What changed in this filing

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Item 1. Financial Statements

2020-07-28 compared with 2020-04-28 · 207 added, 107 removed, 496 unchanged (39% of the section changed)

2 unchanged sentences

(In millions, except par value data)

March 31, 2020

June 30, 2020

December 31, 2019

21 unchanged sentences

Preferred stock, $0.001 par value, 5.0 million shares authorized;

no shares issued and outstanding at March 31, 2020 and December 31, 2019

no shares issued and outstanding at June 30, 2020 and December 31, 2019

Common stock, $0.001 par value, 200.0 million shares authorized;

93.1 million and 92.3 million shares issued and outstanding, respectively, at March 31, 2020;

96.2 million and 95.4 million shares issued and outstanding, respectively, at June 30, 2020;

and 92.4 million and 91.6 million shares issued and outstanding, respectively, at December 31, 2019

3 unchanged sentences

Treasury stock, at cost;

0.8 million shares at March 31, 2020 and December 31, 2019

0.8 million shares at June 30, 2020 and December 31, 2019

Total stockholders’ equity

3 unchanged sentences

Three Months Ended

Six Months Ended

(In millions, except per share data)

6 unchanged sentences

Interest expense

Loss on extinguishment of debt

Loss from equity investments

1 unchanged sentence

Income (loss) before income taxes

Income tax expense

Income tax expense (benefit)

Net income (loss)

6 unchanged sentences

Three Months Ended

Six Months Ended

(In millions)

Net income (loss)

Other comprehensive income, net of tax:

Other comprehensive income (loss), net of tax:

Translation adjustments and other

Unrealized gain on marketable debt securities

Total other comprehensive income, net of tax

Unrealized gain (loss) on marketable debt securities

Total other comprehensive income (loss), net of tax

Comprehensive income (loss)

See accompanying notes

Consolidated Statements of Stockholders’ Equity (Unaudited)

Three Months Ended March 31, 2020

Consolidated Statements of Stockholders’ Equity

Three Months Ended June 30, 2020

(In millions)

2 unchanged sentences

Stockholders’

Balance at March 31, 2020

Issuance of common stock under equity incentive plans

Issuance of common stock for Employee Stock Purchase Plan

Equity component of 2025 Notes issuance, net of issuance costs

Repurchase and conversions of 2022 Notes

Share-based compensation expense

Other comprehensive loss, net of tax

Balance at June 30, 2020

Three Months Ended June 30, 2019

(In millions)

Comprehensive

Treasury Stock

Stockholders’

Balance at March 31, 2019

Issuance of common stock under equity incentive plans

Issuance of common stock for Employee Stock Purchase Plan

Share-based compensation expense

Other comprehensive income, net of tax

Balance at June 30, 2019

See accompanying notes

Consolidated Statements of Stockholders’ Equity

Six Months Ended June 30, 2020

(In millions)

Comprehensive

Treasury Stock

Stockholders’

Balance at December 31, 2019

1 unchanged sentence

Issuance of common stock for Employee Stock Purchase Plan

Equity component of 2025 Notes issuance, net of issuance costs

Repurchase and conversions of 2022 Notes

Share-based compensation expense

Other comprehensive income, net of tax

Balance at March 31, 2020

Three Months Ended March 31, 2019

Balance at June 30, 2020

Six Months Ended June 30, 2019

(In millions)

3 unchanged sentences

Balance at December 31, 2018

Cumulative-effect adjustment from adoption of new lease accounting standard (Note 2)

Cumulative-effect adjustment from adoption of new lease accounting standard

Issuance of common stock under equity incentive plans

1 unchanged sentence

Share-based compensation expense

Other comprehensive income

Balance at March 31, 2019

Other comprehensive income, net of tax

Balance at June 30, 2019

See accompanying notes

Consolidated Statements of Cash Flows

Three Months Ended

Six Months Ended

(In millions)

Net income (loss)

Adjustments to reconcile net income to cash provided by operating activities:

Adjustments to reconcile net income (loss) to cash provided by operating activities:

Depreciation and amortization

Share-based compensation

Loss on extinguishment of debt

Non-cash interest expense

12 unchanged sentences

Proceeds from sale and maturity of marketable securities

Purchases of other equity investments

Purchases of property and equipment

Other investing activities

Net cash provided by investing activities

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from issuance of convertible notes, net of issuance costs

Repurchase of convertible notes

Net proceeds from issuance of common stock

2 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash

Increase in cash, cash equivalents and restricted cash

Increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

5 unchanged sentences

Supplemental disclosure of non-cash investing and financing transactions:

Common stock issued for repurchase and conversions of senior convertible notes

Acquisition of property and equipment included in accounts payable and accrued liabilities

4 unchanged sentences

Organization and Business

is a medical device company focused on the design, development and commercialization of continuous glucose monitoring, or CGM systems for use by people with diabetes and by healthcare providers.

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.

1 unchanged sentence

Basis of Presentation and Principles of Consolidation

We have prepared the accompanying unaudited consolidated financial statements (the “financial statements”) in accordance with U.S.

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.

1 unchanged sentence

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, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 .

Operating results for the three and six months ended June 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 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 financial statements include the accounts of DexCom, Inc.

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.

3 unchanged sentences

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 sheet.

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 financial statements and the disclosures made in the accompanying notes.

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.

16 unchanged sentences

We refer to Reusable Hardware and disposable sensors in this section as Components .

Policy elections and practical expedients taken

Policy Elections

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

29 unchanged sentences

Contract Balances

Contract balances represent amounts presented in the 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.

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, 2020 included unbilled accounts receivable of $ 6.9 million .

Accounts receivable as of June 30, 2020 included unbilled accounts receivable of $ 7.2 million .

Unbilled accounts receivable consists of revenue recognized for Components we have delivered but not yet invoiced to customers.

3 unchanged sentences

Three Months Ended

Six Months Ended

(In millions)

2 unchanged sentences

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 $ 3.6 million as of March 31, 2020 and $ 2.1 million as of December 31, 2019 , and is included in other long-term liabilities on our consolidated balance sheets.

The deferred revenue balance related to performance obligations that will be satisfied after 12 months was $ 5.4 million as of June 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

3 unchanged sentences

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 statement of operations.

We record these costs in selling, general and administrative expense in our consolidated statements of operations.

Net Income (Loss) Per Share

1 unchanged sentence

Diluted net income (loss) 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 stock options, unvested RSUs, warrants and our 0.75 % convertible senior notes due 2022 (the “2022 Notes”) and our 0.75 % convertible senior notes due 2023 (the “2023 Notes,” together with the 2022 Notes, the “ senior convertible notes ”).

Potentially dilutive common share equivalents shares from outstanding stock options, warrants and unvested RSUs are determined using the average share price for each period under the treasury stock method.

Potentially dilutive shares issuable upon conversion of our senior convertible notes are determined using the if-converted method.

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.

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

Three Months Ended

Six Months Ended

(In millions)

3 unchanged sentences

Dilutive potential common stock outstanding:

Stock options and employee stock purchase plan

Restricted stock units

2023 Warrants

Senior convertible notes

2023 senior convertible notes

Diluted weighted average shares outstanding

1 unchanged sentence

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

Three Months Ended March 31,

Three Months Ended

Six Months Ended

(In millions)

Options outstanding to purchase common stock

Unvested restricted stock units

2023 Warrants

Senior convertible notes due 2022

Senior convertible notes due 2023

Restricted stock units

Senior convertible notes

Recent Accounting Guidance

4 unchanged sentences

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.

The Company will continue to monitor the impact of the novel strain of coronavirus, SARS-CoV-2 (“COVID-19”) outbreak on expected credit losses.

We are continuing to monitor the impact of the novel strain of coronavirus, SARS-CoV-2 (“COVID-19”) outbreak on expected credit losses.

In January 2017, the FASB issued ASU No.

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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.

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.

19 unchanged sentences

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, 2020 , classified in accordance with the fair value hierarchy:

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

Fair Value Measurements Using

8 unchanged sentences

Total assets measured at fair value on a recurring basis

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

(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:

9 unchanged sentences

Total assets measured at fair value on a recurring basis

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

There were no transfers between Level 1 and Level 2 securities during the three months ended March 31, 2020 and 2019 .

There were no transfers into or out of Level 3 securities during the three months ended March 31, 2020 and 2019 .

(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 six months ended June 30, 2020 and 2019 .

There were no transfers into or out of Level 3 securities during the three and six months ended June 30, 2020 and 2019 .

We hold certain other investments that we do not measure at fair value on a recurring basis.

6 unchanged sentences

(In millions)

March 31, 2020

June 30, 2020

December 31, 2019

1 unchanged sentence

Senior Convertible Notes due 2023

Senior Convertible Notes due 2025

Total fair value of outstanding senior convertible notes

* Not Applicable

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

1 unchanged sentence

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 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 statement of operations.

As of March 31, 2020 and December 31, 2019 , notional amounts of $ 20.0 million and $ 8.0 million were outstanding to hedge currency risk relating to certain intercompany balances.

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 June 30, 2020 and December 31, 2019 , notional amounts of $ 25.0 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.

7 unchanged sentences

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 months ended March 31, 2020 , and March 31, 2019.

We recorded no significant impairment losses during the three and six months ended June 30, 2020 and 2019 .

Balance Sheet Details

1 unchanged sentence

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

March 31, 2020

June 30, 2020

(In millions)

11 unchanged sentences

Total debt securities, available for sale

As of March 31, 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 months ended March 31, 2020 and 2019 were not significant.

As of June 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 six months ended June 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 March 31, 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 no t recorded an allowance for credit losses associated with these investments.

Unrealized losses on available-for-sale debt securities as of June 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 no t 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.

1 unchanged sentence

(In millions)

March 31, 2020

June 30, 2020

December 31, 2019

3 unchanged sentences

Total inventory

During the three months ended March 31, 2020 , we recorded excess and obsolete inventory charges of $ 5.1 million 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 months ended March 31, 2019 , we recorded excess and obsolete inventory charges of $ 1.6 million in cost of sales primarily as a result of our ongoing assessment of sales demand and inventory on hand.

During the three and six months ended June 30, 2020 , we recorded excess and obsolete inventory charges of $ 1.7 million and $ 6.8 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 six months ended June 30, 2019 , we recorded excess and obsolete inventory charges of $ 1.7 million and $ 3.3 million , respectively, in cost of sales primarily as a result of our ongoing assessment of sales demand and inventory on hand.

Property and Equipment

1 unchanged sentence

(In millions)

March 31, 2020

June 30, 2020

December 31, 2019

11 unchanged sentences

(In millions)

March 31, 2020

June 30, 2020

December 31, 2019

8 unchanged sentences

(In millions)

March 31, 2020

June 30, 2020

December 31, 2019

Finance lease obligations

Contractual obligations

Other liabilities

3 unchanged sentences

(In millions)

March 31, 2020

June 30, 2020

December 31, 2019

Principal amount of 0.75% Senior Convertible Notes due 2022

Principal amount of 0.75% Senior Convertible Notes due 2023

Principal amount:

Senior Convertible Notes due 2022

Senior Convertible Notes due 2023

Senior Convertible Notes due 2025

Total principal amount

Unamortized debt discount

2 unchanged sentences

Carrying amount of equity component

The amount by which the notes’ if-converted value exceeds their principal amount is as of the dates indicated:

Remaining amortization period of debt discount on the liability component:

Senior Convertible Notes due 2022

Senior Convertible Notes due 2023

Senior Convertible Notes due 2025

* Not Applicable

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)

March 31, 2020

June 30, 2020

December 31, 2019

4 unchanged sentences

Three Months Ended

Six Months Ended

(Dollars in millions)

8 unchanged sentences

Senior Convertible Notes due 2023

(1) The discount on the 2022 Notes is being amortized through May 15, 2022.

Interest on the 2022 Notes began accruing upon issuance and is payable semi-annually on May 15 and November 15 of each year while the discount on the 2023 Notes is being amortized through December 1, 2023.

Senior Convertible Notes due 2025

(1) Interest on the 2022 Notes began accruing upon issuance and is 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.

* Not Applicable

0.75% Senior Convertible Notes due 2022

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

during any calendar quarter commencing after September 30, 2017 (and only during such calendar quarter), if the last reported sale price of 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;

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 common stock and the applicable conversion rate of the Notes on such trading day;

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;

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;

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;

1 unchanged sentence

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 .

As a result, the 2022 Notes remain convertible at the option of the holder from April 1, 2020 through June 30, 2020.

Holders of 2022 Notes with an insignificant principal amount exercised their option to convert their 2022 Notes during the second and fourth quarters of 2019 and we settled these conversions with shares of our common stock.

We continue to classify the carrying value of the liability component of the 2022 Notes as long-term debt, and the equity component of the 2022 Notes as permanent equity in our consolidated balance sheets as of March 31, 2020 .

Circumstance (1) listed above occurred during the quarter ended 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

DexCom may not redeem the 2022 Notes prior to May 15, 2020.

On or after May 15, 2020, DexCom may redeem for cash all or part of the 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.

On or after May 15, 2020, DexCom may 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 quarter ended June 30, 2020 holders of 2022 Notes with a principal amount of $ 102.8 million exercised their option to convert their 2022 Notes.

We settled these conversions by issuing 1,037,319 shares of our common stock.

As a result of the repurchase and conversions of the 2022 Notes, we recorded a $ 5.4 million loss on extinguishment of debt for the three and six months ended June 30, 2020 .

The loss on extinguishment of debt includes the unamortized debt issuance costs for the 2022 Notes.

The repurchase and conversions of the 2022 Notes resulted in remaining balances of $ 37.2 million , $ 2.8 million and $ 0.3 million of principal outstanding, debt discount and debt issuance costs, respectively, as of June 30, 2020 .

On June 29, 2020, we issued a notice of redemption to the holders of our outstanding 2022 Notes pursuant to which we will 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.

Prior to July 31, 2020, holders of outstanding 2022 Notes are entitled to convert their 2022 Notes to shares of our common stock at a rate of 10.0918 shares per $1,000 principal amount of 2022 Notes.

In the event any holder delivers a conversion notice as provided in the indenture related to the 2022 Notes, we intend to satisfy our conversion obligation by delivering shares of our common stock.

From July 1, 2020 through July 24, 2020, holders of 2022 Notes with a principal amount of $ 32.5 million exercised their option to convert their 2022 Notes and we settled these conversions by issuing 327,834 shares of our common stock.

0.75% Senior Convertible Notes due 2023

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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:

during any calendar quarter commencing after March 31, 2019 (and only during such calendar quarter), if the last reported sale price of 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;

the product of the last reported sale price of common stock and the applicable conversion rate of the 2023 Notes on such trading day;

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;

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;

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;

1 unchanged sentence

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 March 31, 2020 .

As a result, the 2023 Notes will remain convertible from April 1, 2020 through June 30, 2020.

We continue to classify the carrying value of the liability component of the 2023 Notes as long-term debt, and the equity component of the 2023 Notes as permanent equity in our consolidated balance sheets as of March 31, 2020 .

Circumstance (1) listed above occurred during the quarter ended March 31, 2020 and as a result, the 2023 Notes were convertible at the option of the holder from April 1, 2020 through June 30, 2020;

actual conversions during that quarter were not significant.

Circumstance (1) listed above also occurred during the quarter ended June 30, 2020 and as a result, the 2023 Notes will remain convertible at the option of the holder from July 1, 2020 through September 30, 2020.

Conversion Rights at Our Option

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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 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:

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;

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;

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;

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 (the Credit Agreement) which 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.

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.

1 unchanged sentence

(In millions)

March 31, 2020

June 30, 2020

Available principal amount

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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, 2020 .

We were in compliance with these covenants as of June 30, 2020 .

Contingencies

8 unchanged sentences

We received licenses to certain intellectual property.

All pending litigation and other proceedings between Dexcom and AgaMatrix and WaveForm have been dismissed, or will be dismissed with prejudice by no later than May 8, 2020.

As of March 31, 2020 we have accrued no amounts for contingent losses associated with these suits.

All pending litigation and other proceedings between Dexcom and AgaMatrix and WaveForm have been dismissed.

As of June 30, 2020 we have accrued no amounts for contingent losses associated with these suits.

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

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.

Our effective tax rate for the three months ended March 31, 2020 was 11.2 % , based on an estimated annual effective tax rate of 8.3 % and including the impact of certain return to provision adjustments in the quarter.

Income taxes estimated for the year include state and foreign income taxes in jurisdictions where we have no net operating losses.

As of March 31, 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.

Our effective tax rate for the six months ended June 30, 2020 was 3.5 % , based on an estimated annual effective tax rate of 2.5 % 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 June 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.

3 unchanged sentences

Three Months Ended

Six Months Ended

(In millions)

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Total share-based compensation expense included in net income

As of March 31, 2020 , unrecognized estimated compensation costs related to unvested restricted stock units, or RSUs, and performance stock units, or PSUs, totaled $ 211.7 million and is expected to be recognized through 2023 .

As of June 30, 2020 , unrecognized estimated compensation costs related to unvested restricted stock units, or RSUs, and performance stock units, or PSUs, totaled $ 190.3 million and is expected to be recognized through 2023 .

Restricted Stock Units

A summary of our RSU and PSU activity for the three months ended March 31, 2020 is as follows:

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

(In millions, except weighted average grant date fair values)

Nonvested at December 31, 2019

Nonvested at March 31, 2020

The total vest date fair value of RSUs that vested during the three months ended March 31, 2020 was $ 192.8 million .

Nonvested at June 30, 2020

The total vest date fair value of RSUs that vested during the six months ended June 30, 2020 was $ 224.0 million .

No PSUs vested during that period.

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Revenues by geographic region

During the three months ended March 31, 2020 and 2019 , no individual country outside the United States generated revenue that represented more than 10% of our total revenue.

The following table 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:

Three Months Ended March 31,

During the three and six months ended June 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

June 30, 2020

Three Months Ended

June 30, 2019

(Dollars in millions)

1 unchanged sentence

Outside of the United States

The majority of our long-lived assets are located in the United States.

Six Months Ended

June 30, 2020

Six Months Ended

June 30, 2019

(Dollars in millions)

United States

Outside of the United States

Total revenues

Revenues by customer sales channel

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

Three Months Ended March 31,

Three Months Ended

June 30, 2020

Three Months Ended

June 30, 2019

(Dollars in millions)

Six Months Ended

June 30, 2020

Six Months Ended

June 30, 2019

(Dollars in millions)

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements