What changed in this filing

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Item 1. Financial Statements

2022-04-28 compared with 2021-10-28 · 278 added, 219 removed, 472 unchanged (51% of the section changed)

1 unchanged sentence

Consolidated Balance Sheets

(In millions, except par value data) September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(In millions, except par value data) (As Adjusted)*

Current assets:

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Goodwill 26.6 26.5

Intangibles, net 31.4 31.5

Deferred tax assets 290.8 290.5

Intangibles and other assets, net 46.0 21.4

Other assets 22.8 10.5

Total assets $ 5,057.0 $ 4,933.3

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

no shares issued and outstanding at September 30, 2021 and December 31, 2020

no shares issued and outstanding at March 31, 2022 and December 31, 2021

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

97.8 million and 96.9 million shares issued and outstanding, respectively, at September 30, 2021;

98.2 million and 98.1 million shares issued and outstanding, respectively, at March 31, 2022;

and 97.8 million and 97.0 million shares issued and outstanding, respectively, at December 31, 2021

Additional paid-in capital 1,996.6 2,109.0

Accumulated other comprehensive income 1.4 3.2

Accumulated deficit ( 28.0 ) ( 202.1 )

Accumulated other comprehensive income (loss)

Retained earnings 236.0 138.7

Treasury stock, at cost;

0.9 million shares at September 30, 2021 and 0.8 million shares at December 31, 2020

0.1 million shares at March 31, 2022 and 0.8 million shares at December 31, 2021

( 37.3 ) ( 206.2 )

1 unchanged sentence

Total liabilities and stockholders’ equity $ 5,057.0 $ 4,933.3

* We adjusted our 2021 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted on a full retrospective basis.

Refer to Note 1 “Organization and Significant Accounting Policies” for further information.

See accompanying notes

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Three Months Ended

September 30, Nine Months Ended

September 30,

(In millions, except per share data) 2021 2020 2021 2020

Revenues $ 650.2 $ 500.9 $ 1,750.3 $ 1,357.8

(In millions, except per share data) (As Adjusted)*

Revenue $ 628.8 $ 505.0

Cost of sales 230.7 161.1

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Interest expense ( 4.6 ) ( 4.7 )

Loss on extinguishment of debt ( 0.8 ) ( 0.5 ) ( 0.8 ) ( 5.9 )

Income from equity investments 0.2 —

Interest and other income (expense), net ( 0.8 ) 0.1

Income before income taxes 36.1 41.3

Income tax expense 19.8 2.9 14.5 5.3

Income tax benefit ( 61.2 ) ( 15.2 )

Net income $ 97.3 $ 56.5

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Shares used to compute diluted net income per share 107.2 104.6

* We adjusted our 2021 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted on a full retrospective basis.

Refer to Note 1 “Organization and Significant Accounting Policies” for further information.

See accompanying notes

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2021 2020 2021 2020

(In millions) (As Adjusted)*

Net income $ 97.3 $ 56.5

2 unchanged sentences

Unrealized gain (loss) on marketable debt securities ( 5.2 ) —

Total other comprehensive income (loss), net of tax ( 1.4 ) ( 0.7 ) ( 1.8 ) 0.5

Total other comprehensive loss, net of tax ( 6.6 ) ( 0.3 )

Comprehensive income $ 90.7 $ 56.2

* We adjusted our 2021 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted on a full retrospective basis.

Refer to Note 1 “Organization and Significant Accounting Policies” for further information.

See accompanying notes

Consolidated Statements of Stockholders’ Equity

Three Months Ended September 30, 2021

Three Months Ended March 31, 2022

(In millions) Common Stock Additional

Capital Accumulated

Comprehensive

Income Accumulated

Deficit Treasury Stock Total

Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Total

Stockholders’

Shares Amount

Balance at June 30, 2021 96.7 $ 0.1 $ 2,193.6 $ 2.8 $ ( 98.9 ) $ ( 100.0 ) $ 1,997.6

Balance at December 31, 2021 (As Adjusted)* 97.0 $ 0.1 $ 2,109.0 $ 0.5 $ 138.7 $ ( 206.2 ) $ 2,042.1

Issuance of common stock under equity incentive plans 0.4 — — — — — —

Issuance of common stock for Employee Stock Purchase Plan — — 10.1 — — — 10.1

Issuance of common stock in connection with achievement of regulatory approval milestone, net of issuance costs 0.7 — ( 189.3 ) — — 189.2 ( 0.1 )

Conversions of 2023 Notes 0.1 — 4.2 — — 13.2 17.4

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Other comprehensive loss, net of tax — — — ( 6.6 ) — — ( 6.6 )

Balance at September 30, 2021 96.9 $ 0.1 $ 2,322.1 $ 1.4 $ ( 28.0 ) $ ( 159.5 ) $ 2,136.1

Three Months Ended September 30, 2020

(In millions) Common Stock Additional

Capital Accumulated

Comprehensive

Income Accumulated

Deficit Treasury Stock Total

Stockholders’

Shares Amount

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

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

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

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

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

Net income — — — — 72.2 — 72.2

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

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

See accompanying notes

Consolidated Statements of Stockholders’ Equity

Nine Months Ended September 30, 2021

Balance at March 31, 2022 98.1 $ 0.1 $ 1,996.6 $ ( 6.1 ) $ 236.0 $ ( 37.3 ) $ 2,189.3

Three Months Ended March 31, 2021

(In millions) Common Stock Additional

Capital Accumulated

Comprehensive

Income Accumulated

Deficit Treasury Stock Total

Capital Accumulated Other Comprehensive Income Accumulated Deficit Treasury Stock Total

Stockholders’

Shares Amount

Balance at December 31, 2020 96.1 $ 0.1 $ 2,125.3 $ 3.2 $ ( 202.1 ) $ ( 100.0 ) $ 1,826.5

Balance at December 31, 2020 (As Adjusted)* 96.1 $ 0.1 $ 1,726.8 $ 3.2 $ ( 78.2 ) $ ( 100.0 ) $ 1,551.9

Issuance of common stock under equity incentive plans 0.6 — — — — — —

Issuance of common stock for Employee Stock Purchase Plan — — 8.7 — — — 8.7

Conversions of 2023 Notes 0.2 — 24.3 — — 5.6 29.9

Benefit of note hedge upon conversions of 2023 Notes ( 0.1 ) — 65.1 — — ( 65.1 ) —

Share-based compensation expense — — 28.0 — — — 28.0

1 unchanged sentence

Other comprehensive loss, net of tax — — — ( 0.3 ) — — ( 0.3 )

Balance at September 30, 2021 96.9 $ 0.1 $ 2,322.1 $ 1.4 $ ( 28.0 ) $ ( 159.5 ) $ 2,136.1

Nine Months Ended September 30, 2020

(In millions) Common Stock Additional

Capital Accumulated

Comprehensive

Income Accumulated

Deficit Treasury Stock Total

Stockholders’

Shares Amount

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

Issuance of common stock under equity incentive plans 1.0 — 0.3 — — — 0.3

Issuance of common stock for Employee Stock Purchase Plan — — 15.0 — — — 15.0

Equity component of 2025 Notes issuance, net of issuance costs — — 289.4 — — — 289.4

Repurchase and conversions of 2022 Notes 3.4 — 87.8 — — — 87.8

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

Net income — — — — 138.4 — 138.4

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

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

Balance at March 31, 2021 (As Adjusted)* 96.7 $ 0.1 $ 1,763.5 $ 2.9 $ ( 21.7 ) $ ( 100.0 ) $ 1,644.8

* We adjusted our 2021 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted on a full retrospective basis.

Refer to Note 1 “Organization and Significant Accounting Policies” for further information.

See accompanying notes

Consolidated Statements of Cash Flows

Nine Months Ended

September 30,

(In millions) 2021 2020

Three Months Ended

(In millions) (As Adjusted)*

Operating activities

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Share-based compensation 29.1 28.0

Loss on extinguishment of debt 0.8 5.9

Non-cash interest expense 1.6 2.1

Realized (gain) loss on equity investment ( 0.2 ) —

Deferred income taxes 0.1 ( 0.3 )

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Other investing activities ( 2.3 ) ( 0.5 )

Net cash provided by (used in) investing activities 280.0 ( 994.0 )

Net cash used in investing activities ( 411.8 ) ( 112.2 )

Financing activities

Proceeds from issuance of convertible notes, net of issuance costs — 1,188.8

Repurchase of convertible notes — ( 282.6 )

Net proceeds from issuance of common stock 10.1 8.7

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Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 1.0 ) ( 0.4 )

Increase in cash, cash equivalents and restricted cash 627.0 227.4

Decrease in cash, cash equivalents and restricted cash ( 336.5 ) ( 84.0 )

Cash, cash equivalents and restricted cash, beginning of period 1,053.6 818.2

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Supplemental disclosure of non-cash investing and financing transactions:

Shares issued for repurchase and conversions of senior convertible notes $ 94.5 $ 1,350.9

Shares issued for conversions of 2023 Notes $ 35.9 $ —

Shares received under note hedge upon conversions of 2023 Notes $ ( 33.5 ) $ —

2 unchanged sentences

Right-of-use assets obtained in exchange for finance lease liabilities $ 5.2 $ —

* We adjusted our 2021 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted on a full retrospective basis.

Refer to Note 1 “Organization and Significant Accounting Policies” for further information.

See accompanying notes

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

Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

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

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All significant intercompany balances and transactions have been eliminated in consolidation.

We have reclassified certain amounts previously reported in our financial statements to conform to the current presentation.

We determine the functional currencies of our international subsidiaries by reviewing the environment where each subsidiary primarily generates and expends cash.

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dollars using period-end exchange rates for assets and liabilities and average exchange rates for each period for revenue, costs and expenses.

We include translation-related adjustments in comprehensive income and in accumulated other comprehensive income in the equity section of our consolidated balance sheets.

We include translation-related adjustments in comprehensive income and in accumulated other comprehensive income (loss) in the equity section of our consolidated balance sheets.

We record gains and losses resulting from transactions with customers and vendors that are denominated in currencies other than the functional currency and from certain intercompany transactions in interest and other income (expense), net in our consolidated statements of operations.

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Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are generally recorded at the invoiced amount for distributors and at net realizable value for direct customers, which is determined using estimates of claim denials and historical reimbursement experience without regard to aging category.

Accounts receivable are generally recorded at the invoiced amount, net of prompt pay discounts, for distributors and at net realizable value for direct customers, which is determined using estimates of claim denials and historical reimbursement experience without regard to aging category.

Accounts receivable are not interest bearing.

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We review these guidelines periodically and modify them to take advantage of trends in yields and interest rates and changes in our operations and financial position.

Inventory is valued at the lower of cost or net realizable value on a part-by-part basis that approximates first in, first out.

We capitalize inventory produced in preparation for commercial launches when it becomes probable that the product will receive regulatory approval and that the related costs will be recoverable through the commercialization of the product.

A number of factors are considered, including the status of the regulatory application approval process, management’s judgment of probable future commercial use, and net realizable value.

We record adjustments to inventory for potential excess or obsolete inventory, as well as inventory that does not pass quality control testing, 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.

Once written down the adjustments are considered permanent and are not reversed until the related inventory is disposed of or sold.

Our products require customized products and components that currently are available from a limited number of sources.

We purchase certain components and materials from single sources due to quality considerations, costs or constraints resulting from regulatory requirements.

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.

Revenue Recognition

We generate our revenue from the sale of disposable sensors and our reusable transmitter and receiver, collectively referred to as Reusable Hardware.

We also refer to Reusable Hardware in this section as Components.

We also refer to Reusable Hardware and disposable sensors in this section as Components.

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.

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rebates, chargebacks, consideration payable to customers such as specialty distributor and wholesaler fees, product returns provision, prompt payment discounts, and various other promotional or incentive arrangements.

We classify our provisions related to variable consideration as a reduction of accounts receivable when we are not required to make a payment or as a liability when we are required to make a payment.

We classify our provisions related to

variable consideration as a reduction of accounts receivable when we are not required to make a payment or as a liability when we are required to make a payment.

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 were to receive differ from our estimates, we would adjust our estimates and that would affect reported revenue in the period that such variances become known.

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

We are subject to rebates on pricing programs with managed care organizations, such as pharmacy benefit managers, governmental and third-party commercial payors, primarily in the U.S.

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

Accounts receivable as of September 30, 2021 included unbilled accounts receivable of $ 9.2 million.

We expect to invoice and collect all unbilled accounts receivable within 12 months.

Accounts receivable as of March 31, 2022 included unbilled accounts receivable of $ 10.3 million.

We expect to invoice and collect all unbilled accounts receivable within twelve months.

We record deferred revenue when we have entered into a contract with a customer and cash payments are received or due prior to transfer of control or satisfaction of the related performance obligation.

Our performance obligations are generally satisfied within 12 months of the initial contract date.

