2020 and as a result, the 2022 Notes were convertible at the option of the holder from April 1, 2020 through June 30, 2020. On June 29, 2020, DexCom issued a notice of redemption to the holders of its outstanding 2022 Notes which is described below.

Conversion Rights at Our Option

On or after May 15, 2020, DexCom could redeem for cash all or part of the remaining 2022 Notes, at its option, if the last reported sale price of our common stock has been at least 140% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which DexCom provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the 2022 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

Repurchase, Conversion, and Redemption of 2022 Notes

In May 2020, we used approximately $282.6 million of the net proceeds from the 2025 Notes offering described below and issued 1,953,067 shares of DexCom common stock to repurchase $260.0 million principal amount outstanding of the 2022 Notes and the associated conversion feature of the repurchased notes (which was recorded in additional paid-in capital). In addition, during the nine months ended September 30, 2020, holders of 2022 Notes with a principal amount of $140.0 million exercised their option to convert their 2022 Notes. We settled these conversions by issuing 1,412,497 shares of our common stock. As a result of the repurchase and conversions of the 2022 Notes, we recorded losses on extinguishment of debt of $0.5 million for the three months ended September 30, 2020 and $5.9 million for the nine months ended September 30, 2020. The losses on extinguishment of debt included the unamortized debt issuance costs for the 2022 Notes.

On June 29, 2020, we issued a notice of redemption to the holders of our outstanding 2022 Notes pursuant to which we would redeem the outstanding 2022 Notes for cash at a price of 100% of the principal amount of the 2022 Notes plus accrued and unpaid interest, if any, on July 31, 2020, unless earlier converted. The principal amount of 2022 Notes actually redeemed for cash was not significant.

0.75% Senior Convertible Notes due 2023

In November 2018, we completed an offering of $850.0 million aggregate principal amount of unsecured senior convertible notes with a stated interest rate of 0.75% and a maturity date of December 1, 2023 (the 2023 Notes). The net proceeds from the offering, after deducting initial purchasers’ discounts and costs directly related to the offering, were approximately $836.6 million. The initial conversion rate of the 2023 Notes is 6.0869 shares per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $164.29 per share, subject to adjustments. We entered into transactions for a convertible note hedge (the 2023 Note Hedge) and warrants (the 2023 Warrants) concurrently with the issuance of the 2023 Notes. The 2023 Notes may be settled in cash, stock, or a combination thereof, solely at our discretion. We use the if-converted method for assumed conversion of the 2023 Notes to compute the weighted average shares of common stock outstanding for diluted earnings per share.

Since upon conversion by the holders we may elect to settle such conversion in shares of our common stock, cash, or a combination thereof, we accounted for the cash conversion option as an equity instrument classified to stockholders’ equity. As a result, we recognized $174.4 million in additional paid-in capital during 2018.

No principal payments are due on the 2023 Notes prior to maturity. Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2023 Notes includes customary terms and covenants, including certain events of default after which the 2023 Notes may be due and payable immediately.

Conversion Rights at the Option of the Holders

Holders of the 2023 Notes have the right to require us to repurchase for cash all or a portion of their notes at 100% of their principal amount, plus any accrued and unpaid interest, upon the occurrence of a fundamental change (as defined in the

indenture relating to the notes). We will also be required to increase the conversion rate for holders who convert their 2023 Notes in connection with certain fundamental changes occurring prior to the maturity date or following the delivery by DexCom of a notice of redemption.

Holders of the 2023 Notes may convert all or a portion of their notes at their option prior to 5:00 p.m., New York City time, on the business day immediately preceding September 1, 2023, in multiples of $1,000 principal amount, only under the following circumstances:

(1)during any calendar quarter commencing after March 31, 2019 (and only during such calendar quarter), if the last reported sale price of DexCom’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price of the 2023 Notes on each such trading day;

(2)during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2023 Notes for each day of that five-day consecutive trading day period was less than 98% of the product of the last reported sale price of DexCom’s common stock and the applicable conversion rate of the 2023 Notes on such trading day;

(3)if we call any or all of the 2023 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or

(4)upon the occurrence of specified corporate transactions.

On or after September 1, 2023, until 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding the maturity date, holders of the 2023 Notes may convert all or a portion of their notes regardless of the foregoing circumstances.

Circumstance (1) listed above occurred during the quarters ended March 31, 2020 and June 30, 2020 and as a result, the 2023 Notes were convertible at the option of the holder from April 1, 2020 through September 30, 2020; actual conversions during that period were not significant. Circumstance (1) listed above also occurred during the quarter ended September 30, 2020 and as a result, the 2023 Notes will remain convertible at the option of the holder from October 1, 2020 through December 31, 2020.

Conversion Rights at Our Option

DexCom may not redeem the 2023 Notes prior to December 1, 2021. On or after December 1, 2021 and prior to September 1, 2023, DexCom may redeem for cash all or part of the 2023 Notes, at its option, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which DexCom provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the 2023 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

2023 Note Hedge

In connection with the offering of the 2023 Notes, in November 2018 we entered into convertible note hedge transactions with two of the initial purchasers of the 2023 Notes (the 2023 Counterparties) entitling us to purchase up to 5.2 million shares of our common stock at an initial price of $164.29 per share, each of which is subject to adjustment. The cost of the 2023 Note Hedge was $218.9 million and we accounted for it as an equity instrument by recognizing $218.9 million in additional paid-in capital during 2018. The 2023 Note Hedge will expire on December 1, 2023. The 2023 Note Hedge is expected to reduce the potential equity dilution upon any conversion of the 2023 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2023 Notes if the daily volume-weighted average price per share of our common stock exceeds the strike price of the 2023 Note Hedge. The strike price of the 2023 Note Hedge initially corresponds to the conversion price of the 2023 Notes and is subject to certain adjustments under the terms of the 2023 Note Hedge. An assumed exercise of the 2023 Note Hedge by us is considered anti-dilutive since the effect of the inclusion would always be anti-dilutive with respect to the calculation of diluted earnings per share.

2023 Warrants

In November 2018, we also sold warrants to the 2023 Counterparties to acquire up to 5.2 million shares of our common stock. The 2023 Warrants require net share settlement and a pro rated number of warrants will expire on each of the 60 scheduled trading days starting on March 1, 2024. We received $183.8 million in cash proceeds from the sale of the 2023 Warrants, which we recorded in additional paid-in capital during 2018. The 2023 Warrants could have a dilutive effect on our earnings per share to the extent that the price of our common stock during a given measurement period exceeds the strike price of the 2023 Warrants. The strike price of the 2023 Warrants is initially $198.38 per share and is subject to certain adjustments under the terms of the warrant agreements. We use the treasury share method for assumed conversion of the 2023 Warrants when computing the weighted average common shares outstanding for diluted earnings per share.

0.25% Senior Convertible Notes due 2025

In May 2020, we completed an offering of $1.21 billion aggregate principal amount of unsecured senior convertible notes with a stated interest rate of 0.25% and a maturity date of November 15, 2025 (the 2025 Notes). The net proceeds from the offering, after deducting initial purchasers’ discounts and estimated costs directly related to the offering, were approximately $1.19 billion. The initial conversion rate of the 2025 Notes is 1.6655 shares per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $600.42 per share, subject to adjustments, with a maximum conversion rate of 2.3732. The 2025 Notes may be settled in cash, stock, or a combination thereof, solely at our discretion. We use the if-converted method for assumed conversion of the 2025 Notes to compute the weighted average shares of common stock outstanding for diluted earnings per share.

Since upon conversion by the holders we may elect to settle such conversion in shares of our common stock, cash, or a combination thereof, we accounted for the cash conversion option as an equity instrument classified to stockholders’ equity. As a result, we recognized $289.4 million in additional paid-in-capital during 2020.

No principal payments are due on the 2025 Notes prior to maturity. Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2025 Notes includes customary terms and covenants, including certain events of default after which the 2025 Notes may be due and payable immediately.

Conversion Rights at the Option of the Holders

In the event of a fundamental change (as defined in the indenture related to the 2025 Notes), holders of the 2025 Notes have the right to require us to repurchase for cash all or a portion of their notes at a price equal to 100% of the principal amount of the 2025 Notes, plus any accrued and unpaid interest. Holders of the 2025 Notes who convert their notes in connection with a make-whole fundamental change (as defined in the indenture) or following the delivery by DexCom of a notice of redemption are, under certain circumstances, entitled to an increase in the conversion rate.

Prior to 5:00 p.m., New York City time, on the business day immediately preceding August 15, 2025, holders of the 2025 Notes may convert all or a portion of their notes, in multiples of $1,000 principal amount, only under the following circumstances:

(1)during any calendar quarter commencing after September 30, 2020 (and only during such calendar quarter), if the last reported sale price of Dexcom’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price of the Notes on each such trading day;

(2)during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each day of that five day consecutive trading day period was less than 98% of the product of the last reported sale price of DexCom’s common stock and the applicable conversion rate of the Notes on such trading day;

(3)if we call any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or

(4)upon the occurrence of specified corporate transactions.

On or after August 15, 2025, until 5:00 p.m., New York City time, on the business day immediately preceding the maturity date, holders of the 2025 Notes may convert all or a portion of their notes regardless of the foregoing circumstances.

Conversion Rights at Our Option

DexCom may not redeem the 2025 Notes prior to May 20, 2023. On or after May 20, 2023 and prior to August 15, 2025, DexCom may redeem for cash all or part of the 2025 Notes, at its option, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which DexCom provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the 2025 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

Revolving Credit Agreement

Terms of the Revolving Credit Agreement

On December 19, 2018, we entered into an amended and restated revolving credit agreement which was subsequently amended on May 11, 2020 (as amended, the Credit Agreement). The Credit Agreement provides for available principal amount of $200.0 million which can be increased up to $500.0 million at our option subject to customary conditions and approval of

our lenders. Borrowings under the Credit Agreement are available for general corporate purposes, including working capital and capital expenditures.

Information related to availability and outstanding borrowings on our Credit Agreement is as follows as of the date indicated:


(In millions)	September 30, 2020

Available principal amount	$	200.0
Letters of credit sub-facility	10.0
Outstanding borrowings	—
Outstanding letters of credit	5.4
Total available balance	$	194.6

Revolving loans under the Credit Agreement bear interest at our choice of one of two base rates plus a range of applicable margin rates that are based on our leverage ratio. The first base rate is the highest of (a) the publicly announced JPMorgan Chase prime rate, (b) the federal funds rate, or (c) the overnight bank funding rate, and the applicable margin rate ranges from 0.375% to 1.000%. The second base rate is a LIBOR-based rate, and the applicable margin rate ranges from 1.375% to 2.000%. We will also pay a commitment fee of between 0.2% and 0.3%, payable quarterly in arrears, on the average daily unused amount of the revolving facility based on our leverage ratio.

The Credit Agreement will mature on the earlier to occur of (i) December 19, 2023 or (ii) 91 days prior to the maturity date of the 2022 Notes or (iii) 91 days prior to the maturity date of the 2023 Notes if both (a) the aggregate outstanding principal amount of the 2022 Notes or the 2023 Notes, as applicable, is greater than EBITDA for the period of four consecutive fiscal quarters ending prior to such date and (b) unrestricted domestic cash on hand is less than the aggregate outstanding principal amount of the 2022 Notes or the 2023 Notes, as applicable, plus $100.0 million.

Our obligations under the Credit Agreement are guaranteed by our existing and future wholly-owned domestic subsidiaries, and are secured by a first-priority security interest in substantially all of the assets of DexCom and the guarantors, including all or a portion of the equity interests of our domestic subsidiaries and first-tier foreign subsidiaries but excluding real property and intellectual property (which is subject to a negative pledge). The Credit Agreement contains covenants that limit certain indebtedness, liens, investments, transactions with affiliates, dividends and other restricted payments, subordinated indebtedness and amendments to subordinated indebtedness documents, and sale and leaseback transactions of DexCom or any of its domestic subsidiaries. The Credit Agreement also requires us to maintain a maximum leverage ratio and a minimum fixed charge coverage ratio. We were in compliance with these covenants as of September 30, 2020.

Contingencies

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Contingencies

5. Contingencies

Litigation

We are subject to various claims, complaints and legal actions that arise from time to time in the normal course of business, including commercial insurance, product liability and employment related matters. In addition, from time to time we may bring claims or initiate lawsuits against various third parties with respect to matters arising out of the ordinary course of our business, including commercial and employment related matters. We do not believe we are party to any currently pending legal proceedings, the outcome of which could have a material adverse effect on our business, financial condition or results of operations. There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, financial condition or results of operations.

Income Taxes

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

6. Income Taxes

Our effective tax rate for the nine months ended September 30, 2020 was 3.7%, based on an estimated annual effective tax rate of 3.1% and including the impact of certain return to provision adjustments. The income taxes estimated for the year include state and foreign income taxes in jurisdictions where we have no net operating losses.

As of September 30, 2020, we continue to maintain a full valuation allowance against our net deferred tax assets based on our assessment that it is not more likely than not these future benefits will be realized before expiration. We analyze our ability to realize our deferred tax assets quarterly, weighing all available positive and negative evidence of future taxable income. A future release of the valuation allowance will result in a material tax benefit recognized in the quarter of release.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References + Details

Stockholders' Equity

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Stockholders' Equity

7. Stockholders’ Equity

Share-Based Compensation Expense

The following table summarizes share-based compensation expense, net of capitalized amounts, for the periods shown.


	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Cost of sales	$	4.8	$	2.2	$	10.8	$	6.9
Research and development	9.9		8.1		27.9		25.8
Selling, general and administrative	16.0		14.1		46.6		46.4
Total share-based compensation expense included in net income	$	30.7	$	24.4	$	85.3	$	79.1

As of September 30, 2020, unrecognized estimated compensation costs related to unvested restricted stock units, or RSUs, and performance stock units, or PSUs, totaled $170.3 million and is expected to be recognized through 2023.

Restricted Stock Units

A summary of our RSU and PSU activity for the nine months ended September 30, 2020 is as follows:


		Weighted
		Average		Aggregate
		Grant Date		Intrinsic
(In millions, except weighted average grant date fair values)	Shares	Fair Value		Value
Nonvested at December 31, 2019	1.8	$	96.63	$	392.0
Granted	0.4	296.24
Vested	(1.0)	88.57
Forfeited	—	119.25
Nonvested at September 30, 2020	1.2	$	176.10	$	500.8

The total vest date fair value of RSUs that vested during the nine months ended September 30, 2020 was $305.2 million. No PSUs vested during that period.

Business Segment and Geographic Information

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

Business Segment and Geographic Information

8. Business Segment and Geographic Information

Reportable Segments

An operating segment is identified as a component of a business that has discrete financial information available and for which the chief operating decision maker must decide the level of resource allocation. In addition, the guidance for segment reporting indicates certain quantitative materiality thresholds. None of the components of our business meet the definition of an operating segment.

We currently consider our operations to be, and manage our business globally within, one reportable segment, which is consistent with how our President and Chief Executive Officer, who is our chief operating decision maker, reviews our business, makes investment and resource allocation decisions, and assesses operating performance.

Disaggregation of Revenue

DexCom is domiciled in the United States. We sell our CGM systems through a direct sales force in the United States, Canada and some countries in Europe, and through distribution arrangements in the United States, and certain countries in Africa, Asia, Europe, Latin America, and the Middle East, as well as Australia, Canada, and New Zealand. We disaggregate our revenue from contracts by geography and by major sales channel as we believe they best depict how the nature, amount and timing of revenues and cash flows are affected by economic factors.

Revenues by geographic region

During the three and nine months ended September 30, 2020 and 2019, no individual country outside the United States generated revenue that represented more than 10% of our total revenue. The table below sets forth revenues for the periods shown by our two primary geographical markets, the United States and outside of the United States, based on the geographic location to which we deliver the product. The majority of our long-lived assets are located in the United States.


	Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
(Dollars in millions)	Amount		% of Total		Amount		% of Total
United States	$	398.6	80	%	$	308.8	78	%
Outside of the United States	102.3		20	%	87.5		22	%
Total	$	500.9	100	%	$	396.3	100	%


	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
(Dollars in millions)	Amount		% of Total		Amount		% of Total
United States	$	1,058.0	78	%	$	785.6	78	%
Outside of the United States	299.8		22	%	227.6		22	%
Total revenues	$	1,357.8	100	%	$	1,013.2	100	%

Revenues by customer sales channel

The following table sets forth revenues by major sales channel for the periods shown:


	Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
(Dollars in millions)	Amount		% of Total		Amount		% of Total
Distributor	$	382.4	76	%	$	270.4	68	%
Direct	118.5		24	%	125.9		32	%
Total	$	500.9	100	%	$	396.3	100	%


	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
(Dollars in millions)	Amount		% of Total		Amount		% of Total
Distributor	$	1,000.2	74	%	$	680.0	67	%
Direct	357.6		26	%	333.2		33	%
Total	$	1,357.8	100	%	$	1,013.2	100	%

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 31
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8924-108599

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 34
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8981-108599

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 21
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8721-108599

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 40
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9031-108599

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (f)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (e)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
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-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8844-108599

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
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-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9038-108599

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
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-Section 50
-Paragraph 32
-Subparagraph (d)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8736-108599

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9054-108599

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8657-108599

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 21
-Subparagraph (b)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8721-108599

Reference 14: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-URI http://asc.fasb.org/topic&trid=2134510

+ Details

Organization and Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Principles of Consolidation

Basis of Presentation and Principles of Consolidation

Basis of Presentation

Basis of Presentation and Principles of Consolidation

Use of Estimates

Accounts Receivable and Allowance for Doubtful Accounts

Concentration of Credit Risk

Revenue Recognition

Policy Elections

•We report revenue net of taxes collected from customers, which are subsequently remitted to governmental authorities;

•We account for shipping and handling activities that are performed after a customer has obtained control of a good as fulfillment costs rather than as separate performance obligations;

•We do not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer; and

Contracts and Performance Obligations

Transaction Price

Variable Consideration

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

Revenue Recognition

Our sales of Components include an assurance-type warranty.

Judgments and Estimates

Contract Balances


	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	$	1.0	$	2.9	$	1.8	$	2.6

Deferred Cost of Sales

Incentive Compensation Costs

Net Income Per Share

Recent Accounting Guidance

Recently Adopted Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted