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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 000-51222
https://cdn.kscope.io/8e3f8ac562db8df2b4fd019c674aadb1-dxcm-20210331_g1.jpg
DEXCOM, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0857544
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
6340 Sequence Drive, San Diego, CA 92121
(Address of principal executive offices, including area code)
(858200-0200
(Registrant’s telephone number, including area code)
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 Par Value Per ShareDXCMNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated FilerAccelerated Filer
Non-Accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of April 22, 2021, there were 96,705,873 shares of the registrant’s common stock outstanding.

Table of Contents
DexCom, Inc.
Table of Contents
Page
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
2

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DexCom, Inc.
Consolidated Balance Sheets
(Unaudited)
(In millions, except par value data)March 31, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$733.8 $817.6 
Short-term marketable securities1,898.8 1,890.1 
Accounts receivable, net443.4 428.5 
Inventory289.7 234.7 
Prepaid and other current assets79.4 53.9 
Total current assets3,445.1 3,424.8 
Property and equipment, net589.9 515.3 
Operating lease right-of-use assets98.8 93.3 
Goodwill18.9 19.3 
Deferred tax assets216.7 216.4 
Other assets20.4 21.4 
Total assets$4,389.8 $4,290.5 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities$502.6 $481.1 
Accrued payroll and related expenses81.4 114.3 
Short-term operating lease liabilities18.2 16.5 
Deferred revenue1.9 2.2 
Total current liabilities604.1 614.1 
Long-term senior convertible notes 1,688.8 1,667.2 
Long-term operating lease liabilities111.3 101.8 
Other long-term liabilities82.4 80.9 
Total liabilities2,486.6 2,464.0 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 5.0 million shares authorized; no shares issued and outstanding at March 31, 2021 and December 31, 2020
  
Common stock, $0.001 par value, 200.0 million shares authorized; 97.5 million and 96.7 million shares issued and outstanding, respectively, at March 31, 2021; and 96.9 million and 96.1 million shares issued and outstanding, respectively, at December 31, 2020
0.1 0.1 
Additional paid-in capital2,162.0 2,125.3 
Accumulated other comprehensive income2.9 3.2 
Accumulated deficit(161.8)(202.1)
Treasury stock, at cost; 0.8 million shares at March 31, 2021 and December 31, 2020
(100.0)(100.0)
Total stockholders’ equity1,903.2 1,826.5 
Total liabilities and stockholders’ equity$4,389.8 $4,290.5 
See accompanying notes
3

Table of Contents
DexCom, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
(In millions, except per share data)20212020
Revenues$505.0 $405.1 
Cost of sales161.1 148.6 
Gross profit343.9 256.5 
Operating expenses:
Research and development109.4 73.1 
Selling, general and administrative188.6 149.8 
Total operating expenses298.0 222.9 
Operating income45.9 33.6 
Interest expense(24.8)(15.4)
Interest and other income, net0.1 4.2 
Income before income taxes21.2 22.4 
Income tax expense (benefit)(19.1)2.5 
Net income$40.3 $19.9 
Basic net income per share$0.42 $0.22 
Shares used to compute basic net income per share96.3 91.8 
Diluted net income per share$0.41 $0.21 
Shares used to compute diluted net income per share99.4 94.1 

See accompanying notes
4

Table of Contents
DexCom, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended
March 31,
(In millions)20212020
Net income$40.3 $19.9 
Other comprehensive income (loss), net of tax:
Translation adjustments and other(0.3)(0.7)
Unrealized gain on marketable debt securities 2.1 
Total other comprehensive income (loss), net of tax(0.3)1.4 
Comprehensive income$40.0 $21.3 

See accompanying notes
5

Table of Contents
DexCom, Inc.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
Three Months Ended March 31, 2021
(In millions)Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Treasury StockTotal
Stockholders’
Equity
SharesAmount
Balance at December 31, 202096.1 $0.1 $2,125.3 $3.2 $(202.1)$(100.0)$1,826.5 
Issuance of common stock under equity incentive plans0.6 — — — — — — 
Issuance of common stock for Employee Stock Purchase Plan— — 8.7 — — — 8.7 
Share-based compensation expense— — 28.0 — — — 28.0 
Net income— — — — 40.3 — 40.3 
Other comprehensive loss, net of tax— — — (0.3)— — (0.3)
Balance at March 31, 202196.7 $0.1 $2,162.0 $2.9 $(161.8)$(100.0)$1,903.2 