The deferred revenue balance related to performance obligations that will be satisfied after 12 months was $ 13.8 million as of September 30, 2021 and $ 8.2 million as of December 31, 2020.

Our performance obligations are generally satisfied within twelve months of the initial contract date.

The deferred revenue balances related to performance obligations that will be satisfied after twelve months was $ 18.3 million as of March 31, 2022 and $ 16.1 million as of December 31, 2021.

These balances are included in other long-term liabilities in our consolidated balance sheets.

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

Senior Convertible Notes

In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for convertible debt instruments, amends the guidance on derivative scope exceptions for contracts in an entity’s own equity, and modifies the guidance on diluted earnings per share calculations.

We previously followed in Accounting Standard Codification, or ASC, 470-20, which required us to separate each of our convertible debt instruments at issuance into two units of accounting, a liability component, based on our nonconvertible debt borrowing rate at issuance, and an equity component.

Under ASU 2020-06, we now account for each of our convertible debt instruments as a single unit of accounting, a liability, because we concluded that there were no material conversion features that require bifurcation as a derivative under ASC 815-15 and our convertible debt instruments were not issued at a substantial premium.

Since we adopted ASU 2020-06 using the full retrospective approach, we were required to apply the guidance to all convertible debt instruments we had outstanding as of January 1, 2020.

Upon adoption of ASU 2020-06 as of January 1, 2020, we recognized $ 67.8 million cumulative-effect adjustment to increase retained earnings of for the decrease in interest expense and $ 242.3 million decrease in additional paid in capital for the elimination of the equity component.

We have updated these financial statements to reflect the cumulative adjustment for the periods presented.

We have labeled our prior period financial statements and related notes “As Adjusted” to indicate the change required under the new accounting guidance.

Below is a summary of the changes in our consolidated balance sheets we originally reported as of December 31, 2020 and 2021 under the ASC 470-20 legacy guidance compared to the new ASU 2020-06 guidance we adopted:

Consolidated Balance Sheet As of December 31, 2020

(In millions) As Previously Reported ASU 2020-06 Adjustment As Adjusted

Deferred tax assets $ 216.4 $ 91.3 $ 307.7

Long-term senior convertible notes 1,667.2 365.9 2,033.1

Additional paid-in-capital 2,125.3 ( 398.5 ) 1,726.8

Accumulated deficit $ ( 202.1 ) $ 123.9 $ ( 78.2 )

Consolidated Balance Sheet As of December 31, 2021

(In millions) As Previously Reported ASU 2020-06 Adjustment As Adjusted

Deferred tax assets $ 220.8 $ 69.7 $ 290.5

Long-term senior convertible notes 1,702.7 279.1 1,981.8

Additional paid-in-capital 2,504.5 ( 395.5 ) 2,109.0

Retained earnings (Accumulated deficit) $ ( 47.4 ) $ 186.1 $ 138.7

Below is a summary of the changes in our consolidated statement of operations for the three months ended March 31, 2021 we originally reported at March 31, 2021 under the ASC 470-20 legacy guidance compared to the new ASU 2020-06 guidance we adopted:

Consolidated Statement of Operations Three Months Ended March 31, 2021

(In millions) As Previously Reported ASU 2020-06 Adjustment As Adjusted

Interest expense $ ( 24.8 ) $ 20.1 $ ( 4.7 )

Income before income taxes 21.2 20.1 41.3

Income tax expense (benefit) ( 19.1 ) 3.9 ( 15.2 )

Net income 40.3 16.2 56.5

Basic net income per share 0.42 0.17 0.59

Diluted net income per share (1)

$ 0.41 $ 0.15 $ 0.56

Shares used to compute diluted net income per share 99.4 5.2 104.6

(1) Dilutive net income used for diluted net income per share under ASU 2020-06 includes $ 1.7 million add back of interest expense, net of tax, attributable to assumed conversion of senior convertible notes.

Below is a summary of the consolidated balance sheet as of March 31, 2022 and consolidated statement of operations for the three months ended March 31, 2022 under the ASC 470-20 legacy guidance compared to the new ASU 2020-06 guidance we adopted.

Consolidated Balance Sheet As of March 31, 2022

(In millions) As computed under ASC 470-20 ASU 2020-06 Adjustment As reported under ASU 2020-06

Prepaid and other current assets $ 177.9 $ ( 6.2 ) $ 171.7

Deferred tax assets 220.9 69.9 290.8

Long-term senior convertible notes 1,708.6 257.3 1,965.9

Additional paid-in-capital 2,391.0 ( 394.4 ) 1,996.6

Retained Earnings $ 35.2 $ 200.8 $ 236.0

Consolidated Statement of Operations Three Months Ended March 31, 2022

(In millions) As computed under ASC 470-20 ASU 2020-06 Adjustment As reported under ASU 2020-06

Loss on extinguishment of debt $ ( 0.4 ) $ 0.4 $ —

Interest expense ( 25.1 ) 20.5 ( 4.6 )

Income before income taxes 15.2 20.9 36.1

Income tax expense (benefit) ( 67.4 ) 6.2 ( 61.2 )

Net income 82.6 14.7 97.3

Basic net income per share 0.85 0.15 1.00

Diluted net income per share $ 0.82 $ 0.11 $ 0.93

Shares used to compute diluted net income per share 100.4 6.8 107.2

Collaboration Agreements

We may enter into agreements with collaboration partners for the development and commercialization of our products.

These arrangements may include payments contingent on the occurrence of certain events such as development, regulatory or sales-based milestones.

When we account for these agreements, we consider the unique nature, terms and facts and circumstances of each transaction.

Below are some example activities and how we account for them:

• Payments to collaboration partners through issuance of common stock as consideration in an asset acquisition are considered share-based payment to non-employees in exchange for goods within the scope of ASC Topic 718, “Compensation - Stock Compensation”.

The amount and the timing of the cost recognition of such milestones in our financial statements is driven by the accounting for the specific type of equity instrument under ASC 718 that aligns with the terms of the agreement, including any performance conditions.

• The value associated with in-process research and development (“IPR&D”) in an asset acquisition incurred prior to regulatory approval is expensed as it does not have an alternative future use and is recorded as research and development expense.

• The value associated with IPR&D in an asset acquisition incurred at or after regulatory approval is usually capitalized as an intangible asset and amortized over the periods in which the related products are expected to contribute to future cash flows.

Net Income Per Share

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Three Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2022 2021

Net income $ 97.3 $ 56.5

Add back interest expense, net of tax attributable to assumed conversion of senior convertible notes 2.8 1.7

Net income - diluted $ 100.1 $ 58.2

Net income per common share

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Three Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2022 2021

Restricted stock units — — — —

Warrants — — — —

Senior convertible notes — 2.0

Total 7.0 7.2 7.0 8.8

Recent Accounting Guidance

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law.

ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted.

Our adoption of ASU 2019-12 at the beginning of the first quarter of 2021 did not have a significant impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU No.

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

This new guidance is intended to reduce

the complexity of accounting for convertible instruments.

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

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

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

We will adopt ASU 2020-06 in the first quarter of 2022, and expect to use the full retrospective method, reflecting the application of the new standard in each prior reporting period.

We have started the process of evaluating the impact of the full retrospective adoption of ASU 2020-06 on our consolidated financial statements.

We expect the adoption of ASU 2020-06 will lead to an increase in the carrying value of the senior convertible notes on our Consolidated Balance Sheets.

We adopted ASU 2020-06 in the first quarter of 2022 using the full retrospective method, reflecting the application of the new standard in each prior reporting period.

Recently Issued Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

This guidance is intended improve the accounting for acquired revenue contracts with customers in a business combination.

The new guidance requires that the acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606.

ASU 2021-08 is effective for public business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted.

The amendments should be applied prospectively to business combinations occurring on or after the adoption date.

Any impact this guidance will have on our consolidated financial statements is dependent on when and if we complete future business combinations.

In March 2022, the FASB issued ASU No.

2022-01, Derivatives and Hedging (Topic 815):

Fair Value Hedging - Portfolio Layer Method.

This guidance is related to the portfolio layer method of hedge accounting.

The amendments in this update clarify the accounting and promote consistency in reporting for hedges where the portfolio layer method is applied.

ASU 2022-01 is effective for public business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

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

In March 2022, the FASB issued ASU No.

2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures.

This guidance is related to troubled debt restructurings (“TDRs”) and vintage disclosures for financing receivables.

The amendments in this update eliminate the accounting guidance for TDRs by creditors while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulty.

The amendments also require disclosure of current-period gross write-offs by year of origination for financing receivables.

The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

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

Collaboration with Verily Life Sciences

On November 20, 2018, we entered into an Amended and Restated Collaboration and License Agreement with Verily Life Sciences LLC (an Alphabet Company) and Verily Ireland Limited (collectively, Verily), which we refer to as the Restated Collaboration Agreement.

This replaced our original Collaboration and License Agreement with Verily dated August 10, 2015, as amended in October 2016, including the royalty obligations provisions under that original agreement.

Pursuant to the Restated Collaboration Agreement, we and Verily have agreed to continue to jointly develop a certain next-generation CGM product, and potentially one or more additional CGM products, for which we will have exclusive commercialization rights.

The Restated Collaboration Agreement also provides us with an exclusive license to use intellectual property of Verily resulting from the collaboration, and certain Verily patents, in the development, manufacture and commercialization of blood-based or interstitial glucose monitoring products more generally (subject to certain exclusions, which are outside of the CGM field as it is commonly understood).

It also provides us with non-exclusive license rights under Verily’s other intellectual property rights to develop, manufacture and commercialize those kinds of glucose monitoring products and certain CGM-product companion software functionalities.

The Restated Collaboration Agreement requires us to use commercially reasonable efforts to develop, launch and commercialize the CGM product(s) that are the subject of the collaboration according to certain timing and other objectives, and provides for one executive sponsor from each of Dexcom and Verily to meet periodically and make decisions related to the collaboration (within a limited scope of authority) by consensus.

In consideration of Verily’s performance of its obligations under the joint development plan of the Restated Collaboration Agreement, the licenses granted to us and the amendment of the original agreement, we have made upfront and incentive payments and we will make potential future payments for contingent milestones upon the achievement of certain goals.

We account for the contingent milestones payable in shares of our common stock as equity instruments within the scope of ASC Topic 718.

The regulatory and sales-based milestones are accounted for as performance-based awards that vest when the performance conditions have been achieved and will be recognized if and when the achievement of the respective contingent milestone is deemed probable.

The value of the contingent milestones is based on our closing stock price of $ 118.28 per share on December 28, 2018.

In the fourth quarter of 2018, we made an initial payment for an upfront fee of $ 250.0 million through the issuance of 1,840,943 shares of our common stock.

We recorded a $ 217.7 million charge in our consolidated statements of operations during 2018 relating to the issuance of this common stock because this milestone payment did not meet the capitalization criteria.

The value of the charge was based on our closing stock price of $ 118.28 per share on December 28, 2018, the date on which we obtained the necessary regulatory approvals and represents the date the performance- based awards were issued.

In 2019, we made a cash incentive payment of $ 3.2 million due to the completion of certain development obligations and we recorded these payments as research and development expense in our consolidated statements of operations.

In the fourth quarter of 2021, we determined the achievement of the regulatory approval milestone to be probable and recorded an $ 87.1 million research and development charge in our consolidated statements of operations.

This charge is associated with IPR&D obtained in an asset acquisition prior to regulatory approval and therefore does not have an alternative future use.

In the first quarter of 2022, we received regulatory approval and issued 736,377 shares of our common stock in connection with our achievement of the related milestone.

Additional sales-based milestone payments equivalent to 1,288,660 shares of our common stock may become due and payable upon achievement of certain revenue targets.

The sales-based milestones are contingent upon the achievement of certain revenue targets for a future commercial product.

As of March 31,

2022, we have not determined the achievement of the sales-based milestones to be probable and as such, no cost has been recognized for these 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, and adjusted to give effect to any stock splits, dividends, or similar events.

We intend to pay the sales-based contingent milestones in shares of our common stock.

The Restated Collaboration Agreement will continue until December 31, 2028, unless terminated by either party upon uncured material breach of the Restated Collaboration Agreement by the other party.

Upon achievement of the first sales-based milestone event and payment of the corresponding milestone fee by us, the term of the Restated Collaboration Agreement will be extended until December 31, 2033, unless terminated by either party upon uncured material breach of the Restated Collaboration Agreement by the other party.

Fair Value Measurements

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Fair values obtained from this professional pricing source can also be based on pricing models whereby all significant observable inputs, including maturity dates, issue dates, settlement dates, benchmark yields, reported trades, broker-dealer quotes, issue spreads, benchmark securities, bids, offers or other market related data, are observable or can be derived from, or corroborated by, observable market data for substantially the full term of the asset.

We validate the quoted market prices provided by our primary pricing service by comparing the fair values of our Level 2 marketable securities portfolio balance provided by our primary pricing service against the fair values of our Level 2 marketable securities portfolio balance provided by our investment managers.

The following table summarizes financial assets that we measured at fair value on a recurring basis as of September 30, 2021, classified in accordance with the fair value hierarchy:

The following table summarizes financial assets that we measured at fair value on a recurring basis as of March 31, 2022, classified in accordance with the fair value hierarchy:

Fair Value Measurements Using

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government agencies (1)

— 1,469.9 — 1,469.9

Commercial paper — 194.6 — 194.6

Corporate debt — 254.0 — 254.0

Supranationals

— 53.7 — 53.7

Total debt securities, available for sale — 1,972.2 — 1,972.2

1 unchanged sentence

Total assets measured at fair value on a recurring basis $ 530.4 $ 1,972.2 $ — $ 2,502.6

(1) Includes debt obligations issued by U.S.

government-sponsored enterprises or U.S.

government agencies.

(2) Includes assets which are held pursuant to a deferred compensation plan for senior management, which consist mainly of mutual funds .

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Corporate debt — 224.3 — 224.3

Supranationals

— 54.0 — 54.0

Total debt securities, available for sale — 1,678.6 — 1,678.6

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(1) Includes assets which are held pursuant to a deferred compensation plan for senior management, which consist mainly of mutual funds.

There were no transfers into or out of Level 3 securities during the three and nine months ended September 30, 2021.

There were no transfers into or out of Level 3 securities during the three months ended March 31, 2022.

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

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It is impracticable for us to estimate the fair value of these investments on a recurring basis due to the fact that these entities are privately held and limited information is available.

We monitor the information that becomes available from time to time and adjust the carrying values of these investments if there are identified events or changes in circumstances that have a significant adverse effect on the fair values.

Fair Value of Senior Convertible Notes

The fair value, based on trading prices (Level 1), of our senior convertible notes were as follows as of the dates indicated:

The fair value, based on trading prices (Level 1 inputs), of our senior convertible notes were as follows as of the dates indicated:

Fair Value Measurements Using Level 1

(In millions) September 30, 2021 December 31, 2020

(In millions) March 31, 2022 December 31, 2021

Senior Convertible Notes due 2023 $ 2,414.3 $ 2,589.6

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Total fair value of outstanding senior convertible notes $ 3,797.0 $ 4,022.5

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

For more information on the carrying values of our senior convertible notes, see Senior Convertible Notes in Note 5 to the consolidated financial statements.

Foreign Currency and Derivative Financial Instruments

From time to time we engage in hedging transactions to reduce foreign currency risks.

From time to time we use foreign currency contracts to manage foreign currency risks.

Our foreign currency contracts are not designated as hedges and, therefore, changes in the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the related foreign currency assets and liabilities.

The fair values of these derivatives are based on quoted market prices, which are Level 1 inputs, and the derivative instruments are recorded in current assets or current liabilities in our consolidated balance sheets consistent with the nature of the instrument at period end.

Derivative gains and losses are included in interest and other income (expense), net in our consolidated statements of operations.

As of September 30, 2021 and December 31, 2020, notional amounts of $ 48.0 million and $ 48.0 million, respectively, were outstanding to hedge certain foreign currency risk.

The resulting impact on our consolidated financial statements from currency hedging activities was not significant for the three and nine months ended September 30, 2021 or 2020.

Our foreign currency exposures vary but are primarily concentrated primarily in the Australian Dollar, the British Pound, the Canadian Dollar, and the Euro.

As of March 31, 2022 and December 31, 2021, notional amounts of $ 38.0 million and $ 40.0 million, respectively, were outstanding to hedge certain foreign currency risk.

The resulting impact on our consolidated financial statements from currency hedging activities was not significant for the three months ended March 31, 2022 and March 31, 2021.

Our foreign currency exposures vary but are primarily concentrated in the Australian Dollar, the British Pound, the Canadian Dollar, the Euro, and the Malaysian Ringgit.

We monitor the costs and the impact of foreign currency risks upon our financial results as part of our risk management program.

We do not use derivative financial instruments for speculation or trading purposes or for activities other than risk management.

We do not use derivative financial instruments for speculation or

trading purposes or for activities other than risk management.

We do not require and are not required to pledge collateral for these financial instruments and we do not carry any master netting arrangements to mitigate the credit risk.

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These include items such as non-financial assets and liabilities initially measured at fair value in a business combination and non-financial long-lived assets measured at fair value for an impairment assessment.

In general, non-financial assets, including goodwill, intangible assets, and property and equipment, are measured at fair value when there are indicators of impairment and are recorded at fair value only when any impairment is recognized.

We recorded no significant impairment losses during the three and nine months ended September 30, 2021 and 2020.

We recorded no significant impairment losses during the three months ended March 31, 2022 and March 31, 2021.

Balance Sheet Details

Short-Term Marketable Securities

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

September 30, 2021

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

March 31, 2022

(In millions) Amortized

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government agencies (1)

$ 1,477.7 $ — $ ( 7.8 ) $ 1,469.9

Commercial paper 194.9 — ( 0.3 ) 194.6

Corporate debt 254.6 — ( 0.6 ) 254.0

Supranationals 53.9 — ( 0.2 ) 53.7

Total debt securities, available for sale $ 1,981.1 $ — $ ( 8.9 ) $ 1,972.2

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Corporate debt 224.6 — ( 0.3 ) 224.3

Supranationals 54.1 — ( 0.1 ) 54.0

Total debt securities, available for sale $ 1,680.6 $ — $ ( 2.0 ) $ 1,678.6

As of September 30, 2021, the estimated market value of available-for-sale securities with contractual maturities up to 12 months and up to 18 months were $ 1,083.7 million and $ 169.9 million, respectively.

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

Gross realized gains and losses on sales of our debt securities for the three and nine months ended September 30, 2021 and September 30, 2020 were not significant.

(1) Includes debt obligations issued by U.S.

government-sponsored enterprises or U.S.

government agencies.

As of March 31, 2022, the estimated market value of our debt securities with contractual maturities up to twelve months and up to 18 months were $ 1,873.0 million and $ 99.2 million, respectively.

As of December 31, 2021, the estimated market value of our debt securities with contractual maturities up to twelve months and up to 18 months was $ 1,357.9 million and $ 320.7 million, respectively.

Gross realized gains and losses on sales of our debt securities for the three months ended March 31, 2022 and March 31, 2021 were not significant.

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

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

Unrealized losses on available-for-sale debt securities at September 30, 2021 were not significant and were primarily due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities.

Unrealized losses on available-for-sale debt securities at March 31, 2022 were primarily due to increases in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities.

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

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

(In millions) September 30, 2021 December 31, 2020

(In millions) March 31, 2022 December 31, 2021

Raw materials $ 159.7 $ 145.2

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Total inventory $ 342.2 $ 357.3

Prepaid and Other Current Assets

Prepaid and other current assets were $ 171.7 million and $ 81.6 million as of March 31, 2022 and December 31, 2021, respectively.

The increase in prepaid assets is driven primarily due to a $ 65.5 million increase in our income tax receivable and a $ 13.7 million increase in inventory related prepaid expenses.

Property and Equipment

(In millions) September 30, 2021 December 31, 2020

(In millions) March 31, 2022 December 31, 2021

$ 15.2 $ 15.6

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(1 ) Represents finance lease right-of-use assets.

Intangibles and Other Assets, Net

We recorded net intangible assets of $ 23.4 million, consisting primarily of customer-related relationship, as result of an acquisition in the third quarter of 2021.

Other assets were $ 22.8 million and $ 10.5 million as of March 31, 2022 and December 31, 2021, respectively.

The increase in other assets is primarily due to an increase in long-term equity investments and a term deposit.

Accounts Payable and Accrued Liabilities

(In millions) September 30, 2021 December 31, 2020

(In millions) March 31, 2022 December 31, 2021

Accounts payable trade $ 150.1 $ 189.4

2 unchanged sentences

Accrued warranty 13.6 12.9

Contractual obligations — 15.0

Other accrued liabilities 62.9 54.6

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Accrued Payroll and Related Expenses

(In millions) September 30, 2021 December 31, 2020

(In millions) March 31, 2022 December 31, 2021

Accrued wages, bonus and taxes $ 53.2 $ 91.8

2 unchanged sentences

Other Long-Term Liabilities

(In millions) September 30, 2021 December 31, 2020

(In millions) March 31, 2022 December 31, 2021

Finance lease obligations

$ 61.6 $ 57.0

Contractual obligations 12.6 12.6

Deferred tax liabilities 6.1 5.9

Other liabilities 29.4 27.1

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

(Dollars in millions) September 30, 2021 December 31, 2020

(Dollars in millions) March 31, 2022 December 31, 2021

Principal amount:

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Total principal amount 1,982.3 1,999.8

Unamortized debt discount ( 305.7 ) ( 371.1 )

Unamortized debt issuance costs ( 16.4 ) ( 18.0 )

Carrying amount of liability component $ 1,703.5 $ 1,667.2

Carrying amount of equity component $ 454.5 $ 461.0

Remaining amortization period of debt discount on the liability component:

Senior Convertible Notes due 2023 2.2 years 2.9 years

Senior Convertible Notes due 2025 4.1 years 4.9 years

Carrying amount of senior convertible notes $ 1,965.9 $ 1,981.8

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

(In millions) September 30, 2021 December 31, 2020

(In millions) March 31, 2022 December 31, 2021

Senior Convertible Notes due 2023 $ 1,638.3 $ 1,797.3

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Three Months Ended

September 30, Nine Months Ended

September 30,

(Dollars in millions) 2022 2021

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Contractual coupon interest (1)

$ 2.4 $ 2.4 $ 7.0 $ 7.1

Non-cash interest expense:

Accretion of debt discount 20.8 20.0 62.1 48.3

Amortization of debt issuance costs 1.5 1.5

Total interest expense recognized on senior notes $ 3.7 $ 3.9

Effective interest rates:

Senior Convertible Notes due 2022 (2)

* 5.1 % * 5.1 %

Effective interest rate:

Senior Convertible Notes due 2023 1.1 % 1.1 %

Senior Convertible Notes due 2025 0.5 % 0.5 %

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

(1) Interest on the 2023 Notes began accruing upon issuance and is payable semi-annually on June 1 and December 1 of each year.

Interest on the 2025 Notes began accruing upon issuance and is payable semi-annually on May 15 and November 15 of each year.

(2) Our $ 400.0 million aggregate principal amount of unsecured senior convertible notes issued in June 2017 with a stated interest rate of 0.75 % and maturity date of May 15, 2022 (the 2022 Notes) were repurchased and converted by August 2020.

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

Repurchase, Conversion, and Redemption of 2022 Notes

In May 2020, we used approximately $ 282.6 million of the net proceeds from the 2025 Notes offering described below and issued 1,953,067 shares of Dexcom common stock to repurchase $ 260.0 million principal amount outstanding of the 2022 Notes and the associated conversion feature of the repurchased notes (which was recorded in additional paid-in capital).

Holders of $ 37.2 million in aggregate principal amount of the 2022 Notes elected conversion at their option during the three months ended September 30, 2020, for a total of $ 140.0 million aggregate principal amount of the 2022 Notes converted at the holders’ option during the nine months ended September 30, 2020.

We settled these conversions by issuing 375,178 and 1,412,497 shares of our common stock during the three and nine months ended September 30, 2020, respectively.

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

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

0.75% Senior Convertible Notes due 2023

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Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2023 Notes includes customary terms and covenants, including certain events of default after which the 2023 Notes may be due and payable immediately.

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

As a result, we recognized $ 171.6 million in additional paid-in capital, net of debt issuance costs, during 2018.

Holders of $ 32.6 million in aggregate principal amount of the 2023 Notes elected conversion at their option during the three months ended September 30, 2021.

For the twelve months ended December 31, 2021, holders of $ 57.7 million in aggregate principal amount of the 2023 Notes elected conversion at their option.

We settled these conversions by issuing a combination of common stock and treasury stock.

We issued 197,816 shares and 197,876 shares to settle the converted 2023 Notes during the three and nine months ended September 30, 2021, respectively, of which 45,745 shares were issued out of treasury stock.

As a result of the elected conversions, we recorded a loss on extinguishment of debt of $ 0.8 million.

We received 122,209 shares of common stock from the exercise of a portion of the 2023 Note Hedge we purchased concurrently with the issuance of the 2023 Notes, as described below.

We issued 350,778 shares to settle the converted 2023 Notes during the twelve months ended December 31, 2021, of which 198,647 shares were issued out of treasury stock.

We received 241,845 shares of common stock from the exercise of a portion of the 2023 Note Hedge that we purchased concurrently with the issuance of the 2023 Notes, as described below.

For the three months ended March 31, 2022, holders of $ 17.5 million in aggregate principal amount of the 2023 Notes elected conversion at their option during the three months ended March 31, 2022.

We settled these conversions using treasury stock.

