What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-29 compared with 2020-10-27 · 92 added, 151 removed, 124 unchanged (66% of the section changed)

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

The risks and uncertainties that could cause actual results to differ materially are more fully described under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, elsewhere in this Quarterly Report, and in our other reports filed with the SEC.

The risks and uncertainties that could cause actual results to differ materially are more fully described under “Risk Factors” in Part II, Item 1A of this Quarterly Report, elsewhere in this Quarterly Report, and in our other reports filed with the SEC.

We assume no obligation to update any of the forward-looking statements after the date of this report or to conform these forward-looking statements to actual results.

You should read the following discussion and analysis together with our consolidated financial statements and related notes in Part I, Item 1 of this Quarterly Report.

We are a medical device company that develops and markets continuous glucose monitoring, or CGM, systems for the management of diabetes by patients, caregivers, and clinicians around the world.

We are a medical device company primarily focused on the design, development and commercialization of continuous glucose monitoring, or CGM, systems for the management of diabetes by patients, caregivers, and clinicians around the world.

We received approval from the Food and Drug Administration, or FDA, and commercialized our first product in 2006.

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and its subsidiaries.

We sell our 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.

Global Presence

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

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

Future Developments

Product Development:

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

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.

Partnerships:

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

New Opportunities:

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

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

Impact of COVID-19 Pandemic

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”).

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.

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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.

Specifically, we may experience impact from changes in how we and companies worldwide conduct business due to the COVID-19 pandemic, including but not limited to restrictions on travel and in-person meetings, production delays, closures of manufacturing facilities, warehouses and logistics supply and distribution chains and staffing shortages, decreases or delays in customer demand and spending, difficulties or changes to our sales process and customer support.

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

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

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

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

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

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

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

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

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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, 2020.

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

There were no material changes to our critical accounting policies during the three months ended March 31, 2021.

Results of Operations

Key Highlights for the first three months of 2021

Revenues Gross Profit Operating Income

$505.0 million $343.9 million $45.9 million

up 25% from the same period 2020

up 34% from the same period 2020

up 37% from the same period 2020

Net Income Operating Cash Flow Cash, Cash Equivalents, & Short Term Marketable Securities

$40.3 million $27.8 million $2.63 billion

up 103% from the same period 2020

up 1,363% from the same period 2020

down 3% from fiscal year 2020

Financial Overview

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 %

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

Financial Overview

Three Months Ended March 31, 2021 - 2020

(In millions, except per share amounts) 2021 2020 $ Change % Change

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

Revenues $ 505.0 $ 405.1 $ 99.9 25 %

Cost of sales 161.1 148.6 12.5 8 %

Gross profit 343.9 256.5 87.4 34 %

Gross profit as a percent of total revenue 68.1 % 63.3 %

Operating income 45.9 33.6 12.3 37 %

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annual insurance deductible resets and unfunded flexible spending accounts.

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.

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

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

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

Quarter Ended March 31, 2021 Compared to Quarter Ended March 31, 2020

The 2021 revenue increase was primarily driven by increased sales volume of our disposable sensors due to the continued growth of our worldwide customer base, partially offset by pricing pressure due to the evolution of our channel strategy and product mix.

Disposable sensor and other revenue comprised approximately 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.

Disposable sensor and other revenue comprised approximately 84% of total revenue and Reusable Hardware revenue comprised approximately 16% of total revenue for the three months ended March 31, 2021.

Disposable sensor and other revenue comprised approximately 80% of total revenue and Reusable Hardware revenue comprised approximately 20% of total revenue for the three months ended March 31, 2020.

Cost of sales increased primarily due to increased sales volume.

The increase in gross profit and gross profit margin in the first quarter of 2021 compared to the first quarter of 2020 were primarily driven by increased revenues and cost savings associated with manufacturing efficiencies.

Operating Expenses

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.

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

Our research and development expenses also include fees for design services, contractors and development materials.

Our selling, general and administrative expenses primarily consist of salary, fringe benefits and share-based compensation for our executive, financial, sales, marketing, information technology and administrative functions.

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 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 %

as a % of total revenue 18 % 17 %

Selling, general and administrative 158.6 124.2 34.4 28 %

as a % of total revenue 32 % 31 %

Total operating expenses $ 246.3 $ 190.9 $ 55.4 29 %

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 $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 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

Quarter Ended March 31, 2021 Compared to Quarter Ended March 31, 2020

Three Months Ended March 31, 2021 - 2020

(In millions) 2021 2020 $ Change % Change

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Research and Development Expense

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.

Research and development expense increased primarily due to $12.6 million in additional salaries, bonuses, and payroll-related costs, $8.3 million in additional consulting fees, $4.2 million in additional clinical trials costs, and $2.2 million in additional share based compensation expense.

Selling, General and Administrative Expense

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.

Selling, general and administrative expense increased primarily due to $22.9 million in additional advertising and marketing costs and $16.3 million in additional salaries, bonuses, and payroll-related 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 $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 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 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.

Interest and Other Income (Expense), Net

Interest income is related to our marketable debt securities portfolio.

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 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 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.

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

Interest expense increased $9.4 million to $24.8 million for the three months ended March 31, 2021 compared to $15.4 million for the same period of 2020.

The 2021 increase in interest expense is primarily due to the May 2020 issuance of our 2025 Notes.

Interest and Other Income, Net

Interest and other income, net consists primarily of interest income on our marketable debt securities portfolio and foreign currency transaction gains and losses due to the effects of foreign currency fluctuations.

Interest income was $0.5 million for the three months ended March 31, 2021 compared to $6.0 million for the three months ended March 31, 2020.

The decrease in interest income was primarily related to a decline in market interest rates, partially offset by an increase in average invested balances during 2021 compared to 2020.

Income Tax Expense (Benefit)

We recorded income tax benefit of $19.1 million on pre-tax income of $21.2 million for the three months ended March 31, 2021 compared to income tax expense of $2.5 million on pre-tax income of $22.4 million for the three months ended March 31, 2020.

The income tax benefit for the three months ended March 31, 2021 is primarily attributable to excess tax benefits from stock compensation recorded discretely during the quarter, offsetting income tax expense from normal, recurring operations at an estimated annual effective rate of 21.4%.

The income tax expense for the prior period is attributable to current foreign and state income tax expense in profitable jurisdictions where we had no net operating loss carryforwards.

We maintained a valuation allowance on our deferred tax assets during the prior period, most of which was released in the fourth quarter of 2020.

Liquidity and Capital Resources

Overview, Capital Resources, and Capital Requirements

The 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.

The estimated impact of COVID-19 for the year is currently unknown.

The final impact may vary based on how long the current social and economic conditions exist.

We do not believe the accumulated costs will present a material impact to our financial liquidity or position.

Our principal sources of liquidity are our existing cash, cash equivalents and marketable securities, cash generated from operations, proceeds from issuance of senior convertible notes, and access to our revolving line of credit.

Our principal sources of liquidity are our existing cash, cash equivalents and marketable securities, cash generated from operations, proceeds from our senior convertible notes issuances, and access to our revolving line of credit.

Our primary uses of cash have been for research and development programs, selling and marketing activities, capital expenditures, acquisitions of businesses, and debt service costs.

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The revenue generated by sales of our approved products and other future products;

• the expenses we incur in manufacturing, developing, selling and marketing our products;

• the quality levels of our products and services;

• the third-party reimbursement of our products for our customers;

Our ability to efficiently scale our operations to meet demand for our current and any future products;

• the costs, timing and risks of delays of additional regulatory approvals;

• the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

• the rate of progress and cost of our clinical trials and other development activities;

The success of our research and development efforts;

The expenses we incur in manufacturing, developing, selling and marketing our products;

The costs, timing and risks of delays of additional regulatory approvals;

The emergence of competing or complementary technological developments;

The quality levels of our products and services;

The costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

The terms and timing of any collaborative, licensing and other arrangements that we may establish;

The third-party reimbursement of our products for our customers;

The rate of progress and cost of our clinical trials and other development activities;

The acquisition of businesses, products and technologies and our ability to integrate and manage any acquired businesses, products and technologies.

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A substantial portion of our operations are located in the United States, and the majority of our sales since inception have been made in U.S.

Accordingly, our assessment is that we have no material net exposure to foreign currency exchange rate fluctuations at this time.

However, as our business in markets outside of the United States continues to increase, we will be exposed to foreign currency exchange risk related to our foreign operations.

As a result, we monitor exposures in foreign currencies and where necessary employ various methods, including financial instruments, to mitigate the impact of foreign currency as needed.

Fluctuations in the rate of exchange between the U.S.

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.

dollar and foreign currencies, primarily the British Pound and the Euro, 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 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 $2.60 billion as of September 30, 2020.

Our cash, cash equivalents and short-term marketable securities totaled $2.63 billion as of March 31, 2021.

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 September 30, 2020 increased by $1.07 billion from December 31, 2019 due to the factors described in “Cash Flows” below.

Our cash, cash equivalents and short-term marketable securities as of March 31, 2021 decreased by $75.1 million from December 31, 2020 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 $193.6 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 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.

As of March 31, 2021, we had no outstanding borrowings, $6.4 million in outstanding letters of credit, and a total

available balance of $193.6 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 September 30, 2020:

The following table summarizes our outstanding senior convertible note obligations as of March 31, 2021:

Issuance Date Coupon Rate Aggregate

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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.

As of March 31, 2021, we had $2.63 billion in cash, cash equivalents and short-term marketable securities, which is a decrease of $75.1 million compared to $2.71 billion as of December 31, 2020.

The primary cash flows during the three months ended March 31, 2021 and 2020 are described below.

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

Nine Months Ended

September 30, Change

(In millions) 2020 2019 2020 - 2019

Net cash provided by operating activities $ 303.6 $ 170.8 $ 132.8

Net cash used in investing activities (994.0) (920.9) (73.1)

Net cash provided by financing activities 917.0 10.8 906.2

Effect of exchange rates on cash, cash equivalents, and restricted cash 0.8 (1.7) 2.5

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

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 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 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 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.

Three Months Ended

March 31, 2021 March 31, 2020

Operating Cash Flows $40.3 million of net income and $78.8 million of net non-cash adjustments, partially offset by $91.3 million of net changes in working capital balances

$19.9 million of net income and $49.7 million of net non-cash adjustments, partially offset by $67.7 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, and depreciation and amortization.

Investing Cash Flows $12.0 million net sales of marketable securities

$164.2 million net purchases of marketable securities

$99.7 million capital expenditures

$33.2 million capital expenditures

Financing Cash Flows $8.7 million in proceeds from the issuance of common stock under our employee stock plans

$6.7 million in proceeds from the issuance of common stock under our employee stock plans

$7.9 million payments for financing leases

Contractual Obligations

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.

We presented our contractual obligations as of December 31, 2020 in our Annual Report on Form 10-K for the twelve months then ended.

There were no significant changes to our contractual obligations in the three months ended March 31, 2021.

Off-Balance Sheet Arrangements

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.

As of March 31, 2021, 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

For a description of recent accounting pronouncements and the potential impact of these pronouncements on our consolidated financial statements, see Note 1 to the consolidated financial statements in Part I, Item 1 of this Quarterly Report.

For a description of recently issued accounting guidance that is applicable to our consolidated financial statements, see Note 1 to the consolidated financial statements in Part I, Item 1 of this Quarterly Report.

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