Three Months Ended March 31, 2020
(In millions)Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Treasury StockTotal
Stockholders’
Equity
SharesAmount
Balance at December 31, 201991.6 $0.1 $1,675.9 $2.3 $(695.7)$(100.0)$882.6 
Issuance of common stock under equity incentive plans0.7 — 0.3 — — — 0.3 
Issuance of common stock for Employee Stock Purchase Plan— — 6.4 — — — 6.4 
Share-based compensation expense— — 23.9 — — — 23.9 
Net income— — — — 19.9 — 19.9 
Other comprehensive income, net of tax— — — 1.4 — — 1.4 
Balance at March 31, 202092.3 $0.1 $1,706.5 $3.7 $(675.8)$(100.0)$934.5 

See accompanying notes


6

Table of Contents
DexCom, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
(In millions)20212020
Operating activities
Net income$40.3 $19.9 
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization20.9 13.0 
Share-based compensation28.0 23.9 
Non-cash interest expense22.2 12.7 
Deferred income taxes(0.3) 
Other non-cash income and expenses8.0 0.1 
Changes in operating assets and liabilities:
Accounts receivable, net(14.9)(14.7)
Inventory(55.0)(22.2)
Prepaid and other assets(20.2)(7.6)
Operating lease right-of-use assets and liabilities, net0.7 (0.4)
Accounts payable and accrued liabilities30.0 5.3 
Accrued payroll and related expenses(33.0)(29.1)
Deferred revenue and other liabilities1.1 1.0 
Net cash provided by operating activities27.8 1.9 
Investing activities
Purchases of marketable securities(802.0)(365.8)
Proceeds from sale and maturity of marketable securities790.0 530.0 
Purchases of property and equipment(99.7)(33.2)
Other investing activities(0.5)(0.4)
Net cash provided by (used in) investing activities(112.2)130.6 
Financing activities
Net proceeds from issuance of common stock8.7 6.7 
Other financing activities(7.9)(0.2)
Net cash provided by financing activities0.8 6.5 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(0.4)(0.5)
Increase (decrease) in cash, cash equivalents and restricted cash(84.0)138.5 
Cash, cash equivalents and restricted cash, beginning of period818.2 446.4 
Cash, cash equivalents and restricted cash, end of period$734.2 $584.9 
Reconciliation of cash, cash equivalents and restricted cash, end of period:
Cash and cash equivalents$733.8 $584.6 
Restricted cash0.4 0.3 
Total cash, cash equivalents and restricted cash$734.2 $584.9 
Supplemental disclosure of non-cash investing and financing transactions:
Acquisition of property and equipment included in accounts payable and accrued liabilities$35.0 $19.6 
Right-of-use assets obtained in exchange for operating lease liabilities$9.9 $5.3 
See accompanying notes
7

Table of Contents
DexCom, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
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 months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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, 2020 included in the Annual Report on Form 10-K that we filed with the SEC on February 11, 2021.
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.
We determine the functional currencies of our international subsidiaries by reviewing the environment where each subsidiary primarily generates and expends cash. For international subsidiaries whose functional currencies are the local currencies, we translate the financial statements 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 and in accumulated other comprehensive income in the equity section of our consolidated balance sheets. We record gains and losses resulting from transactions with customers and vendors that are denominated in currencies other than the functional currency and from certain intercompany transactions 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 rebates, transaction price, the collectibility of accounts receivable, excess or obsolete inventories and the valuation of inventory, accruals for litigation contingencies, and the amount of our worldwide tax provision and the realizability of deferred tax assets. 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.
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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 a few major 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 disposable sensors and our reusable transmitter and receiver, collectively referred to as Reusable Hardware. We also refer to Reusable Hardware in this section as Components. We generally recognize revenue when control is transferred to our customers in an amount that reflects the net consideration to which we expect to be entitled.
In determining how revenue should be recognized, a five-step process is used, which includes identifying performance obligations in the contract, determining whether the performance obligations are separate, allocating the transaction price to each separate performance obligation, estimating the amount of variable consideration to include in the transaction price and determining the timing of revenue recognition for separate performance obligations.
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 Dexcom Share® 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
We include an estimate of variable consideration in the calculation of the transaction price at the time of sale, when control of the Components transfers to the customer. Variable consideration includes, but is not limited to: rebates, chargebacks, consideration payable to customers such as specialty distributor and wholesaler fees, product returns provision, prompt payment discounts, and various other promotional or incentive arrangements. We classify our provisions related to variable consideration as a reduction of accounts receivable when we are not required to make a payment or as a liability when we are required to make a payment.
Rebates
We are subject to rebates on pricing programs with managed care organizations, such as pharmacy benefit managers, governmental and third-party commercial payors, primarily in the U.S. We estimate provisions for rebates based on contractual arrangements, estimates of products sold subject to rebate, known events or trends and channel inventory data.
Chargebacks
We participate in chargeback programs, primarily with government entities in the U.S., under which pricing on products below negotiated list prices is provided to participating entities and equal to the difference between their acquisition cost and the lower negotiated price. We estimate provisions for chargebacks primarily based on historical experience on a product and program basis, current contract prices under the chargeback programs and channel inventory data.
Consideration Payable to the Customer
We pay administrative and service fees to certain of our distributors based on a fixed percentage of the product price. These fees are not in exchange for a distinct good or service and therefore are recognized as a reduction of the transaction price. We accrue for these fees based on actual net sales and contractual fee rates negotiated with the customer.
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Product Returns
In accordance with the terms of their distribution agreements, most distributors do not have rights of return. 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. We estimate our product returns provision principally based on historical experience by applying a historical return rate to the amounts of revenue estimated to be subject to returns. Additionally, we consider other specific factors such as estimated shelf life of inventory in the distribution channel and changes to customer terms.
Prompt Payment Discounts
We provide customers with prompt payment discounts which may result in adjustments to the price that is invoiced for the product transferred, in the case that payments are made within a defined period. We estimate prompt payment discount accruals based on actual net sales and contractual discount rates.
Various Other Promotional or Incentive Arrangements
Other promotional or incentive arrangements are periodically offered to customers, including but not limited to co-payment assistance we provide to patients with commercial insurance, promotional programs related to the launch of products or other targeted promotions. We record a provision for the incentive earned based on the number of estimated claims and our estimate of the cost per claim related to product sales that we have recognized as revenue.
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 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.
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 March 31, 2021 included unbilled accounts receivable of $12.2 million. 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.
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 $9.5 million as of March 31, 2021 and $8.2 million as of December 31, 2020. These balances are included in other long-term liabilities in our consolidated balance sheets. Revenue recognized in the period from performance obligations satisfied in previous periods was not material for the periods presented.
Deferred Cost of Sales
Deferred cost of sales are associated with transactions 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.
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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
March 31,
(In millions)20212020
Net income$40.3 $19.9 
Net income per common share
Basic$0.42 $0.22 
Diluted$0.41 $0.21 
Basic weighted average shares outstanding96.3 91.8 
Dilutive potential common stock outstanding:
Restricted stock units0.7 1.2 
Warrants2.4 1.1 
Senior convertible notes  
Diluted weighted average shares outstanding99.4 94.1 
Outstanding anti-dilutive securities not included in the diluted net income per share attributable to common stockholders calculations were as follows:
Three Months Ended
March 31,
(In millions)20212020
Restricted stock units 0.1 
Warrants  
Senior convertible notes7.2 9.2 
Total7.2 9.3 
Recent Accounting Guidance
Recently Adopted Accounting Pronouncements
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. Our adoption of ASU 2019-12 at the beginning of the first quarter of 2021 did not have a significant impact on our consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
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
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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.
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 dates, 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 March 31, 2021, classified in accordance with the fair value hierarchy:
Fair Value Measurements Using
(In millions)Level 1Level 2Level 3Total
Cash equivalents$558.2 $ $ $558.2 
Debt securities, available for sale:
U.S. government agencies 1,502.2  1,502.2 
Commercial paper 313.8  313.8 
Corporate debt 82.8  82.8 
Total debt securities, available for sale 1,898.8  1,898.8 
Other assets (1)
5.1   5.1 
Total assets measured at fair value on a recurring basis$563.3 $1,898.8 $ $2,462.1 
(1) Includes assets which are held pursuant to a deferred compensation plan for senior management, which consist mainly of mutual funds.
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The following table summarizes financial assets that we measured at fair value on a recurring basis as of December 31, 2020, classified in accordance with the fair value hierarchy:
 Fair Value Measurements Using
(In millions)Level 1Level 2Level 3Total
Cash equivalents$491.5 $150.0 $ $641.5 
Debt securities, available for sale:
U.S. government agencies 1,570.4  1,570.4 
Commercial paper 258.8  258.8 
Corporate debt 60.9  60.9 
Total debt securities, available for sale 1,890.1  1,890.1 
Other assets (1)
3.4   3.4 
Total assets measured at fair value on a recurring basis$494.9 $2,040.1 $ $2,535.0 
(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 into or out of Level 3 securities during the three months ended March 31, 2021.
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 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)March 31, 2021December 31, 2020
Senior Convertible Notes due 2023$1,879.1 $1,936.4 
Senior Convertible Notes due 20251,196.6 1,219.2 
Total fair value of outstanding senior convertible notes$3,075.7 $3,155.6 
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 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 March 31, 2021 and December 31, 2020, notional amounts of $54.0 million and $48.0 million, respectively, were outstanding to hedge certain foreign currency risk. The resulting impact on our consolidated financial statements from currency hedging activities was not significant for the three months ended March 31, 2021 or 2020.
Our foreign currency exposures vary but are primarily concentrated primarily in the British Pound and the Euro. 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.
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Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
In accordance with authoritative guidance, we measure certain non-financial assets and liabilities at fair value on a non-recurring basis. These measurements are usually performed using the discounted cash flow method or cost method and Level 3 inputs. 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 are indicators of impairment and are recorded at fair value only when any impairment is recognized. We recorded no significant impairment losses during the three months ended March 31, 2021 and 2020.
3. Balance Sheet Details
Short-Term Marketable Securities
Short-term marketable securities, consisting of debt securities, were as follows as of the dates indicated:
March 31, 2021
(In millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Market
Value
Debt securities, available for sale:
U.S. government agencies$1,502.0 $0.2 $ $1,502.2 
Commercial paper313.8   313.8 
Corporate debt82.8  82.8 
Total debt securities, available for sale$1,898.6 $0.2 $ $1,898.8 
December 31, 2020
(In millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Market
Value
Debt securities, available for sale:
U.S. government agencies$1,570.4 $0.1 $(0.1)$1,570.4 
Commercial paper258.7 0.1  258.8 
Corporate debt60.9   60.9 
Total debt securities, available for sale$1,890.0 $0.2 $(0.1)$1,890.1 
As of March 31, 2021 and December 31, 2020, all of our debt securities had contractual maturities of less than 12 months. Gross realized gains and losses on sales of our debt securities for the three months ended March 31, 2021 and March 31, 2020 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 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 at March 31, 2021 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
(In millions)March 31, 2021December 31, 2020
Raw materials$87.5 $69.9 
Work-in-process16.9 14.2 
Finished goods185.3 150.6 
Total inventory$289.7 $234.7 
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Property and Equipment
(In millions)March 31, 2021December 31, 2020
Land (1)
$15.6 $15.6 
Building (1)
49.1 49.2 
Furniture and fixtures15.7 15.3 
Computer software and hardware36.6 35.7 
Machinery and equipment212.8 198.9 
Leasehold improvements148.4 135.8 
Construction in progress 283.7 219.0 
Total cost761.9 669.5 
Less accumulated depreciation and amortization(172.0)(154.2)
Total property and equipment, net$589.9 $515.3 
(1)Represents our finance lease right-of-use assets.
Accounts Payable and Accrued Liabilities 
(In millions)March 31, 2021December 31, 2020
Accounts payable trade$152.2 $163.3 
Accrued tax, audit, and legal fees20.6 15.3 
Accrued rebates 274.2 247.0 
Accrued warranty11.2 11.7 
Other accrued liabilities 44.4 43.8 
Total accounts payable and accrued liabilities$502.6 $481.1 
Other Long-Term Liabilities
(In millions)March 31, 2021December 31, 2020
Finance lease obligations
$54.2 $54.0 
Contractual obligations12.6 12.6 
Other liabilities15.6 14.3 
Total other liabilities$82.4 $80.9 

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4. Debt
Senior Convertible Notes
The carrying amounts of our senior convertible notes were as follows as of the dates indicated:
(Dollars in millions)March 31, 2021December 31, 2020
Principal amount:
Senior Convertible Notes due 2023$850.0 $850.0 
Senior Convertible Notes due 20251,207.5 1,207.5 
Total principal amount2,057.5 2,057.5 
Unamortized debt discount(350.6)(371.1)
Unamortized debt issuance costs(18.1)(19.2)
Carrying amount of liability component$1,688.8 $1,667.2 
Carrying amount of equity component$461.0 $461.0 
Remaining amortization period of debt discount on the liability component:
Senior Convertible Notes due 20232.7 years2.9 years
Senior Convertible Notes due 20254.6 years4.9 years
For our senior convertible notes for which the if-converted value exceeded the principal amount, the amount in excess of principal was as follows as of the dates indicated:
(In millions)March 31, 2021December 31, 2020
Senior Convertible Notes due 2023$1,024.2 1,077.5 
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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
March 31,
(Dollars in millions)20212020
Cash interest expense:
Contractual coupon interest (1),(2)
$2.4 $2.3 
Non-cash interest expense:
Accretion of debt discount 20.5 11.8 
Amortization of debt issuance costs1.1 0.9 
Total interest expense recognized on senior notes$24.0 $15.0 
Effective interest rates:
Senior Convertible Notes due 2022 (2)
*5.1 %
Senior Convertible Notes due 20235.6 %5.6 %
Senior Convertible Notes due 20255.5 %*
(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) Our $400.0 million aggregate principal amount of unsecured senior convertible notes issued in June 2017 with a stated interest rate of 0.75% and maturity date of May 15, 2022 (the 2022 Notes) were repurchased and converted by August 2020.
* Not applicable as no notes were outstanding at this date.
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 $171.6 million in additional paid-in capital, net of debt issuance costs, 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
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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 quarter ended December 31, 2020. As a result, the 2023 Notes were convertible at the option of the holder from January 1, 2021 through March 31, 2021; actual conversions during that period were not significant. Circumstance (1) listed above also occurred during the quarter ended March 31, 2021 and as a result, the 2023 Notes will remain convertible at the option of the holder from April 1, 2021 through June 30, 2021.
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.
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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, net of debt issuance costs, 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.
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Information related to availability and outstanding borrowings on our Credit Agreement is as follows as of the date indicated:
(In millions)March 31, 2021
Available principal amount $200.0 
Letters of credit sub-facility10.0 
Outstanding borrowings  
Outstanding letters of credit6.4 
Total available balance$193.6 
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, (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 March 31, 2021.
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, intellectual property 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.
6. Income Taxes
We estimate our annual effective tax rate to be 21.4% for the full year 2021, which differed from the U.S. federal statutory rate due to state and foreign income taxes, nondeductible executive compensation, and increases to unrecognized tax benefits offset by federal research tax credits generated. Our negative effective tax rate of 90.1% for the three months ended March 31, 2021 was due to excess tax benefits recognized for employee share-based compensation.
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7. Stockholders’ Equity
Share-Based Compensation
Our share-based compensation expense is associated with restricted stock units, or RSUs, performance stock units, or PSUs, and our Employee Stock Purchase Plan, or ESPP. The following table summarizes our share-based compensation expense included in our consolidated statements of operations for the periods shown.
Three Months Ended
March 31,
(In millions)20212020
Cost of sales$2.0 $1.9 
Research and development10.4 8.2 
Selling, general and administrative15.6 13.8 
Total share-based compensation expense$28.0 $23.9 
At March 31, 2021, unrecognized estimated compensation costs related to RSUs, PSUs and ESPP totaled $240.9 million and is expected to be recognized through 2024.
Equity Award Activity
The total vest date fair value of RSUs and PSUs that vested during the three months ended March 31, 2021 was $183.2 million and $29.5 million, respectively.
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
We disaggregate revenue by geographic region and by major sales channel. We have determined that disaggregating revenue into these categories achieves the ASC Topic 606 disclosure objectives of depicting how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
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.
Revenues by geographic region
During the three months ended March 31, 2021 and 2020, no individual country outside the United States generated revenue that represented more than 10% of our total revenue. The table below sets forth revenues 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 components. The majority of our long-lived assets are located in the United States.
Three Months Ended
March 31, 2021
Three Months Ended
March 31, 2020
(Dollars in millions)Amount% of TotalAmount% of Total
United States$381.2 75 %$292.3 72 %
Outside of the United States123.8 25 %112.8 28 %
Total$505.0 100 %$405.1 100 %

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Revenues by customer sales channel
The following table sets forth revenues by major sales channel for the periods shown:
Three Months Ended
March 31, 2021
Three Months Ended
March 31, 2020
(Dollars in millions)Amount% of TotalAmount% of Total
Distributor$390.7 77 %$286.1 71 %
Direct114.3 23 %119.0 29 %
Total$505.0 100 %$405.1 100 %






























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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document, including the following Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that are not purely historical regarding Dexcom’s or its management’s intentions, beliefs, expectations and strategies for the future. These forward-looking statements fall within the meaning of the federal securities laws that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “potential” or “continue” or the negative of these terms or other comparable terminology. Forward-looking statements are made as of the date of this report, deal with future events, are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in those forward-looking statements. The risks and uncertainties include, among other things, impacts on our business due to health pandemics or other contagious outbreaks, such as the current COVID-19 pandemic. The risks and uncertainties that could cause actual results to differ materially are more fully described under “Risk Factors” in Part II, Item 1A of this Quarterly Report, elsewhere in this Quarterly Report, and in our other reports filed with the SEC. We assume no obligation to update any of the forward-looking statements after the date of this report or to conform these forward-looking statements to actual results. You should read the following discussion and analysis together with our consolidated financial statements and related notes in Part I, Item 1 of this Quarterly Report.
Overview
WHO WE ARE
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We are a medical device company primarily focused on the design, development and commercialization of continuous glucose monitoring, or CGM, systems for the management of diabetes by patients, caregivers, and clinicians around the world.
We received approval from the Food and Drug Administration, or FDA, and commercialized our first product in 2006. We launched our latest generation system, the Dexcom G6® integrated Continuous Glucose Monitoring System, or G6, in 2018.
Unless the context requires otherwise, the terms “we,” “us,” “our,” the “company,” or “Dexcom” refer to DexCom, Inc. and its subsidiaries.











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Global Presence
We have built a direct sales organization in the United States, Canada and certain countries in Europe to call on health care professionals, such as endocrinologists, physicians and diabetes educators, who can educate and influence patient adoption of continuous glucose monitoring. To complement our direct sales efforts, we have entered into 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 that allow distributors to sell our products.
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Future Developments
Product Development: We plan to develop future generations of technologies that are focused on improved performance and convenience and that will enable intelligent insulin administration. Over the longer term, we plan to continue to develop and improve networked platforms with open architecture, connectivity and transmitters capable of communicating with other devices. We also intend to expand our efforts to accumulate CGM patient data and metrics and apply predictive modeling and machine learning to generate interactive CGM insights that can inform patient behavior.
Partnerships: We also continue to pursue and support development partnerships with insulin pump companies and companies or institutions developing insulin delivery systems, including automated insulin delivery systems.
New Opportunities: We are also exploring how to extend our offerings to other opportunities, including for people with Type 2 diabetes that are non-insulin using, people with pre-diabetes, people who are obese, people who are pregnant, and people in the hospital setting. Eventually, we may apply our technological expertise to products beyond glucose monitoring.





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Impact of COVID-19 Pandemic
During 2020, we were subject to challenging social and economic conditions created as a result of the novel strain of coronavirus, SARS-CoV-2 (“COVID-19”). The resulting impact of the COVID-19 outbreak created various financial impacts to our operations as a result of taking necessary precautions for essential personnel to operate safely both in person as well as remotely. Costs incurred include items like incremental payroll costs, consulting support, IT infrastructure and facilities-related costs.
As the result of the COVID-19 pandemic, we have made Dexcom CGM systems available for use in hospital settings and other healthcare facilities to assist frontline workers. The extent of the impact of the COVID-19 outbreak on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers and our sales cycles, employee or industry events, and effect on our vendors, all of which are uncertain and cannot be predicted. The COVID-19 pandemic and its adverse effects have become more prevalent in the locations where we, our customers, suppliers or third-party business partners conduct business and as a result, we have begun to experience more pronounced disruptions in our operations. We have experienced and may experience constrained supply or curtailed customer demand, including due to customer loss of private health insurance coverage for our products, that could materially adversely impact our business, results of operations and overall financial performance in future periods. We currently utilize third parties to, among other things, manufacture components and materials for our devices, and to provide services such as sterilization services and we purchase these materials and services from numerous suppliers worldwide.
The global COVID-19 pandemic has and may continue to have an adverse impact on our manufacturing and distribution capabilities. Disruptions relating to the COVID-19 pandemic, including current shelter-in-place orders in the U.S. and other countries, could prevent employees, suppliers, distributors, and others from accessing manufacturing facilities and from transporting our products or the components required to manufacture our products. For example, we have experienced some supply chain disruption due to the global restrictions resulting from the COVID-19 pandemic in the manufacture of our next-generation CGM product. Further, worldwide supply chain disruption relating to the COVID-19 pandemic has resulted in product shortages that has and may continue to impact our ability to manufacture our devices. As of the filing date of this Form 10-Q, the extent to which COVID-19 may impact our financial condition or results of operations or guidance is uncertain. The effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods. See “Risk Factors” in Part II, Item 1A of this Quarterly Report for further discussion of the possible impact of the COVID-19 pandemic on our business.


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Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which we have prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as the reported revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The accounting policies and estimates that are most critical to a full understanding and evaluation of our reported financial results are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. There were no material changes to our critical accounting policies during the three months ended March 31, 2021.
Results of Operations
Key Highlights for the first three months of 2021
RevenuesGross ProfitOperating Income
$505.0 million$343.9 million$45.9 million
up 25% from the same period 2020
up 34% from the same period 2020
up 37% from the same period 2020
Net IncomeOperating Cash FlowCash, Cash Equivalents, & Short Term Marketable Securities
$40.3 million$27.8 million$2.63 billion
up 103% from the same period 2020
up 1,363% from the same period 2020
down 3% from fiscal year 2020
Financial Overview
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Financial Overview
Three Months Ended March 31,2021 - 2020
(In millions, except per share amounts)20212020$ Change% Change
Revenues$505.0 $405.1 $99.9 25 %
Cost of sales161.1 148.6 12.5 %
Gross profit343.9 256.5 87.4 34 %
Gross profit as a percent of total revenue68.1 %63.3 %
Operating income45.9 33.6 12.3 37 %
Net income40.3 19.9 20.4 103 %
Basic net income per share0.42 0.22 0.20 91 %
Diluted net income per share$0.41 $0.21 $0.20 95 %
* Not meaningful
Revenue, Cost of Sales and Gross Profit
We expect that revenues we generate from the sales of our products will fluctuate from quarter to quarter. We typically experience seasonality, with lower sales in the first quarter of each year compared to the immediately preceding fourth quarter. This seasonal sales pattern relates to U.S. annual insurance deductible resets and unfunded flexible spending accounts.
Quarter Ended March 31, 2021 Compared to Quarter Ended March 31, 2020
The 2021 revenue increase was primarily driven by increased sales volume of our disposable sensors due to the continued growth of our worldwide customer base, partially offset by pricing pressure due to the evolution of our channel strategy and product mix. Disposable sensor and other revenue comprised approximately 84% of total revenue and Reusable Hardware revenue comprised approximately 16% of total revenue for the three months ended March 31, 2021. Disposable sensor and other revenue comprised approximately 80% of total revenue and Reusable Hardware revenue comprised approximately 20% of total revenue for the three months ended March 31, 2020.
Cost of sales increased primarily due to increased sales volume. The increase in gross profit and gross profit margin in the first quarter of 2021 compared to the first quarter of 2020 were primarily driven by increased revenues and cost savings associated with manufacturing efficiencies.
Operating Expenses
Quarter Ended March 31, 2021 Compared to Quarter Ended March 31, 2020
Three Months Ended March 31,2021 - 2020
(In millions)20212020$ Change% Change
Research and development$109.4 $