We issued 106,297 treasury shares to settle the converted 2023 Notes.

We received 71,820 shares of common stock from the exercise of a portion of the 2023 Note Hedge that we purchased concurrently with the issuance of the 2023 Notes, as described below.

Conversion Rights at the Option of the Holders

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On or after September 1, 2023, until 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding the maturity date, holders of the 2023 Notes may convert all or a portion of their notes regardless of the foregoing circumstances.

Circumstance (1) listed above occurred during the quarters ended December 31, 2020, March 31, 2021, and June 30, 2021.

As a result, the 2023 Notes were convertible at the option of the holder from January 1, 2021 through September 30, 2021.

Circumstance (1) listed above also occurred during the quarter ended September 30, 2021 and as a result, the 2023 Notes will remain convertible at the option of the holder from October 1, 2021 through December 31, 2021.

Circumstance (1) listed above occurred during the quarter ended December 31, 2021.

As a result, the 2023 Notes were convertible at the option of the holder from January 1, 2022 through March 31, 2022.

Circumstance (1) listed above also occurred during the quarter ended March 31, 2022 and as a result, the 2023 Notes will remain convertible at the option of the holder from April 1, 2022 through June 30, 2022.

See above for a description of conversion activity related to the 2023 Notes.

Conversion Rights at Our Option

Dexcom may not redeem the 2023 Notes prior to December 1, 2021.

Dexcom did not have a right to redeem the 2023 Notes prior to December 1, 2021.

On or after December 1, 2021 and prior to September 1, 2023, Dexcom may redeem for cash all or part of the 2023 Notes, at its option, if the last reported sale price of our common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which Dexcom provides notice of redemption.

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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.

An assumed exercise of the 2023 Note Hedge by us is considered anti-dilutive since the effect of the inclusion would always be anti-dilutive

with respect to the calculation of diluted earnings per share.

See above for conversion activity related to the 2023 Notes and shares received as the result of exercising a portion of the 2023 Note Hedge.

An assumed exercise of the 2023 Note Hedge by us is considered anti-dilutive since the effect of the inclusion would always be anti-dilutive with respect to the calculation of diluted earnings per share.

See above for a description of conversion activity related to the 2023 Notes and shares received as the result of exercising a portion of the 2023 Note Hedge.

2023 Warrants

13 unchanged sentences

Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2025 Notes includes customary terms and covenants, including certain events of default after which the 2025 Notes may be due and payable immediately.

As a result, we recognized $ 289.4 million in additional paid-in-capital, net of debt issuance costs, during 2020.

Conversion Rights at the Option of the Holders

13 unchanged sentences

Terms of the Revolving Credit Agreement

On December 19, 2018, we entered into an amended and restated revolving credit agreement which was subsequently amended on May 11, 2020 (as amended, the Credit Agreement).

The Credit Agreement provides for available principal amount of $ 200.0 million which can be increased up to $ 500.0 million at our option subject to customary conditions and approval of our lenders.

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

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

(In millions) September 30, 2021

In October 2021, we entered into a Second Amended and Restated Credit Agreement (the "Amended Credit Agreement"), which amended and restated the credit agreement we had previously entered into in December 2018 and amended in May 2020 (the Credit Agreement).

The Amended Credit Agreement is a five-year revolving credit facility that provides for an available principal amount of $ 200.0 million which can be increased up to $ 500.0 million at our option subject to customary conditions and approval of our lenders (the “Credit Facility”).

The Amended Credit Agreement will mature on October 13, 2026.

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

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

(In millions) March 31, 2022

Available principal amount $ 200.0

3 unchanged sentences

Total available balance $ 192.7

Revolving loans under the Credit Agreement bear interest at our choice of one of two base rates plus a range of applicable margin rates that are based on our leverage ratio.

The first base rate is the highest of (a) the publicly announced JPMorgan Chase prime rate, (b) the federal funds rate, or (c) the overnight bank funding rate, and the applicable margin rate ranges from 0.375 % to 1.000 %.

The second base rate is a LIBOR-based rate, and the applicable margin rate ranges from 1.375 % to 2.000 %.

Revolving loans under the Amended Credit Agreement bear interest at our choice of one of three base rates plus a range of applicable rates that are based on our leverage ratio.

The first base rate is the Alternate Base Rate (“ABR”) and loans comprising each ABR borrowing shall bear interest at the ABR plus the applicable rate between 0.375 % to 1.000 %.

The ABR is the highest of (a) the prime rate last quoted by The Wall Street Journal, (b) the Federal Reserve Bank of New York (“NYFRB”) rate plus one half of 1%, and (c) the Adjusted London Interbank Offered Rate (“LIBO Rate”) for a one month interest period plus 1 %.

The second base rate is the Term Benchmark rate and loans comprising each Term Benchmark borrowing shall bear interest at the Adjusted LIBO Rate, the Adjusted Euro Interbank Offered Rate (“EURIBOR Rate”), the Adjusted Stockholm Interbank Offered Rate (“STIBOR Rate”), the Adjusted Canadian Dollar Offered Rate (“CDOR”), Adjusted Australian Dollar (“AUD”) Rate, the Adjusted Bank Bill Benchmark Rate (“BKBM Rate”) or the Adjusted Tokyo Interbank Offered Rate (“TIBOR Rate”), as applicable based on the currency denomination borrowed, plus the applicable rate between 1.375 % to 2.000 % .

The third base rate is the Daily Simple RepoFunds Rate (“RFR”) and loans comprising each Daily Simple RFR Loan shall bear interest at a rate per annum equal to the applicable Daily Simple RFR plus the applicable rate between 1.375 % to 2.000 % plus an additional 0.0326 %.

We will also pay a commitment fee of between 0.175 % and 0.250 %, payable quarterly in arrears, on the average daily unused amount of the revolving facility based on our leverage ratio.

The Credit Agreement will mature on the earlier to occur of (i) December 19, 2023, (ii) 91 days prior to the maturity date of the 2022 Notes or (iii) 91 days prior to the maturity date of the 2023 Notes if both (a) the aggregate outstanding principal amount of the 2022 Notes or the 2023 Notes, as applicable, is greater than EBITDA for the period of four consecutive fiscal quarters ending prior to such date and (b) unrestricted domestic cash on hand is less than the aggregate outstanding principal amount of the 2022 Notes or the 2023 Notes, as applicable, plus $ 100.0 million.

Our obligations under the Credit Agreement are guaranteed by our existing and future wholly-owned domestic subsidiaries, and are secured by a first-priority security interest in substantially all of the assets of Dexcom and the guarantors, including all or a portion of the equity interests of our domestic subsidiaries and first-tier foreign subsidiaries but excluding real property and intellectual property (which is subject to a negative pledge).

The Credit Agreement contains covenants that limit certain indebtedness, liens, investments, transactions with affiliates, dividends and other restricted payments, subordinated indebtedness and amendments to subordinated indebtedness documents, and sale and leaseback transactions of Dexcom or any of its domestic subsidiaries.

The Credit Agreement also requires us to maintain a maximum leverage ratio and a minimum fixed charge coverage ratio.

We were in compliance with these covenants as of September 30, 2021.

Our obligations under the Amended Credit Agreement are guaranteed by our existing and future wholly-owned domestic subsidiaries, and are secured by a first-priority security interest in substantially all of the assets of Dexcom and the guarantors, including all or a portion of the equity interests of our domestic subsidiaries and first-tier foreign subsidiaries but excluding real property and intellectual property (which is subject to a negative pledge).

The Amended Credit Agreement contains covenants that limit certain indebtedness, liens, investments, transactions with affiliates, dividends and other restricted payments, subordinated indebtedness and amendments to subordinated indebtedness documents, and sale and leaseback transactions of Dexcom or any of its domestic subsidiaries.

The Amended Credit Agreement also requires us to maintain a maximum leverage ratio and a minimum fixed charge coverage ratio.

We were in compliance with these covenants as of March 31, 2022.

As of March 31, 2022, we also have a guarantee facility related to our international operations which is collateralized by approximately an $ 11 million term deposit included in non-current “Other assets” on our consolidated balance sheets.

Contingencies

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In addition, from time to time we may bring claims or initiate lawsuits against various third parties with respect to matters arising out of the ordinary course of our business, including commercial and employment related matters.

During the quarters ended June 30, 2021 and September 30, 2021, we and certain Abbott entities served complaints for patent infringement against each other in multiple jurisdictions, inside and outside the United States.

During the year ended December 31, 2021 and the quarter ended March 31, 2022, we and certain Abbott Diabetes Care, Inc.

(“Abbott”) entities served complaints for patent infringement, validity and other patent related actions against each other in multiple jurisdictions, inside and outside the United States.

We intend to vigorously pursue our claims and defenses in these cases to protect our intellectual property and to defend against Abbott’s infringement allegations.

We do not believe we are party to any other currently pending legal proceedings, the outcome of which could have a material adverse effect on our business, financial condition or results of operations.

We do not believe we are party to any currently pending legal proceedings, the outcome of which could have a material adverse effect on our business, financial condition or results of operations.

There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, financial condition or results of operations.

1 unchanged sentence

federal statutory rate due to state and foreign income taxes, nondeductible executive compensation, and increases to unrecognized tax benefits offset by federal research tax credits generated.

Our positive effective tax rate of 7.7 % for the nine months ended September 30, 2021 was due to excess tax benefits recognized for employee share-based compensation and a one-time tax benefit related to the revaluation of our U.K.

net operating loss deferred tax asset resulting from the increase in the U.K.

corporate tax rate from 19% to 25% effective April 2023.

We operate in various jurisdictions outside of the U.S., many of which are enacting Anti-Tax Avoidance Directive (ATAD) laws that may impact our ability to deduct certain costs, which could potentially affect our estimated annual effective tax rate.

We have made certain estimations and assumptions in determining the estimated annual effective tax rate, including the impact of these laws, the final application of which may differ from our estimates.

Our negative effective tax rate of 169.5 % for the three months ended March 31, 2022 was primarily due to discrete excess tax benefits recognized for share-based compensation for employees and the Verily milestone payment.

Stockholders’ Equity

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2022 2021

3 unchanged sentences

Total share-based compensation expense $ 29.1 $ 28.0

At September 30, 2021, unrecognized estimated compensation costs related to RSUs, PSUs and ESPP totaled $ 178.2 million and is expected to be recognized through 2024.

At March 31, 2022, unrecognized estimated compensation costs related to RSUs, PSUs and ESPP totaled $ 274.4 million and is expected to be recognized through 2026.

Equity Award Activity

The total vest date fair value of RSUs and PSUs that vested during the nine months ended September 30, 2021 was $ 240.4 million and $ 29.5 million, respectively.

The total vest date fair value of RSUs and PSUs that vested during the three months ended March 31, 2022 was $ 124.2 million and $ 17.3 million, respectively.

Business Segment and Geographic Information

9 unchanged sentences

We sell our CGM systems through a direct sales force in the United States, Australia, Canada, New Zealand, 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.

Revenues by geographic region

During the three and nine months ended September 30, 2021 and 2020, no individual country outside the United States generated revenue that represented more than 10% of our total revenue.

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

Revenue by geographic region

During the three months ended March 31, 2022 and March 31, 2021, no individual country outside the United States generated revenue that represented more than 10% of our total revenue.

The table below sets forth revenue by our two primary geographical markets, the United States and outside of the United States, based on the geographic location to which we deliver the components.

The majority of our long-lived assets are located in the United States.

Three Months Ended

September 30, 2021 Three Months Ended

September 30, 2020

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

United States $ 489.6 75 % $ 398.6 80 %

Outside of the United States 160.6 25 % 102.3 20 %

Total revenues $ 650.2 100 % $ 500.9 100 %

Nine Months Ended

September 30, 2021 Nine Months Ended

September 30, 2020

March 31, 2022 Three Months Ended

March 31, 2021

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

1 unchanged sentence

Outside of the United States 177.6 28 % 123.8 25 %

Total revenues $ 1,750.3 100 % $ 1,357.8 100 %

Revenues by customer sales channel

The following table sets forth revenues by major sales channel for the periods shown:

Total revenue $ 628.8 100 % $ 505.0 100 %

Revenue by customer sales channel

The following table sets forth revenue by major sales channel for the three months ended March 31, 2022 and March 31, 2021:

Three Months Ended

September 30, 2021 Three Months Ended

September 30, 2020

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

Distributor $ 552.3 85 % $ 382.4 76 %

Direct 97.9 15 % 118.5 24 %

Total revenues $ 650.2 100 % $ 500.9 100 %

Nine Months Ended

September 30, 2021 Nine Months Ended

September 30, 2020

March 31, 2022 Three Months Ended

March 31, 2021

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

1 unchanged sentence

Direct 101.7 16 % 114.3 23 %

Total revenues $ 1,750.3 100 % $ 1,357.8 100 %

Total revenue $ 628.8 100 % $ 505.0 100 %

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements