What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-11 compared with 2020-02-13 · 104 added, 87 removed, 220 unchanged (46% of the section changed)

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Forward-looking statements are made as of the date of this report, deal with future events, are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in those forward looking statements.

The risks and uncertainties include, among other things, impacts on our business due to health pandemics or other contagious outbreaks, such as the current COVID-19 pandemic.

The risks and uncertainties that could cause actual results to differ materially are more fully described under “Risk Factors” and elsewhere in this report and in our other reports filed with the SEC.

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and its subsidiaries.

We sell our reusable transmitter and receiver, collectively referred to as “Reusable Hardware” and disposable sensors through a direct sales force in the United States, Canada and some countries in Europe, and through distribution arrangements in the United States, and certain countries in Africa, Asia, Europe, Latin America, and the Middle East, as well as Australia, Canada, and New Zealand .

Most of our distributors stock our products and fulfill orders for our products from their inventory.

We have built a direct sales organization in the United States, Canada and certain countries in Europe to call on health care professionals, such as endocrinologists, physicians and diabetes educators, who can educate and influence patient adoption of continuous glucose monitoring.

To complement our direct sales efforts, we have entered into distribution arrangements in the United States, and certain countries in Africa, Asia, Europe, Latin America, and the Middle East, as well as Australia, Canada, and New Zealand that allow distributors to sell our products.

We plan to develop future generations of technologies that are focused on improved performance and convenience and that will enable intelligent insulin administration.

We also are aggressively exploring how to extend our offerings to other opportunities, including for people with Type 2 diabetes that are non-insulin using, people with pre-diabetes, people who are obese, people who are pregnant, and people with diabetes in the hospital setting.

We will continue to develop a networked platform with open architecture, connectivity and transmitters capable of communicating with other devices and software systems.

Over the longer term, we plan to continue to develop and improve networked platforms with open architecture, connectivity and transmitters capable of communicating with other devices.

We also intend to expand our efforts to accumulate CGM patient data and metrics and apply predictive modeling and machine learning to generate interactive CGM insights that can inform patient behavior.

For discussion related to the results of operations and changes in financial condition for fiscal 2018 compared to fiscal 2017 refer to Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2018 Form 10-K, which was filed with the United States Securities and Exchange Commission on February 21, 2019.

We also continue to pursue and support development partnerships with insulin pump companies and companies or institutions developing insulin delivery systems, including automated insulin delivery systems.

We are also exploring how to extend our offerings to other opportunities, including for people with Type 2 diabetes that are non-insulin using, people with pre-diabetes, people who are obese, people who are pregnant, and people in the hospital setting.

Eventually, we may apply our technological expertise to products beyond glucose monitoring.

For discussion related to the results of operations and changes in financial condition for fiscal 2019 compared to fiscal 2018 refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our fiscal 2019 Form 10-K, which was filed with the United States Securities and Exchange Commission on February 13, 2020.

Impact of COVID-19 Pandemic

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

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

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

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

The extent of the impact of the COVID-19 outbreak on our operational and

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

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

We have experienced and may experience constrained supply or curtailed customer demand, including due to loss of coverage to our products, that could materially adversely impact our business, results of operations and overall financial performance in future periods.

We currently utilize third parties to, among other things, manufacture components and materials for our devices, and to provide services such as sterilization services and we purchase these materials and services from numerous suppliers worldwide.

The global COVID-19 pandemic has and may continue to have an adverse impact on our manufacturing and distribution capabilities.

Disruptions relating to the COVID-19 pandemic, including current shelter-in-place orders in the U.S.

and other countries, could prevent employees, suppliers, distributors, and others from accessing manufacturing facilities and from transporting our products or the components required to manufacture our products.

For example, we have experienced some supply chain disruption due to the global restrictions resulting from the COVID-19 pandemic in the manufacture of our next-generation CGM product.

Further, worldwide supply chain disruption relating to the COVID-19 pandemic has resulted in product shortages that has and may continue to impact our ability to manufacture our devices.

As of the filing date of this Form 10-K, the extent to which COVID-19 may impact our financial condition or results of operations or guidance is uncertain.

The effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods.

See “Risk Factors” in Part I, Item 1A of this Annual Report for further discussion of the possible impact of the COVID-19 pandemic on our business.

Critical Accounting Policies and Estimates

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Revenue Recognition

We generate our revenue from the sale of our Reusable Hardware and disposable sensors.

Disposable sensors are sold separately.

We also provide free-of-charge software and mobile applications for use with our Reusable Hardware and disposable sensors.

In determining how revenue should be recognized, a five-step process is used, which requires judgment and estimates within the revenue recognition process.

The primary judgments include identifying the performance obligations in the contract and determining whether the performance obligations are distinct.

We generate our revenue primarily from the sale of our Reusable Hardware and disposable sensors.

We generally recognize revenue when control is transferred to our customers in an amount that reflects the net consideration to which we expect to be entitled.

We exercise significant judgment when we determine the transaction price, including variable consideration adjustments.

Transaction price is typically based on the contracted rates less an estimate of claim denials and historical reimbursement experience by payor, which include current and future expectations regarding reimbursement rates and payor mix.

Variable consideration includes but is not limited to rebates, chargebacks, consideration payable to customers such as specialty distributor and wholesaler fees, product returns allowance, prompt payment discounts, and various other promotional or incentive arrangements.

Calculating certain of these items involves significant estimates and judgments based on sales or invoice data, contractual terms and historical utilization rates.

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

Estimates associated with rebates on products sold through our distributors under pharmacy benefits are the most significant component of our variable consideration estimates and most at risk for changes between the recording of the accrual estimate and its ultimate settlement, an interval that can generally range up to one year.

Due to this time lag, in any given period, our adjustments to actuals can incorporate changes of estimates related to prior periods.

We review the adequacy of our estimates for transaction price adjustments and variable consideration at each reporting date.

If the actual amounts of consideration that we receive differ from our estimates, we would adjust our estimates and that would affect reported revenue in the period that such variances become known.

If any of these judgments were to change, it could cause a material increase or decrease in the amount of revenue we report in a particular period.

We generally recognize revenue when control is transferred to our customers in an amount that reflects the net consideration to which we expect to be entitled.

We recognize revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

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

For more information, see “Revenue Recognition” in Note 1 to the consolidated financial statements in Part II, Item 8 of this Annual Report.

Disaggregation of Revenue.

We disaggregate revenue by geographic region and by major sales channel.

We have determined that disaggregating revenue into these categories achieves the ASC Topic 606 disclosure objectives of depicting how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Reconciliations of revenue disaggregated by geographic location and by major sales channel to total revenue are provided in Note 10 to the consolidated financial statements in Part II, Item 8 of this Annual Report.

Share-Based Compensation

Share-based compensation expense is measured at the grant date based on the estimated fair value of the award and is recognized straight-line over the requisite service period of the individual grants, which typically equals the vesting period.

We value time-based Restricted Stock Units (“RSUs”) at the date of grant using the intrinsic value method.

We value time-based Restricted Stock Units or RSUs at the date of grant using the intrinsic value method.

Certain RSUs granted to senior management vest based on the achievement of pre-established performance or market goals.

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Historically, our inventory reserves have been adequate to cover our actual losses.

However, if actual product life cycles, product quality or market conditions differ from our assumptions, additional inventory adjustments that would increase cost of goods sold could be required.

However, if actual product life cycles, product quality or

market conditions differ from our assumptions, additional inventory adjustments that would increase cost of goods sold could be required.

We estimate our income taxes based on the various jurisdictions where we conduct business.

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Significant judgment is required to evaluate the need for a valuation allowance against deferred tax assets.

We review all available positive and negative evidence, including projections of pre-tax book income, earnings history, and reliability of forecasting.

We review all available positive and negative evidence, including projections of pre-tax book income, earnings history, reliability of forecasting, and reversal of temporary differences.

A valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized.

As of December 31, 2019 , we have maintained a full valuation allowance on our deferred tax assets since inception based on our historical losses and the uncertainty of generating future taxable income to utilize our loss and credit carryforwards.

A future release of our valuation allowance will result in a material tax benefit recognized in the quarter of the release.

Realization of deferred tax assets is dependent upon future earnings in applicable tax jurisdictions.

Prior to 2020, due to our US operating losses and earnings volatility in previous years, which did not allow sustainable profitability, we had established and maintained a full valuation allowance on our deferred tax assets.

In 2020, we achieved three years cumulative income and expect to continue that profitability in future years.

We analyzed both positive and negative evidence, and as a result released our valuation allowance on our deferred tax assets.

We maintain the valuation allowance on our California research and development tax credits and certain foreign intangible assets, as it is more likely than not that those deferred tax assets will not be realized.

We recognize and measure benefits for uncertain tax positions using a two-step approach.

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Twelve Months Ended December 31, 2020 - 2019

(In millions)

(In millions) 2020 2019 $ Change % Change

Total revenue $ 1,926.7 $ 1,476.0 $ 450.7 31 %

Operating income (loss)

Net income (loss)

Basic net income (loss) per share

Diluted net income (loss) per share

Gross profit 1,280.1 931.5 348.6 37 %

Operating income 299.5 142.3 157.2 *

Net income 493.6 101.1 392.5 *

Basic net income per share 5.23 1.11 4.12 *

Diluted net income per share $ 5.06 $ 1.10 $ 3.96 *

* Not meaningful

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Twelve Months Ended December 31, 2020 - 2019

(In millions)

(In millions) 2020 2019 $ Change % Change

Total revenue $ 1,926.7 $ 1,476.0 $ 450.7 31 %

Cost of sales 646.6 544.5 102.1 19 %

Gross profit $ 1,280.1 $ 931.5 $ 348.6 37 %

Gross profit as a percent of total revenue 66 % 63 %

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Cost of sales includes direct labor and materials costs related to each product sold or produced, including assembly, test labor and scrap, as well as factory overhead supporting our manufacturing operations.

Factory overhead includes facilities, material procurement and control, manufacturing engineering, quality assurance, supervision and management.

Factory overhead includes facilities,

material procurement and control, manufacturing engineering, quality assurance, supervision and management.

These costs are primarily salary, fringe benefits, share-based compensation, facility expense, supplies and purchased services.

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Cost of sales increased $102.1 million or 19% for the twelve months ended December 31, 2020 compared to the twelve months ended December 31, 2019 primarily due to increased sales volume.

The gross profit of $931.5 million or 63% of total revenue for the twelve months ended December 31, 2019 increased $267.6 million compared to $663.9 million or 64% of total revenue for the same period in 2018 .

The 2019 increase in gross profit dollars was primarily driven by increased revenues, partially offset by higher warranty, freight, and excess and obsolete inventory charges compared to 2018 .

The decrease in gross margin percentage is primarily a function of the evolution of our channel strategy and product mix as we launch new products and expand internationally.

Our gross martin percentage for the twelve months ended December 31, 2019 was also impacted by investments to scale infrastructure as we drove significant production capacity expansion in 2019.

The gross profit of $1.28 billion or 66% of total revenue for the twelve months ended December 31, 2020 increased $348.6 million compared to $931.5 million or 63% of total revenue for the same period in 2019.

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

Operating Expenses

Twelve Months Ended December 31, 2020 - 2019

(In millions)

(In millions) 2020 2019 $ Change % Change

Research and development $ 359.9 $ 273.5 $ 86.4 32 %

as a % of total revenue 19 % 19 %

Collaborative research and development fee

as a % of total revenue

Selling, general and administrative 620.7 515.7 105.0 20 %

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as a % of total revenue 51 % 53 %

* = Not Meaningful

Our research and development expenses primarily consist of engineering and research expenses related to our continuous glucose monitoring technology, clinical trials, regulatory expenses, quality assurance programs, materials and products for clinical trials.

Research and development expenses are primarily related to employee compensation, including salary, fringe

benefits, share-based compensation, and temporary employee expenses.

Research and development expenses are primarily related to employee compensation, including salary, fringe benefits, share-based compensation, and temporary employee expenses.

We also incur significant expenses to operate our clinical trials including clinical site reimbursement, clinical trial product and associated travel expenses.

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Research and development expense increased $86.4 million or 32% for the twelve months ended December 31, 2020 compared to the same period of 2019.

The increase was primarily due to $39.7 million in additional salaries, bonus, and payroll-related costs, $11.1 million in additional supplies costs, and $7.3 million in additional facilities costs.

The increase was primarily due to $38.6 million in additional salaries, bonus, and payroll-related costs, $14.1 million in additional consulting fees, $7.5 million from losses on the disposal of assets primarily driven by automation of our production capabilities, and $7.4 million in additional software costs.

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.

Collaborative Research and Development Fee.

Collaborative research and development fee decreased $217.7 million for the twelve months ended December 31, 2019 compared to the same period of 2018 .

During 2018 , we recorded a one time $217.7 million collaborative research and development charge related to our collaboration and license agreement with Verily.

See Note 2 to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information about this collaboration agreement.

Selling, General and Administrative Expense.

Selling, general and administrative expense increased $105.0 million or 20% for the twelve months ended December 31, 2020 compared to the same period of 2019.

The increase was primarily due to higher sales-related costs commensurate with revenue growth and the continued commercialization of our products in the United States and international markets.

Significant elements of the increase in selling, general, and administrative expenses included $20.5 million in additional third party service provider fees, $13.1 million in additional salaries, bonus and payroll-related costs, $11.0 million in additional consulting fees, $9.3 million in additional marketing costs, $8.6 million in additional depreciation, and $7.5 million in restructuring charges.

Significant elements of the increase in selling, general, and administrative expenses included $60.1 million in additional advertising and marketing costs, $35.0 million in additional salaries, bonuses, and payroll-related costs, and $16.5 million in additional consulting fees, partially offset by $7.8 million in lower restructuring charges associated with our 2019 Restructuring Plan and $6.5 million in lower travel and entertainment costs.

Non-Operating Income and Expenses

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Interest expense increased $24.4 million to $84.7 million for the twelve months ended December 31, 2020 compared to $60.3 million for the same period of 2019.

The increase was primarily due to an additional interest expense for our 2023 Notes, which were issued in November 2018.

The increase was primarily due 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 loss on extinguishment of debt of $5.9 million during the twelve months ended December 31, 2020 in connection with the repurchase and conversions of our 2022 Notes.

See Note 5 to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information about these transactions.

Income/Loss from Equity Investments

Loss from equity investments of $4.2 million for the twelve months ended December 31, 2019 and income from equity investments of $80.1 million for the twelve months ended months ended December 31, 2018 consist solely of realized and unrealized gains and losses on our equity investment in Tandem Diabetes Care, Inc.

Loss from equity investments of $4.2 million for the twelve months ended December 31, 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.

Interest and Other Income (Expense), Net

Interest income was $28.4 million and $10.5 million for the twelve months ended December 31, 2019 and 2018 , respectively, and is related to our marketable debt securities portfolio.

The increase in interest income was primarily related to an increase in the average invested balances during 2019 compared to 2018 .

Other income (expense) for the twelve months ended December 31, 2019 and 2018 consists primarily of foreign currency transaction gains and losses due to the effects of foreign currency fluctuations.

Income Tax Expense

We recorded pre-tax income for the twelve months ended December 31, 2019 , and pre-tax loss for the twelve months ended December 31, 2018 .

The income tax expense we recorded for 2019 is primarily attributable to state and foreign income tax expense.

Interest income is related to our marketable debt securities portfolio.

Interest income was $13.2 million and $28.4 million for the twelve months ended December 31, 2020 and 2019, respectively.

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

Other income (expense) for the twelve months ended December 31, 2020 and December 31, 2019 consists primarily of foreign currency transaction gains and losses due to the effects of foreign currency fluctuations.

Income Tax Expense/Benefit

We recorded pre-tax income for the twelve months ended December 31, 2020 and December 31, 2019.

The income tax benefit we recorded for 2020 is primarily attributable to the release of our valuation allowance on specific deferred tax assets.

The nominal income tax expense we recorded for 2019 is primarily due to withholding and other income tax expenses in profitable jurisdictions.

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dollar and foreign currencies, primarily the British Pound, the Euro, and the Canadian Dollar, could adversely affect our financial results, including our revenues, revenue growth rates, gross margins, income and losses as well as assets and liabilities.

We currently engage in limited hedging transactions to reduce foreign currency risks on certain intercompany balances.

We currently engage in hedging transactions to reduce foreign currency risks.

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 $1,533.3 million as of December 31, 2019 .

Our cash, cash equivalents and short-term marketable securities totaled $2.71 billion as of December 31, 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 December 31, 2019 increased by $147.7 million from December 31, 2018 due to the factors described in “Cash Flows” below.

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.

Our cash, cash equivalents and short-term marketable securities as of December 31, 2020 increased by $1.18 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 $193.7 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.

Revolving Credit Agreement

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Senior Convertible Notes

The following table summarizes our outstanding convertible note obligations:

Issuance Date

Aggregate Principal (in millions)

Maturity Date

Initial Conversion rate per share of common stock

Conversion Price per Share of Common Stock

November 2018

December 1, 2023

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

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

The remainder of the net proceeds from the Notes offerings are available for general corporate purposes and capital expenditures, including working capital needs.

The following table summarizes our outstanding senior convertible note obligations as of December 31, 2020:

Issuance Date Coupon Rate Aggregate Principal (in millions) Maturity Date Initial Conversion Rate per Share of 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.

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

We may also use the net proceeds to expand our current business through in-licensing or acquisitions of, or investments in, other businesses, products or technologies;

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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 5 to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information about the terms of the Credit Agreement, 2022 Notes and the 2023 Notes, the 2023 Note Hedge, and the 2023 Warrants.

See Note 5 to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information about the terms of the Credit Agreement, the 2023 Notes and the 2025 Notes, the 2023 Note Hedge, and the 2023 Warrants.

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

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Twelve Months Ended

December 31, Change

(In millions) 2020 2019 2020 - 2019

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Increase (decrease) in cash, cash equivalents and restricted cash $ 371.8 $ (690.7) $ 1,062.5

As of December 31, 2019 , we had $1,533.3 million in cash, cash equivalents and short-term marketable securities, which is an increase of $147.7 million compared to $1,385.6 million as of December 31, 2018 .

As of December 31, 2020, we had $2.71 billion in cash, cash equivalents and short-term marketable securities, which is an an increase of $1.18 billion compared to $1.53 billion as of December 31, 2019.

The primary cash flows during the twelve months ended December 31, 2020 and 2019 are described below.

Operating Cash Flows

Net cash provided by operating activities during 2019 was comprised of net income of $101.1 million , net adjustments of $207.3 million and $6.1 million of changes in working capital balances.

Net cash provided by operating activities during 2020 was comprised of net income of $493.6 million and net adjustments of $288.3 million 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, partially offset by $285.5 million net benefit to tax expense associated with the release of the valuation allowance related to deferred tax assets and $20.8 million of changes in working capital balances.

Net cash provided by operating activities during 2019 was comprised of a net income of $101.1 million, offset by $207.3 million of net adjustments and $6.1 million of changes in working capital balances.

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

Net cash provided by operating activities during 2018 was comprised of a net loss of $127.1 million , offset by $291.2 million of net adjustments and $40.9 million of changes in working capital balances.

Net adjustments were primarily related to share-based compensation, depreciation and amortization, and non-cash interest expense for our senior convertible notes, and realized and unrealized gains on our equity investment in Tandem Diabetes Care, Inc.

Investing Cash Flows

Net cash used in investing activities during 2019 was primarily comprised of $835.2 million for net purchases of marketable securities and other equity investments and $180.0 million for capital expenditures.

Net cash used in investing activities during 2018 was primarily comprised of $61.4 million for net purchases of marketable securities and other equity investments and $67.1 million for capital expenditures.

Net cash used in investing activities during 2020 was primarily comprised of $807.7 million for net purchases of marketable securities and $199.0 million for capital expenditures.

Net cash used in investing activities during 2019 was primarily comprised of $834.0 million for net purchases of marketable securities and $180.0 million for capital expenditures.

Financing Cash Flows

Net cash provided by financing activities during 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 2019 was primarily comprised of $11.9 million in proceeds from the issuance of common stock under our employee stock plans.

Net cash provided by financing activities during 2018 was primarily comprised of $836.6 million in net proceeds from the issuance of our 2023 Notes and $183.8 million in proceeds from the sale of the 2023 Warrants, partially offset by $218.9 million for the purchase of the 2023 Note Hedge and $100.0 million to purchase shares of our common stock.

Contractual Obligations

We are party to various leasing arrangements, primarily for office, manufacturing and warehouse space that expire at various times through March 2028 .

We are party to various leasing arrangements, primarily for office, manufacturing and warehouse space that expire at various times through December 2030.

We also have one land lease that expires in 2080.

The following table summarizes our outstanding contractual obligations as of December 31, 2020 and the effect those obligations are expected to have on our liquidity and cash flows in future periods:

(In millions)

(In millions) Total Less

Senior convertible notes (1)

$ 2,091.7 $ 9.4 $ 868.8 $ 1,213.5 $ —

Lease obligations (2)

We issued senior convertible notes in May and June 2017 that are due in May 2022 and we issued senior convertible notes in November 2018 that are due in December 2023 .

235.5 31.9 53.0 49.9 100.7

Total $ 2,327.2 $ 41.3 $ 921.8 $ 1,263.4 $ 100.7

(1) We issued senior convertible notes in November 2018 and May 2020.

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

Although these notes mature in 2022 and 2023 , they may be converted into cash and shares of

our common stock prior to maturity if certain conditions are met.

Although these notes mature in 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 repayment as indicated in the table.

See Note 5 to the consolidated financial statements in Part II, Item 8 of this Annual Report for further discussion of the terms of our senior convertible notes.

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

(2) Includes finance lease obligations related to our Mesa, Arizona and Malaysia facilities.

See Note 6 to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information.

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

As of December 31, 2019 , we had approximately $165.8 million of open purchase orders and contractual obligations in the ordinary course of business, most of which are due within one year.

As of December 31, 2020, we had approximately $335.6 million of open purchase orders and contractual obligations in the ordinary course of business, the majority of which are due within one year.

We have $1.2 million of unrecognized tax benefits, including estimated interest and penalties, that have been recorded as liabilities for which we are uncertain as to if or when such amounts may be settled.

As a result, such amounts are excluded from the table above.

Off-Balance Sheet Arrangements

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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-K

Item 7. Management’s Discussion and Analysis