What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-27 compared with 2020-07-28 · 95 added, 116 removed, 180 unchanged (54% of the section changed)

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Impact of COVID-19 Pandemic

During the first six months of 2020, we were subject to challenging social and economic conditions created as a result of the novel strain of coronavirus, SARS-CoV-2 (“COVID-19”).

During the first nine months of 2020, we were subject to challenging social and economic conditions created as a result of the novel strain of coronavirus, SARS-CoV-2 (“COVID-19”).

The resulting impact of the COVID-19 outbreak created various financial impacts to our operations as a result of taking necessary precautions for essential personnel to operate safely both in person as well as remotely.

Costs incurred include items like incremental payroll costs, consulting support, IT infrastructure and facilities-related costs.

During the second quarter of 2020, we made Dexcom CGM systems available for use in hospital settings and other healthcare facilities to assist frontline workers during the COVID-19 pandemic.

During that time we started to see benefits from the shift to telemedicine and growing appreciation in the market for DexCom’s real-time connectivity for virtual diabetes care as well as patient monitoring in the hospital setting.

However, we also saw some negative impact to new patient additions due to broad stay-at-home orders and as clinicians moved to adopt virtual care models.

We are continuing to monitor these potential positive and negative impacts closely.

As the result of the COVID-19 pandemic, we have made Dexcom CGM systems available for use in hospital settings and other healthcare facilities to assist frontline workers.

The extent of the impact of the COVID-19 outbreak on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers and our sales cycles, employee or industry events, and effect on our vendors, all of which are uncertain and cannot be predicted.

The COVID-19 pandemic and its adverse effects have become more prevalent in the locations where we, our customers, suppliers or third-party business partners

conduct business and as a result, we have begun to experience more pronounced disruptions in our operations.

The COVID-19 pandemic and its adverse effects have become more prevalent in the locations where we, our customers, suppliers or third-party business partners conduct business and as a result, we have begun to experience more pronounced disruptions in our operations.

We may experience constrained supply or curtailed customer demand that could materially adversely impact our business, results of operations and overall financial performance in future periods.

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The accounting policies and estimates that are most critical to a full understanding and evaluation of our reported financial results are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

There were no material changes to our critical accounting policies during the six months ended June 30, 2020 .

There were no material changes to our critical accounting policies during the nine months ended September 30, 2020.

Results of Operations

Financial Overview

Three Months Ended June 30,

(In millions, except per share amounts)

Three Months Ended September 30, 2020 - 2019

(In millions, except per share amounts) 2020 2019 $ Change % Change

Total revenue $ 500.9 $ 396.3 $ 104.6 26 %

Operating income (loss)

Net income (loss)

Basic net income (loss) per share

Diluted net income (loss) per share

* = Not Meaningful

Six Months Ended June 30,

(In millions, except per share amounts)

Gross profit 340.4 246.9 93.5 38

Operating income 94.1 56.0 38.1 68

Net income 72.2 45.8 26.4 58

Basic net income per share 0.75 0.50 0.25 50

Diluted net income per share $ 0.73 $ 0.50 $ 0.23 46 %

Nine Months Ended

September 30, 2020 - 2019

(In millions, except per share amounts) 2020 2019 $ Change % Change

Total revenue $ 1,357.8 $ 1,013.2 $ 344.6 34 %

Operating income (loss)

Net income (loss)

Basic net income (loss) per share

Diluted net income (loss) per share

Gross profit 881.0 622.2 258.8 42 %

Operating income 195.5 40.8 154.7 *

Net income 138.4 8.4 130.0 *

Basic net income per share 1.48 0.09 1.39 *

Diluted net income per share $ 1.43 $ 0.09 $ 1.34 *

* = Not Meaningful

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All of our manufacturing costs are included in cost of sales.

Quarter Ended June 30, 2020 Compared to Quarter Ended June 30, 2019

Three Months Ended June 30,

(In millions)

Quarter Ended September 30, 2020 Compared to Quarter Ended September 30, 2019

Three Months Ended September 30, 2020 - 2019

(In millions) 2020 2019 $ Change % Change

Total revenue $ 500.9 $ 396.3 $ 104.6 26 %

Cost of sales 160.5 149.4 11.1 7 %

Gross profit $ 340.4 $ 246.9 $ 93.5 38 %

Gross profit as a percent of total revenue 68 % 62 %

Total revenue increased $115.4 million or 34% for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 .

Total revenue increased $104.6 million or 26% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

The 2020 revenue increase was primarily driven by increased sales volume of our disposable sensors due to the continued growth of our worldwide customer base, partially offset by pricing pressure due to the evolution of our channel strategy and product mix.

Disposable sensor and other revenue comprised approximately 81% of total revenue and Reusable Hardware revenue comprised approximately 19% of total revenue for the three months ended June 30, 2020 .

Disposable sensor and other revenue comprised approximately 77% of total revenue and Reusable Hardware revenue comprised approximately 23% of total revenue for the three months ended June 30, 2019 .

Cost of sales increased $37.8 million or 29% for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to increased sales volume.

The gross profit of $284.1 million or 63% of total revenue for the three months ended June 30, 2020 increased $77.6 million compared to $206.5 million or 61% of total revenue for the same

period in 2019 .

The increase in gross profit and gross margin in the second quarter of 2020 compared to the second quarter of 2019 were primarily driven by increased revenues and cost savings associated with incremental improvements to product design and manufacturing efficiencies.

These were partially offset by charges associated with discontinuing certain manufacturing equipment and processes as we shift to more automated manufacturing, charges for contract manufacturing contractual obligations, and incremental payroll costs related to the COVID-19 pandemic.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Six Months Ended June 30,

(In millions)

Disposable sensor and other revenue comprised approximately 81% of total revenue and Reusable Hardware revenue comprised approximately 19% of total revenue for the three months ended September 30, 2020.

Disposable sensor and other revenue comprised approximately 80% of total revenue and Reusable Hardware revenue comprised approximately 20% of total revenue for the three months ended September 30, 2019.

Cost of sales increased $11.1 million or 7% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to increased sales volume.

The gross profit of $340.4 million or 68% of total revenue for the three months ended September 30, 2020 increased $93.5 million compared to $246.9 million or 62% of total revenue for the same period in 2019.

The increase in gross profit and gross margin in the third quarter of 2020 compared to the third quarter of 2019 were primarily driven by increased revenues and cost savings associated with incremental improvements to product design and manufacturing efficiencies.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Nine Months Ended September 30, 2020 - 2019

(In millions) 2020 2019 $ Change % Change

Total revenue $ 1,357.8 $ 1,013.2 $ 344.6 34 %

Cost of sales 476.8 391.0 85.8 22 %

Gross profit $ 881.0 $ 622.2 $ 258.8 42 %

Gross profit as a percent of total revenue 65 % 61 %

Total revenue increased $240.0 million or 39% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 .

Total revenue increased $344.6 million or 34% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Disposable sensor and other revenue comprised approximately 80% of total revenue and Reusable Hardware revenue comprised approximately 20% of total revenue for the six months ended June 30, 2020 .

Disposable sensor and other revenue comprised approximately 77% of total revenue and Reusable Hardware revenue comprised approximately 23% of total revenue for the six months ended June 30, 2019 .

Cost of sales increased $74.7 million or 31% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to increased sales volume.

The gross profit of $540.6 million or 63% of total revenue for the six months ended June 30, 2020 increased $165.3 million compared to $375.3 million or 61% of total revenue for the same period in 2019 .

The increase in gross profit and gross margin in the first six months of 2020 compared to the first six months of 2019 were primarily driven by increased revenues and cost savings associated with incremental improvements to product design and manufacturing efficiencies.

These were partially offset by charges associated with discontinuing certain manufacturing equipment and processes as we shift to more automated manufacturing, higher excess and obsolete inventory charges and charges for contract manufacturing contractual obligations, and incremental payroll costs related to the COVID-19 pandemic.

Disposable sensor and other revenue comprised approximately 81% of total revenue and Reusable Hardware revenue comprised approximately 19% of total revenue for the nine months ended September 30, 2020.

Disposable sensor and other revenue comprised approximately 78% of total revenue and Reusable Hardware revenue comprised approximately 22% of total revenue for the nine months ended September 30, 2019.

Cost of sales increased $85.8 million or 22% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to increased sales volume.

The gross profit of $881.0 million or 65% of total revenue for the nine months ended September 30, 2020 increased $258.8 million compared to $622.2 million or 61% of total revenue for the same period in 2019.

The increase in gross profit and gross margin in the first nine months of 2020 compared to the first

nine months of 2019 were primarily driven by increased revenues and cost savings associated with incremental improvements to product design and manufacturing efficiencies.

Operating Expenses

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Other significant expenses include commissions, marketing and advertising, IT software license costs, insurance, professional fees for our outside legal counsel and independent auditors, litigation expenses, patent application expenses and consulting expenses.

Quarter Ended June 30, 2020 Compared to Quarter Ended June 30, 2019

Three Months Ended June 30,

(In millions)

Quarter Ended September 30, 2020 Compared to Quarter Ended September 30, 2019

Three Months Ended September 30, 2020 - 2019

(In millions) 2020 2019 $ Change % Change

Research and development $ 87.7 $ 66.7 $ 21.0 31 %

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as a % of total revenue (1)

(1) In the table above, the sum of the individual percentages may not equal the total due to rounding.

Research and Development Expense.

Research and development expense increased $10.9 million or 16% for the three months ended June 30, 2020 compared to the same period of 2019 .

The increase was primarily due to $7.0 million in additional salaries, bonuses, and payroll-related costs and $2.3 million in additional software costs.

Research and development expense increased $21.0 million or 31% for the three months ended September 30, 2020 compared to the same period of 2019.

The increase was primarily due to $12.7 million in additional salaries, bonuses, and payroll-related costs, $1.8 million in additional software costs, and $1.8 million in additional consulting fees.

We continue to believe that focused investments in research and development are critical to our future growth and competitive position in the marketplace, and to the development of new and updated products and services that are central to our core business strategy.

Selling, General and Administrative Expense.

Selling, general and administrative expense decreased $1.9 million or 1% for the three months ended June 30, 2020 compared to the same period of 2019 .

Significant elements of the decrease in selling, general, and administrative expenses included $6.8 million related to variable compensation plans and $3.6 million in lower restructuring charges associated with our 2019 Restructuring Plan, partially offset by $6.4 million in additional consulting fees and $6.1 million in additional marketing costs.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Six Months Ended June 30,

(In millions)

Selling, general and administrative expense increased $34.4 million or 28% for the three months ended September 30, 2020 compared to the same period of 2019.

Significant elements of the increase in selling, general, and administrative expenses included $20.5 million in additional marketing costs, $12.7 million in additional salaries, bonuses, and payroll-related costs, and $5.3 million in additional consulting fees, partially offset by $3.0 million in lower travel and entertainment costs.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Nine Months Ended September 30, 2020 - 2019

(In millions) 2020 2019 $ Change % Change

Research and development $ 240.7 $ 194.7 $ 46.0 24 %

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as a % of total revenue (1)

(1) In the table above, the sum of the individual percentages may not equal the total due to rounding.

Research and Development Expense.

Research and development expense increased $25.0 million or 20% for the six months ended June 30, 2020 compared to the same period of 2019 .

The increase was primarily due to $14.8 million in additional salaries, bonuses, and payroll-related costs, $3.7 million in additional additional software costs, and $2.8 million in additional facility costs.

Research and development expense increased $46.0 million or 24% for the nine months ended September 30, 2020 compared to the same period of 2019.

The increase was primarily due to $27.5 million in additional salaries, bonuses, and payroll-related costs, $5.5 million in additional additional software costs, and $4.3 million in

additional facility costs.

Selling, General and Administrative Expense.

Selling, general and administrative expense increased $23.7 million or 9% for the six months ended June 30, 2020 compared to the same period of 2019 .

Significant elements of the increase in selling, general, and administrative expenses included $14.3 million in additional marketing costs, $8.1 million in additional consulting fees, $7.8 million in additional salaries, bonuses, and payroll-related costs and $5.0 million in additional litigation costs, partially offset by $6.8 million in lower restructuring charges associated with our 2019 Restructuring Plan and $5.5 million related to variable compensation plans.

Selling, general and administrative expense increased $58.1 million or 15% for the nine months ended September 30, 2020 compared to the same period of 2019.

Significant elements of the increase in selling, general, and administrative expenses included $34.8 million in additional marketing costs, $20.2 million in additional salaries, bonuses, and payroll-related costs, $13.6 million in additional consulting fees, and $7.4 million in additional software costs, partially offset by $7.7 million in lower restructuring charges associated with our 2019 Restructuring Plan, $6.1 million related to variable compensation plans and $4.6 million in lower travel and entertainment costs.

Non-Operating Income and Expenses

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Interest expense is comprised primarily of costs related to our senior convertible notes.

Interest expense increased $5.3 million to $20.3 million for the three months ended June 30, 2020 compared to $15.0 million for the same period of 2019 .

Interest expense increased $5.8 million to $35.7 million for the six months ended June 30, 2020 compared to $29.9 million for the same period of 2019 .

The increase in interest expense for the periods presented is primarily related to the issuance of our 2025 Notes.

Interest expense increased $9.3 million to $24.4 million for the three months ended September 30, 2020 compared to $15.1 million for the same period of 2019.

Interest expense increased $15.1 million to $60.1 million for the nine months ended September 30, 2020 compared to $45.0 million for the same period of 2019.

The increase in interest expense for the periods presented is primarily related to the May 2020 issuance of our 2025 Notes, partially offset by the repurchase, conversion and redemption of all of our 2022 Notes during the first seven months of 2020.

Loss on Extinguishment of Debt

We recorded a $5.4 million loss on extinguishment of debt during the three months ended June 30, 2020 in connection with the repurchase and conversions of a portion of our 2022 Notes.

We recorded losses on extinguishment of debt of $0.5 million and $5.9 million during the three and nine months ended September 30, 2020 in connection with the repurchase and conversions of our 2022 Notes.

See Note 4 to the consolidated financial statements in Part I, Item 1 of this Quarterly Report for more information about these transactions.

Loss from Equity Investments

The loss from equity investments of $4.2 million for the six months ended June 30, 2019 consisted solely of realized losses on our equity investment in Tandem Diabetes Care, Inc.

The loss from equity investments of $4.2 million for the nine months ended September 30, 2019 consisted solely of realized losses on our equity investment in Tandem Diabetes Care, Inc.

We sold all of our remaining equity investment in Tandem during the first quarter of 2019.

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Interest income is related to our marketable debt securities portfolio.

Interest income was $3.6 million and $9.6 million for the three and six months ended June 30, 2020 , respectively, compared to $6.8 million and $14.1 million for the three and six months ended June 30, 2019 , respectively.

Interest income was $2.4 million and $12.0 million for the three and nine months ended September 30, 2020, respectively, compared to $7.4 million and $21.5 million for the three and nine months ended September 30, 2019, respectively.

The decrease in interest income was primarily related to a decline in market interest rates, partially offset by an increase in the average invested balances during 2020 compared to 2019.

Other income (expense) for the three and six months ended June 30, 2020 and 2019 consists primarily of foreign currency transaction gains and losses due to the effects of foreign currency fluctuations.

Other income (expense) for the three and nine months ended September 30, 2020 and 2019 consists primarily of foreign currency transaction gains and losses due to the effects of foreign currency fluctuations.

Income Tax Expense

We recorded an income tax benefit of $0.1 million on pre-tax income of $46.2 million for the three months ended June 30, 2020 compared to income tax expense of $1.2 million on a pre-tax loss of 9.3 million for the three months ended June 30, 2019 .

We recorded income tax expense of $2.4 million on pre-tax income of $68.6 million for the six months ended June 30, 2020 compared to income tax expense of $1.5 million on a pre-tax loss of $35.9 million for the six months ended June 30, 2019 .

The income tax benefit for the three months ended June 30, 2020 is primarily related to an increase in forecasted U.S.

income causing an increase in state tax expense, offset by a reversal of foreign income tax expense recognized in the prior quarter.

Income tax expense for the three months ended June 30, 2019 is primarily related to foreign income tax in jurisdictions with current taxable income.

Income tax expense for the six months ended June 30, 2020 is primarily related to state and foreign income taxes in jurisdictions where we have no operating losses.

Income tax expense for the six months ended June 30, 2019 is primarily related to foreign income taxes in jurisdictions with current taxable income.

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

We recorded an income tax expense of $2.9 million on pre-tax income of $75.1 million for the three months ended September 30, 2020 compared to income tax expense of $0.0 million on pre-tax income of $45.8 million for the three months ended September 30, 2019.

We recorded income tax expense of $5.3 million on pre-tax income of $143.7 million for the nine months ended September 30, 2020 compared to income tax expense of $1.5 million on pre-tax income of $9.9 million for the nine months ended September 30, 2019.

The income tax expense for the three and nine months ended September 30, 2020 and for the prior periods is attributable to foreign and state income tax expense as a result of current taxable income in those jurisdictions where we have no net operating loss carryforwards.

We maintain a full valuation allowance against our net deferred tax assets as of September 30, 2020 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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We will continue to monitor and manage our financial exposures due to exchange rate fluctuations as an integral part of our overall risk management program.

Our cash, cash equivalents and short-term marketable securities totaled $2.51 billion as of June 30, 2020 .

Our cash, cash equivalents and short-term marketable securities totaled $2.60 billion as of September 30, 2020.

None of those funds were restricted and approximately 98% of those funds were located in the United States.

We intend to reinvest a substantial portion of our foreign earnings in those businesses, and we currently do not anticipate that we will need funds generated by foreign operations to fund our domestic ones.

Our cash, cash equivalents and short-term marketable securities as of June 30, 2020 increased by $975.5 million from December 31, 2019 due to the factors described in “Cash Flows” below.

We intend to reinvest a substantial portion

of our foreign earnings in those businesses, and we currently do not anticipate that we will need funds generated by foreign operations to fund our domestic ones.

Our cash, cash equivalents and short-term marketable securities as of September 30, 2020 increased by $1.07 billion from December 31, 2019 due to the factors described in “Cash Flows” below.

We believe that our cash, cash equivalents, and marketable securities balances, projected cash contributions from our commercial operations, and our $200.0 million revolving line of credit, of which $194.6 million remains available, will be sufficient to meet our anticipated seasonal working capital needs, capital expenditure requirements, contractual obligations, commitments, debt service requirements, and other liquidity requirements associated with our operations for at least the next 12 months.

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Revolving loans under the Credit Agreement will be available for general corporate purposes, including working capital and capital expenditures.

As of June 30, 2020 , we had no outstanding borrowings, $5.4 million in outstanding letters of credit, and a total available balance of $194.6 million under the Credit Agreement.

As of September 30, 2020, we had no outstanding borrowings, $5.4 million in outstanding letters of credit, and a total available balance of $194.6 million under the Credit Agreement.

We monitor counterparty risk associated with the institutional lenders that are providing this credit facility.

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Senior Convertible Notes

The following table summarizes our outstanding senior convertible note obligations as of June 30, 2020 :

Issuance Date

(in millions)

Maturity Date

Initial Conversion

The following table summarizes our outstanding senior convertible note obligations as of September 30, 2020:

Issuance Date Coupon Rate Aggregate

(in millions) Maturity Date Initial Conversion

Rate per Share of

Conversion Price per Share of Common Stock

November 2018

December 1, 2023

November 15, 2025

We used a portion of the net proceeds from the offering of the 2022 Notes to repay $75.0 million of borrowings under our existing credit facility in 2017.

Common Stock Conversion Price per Share of Common Stock

November 2018 0.75% $ 850.0 December 1, 2023 6.0869 $164.29

May 2020 0.25% 1,207.5 November 15, 2025 1.6655 $600.42

We used a portion of the net proceeds from the offering of the 2023 Notes to repurchase 0.8 million shares of our common stock for $100.0 million in 2018.

We used $282.6 million of the net proceeds from the offering of the 2025 Notes to repurchase a portion of our 2022 Notes;

the remaining 2022 Notes were converted for shares of our common stock during 2020.

We intend to use the remainder of the net proceeds from the Notes offerings for general corporate purposes and capital expenditures, including working capital needs.

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however, we do not have any significant commitments with respect to any such acquisitions or investments at this time.

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.

2023 Note Hedge

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The 2023 Warrants require net share settlement and a pro-rated number of warrants will expire on each of the 60 scheduled trading days starting on March 1, 2024.

See Note 4 to the consolidated financial statements in Part I, Item 1 of this Quarterly Report for more information about the terms of the Credit Agreement, the senior convertible notes , the 2023 Note Hedge, and the 2023 Warrants.

See Note 4 to the consolidated financial statements in Part I, Item 1 of this Quarterly Report for more information about the terms of the Credit Agreement, our senior convertible notes, the 2023 Note Hedge, and the 2023 Warrants.

The following table sets forth a summary of our cash flows for the periods indicated.

See the consolidated financial statements in Part I, Item 1 of this Quarterly Report for complete consolidated statements of cash flows for these periods.

Six Months Ended

Nine Months Ended

September 30, Change

(In millions) 2020 2019 2020 - 2019

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Increase (decrease) in cash, cash equivalents and restricted cash $ 227.4 $ (741.0) $ 968.4

As of June 30, 2020 , we had $2.51 billion in cash, cash equivalents and short-term marketable securities, which is an increase of $975.5 million compared to $1.53 billion as of December 31, 2019 .

The primary cash flows during the six months ended June 30, 2020 and 2019 are described below.

As of September 30, 2020, we had $2.60 billion in cash, cash equivalents and short-term marketable securities, which is an increase of $1.07 billion compared to $1.53 billion as of December 31, 2019.

The primary cash flows during the nine months ended September 30, 2020 and 2019 are described below.

Operating Cash Flows

Net cash provided by operating activities during the six months ended June 30, 2020 was comprised of net income of $66.2 million and net non-cash adjustments of $122.1 million , partially offset by $32.3 million of net changes in working capital balances.

Net non-cash adjustments were primarily related to share-based compensation, depreciation and amortization, and non-cash interest expense for our senior convertible notes .

Net cash provided by operating activities during the six months ended June 30, 2019 was comprised of a net loss of $37.4 million , net non-cash adjustments of $103.0 million , and $10.7 million of net changes in working capital balances.

Net cash provided by operating activities during the nine months ended September 30, 2020 was comprised of net income of $138.4 million and net non-cash adjustments of $195.4 million, partially offset by $30.2 million of net changes in working capital balances.

Net non-cash adjustments were primarily related to share-based compensation, depreciation and amortization, non-cash interest expense for our senior convertible notes and loss on extinguishment of debt on our 2022 Notes.

Net cash provided by operating activities during the nine months ended September 30, 2019 was comprised of a net income of $8.4 million, net non-cash adjustments of $155.3 million, and $7.1 million of net changes in working capital balances.

Net non-cash adjustments were primarily related to share-based compensation, non-cash interest expense for our senior convertible notes, depreciation and amortization, and a loss on the sale of our remaining equity investment in Tandem Diabetes Care, Inc.

Investing Cash Flows

Net cash used in investing activities during the six months ended June 30, 2020 was primarily comprised of $890.5 million for net purchases of marketable securities and $91.4 million for capital expenditures.

Net cash used in investing activities during the six months ended June 30, 2019 was primarily comprised of $421.9 million for net purchases of marketable securities and $86.2 million for capital expenditures.

Net cash used in investing activities during the nine months ended September 30, 2020 was primarily comprised of $844.6 million for net purchases of marketable securities and $138.8 million for capital expenditures.

Net cash used in investing activities during the nine months ended September 30, 2019 was primarily comprised of $783.8 million for net purchases of marketable securities and $135.9 million for capital expenditures.

Financing Cash Flows

Net cash provided by financing activities during the six months ended June 30, 2020 was primarily comprised of $1.19 billion in net proceeds from the issuance of our 2025 Notes and $6.7 million in proceeds from the issuance of common stock under our employee stock plans, partially offset by $282.6 million for the repurchase of a portion of our 2022 Notes.

Net cash provided by financing activities during the six months ended June 30, 2019 was primarily comprised of $5.1 million from the issuance of common stock under our employee stock plans.

Net cash provided by financing activities during the nine months ended September 30, 2020 was primarily comprised of $1.19 billion in net proceeds from the issuance of our 2025 Notes and $15.3 million in proceeds from the issuance of common stock under our employee stock plans, partially offset by $282.6 million for the repurchase of a portion of our 2022 Notes.

Net cash provided by financing activities during the nine months ended September 30, 2019 was primarily comprised of $11.9 million from the issuance of common stock under our employee stock plans.

Contractual Obligations

The following table summarizes the future expected payment obligations related to our outstanding contractual obligations as of June 30, 2020 :

(in millions)

Senior convertible notes (1)

Lease obligations (2)

We issued senior convertible notes in May and June 2017, November 2018, and May 2020.

The obligations presented above include both principal and interest for these notes.

Although these notes mature in 2022, 2023, and 2025, they may be converted into cash and shares of our common stock prior to maturity if certain conditions are met.

Any conversion prior to maturity can result in repayment of the principal amounts sooner than the scheduled repayments as indicated in the table.

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 on July 31, 2020, unless earlier converted.

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

The amount shown in the table as due in less than one year does not include the $37.2 million principal amount of 2022 Notes outstanding at June 30, 2020 .

See “Liquidity and Capital Resources” above and Note 4 to the consolidated financial statements in Part I, Item 1 of this Quarterly Report for further discussion of the terms of our senior convertible notes .

Includes a finance lease obligation related to our Mesa, Arizona facility.

See Note 6 to the consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019 for more information.

We are also party to various purchase arrangements related to components used in manufacturing and research and development activities.

As of June 30, 2020 , we had approximately $165 million of open purchase orders and contractual obligations in the ordinary course of business, most of which are due within one year.

We presented our contractual obligations as of June 30, 2020 in our Quarterly Report on Form 10-Q for the six months then ended.

There were no significant changes to our contractual obligations in the three months ended September 30, 2020.

Off-Balance Sheet Arrangements

As of June 30, 2020 , we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

As of September 30, 2020, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Recent Accounting Guidance

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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 2. Management’s Discussion and Analysis