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Item 7. Management’s Discussion and Analysis

2022-02-14 compared with 2021-02-11 · 179 added, 218 removed, 106 unchanged (79% of the section changed)

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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 “Selected Financial Data” in Part II, Item 6 and our consolidated financial statements and related notes in Part II, Item 8 of this Annual Report.

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

You should read the following discussion and analysis together with our consolidated financial statements and related notes in Part II, Item 8 of this Annual Report.

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 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.

Global Presence

We have built a direct sales organization in the United States, Australia, Canada, New Zealand, 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.

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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.

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.

During 2020 and 2021, we have been subject to challenging social and economic conditions created as a result of the novel strain of coronavirus, SARS-CoV-2, or COVID-19.

These conditions continue to create various financial impacts to our operations by necessitating precautions for our 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.

As the result of the COVID-19 pandemic, we 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 pandemic 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 experienced moderate disruptions in our global operations.

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.

The 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 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.

For example, we have experienced some supply chain disruption due to the global restrictions resulting from the COVID-19 pandemic in the manufacturing 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.

As of the filing date of this Annual Report, 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

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which we have prepared in accordance with U.S.

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We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Variability reflected in the sensitivity analysis presented below is based on our recent historical experience.

Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 1 to the consolidated financial statements in Part II, Item 8 of this Annual Report, we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results.

Members of our senior management have discussed the development and selection of these critical accounting policies and their disclosure in this Annual Report with the Audit Committee of our Board of Directors.

Revenue Recognition

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.

While our significant accounting policies are described in Note 1 to the consolidated financial statements in Part II, Item 8 of this Annual Report, we believe that the following accounting estimates are most critical to a full understanding and evaluation of our reported financial results.

Members of our senior management have discussed the development and selection of these critical accounting estimates and their disclosure in this Annual Report with the Audit Committee of our Board of Directors.

Pharmacy Rebates

We estimate provisions for pharmacy 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 material adjustment because of the time delay between the recording of the accrual estimate and its ultimate settlement, an interval that generally ranges from 30 to 90 days, but can last up to one year.

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

Historically, adjustments to these estimates to reflect actual results or updated expectations, have not been material to our overall business and generally have been less than 1% of revenue.

An increase or decrease of 1% in our estimate of products sold subject to rebate during 2021, holding all other assumptions constant, would increase or decrease revenue by approximately $11.5 million.

For more information, see Revenue Recognition in Note 1 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 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.

We estimate the fair value of performance-based RSUs at the date of grant using the intrinsic value method and the probability that the specified performance criteria will be met.

We update our assessment of the probability that the specified performance criteria will be achieved each quarter and adjust our estimate of the fair value of the performance-based RSUs if necessary.

The Monte Carlo methodology that we use to estimate the fair value of market-based RSUs at the date of grant incorporates into the valuation the possibility that the market condition may not be satisfied.

Provided that the requisite service is rendered, the total fair value of the market-based RSUs at the date of grant must be recognized as compensation expense even if the market condition is not achieved.

However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.

If any of the assumptions used change significantly, share-based compensation expense may differ materially from what we have recorded in the current period.

Fair Value of Financial Instruments

The authoritative guidance establishes a fair value hierarchy that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.

In general, the authoritative guidance requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

An asset or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the measurement of its fair value.

The three levels of input defined by the authoritative guidance are as follows:

Level 1—Uses unadjusted quoted prices that are available in active markets for identical assets or liabilities.

Level 2—Uses inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly, through correlation with market data.

These include quoted prices in active markets for similar assets or liabilities;

quoted prices for identical or similar assets or liabilities in markets that are not active;

and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data for substantially the full term of the assets or liabilities.

Level 3—Uses unobservable inputs that are supported by little or no market activity and that are significant to the determination of fair value.

Level 3 assets and liabilities include those whose fair values are determined using pricing models, discounted cash flow methodologies, or similar valuation techniques and significant judgment or estimation.

We estimate the fair value of most of our cash equivalents using Level 1 inputs.

We estimate the fair value of our marketable equity securities using Level 1 inputs and we estimate the fair value of our marketable debt securities using Level 2 inputs.

We carry our other financial instruments, such as cash, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities, at cost, which approximates the related fair values due to the short-term maturities of these instruments.

See Note 1 and Note 3 to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information about fair value measurements.

Accounts Receivable, Net and Related Valuation Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.

We evaluate the collectability of our accounts receivable based on a combination of factors.

We regularly analyze customer accounts, review the length of time receivables are outstanding, review historical loss rates and assess current economic trends that may impact the level of credit losses in the future.

Our allowance for doubtful accounts has generally been adequate to cover our actual credit losses.

However, since we cannot reliably predict future changes in the financial stability of our customers, we may need to increase our reserves if the financial conditions of our customers deteriorate.

Excess and Obsolete Inventory

Inventory is valued at the lower of cost or net realizable value.

We record adjustments to inventory for potentially excess, obsolete, or scrapped goods in order to state inventory at net realizable value.

Factors influencing these adjustments include inventories on hand and on order compared to estimated future usage and sales for existing and new products, as well as judgments regarding quality control testing data and assumptions about the likelihood of scrap and obsolescence.

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.

We assess the value of our inventory on a quarterly basis and write down those inventories based on quality control testing data, obsolescence, or in excess of our forecasted demand to the lower of their cost or net realizable value.

Our estimates of forecasted demand are based upon our analysis and assumptions including, but not limited to, expected product lifecycles, product development plans and historical usage by product.

If actual market conditions are less favorable than our forecasts, or actual demand from our customers is lower than our estimates, we may be required to record additional inventory write-downs.

If actual market conditions are more favorable than anticipated, inventory previously written down may be sold, resulting in lower cost of sales and higher income from operations than expected in that period.

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

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We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, income taxes payable, and deferred taxes in the period in which the facts that give rise to a revision become known.

Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized.

We use the asset and liability approach to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities as described in Note 1 to the consolidated financial statements in Part II, Item 8 of this Annual Report.

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, 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.

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.

The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes.

For tax positions that are more likely than not of being sustained upon audit, the second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

We maintain a valuation allowance on our California research and

development tax credits, foreign 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 as described in Note 1 to the consolidated financial statements in Part II, Item 8 of this Annual Report.

Significant judgment is required to evaluate uncertain tax positions and is based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues.

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We review the status of each significant matter quarterly and assess our potential financial exposure .

If the potential loss from a claim or legal proceeding is considered probable and the amount can be reasonably estimated, we record a liability and an expense for the estimated loss and disclose it in our consolidated financial statements if it is significant.

If we determine that a loss is possible and the range of the loss can be reasonably determined, we do not record a liability or an expense but we disclose the range of the possible loss.

Significant judgment is required in the determination of whether a potential loss is probable, reasonably possible, or remote as well as in the determination of whether a potential exposure is reasonably estimable.

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Any revision of our estimates of potential liability could have a material impact on our financial position and operating results.

Overview of Financial Results

The most important financial indicators that we use to assess our business are revenue growth, gross profit, operating income, net income, and cash flow from operations.

Key highlights for fiscal 2021 include the following:

Revenue Gross Profit Operating Income Net Income Operating Cash Flow

$2.45 billion $1.68 billion $265.8 million $154.7 million $442.5 million

up 27% from 2020

up 31% from 2020

down 11% from 2020

down 69% from 2020

down 7% from 2020

We ended fiscal 2021 with cash, cash equivalents and short-term marketable securities totaling $2.73 billion.

Business Trends

In addition to the general impacts of COVID-19 on our company as described in the Overview, looking ahead we expect our business could be affected by the following:

• Increase in the worldwide incidence of people diagnosed with diabetes and costs related to the management and treatment of diabetes.

• Changes in medical reimbursement policies and programs.

• Growing demand for digital health technologies by both healthcare providers and consumers to reduce costs, empower consumers to make better-informed decisions about their own health and provide new options for facilitating prevention, early diagnosis of life-threatening diseases, and management of chronic conditions outside of traditional health care settings.

• Continued product innovation and competition from other CGM device makers.

• Our ability to scale efficiently with the construction of our production facility in Malaysia.

• Our ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, in particular, our next generation G7 CGM system.

Results of Operations

Financial Overview

For discussion related to the results of operations and changes in financial condition for fiscal 2020 compared to fiscal 2019 refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2020 Annual Report on Form 10-K, which was filed with the United States Securities and Exchange Commission on February 11, 2021.

Twelve Months Ended December 31, 2021 Compared to Twelve Months Ended December 31, 2020

Twelve Months Ended December 31, 2021 - 2020

(In millions) 2020 2019 $ Change % Change

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

(In millions, except per share amounts) 2021 % of Revenue (1)

2020 % of Revenue (1)

$ Change % Change

Revenue $ 2,448.5 100 % $ 1,926.7 100 % $ 521.8 27 %

Cost of sales 768.0 31 % 646.6 34 % 121.4 19 %

Gross profit 1,680.5 68.6 % 1,280.1 66.4 % 400.4 31 %

Operating expenses:

Research and development 517.1 21 % 359.9 19 % 157.2 44 %

Collaborative research and development fee 87.1 4 % — — % 87.1 *

Selling, general and administrative 810.5 33 % 620.7 32 % 189.8 31 %

Total operating expenses 1,414.7 58 % 980.6 51 % 434.1 44 %

Operating income 265.8 11 % 299.5 16 % (33.7) (11) %

Interest expense (100.3) (4) % (84.7) (4) % (15.6) 18 %

Loss on extinguishment of debt (1.5) — % (5.9) — % 4.4 (75) %

Income from equity investments 11.6 — % — — % 11.6 *

Interest and other income (expense), net (1.7) — % 16.1 1 % (17.8) *

Income before income taxes 173.9 7 % 225.0 12 % (51.1) (23) %

Income tax expense (benefit) 19.2 1 % (268.6) (14) % 287.8 *

Net income $ 154.7 6 % $ 493.6 26 % $ (338.9) (69) %

Basic net income per share 5.23 1.11 4.12 *

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

(1) The sum of the individual percentages may not equal the total due to rounding.

* Not meaningful

Revenue, Cost of Sales and Gross Profit

Twelve Months Ended December 31, 2020 - 2019

(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 %

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

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

We typically experience seasonality, with lower sales in the first quarter of each year compared to the immediately preceding fourth quarter.

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annual insurance deductible resets and unfunded flexible spending accounts.

Cost of Sales

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.

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

Fiscal 2020 Compared to Fiscal 2019

Total revenue increased $450.7 million or 31% for the twelve months ended December 31, 2020 compared to the twelve months ended December 31, 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 twelve months ended December 31, 2020.

Disposable sensor and other revenue comprised approximately 78% of total revenue and Reusable Hardware revenue comprised approximately 22% of total revenue for the twelve months ended December 31, 2019.

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 $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) 2020 2019 $ Change % Change

Research and Development

as a % of total revenue 19 % 19 %

Selling, general and administrative 620.7 515.7 105.0 20 %

as a % of total revenue 32 % 35 %

Total operating expenses $ 980.6 $ 789.2 $ 191.4 24 %

as a % of total revenue 51 % 53 %

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.

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

Selling, General and Administrative

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.

Fiscal 2020 Compared to Fiscal 2019

Research and Development Expense.

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 $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.

Twelve Months Ended December 31, 2021 Compared to

Twelve Months Ended December 31, 2020

Revenue The 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 mix shift and price associated with the evolution of our channel strategy.

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

Cost of Sales & Gross Profit Cost of sales increased primarily due to an increase in sales volume.

The increase in gross profit and gross profit margin in 2021 compared to 2020 were primarily driven by increased revenue and cost savings associated with incremental improvements to product design, manufacturing efficiencies and economies of scale.

Research and Development Expense Research and development expense increased primarily due to $62.7 million in additional third party and consulting fees primarily related to software development for new products and significant enhancements, $49.1 million in additional salaries, bonuses, and payroll-related costs primarily due to higher headcount, and $13.2 million in additional clinical trials costs related to pivotal trials.

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 $105.0 million or 20% for the twelve months ended December 31, 2020 compared to the same period of 2019.

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

Interest Expense

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 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 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 $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.

Collaborative Research and Development Fee Collaborative research and development fees of $87.1 million for the twelve months ended December 31, 2021 represents expense incurred in the fourth quarter of 2021 associated with a contingent milestone under the 2018 collaboration and license agreement with Verily.

See Note 2 “Development and Other Agreements” to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information.

Selling, General and Administrative Expense Selling, general and administrative expense increased primarily due to $84.0 million in additional advertising and marketing costs due to an increase in worldwide marketing campaigns, $60.5 million in additional salaries, bonuses, and payroll-related costs primarily due to higher headcount primarily related to an expansion in our sales force, $16.3 million in additional legal expense related to litigation, $7.4 million of investments in customer experience, partially offset by $12.9 million in lower third party service provider fees due to a change in our channel strategy.

Loss on Extinguishment of Debt The loss on extinguishment of debt of $1.5 million and $5.9 million is primarily related to the conversions and/or repurchases of our senior convertible notes for the twelve months ended December 31, 2021 and December 31, 2020, respectively.

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

Income from Equity Investments Income from equity investments of $11.6 million for the twelve months ended December 31, 2021 consisted solely of realized gains from the sale of an equity investment.

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

Interest expense increased primarily due to the May 2020 issuance of our 2025 Notes.

Interest and Other Income (Expense), Net Interest and other income (expense), net, consists primarily of interest income on our short-term marketable securities portfolio and foreign currency transaction gains and losses due to the effects of foreign currency fluctuations.

The decrease in interest income was primarily related to a decline in market interest rates.

Income Tax Expense (Benefit) We recorded pre-tax income for the twelve months ended December 31, 2021 and December 31, 2020.

The income tax expense we recorded for 2021 is primarily attributable to income tax expense from normal, recurring operations offset by excess tax benefits recognized for employee share-based compensation, generation of research and development tax credits, and a one-time tax benefit related to tax law changes.

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

and foreign deferred tax assets.

Liquidity and Capital Resources

Overview, Capital Resources, and Capital Requirements

Our principal sources of liquidity are our existing cash, cash equivalents and marketable securities, cash generated from operations, proceeds from our convertible notes issuances, 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 Credit Facility.

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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dollar-denominated, investment grade, highly liquid obligations of U.S.

government-sponsored enterprises, commercial paper, corporate debt, and money market funds.

government agencies, commercial paper, corporate debt, and money market funds.

Certain of these investments are subject to general credit, liquidity, and other market risks.

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Our future capital requirements will depend on many factors, including but not limited to:

• 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;

The evolution of the international expansion of our business and the revenue generated by sales of our approved products and other future products;

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

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 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 quality levels of our products and services;

The emergence of competing or complementary technological developments;

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.

• the evolution of the international expansion of our business.

We expect that existing cash and cash flows from our future operations will generally be sufficient to fund our ongoing core business.

We expect that existing cash and short-term investments and cash flows from our future operations will generally be sufficient to fund our ongoing core business.

As current borrowing sources become due, we may be required to access the capital markets for additional funding.

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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.

dollar and foreign currencies, primarily the Australian Dollar, the British Pound, the Canadian Dollar, the Euro and the Malaysian Ringgit, 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.

Main Sources of Liquidity

Cash, cash equivalents and short-term marketable securities

Our cash, cash equivalents and short-term marketable securities totaled $2.73 billion as of December 31, 2021.

None of those funds were restricted and approximately 95% 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, 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

In December 2018, we entered into an amended and restated five-year $200.0 million revolving Credit Agreement, including a sub-facility of up to $10.0 million for letters of credit.

Subject to customary conditions and the approval of any lender whose commitment would be increased, we have the option to increase the maximum principal amount available under the Credit Agreement by up to an additional $300.0 million, resulting in a maximum available principal amount of $500.0 million.

However, at this time none of the lenders have committed to provide any such increase in their commitments.

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

As of December 31, 2020, we had no outstanding borrowings, $6.3 million in outstanding letters of credit, and a total available balance of $193.7 million under the Credit Agreement.

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

We currently believe that the credit facility will be available to us should we choose to borrow under it.

Cash flow from Operations

For the twelve months ended December 31, 2021, we had positive cash inflows of $442.5 million from operating activities.

We anticipate that we will continue to generate positive cash inflows for the foreseeable future.

Senior Convertible Notes

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 received net proceeds of $836.6 million in November 2018 from the 2023 Notes offering and net proceeds of $1.19 billion in May 2020 from the 2025 Notes offering.

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

We used $282.6 million of the net proceeds from the offering of the 2025 Notes to repurchase a portion of our senior convertible notes due 2022, or 2022 Notes.

We intend to use the remainder of the net proceeds from the 2023 Notes and 2025 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;

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

2023 Note Hedge

In connection with the offering of the 2023 Notes, in November 2018 we entered into convertible note hedge transactions (the 2023 Note Hedge) with two of the initial purchasers of the 2023 Notes (the 2023 Counterparties) entitling us to purchase up to 5.2 million shares of our common stock at an initial price of $164.29 per share, each of which is subject to adjustment.

The cost of the 2023 Note Hedge was $218.9 million and it will expire on December 1, 2023.

The 2023 Note Hedge is expected to reduce the potential equity dilution upon any conversion of the 2023 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2023 Notes if the daily volume-weighted average price per share of our common stock exceeds the strike price of the 2023 Note Hedge.

The strike price of the 2023 Note Hedge initially corresponds to the conversion price of the 2023 Notes and is subject to certain adjustments under the terms of the 2023 Note Hedge.

2023 Warrants

In November 2018, we also sold warrants (the 2023 Warrants) to the 2023 Counterparties to acquire up to 5.2 million shares of our common stock for cash proceeds of $183.8 million.

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, 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.

See the consolidated financial statements in Part II, Item 8 of this Annual Report for complete statements of cash flows for these periods.

Twelve Months Ended

December 31, Change

(In millions) 2020 2019 2020 - 2019

Net cash provided by operating activities $ 475.6 $ 314.5 $ 161.1

Net cash used in investing activities (1,018.0) (1,015.2) (2.8)

Net cash provided by financing activities 912.1 10.7 901.4

Effect of exchange rates on cash, cash equivalents, and restricted cash 2.1 (0.7) 2.8

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

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 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.

Investing Cash Flows

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.

Contractual Obligations

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) Total Less

Senior convertible notes (1)

$ 2,091.7 $ 9.4 $ 868.8 $ 1,213.5 $ —

Lease obligations (2)

235.5 31.9 53.0 49.9 100.7

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

See Note 5 “Debt” to the consolidated financial statements in Part II, Item 8 of this Annual Report for conversion activity related to the 2023 Notes and shares received as the result of exercising a portion of the 2023 Note Hedge as well as for more information about the 2023 Notes and the 2025 Notes, the 2023 Note Hedge, and the 2023 Warrants.

Revolving Credit Agreement

As of December 31, 2021, we had no outstanding borrowings, $7.3 million in outstanding letters of credit, and a total available balance of $192.7 million under the Amended Credit Agreement.

We monitor counterparty risk associated with the institutional lenders that are providing the Credit Facility.

We currently believe that the Credit Facility will be available to us should we choose to borrow under it.

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

See Note 5 “Debt” to the consolidated financial statements in Part II, Item 8 of this Annual Report for more details on the Revolving Credit Agreement.

Short-term Liquidity Requirements

Our short-term liquidity requirements primarily consist of regular operating costs, interest payments related to our senior convertible notes, capital expenditures for the development of our manufacturing facilities and office spaces, and short-term material cash requirements as described below.

As of December 31, 2021, we had a working capital ratio of 5.11 and a quick ratio of 4.50, which indicates that our current assets are more than enough to cover our short-term liabilities.

We expect to have significant capital expenditures for the next year to drive our strategic initiative of building out our manufacturing facility and equipment in Malaysia and the capacity scale-up in Mesa, Arizona.

We believe that our cash, cash equivalents, and marketable securities balances, projected cash contributions from our commercial operations, and borrowings under our Credit Facility will be sufficient to meet our anticipated seasonal working capital needs, all capital expenditure requirements, material cash requirements as described below, and other liquidity requirements associated with our operations for at least the next 12 months.

Long-term Liquidity Requirements

Our long-term liquidity requirements primarily consist of interest and principal payments related to our senior convertible notes, capital expenditures for the development of our manufacturing facilities and office spaces, and long-term material cash requirements as described below.

As of December 31, 2021, we had a debt-to-assets ratio of 0.35, which indicates that our total assets are more than enough to cover our short-term and long-term debts.

As demand grows for our products, we will continue to expand global operations to meet demand through investments in manufacturing and operations.

We expect to meet our long-term liquidity requirements from our main sources of liquidity as described above to support our future operations, capital expenditures, acquisitions, and other liquidity requirements associated with our operations beyond the next 12 months.

As of December 31, 2021, we have outstanding senior convertible notes that will mature in December 2023 for the 2023 Notes and November 2025 for the 2025 Notes.

However, the outstanding principal of our senior convertible notes could be converted into cash and/or shares of our common stock prior to maturity once certain conditions are met.

See Note 5 “Debt” to

the consolidated financial statements in Part II, Item 8 of this Annual Report for information on conversion rights prior to maturity.

Material Cash Requirements

From time to time in the ordinary course of business, we enter into a variety of purchase arrangements including but not limited to, purchase arrangements related to capital expenditures, components used in manufacturing for the United States and Malaysia, and research and development activities.

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

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

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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.

(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, 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

As of December 31, 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 December 31, 2021, we had outstanding letters of credit of $7.3 million for which we cannot forecast with certainty the amount and timing of repayments.

See Note 5 “Debt” 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.

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

We also have a land lease in Penang, Malaysia for the build-out of our international manufacturing facility lease that expires in 2080.

We anticipate incurring significant expenditures related to the build-out of the Malaysia manufacturing facility and equipment in the next 24 months.

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

Under our Restated Collaboration Agreement with Verily, upon the first regulatory approval of our next generation G7 CGM system, a regulatory approval milestone payment equivalent to 736,377 shares of our common stock, calculated based on the $100.0 million initial milestone amount divided by the volume-weighted average trading price during the 15 consecutive days ending on the date of the Restated Collaboration Agreement, will become payable.

Additional sales-based milestone payments equivalent to 1,288,660 shares of our common stock, calculated based on the $175.0 million initial milestone amount divided by the volume-weighted average trading price during the 15 consecutive days ending on the date of the Restated Collaboration Agreement, may become due and payable by us upon achievement of certain sales-based milestones.

All milestones may be paid in cash or shares of our common stock, at our election.

If we elect to make these milestone payments in cash, any such cash payment would be equal to the number of shares that would otherwise be issued for the given milestone payment multiplied by the value of our stock on the date the relevant milestone is achieved, adjusted for stock splits, dividends, and the like.

We intend to pay these milestones in shares of our common stock and as such we do not expect to have a material cash requirement for this agreement.

See Note 2 “Development and Other Agreements” to the consolidated financial statements in Part II, Item 8 of this Annual Report for further discussion of the Collaboration Agreement with Verily.

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

See the consolidated financial statements in Part II, Item 8 of this Annual Report for complete statements of cash flows for these periods.

As of December 31, 2021, we had $2.73 billion in cash, cash equivalents and short-term marketable securities, which is an increase of $23.5 million compared to $2.71 billion as of December 31, 2020.

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

See the consolidated financial statements in Part II, Item 8 of this Annual Report for complete consolidated statements of cash flows for these periods.

Twelve Months Ended

December 31, 2021 December 31, 2020

Operating Cash Flows + $154.7 million of net income and $419.8 million of net non-cash adjustments, partially offset by $132.0 million of net changes in working capital balances

+ $493.6 million of net income and $2.8 million of net non-cash adjustments, including $285.5 million of net benefit to tax expense associated with the release of the valuation allowance related to deferred tax assets, partially offset by $20.8 million of net changes in working capital balances

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

Net non-cash adjustments were primarily related to a net benefit to tax expense associated with the release of the valuation allowance related to deferred tax assets, share-based compensation, non-cash interest expense for our senior convertible notes, and depreciation and amortization.

Investing Cash Flows + $193.2 million net proceeds from marketable securities

- $807.7 million net purchases of marketable securities

+ $15.7 million in proceeds from the sale of an equity investment - $199.0 million capital expenditures

- $389.2 million capital expenditures

- $30.2 million in acquisitions, net of cash acquired

- $5.0 million in purchases of equity investments

Financing Cash Flows + $20.3 million in proceeds from the issuance of common stock under our employee stock plans

+ $1.19 billion in proceeds from issuance of our 2025 Notes, net of issuance costs

- $9.9 million in payments for financing leases

+ $15.3 million in proceeds from the issuance of common stock under our employee stock plans

- $282.6 million cash outflow for repurchase of a portion of our 2022 Notes

Recent Accounting Guidance

For a description of recently issued accounting guidance that is applicable to our financial statements, see Note 1 to the consolidated financial statements in Part II, Item 8 of this Annual Report.

For a description of recently issued accounting guidance that is applicable to our financial statements, see Note 1 “Organization and Significant Accounting Policies” to the consolidated financial statements in Part II, Item 8 of this Annual 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-K

Item 7. Management’s Discussion and Analysis