What changed in this filing

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Item 1. Financial Statements

2020-10-27 compared with 2020-07-28 · 210 added, 178 removed, 525 unchanged (42% of the section changed)

1 unchanged sentence

Consolidated Balance Sheets

(In millions, except par value data)

June 30, 2020

December 31, 2019

(In millions, except par value data) September 30, 2020 December 31, 2019

Current assets:

2 unchanged sentences

Accounts receivable, net 370.0 286.3

Inventory 200.7 119.8

Prepaid and other current assets 62.6 30.0

2 unchanged sentences

Operating lease right-of-use assets 94.3 71.5

Goodwill 19.0 18.6

Other assets 21.0 14.2

Total assets $ 3,833.2 $ 2,395.0

Liabilities and Stockholders’ Equity

2 unchanged sentences

Accrued payroll and related expenses 92.1 88.5

Operating lease liabilities, current portion

Short-term operating lease liabilities 15.8 13.6

Deferred revenue 1.5 1.7

1 unchanged sentence

Long-term senior convertible notes 1,645.8 1,059.7

Operating lease liabilities, net of current portion

Long-term operating lease liabilities 103.2 72.4

Other long-term liabilities 78.5 20.1

3 unchanged sentences

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

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

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

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

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

96.8 million and 96.0 million shares issued and outstanding, respectively, at September 30, 2020;

and 92.4 million and 91.6 million shares issued and outstanding, respectively, at December 31, 2019 0.1 0.1

3 unchanged sentences

Treasury stock, at cost;

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

0.8 million shares at September 30, 2020 and December 31, 2019 ( 100.0 ) ( 100.0 )

Total stockholders’ equity 1,499.3 882.6

3 unchanged sentences

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions, except per share data) 2020 2019 2020 2019

Revenues $ 500.9 $ 396.3 $ 1,357.8 $ 1,013.2

Cost of sales 160.5 149.4 476.8 391.0

Gross profit 340.4 246.9 881.0 622.2

Operating expenses:

2 unchanged sentences

Total operating expenses 246.3 190.9 685.5 581.4

Operating income (loss)

Operating income 94.1 56.0 195.5 40.8

Interest expense ( 24.4 ) ( 15.1 ) ( 60.1 ) ( 45.0 )

2 unchanged sentences

Interest and other income, net 5.9 4.9 14.2 18.3

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Basic net income (loss) per share

Shares used to compute basic net income (loss) per share

Diluted net income (loss) per share

Shares used to compute diluted net income (loss) per share

Income before income taxes 75.1 45.8 143.7 9.9

Income tax expense 2.9 — 5.3 1.5

Net income $ 72.2 $ 45.8 $ 138.4 $ 8.4

Basic net income per share $ 0.75 $ 0.50 $ 1.48 $ 0.09

Shares used to compute basic net income per share 95.8 91.3 93.8 90.9

Diluted net income per share $ 0.73 $ 0.50 $ 1.43 $ 0.09

Shares used to compute diluted net income per share 99.5 92.5 96.9 92.2

See accompanying notes

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Income

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2020 2019 2020 2019

Net income (loss)

Net income $ 72.2 $ 45.8 $ 138.4 $ 8.4

Other comprehensive income (loss), net of tax:

2 unchanged sentences

Total other comprehensive income (loss), net of tax ( 0.7 ) ( 1.0 ) 0.5 ( 0.5 )

Comprehensive income (loss)

Comprehensive income $ 71.5 $ 44.8 $ 138.9 $ 7.9

See accompanying notes

Consolidated Statements of Stockholders’ Equity

Three Months Ended June 30, 2020

(In millions)

Three Months Ended September 30, 2020

(In millions) Common Stock Additional

Capital Accumulated

Comprehensive

Treasury Stock

Income Accumulated

Deficit Treasury Stock Total

Stockholders’

Balance at March 31, 2020

Shares Amount

Balance at June 30, 2020 95.4 $ 0.1 $ 2,079.8 $ 3.5 $ ( 629.5 ) $ ( 100.0 ) $ 1,353.9

Issuance of common stock under equity incentive plans 0.2 — — — — — —

Issuance of common stock for Employee Stock Purchase Plan — — 8.6 — — — 8.6

Equity component of 2025 Notes issuance, net of issuance costs

Repurchase and conversions of 2022 Notes 0.4 — 34.6 — — — 34.6

Share-based compensation expense — — 30.7 — — — 30.7

Net income — — — — 72.2 — 72.2

Other comprehensive loss, net of tax — — — ( 0.7 ) — — ( 0.7 )

Balance at June 30, 2020

Three Months Ended June 30, 2019

(In millions)

Balance at September 30, 2020 96.0 $ 0.1 $ 2,153.7 $ 2.8 $ ( 557.3 ) $ ( 100.0 ) $ 1,499.3

Three Months Ended September 30, 2019

(In millions) Common Stock Additional

Capital Accumulated

Comprehensive

Treasury Stock

Income Accumulated

Deficit Treasury Stock Total

Stockholders’

Balance at March 31, 2019

Shares Amount

Balance at June 30, 2019 91.2 $ 0.1 $ 1,620.4 $ 2.0 $ ( 834.2 ) $ ( 100.0 ) $ 688.3

Issuance of common stock under equity incentive plans 0.2 — — — — — —

1 unchanged sentence

Share-based compensation expense — — 24.4 — — — 24.4

Other comprehensive income, net of tax

Balance at June 30, 2019

Net income — — — — 45.8 — 45.8

Other comprehensive loss, net of tax — — — ( 1.0 ) — — ( 1.0 )

Balance at September 30, 2019 91.5 $ 0.1 $ 1,651.6 $ 1.0 $ ( 788.4 ) $ ( 100.0 ) $ 764.3

See accompanying notes

Consolidated Statements of Stockholders’ Equity

Six Months Ended June 30, 2020

(In millions)

Nine Months Ended September 30, 2020

(In millions) Common Stock Additional

Capital Accumulated

Comprehensive

Treasury Stock

Income Accumulated

Deficit Treasury Stock Total

Stockholders’

Shares Amount

Balance at December 31, 2019 91.6 $ 0.1 $ 1,675.9 $ 2.3 $ ( 695.7 ) $ ( 100.0 ) $ 882.6

4 unchanged sentences

Share-based compensation expense — — 85.3 — — — 85.3

Net income — — — — 138.4 — 138.4

Other comprehensive income, net of tax — — — 0.5 — — 0.5

Balance at June 30, 2020

Six Months Ended June 30, 2019

(In millions)

Balance at September 30, 2020 96.0 $ 0.1 $ 2,153.7 $ 2.8 $ ( 557.3 ) $ ( 100.0 ) $ 1,499.3

Nine Months Ended September 30, 2019

(In millions) Common Stock Additional

Capital Accumulated

Comprehensive

Treasury Stock

Income Accumulated

Deficit Treasury Stock Total

Stockholders’

Shares Amount

Balance at December 31, 2018 90.0 $ 0.1 $ 1,560.6 $ 1.5 $ ( 798.9 ) $ ( 100.0 ) $ 663.3

3 unchanged sentences

Share-based compensation expense — — 79.1 — — — 79.1

Other comprehensive income, net of tax

Balance at June 30, 2019

Net income — — — — 8.4 — 8.4

Other comprehensive loss, net of tax — — — ( 0.5 ) — — ( 0.5 )

Balance at September 30, 2019 91.5 $ 0.1 $ 1,651.6 $ 1.0 $ ( 788.4 ) $ ( 100.0 ) $ 764.3

See accompanying notes

Consolidated Statements of Cash Flows

Six Months Ended

Nine Months Ended

September 30,

(In millions) 2020 2019

Net income (loss)

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

Net income $ 138.4 $ 8.4

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

Depreciation and amortization 46.7 34.4

6 unchanged sentences

Accounts receivable, net ( 83.8 ) ( 9.2 )

Inventory ( 80.9 ) ( 49.7 )

Prepaid and other assets ( 11.8 ) ( 0.5 )

27 unchanged sentences

Acquisition of property and equipment included in accounts payable and accrued liabilities $ 27.8 $ 22.3

Right-of-use assets obtained in exchange for lease liabilities

Right-of-use assets obtained in exchange for operating lease liabilities $ 34.8 $ 57.2

Right-of-use assets obtained in exchange for finance lease liabilities $ 33.4 $ —

See accompanying notes

10 unchanged sentences

In the opinion of management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included.

Operating results for the three and six months ended June 30, 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 nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

We expect that revenues we generate from the sales of our products will fluctuate from quarter to quarter.

64 unchanged sentences

Payment terms vary by contract type and type of customer and generally range from 30 to 90 days.

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

Accounts receivable as of September 30, 2020 included unbilled accounts receivable of $ 8.3 million.

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

3 unchanged sentences

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2020 2019 2020 2019

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 $ 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.

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

Deferred Cost of Sales

4 unchanged sentences

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

Net Income (Loss) Per Share

Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period.

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.

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.

1 unchanged sentence

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.

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

Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2020 2019 2020 2019

Net income (loss)

Net income (loss) per common share

Net income $ 72.2 $ 45.8 $ 138.4 $ 8.4

Net income per common share

Basic $ 0.75 $ 0.50 $ 1.48 $ 0.09

Diluted $ 0.73 $ 0.50 $ 1.43 $ 0.09

Basic weighted average shares outstanding 95.8 91.3 93.8 90.9

1 unchanged sentence

Restricted stock units 1.0 1.2 1.1 1.3

Warrants 2.7 — 2.0 —

Senior convertible notes — — — —

Diluted weighted average shares outstanding 99.5 92.5 96.9 92.2

In periods of net losses, we exclude potentially dilutive common shares from the computation of the diluted net loss per share for those periods as the effect would be anti-dilutive.

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

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

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2020 2019 2020 2019

Restricted stock units — — — 0.3

Warrants — 5.2 — 5.2

Senior convertible notes 7.2 9.2 8.8 9.2

Total 7.2 14.4 8.8 14.7

Recent Accounting Guidance

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.

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

In addition, the outbreak of the novel strain of coronavirus, SARS-CoV-2 ("COVID-19"), has not had a significant impact on our expected credit losses or our consolidated financial statements during the first nine months of 2020.

We are continuing to monitor the impact of COVID-19 on expected credit losses.

In January 2017, the FASB issued ASU No.

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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.

13 unchanged sentences

We are currently evaluating the impact that this guidance will have on our consolidated financial statements.

In August 2020, the FASB issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) .

This new guidance is intended to reduce the complexity of accounting for convertible instruments.

The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments.

Entities may adopt ASU 2020-06 using either a partial retrospective or fully retrospective method of transition.

This ASU is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

We are currently evaluating the impact that this guidance will have on our consolidated financial statements.

Fair Value Measurements

4 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 June 30, 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 September 30, 2020, classified in accordance with the fair value hierarchy:

Fair Value Measurements Using

(In millions)

(In millions) Level 1 Level 2 Level 3 Total

Cash equivalents $ 463.1 $ 40.0 $ — $ 503.1

9 unchanged sentences

Fair Value Measurements Using

(In millions)

(In millions) Level 1 Level 2 Level 3 Total

Cash equivalents $ 110.1 $ 144.9 $ — $ 255.0

7 unchanged sentences

(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 .

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

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

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

5 unchanged sentences

Fair Value Measurements Using Level 1

(In millions)

June 30, 2020

December 31, 2019

(In millions) September 30, 2020 December 31, 2019

Senior Convertible Notes due 2022 * $ 890.8

2 unchanged sentences

Total fair value of outstanding senior convertible notes $ 3,431.3 $ 2,150.8

* Not Applicable

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

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

3 unchanged sentences

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.

As of September 30, 2020 and December 31, 2019, notional amounts of $ 39.0 million and $ 8.0 million, respectively, were outstanding to hedge certain foreign currency risk.

The resulting impact from the hedging activity on our consolidated financial statements was not significant for the periods presented.

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 and six months ended June 30, 2020 and 2019 .

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

Balance Sheet Details

Short-Term Marketable Securities

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

June 30, 2020

(In millions)

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

September 30, 2020

(In millions) Amortized

Losses Estimated

Debt securities, available for sale:

4 unchanged sentences

December 31, 2019

(In millions)

(In millions) Amortized

Losses Estimated

Debt securities, available for sale:

3 unchanged sentences

Total debt securities, available for sale $ 1,086.7 $ 0.5 $ ( 0.1 ) $ 1,087.1

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.

As of September 30, 2020 and December 31, 2019, all of our debt securities had contractual maturities of less than 12 months.

Gross realized gains and losses on sales of our debt securities during the three and nine months ended September 30, 2020 and 2019 were not significant.

We periodically review our portfolio of debt securities to determine if any investment is impaired due to credit loss or other potential valuation concerns.

For the debt securities where the fair value of the investment is less than the amortized cost basis, we have assessed at the individual security level for various quantitative factors including, but not limited to, the nature of the investments, changes in credit ratings, interest rate fluctuations, industry analyst reports, and the severity of impairment.

Unrealized losses on available-for-sale debt securities as of 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.

Unrealized losses on available-for-sale debt securities as of September 30, 2020 were not significant and were primarily due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities.

Accordingly, we have not recorded an allowance for credit losses.

We do not intend to sell these investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

Inventory was as follows as of the dates indicated:

(In millions)

June 30, 2020

December 31, 2019

(In millions) September 30, 2020 December 31, 2019

Raw materials $ 64.7 $ 64.9

2 unchanged sentences

Total inventory $ 200.7 $ 119.8

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.

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

During the three and nine months ended September 30, 2019, we recorded excess and obsolete inventory charges of $ 6.8 million and $ 10.1 million, respectively, in cost of sales primarily as a result of our ongoing assessment of sales demand and inventory on hand.

Property and Equipment

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

(In millions)

June 30, 2020

December 31, 2019

(In millions) September 30, 2020 December 31, 2019

Building and land (1)

$ 49.1 $ 15.5

Furniture and fixtures 15.0 12.8

3 unchanged sentences

Construction in progress 181.0 132.6

Total cost 598.5 426.3

Less accumulated depreciation and amortization ( 136.7 ) ( 105.0 )

3 unchanged sentences

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

(In millions)

June 30, 2020

December 31, 2019

(In millions) September 30, 2020 December 31, 2019

Accounts payable trade $ 147.6 $ 102.3

6 unchanged sentences

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

(In millions)

June 30, 2020

December 31, 2019

(In millions) September 30, 2020 December 31, 2019

Finance lease obligations

$ 53.7 $ 14.4

Contractual obligations 12.6 —

3 unchanged sentences

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

(In millions)

June 30, 2020

December 31, 2019

(In millions) September 30, 2020 December 31, 2019

Principal amount:

8 unchanged sentences

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

Senior Convertible Notes due 2022 * 2.5 years

Senior Convertible Notes due 2023 3.2 years 4.0 years

Senior Convertible Notes due 2025 5.1 years *

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

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

(In millions)

June 30, 2020

December 31, 2019

(In millions) September 30, 2020 December 31, 2019

Senior Convertible Notes due 2022 * $ 486.2

1 unchanged sentence

Total by which the notes ’ if-converted value exceeds their principal amount

$ 1,293.6 $ 858.6

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

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

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

(Dollars in millions) 2020 2019 2020 2019

1 unchanged sentence

Contractual coupon interest (1)

$ 2.4 $ 2.4 $ 7.1 $ 7.1

Non-cash interest expense:

4 unchanged sentences

Senior Convertible Notes due 2022 (2)

5.1 % 5.1 % 5.1 % 5.1 %

Senior Convertible Notes due 2023 5.6 % 5.6 % 5.6 % 5.6 %

Senior Convertible Notes due 2025 5.5 % * 5.5 % *

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

(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.

* Not Applicable

(2) The effective interest rate presented represents the rate applicable for the period outstanding.

The Senior Convertible Notes due 2022 were fully redeemed by July 31, 2020 as described below.

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

0.75% Senior Convertible Notes due 2022

1 unchanged sentence

The net proceeds from the offering, after deducting initial purchasers’ discounts and costs directly related to the offering, were approximately $ 389.0 million.

The initial conversion rate of the 2022 Notes is 10.0918 shares per $ 1,000 principal amount of notes, which is equivalent to a conversion price of approximately $ 99.09 per share, subject to adjustments.

The 2022 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 2022 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.

The initial conversion rate of the 2022 Notes was 10.0918 shares per $ 1,000 principal amount of notes, which was equivalent to a conversion price of approximately $ 99.09 per share, subject to adjustments.

The 2022 Notes could be settled in cash, stock, or a combination thereof, solely at our discretion.

We used the if-converted method for assumed conversion of the 2022 Notes to compute the weighted average shares of common stock outstanding for diluted earnings per share.

Since upon conversion by the holders we could elect to settle such conversion in shares of our common stock, cash, or a combination thereof, we accounted for the cash conversion option as an equity instrument classified to stockholders’ equity.

As a result, we recognized $ 72.6 million in additional paid-in-capital during 2017.

No principal payments are due on the 2022 Notes prior to maturity.

Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2022 Notes includes customary terms and covenants, including certain events of default after which the 2022 Notes may be due and payable immediately.

No principal payments were due on the 2022 Notes prior to maturity.

Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2022 Notes included customary terms and covenants, including certain events of default after which the 2022 Notes could be due and payable immediately.

Conversion Rights at the Option of the Holders

In the event of a fundamental change (as defined in the indenture related to the 2022 Notes), holders of the 2022 Notes 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 2022 Notes, plus any accrued and unpaid interest.

Holders of the 2022 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 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:

In the event of a fundamental change (as defined in the indenture related to the 2022 Notes), holders of the 2022 Notes had the right to require us to repurchase for cash all or a portion of their notes at a price equal to 100 % of the principal amount of the 2022 Notes, plus any accrued and unpaid interest.

Holders of the 2022 Notes who would convert their notes in connection with a make-whole fundamental change (as defined in the indenture) or following the delivery by DexCom of a notice of redemption were, under certain circumstances, entitled to an increase in the conversion rate.

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

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

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;

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

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

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 June 30, 2020 .

Circumstance (1) listed above occurred during the quarter ended March 31, 2020 and as a result, the 2022 Notes were convertible at the option of the holder from April 1, 2020 through June 30, 2020.

On June 29, 2020, DexCom issued a notice of redemption to the holders of its outstanding 2022 Notes which is described below.

Conversion Rights at Our Option

On or after May 15, 2020, DexCom 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.

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

The redemption price will be equal to 100 % of the principal amount of the 2022 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

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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.

In addition, during the nine months ended September 30, 2020, holders of 2022 Notes with a principal amount of $ 140.0 million exercised their option to convert their 2022 Notes.

We settled these conversions by issuing 1,412,497 shares of our common stock.

As a result of the repurchase and conversions of the 2022 Notes, we recorded 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.

As a result of the repurchase and conversions of the 2022 Notes, we recorded losses on extinguishment of debt of $ 0.5 million for the three months ended September 30, 2020 and $ 5.9 million for the nine months ended September 30, 2020.

The losses on extinguishment of debt included the unamortized debt issuance costs for the 2022 Notes.

On June 29, 2020, we issued a notice of redemption to the holders of our outstanding 2022 Notes pursuant to which we would redeem the outstanding 2022 Notes for cash at a price of 100 % of the principal amount of the 2022 Notes plus accrued and unpaid interest, if any, on July 31, 2020, unless earlier converted.

The principal amount of 2022 Notes actually redeemed for cash was not significant.

0.75% Senior Convertible Notes due 2023

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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).

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.

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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 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.

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

actual conversions during that period were not significant.

Circumstance (1) listed above also occurred during the quarter ended September 30, 2020 and as a result, the 2023 Notes will remain convertible at the option of the holder from October 1, 2020 through December 31, 2020.

Conversion Rights at Our Option

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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.

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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.

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

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

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

(In millions)

June 30, 2020

(In millions) September 30, 2020

Available principal amount $ 200.0

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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 June 30, 2020 .

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

Contingencies

On March 28, 2016, AgaMatrix, Inc., or AgaMatrix, filed a patent infringement lawsuit against us in the U.S.

District Court for the District of Oregon, asserting that certain of our products infringe three patents held by AgaMatrix.

(After filing suit, AgaMatrix reorganized its business and the Court granted AgaMatrix’s motion to substitute the newly created entity WaveForm Technologies, Inc., as the plaintiff following AgaMatrix’s transfer of the three asserted patents to WaveForm.)

We also filed several lawsuits against AgaMatrix.

We filed a patent infringement lawsuit against AgaMatrix in the United States District Court for the Central District of California.

On September 15, 2017, we filed a patent infringement lawsuit against AgaMatrix in the United States District Court for the District of Delaware, asserting certain single-point blood glucose monitoring products of AgaMatrix infringe two patents held by us.

In addition, on September 18, 2017, we filed a Complaint against AgaMatrix in the International Trade Commission, referred to as the ITC, requesting that the ITC institute an investigation and issue an order excluding certain products of AgaMatrix from importation into or sale in the United States based on AgaMatrix’s infringement of the same two patents asserted in the Delaware litigation.

Effective March 9, 2020, we reached a confidential global settlement of all the foregoing litigation and proceedings between us and AgaMatrix and WaveForm, which included a one-time payment that has been made by Dexcom .

We received licenses to certain intellectual property.

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.

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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 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.

Our effective tax rate for the nine months ended September 30, 2020 was 3.7 %, based on an estimated annual effective tax rate of 3.1 % and including the impact of certain return to provision adjustments.

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

As of 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.

As of September 30, 2020, we continue to maintain a full valuation allowance against our net deferred tax assets based on our assessment that it is not more likely than not these future benefits will be realized before expiration.

We analyze our ability to realize our deferred tax assets quarterly, weighing all available positive and negative evidence of future taxable income.

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Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2020 2019 2020 2019

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Total share-based compensation expense included in net income $ 30.7 $ 24.4 $ 85.3 $ 79.1

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 .

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

Restricted Stock Units

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

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

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

Average Aggregate

Grant Date Intrinsic

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

Nonvested at December 31, 2019 1.8 $ 96.63 $ 392.0

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 .

Granted 0.4 296.24

Vested ( 1.0 ) 88.57

Forfeited — 119.25

Nonvested at September 30, 2020 1.2 $ 176.10 $ 500.8

The total vest date fair value of RSUs that vested during the nine months ended September 30, 2020 was $ 305.2 million.

No PSUs vested during that period.

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Revenues by geographic region

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.

During the three and nine months ended September 30, 2020 and 2019, no individual country outside the United States generated revenue that represented more than 10% of our total revenue.

The table below sets forth revenues for the periods shown by our two primary geographical markets, the United States and outside of the United States, based on the geographic location to which we deliver the product.

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Three Months Ended

June 30, 2020

Three Months Ended

June 30, 2019

(Dollars in millions)

September 30, 2020 Three Months Ended

September 30, 2019

(Dollars in millions) Amount % of Total Amount % of Total

United States $ 398.6 80 % $ 308.8 78 %

Outside of the United States 102.3 20 % 87.5 22 %

Six Months Ended

June 30, 2020

Six Months Ended

June 30, 2019

(Dollars in millions)

Total $ 500.9 100 % $ 396.3 100 %

Nine Months Ended

September 30, 2020 Nine Months Ended

September 30, 2019

(Dollars in millions) Amount % of Total Amount % of Total

United States $ 1,058.0 78 % $ 785.6 78 %

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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)

September 30, 2020 Three Months Ended

September 30, 2019

(Dollars in millions) Amount % of Total Amount % of Total

Distributor $ 382.4 76 % $ 270.4 68 %

Direct 118.5 24 % 125.9 32 %

Total $ 500.9 100 % $ 396.3 100 %

Nine Months Ended

September 30, 2020 Nine Months Ended

September 30, 2019

(Dollars in millions) Amount % of Total Amount % of Total

Distributor $ 1,000.2 74 % $ 680.0 67 %

Direct 357.6 26 % 333.2 33 %

Total $ 1,357.8 100 % $ 1,013.2 100 %

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