DEXCOM INC 10-Q

ITEM 1. FINANCIAL STATEMENTS DexCom, Inc. Consolidated Balance Sheets (Unaudited) June 30, 2022 December 31, 2021 (In millions, except par value data) (As Adjusted)* Assets Current assets: Cash and cash equivalents $ 735.4 $ 1,052.6 Short-term marketable securities 2,019.4 1,678.6 Accounts receivable, net 560.8 514.3 Inventory 339.5 357.3 Prepaid and other current assets 153.6 81.6 Total current assets 3,808.7 3,684.4 Property and equipment, net 942.9 801.8 Operating lease right-of-use assets 77.9 88.1 Goodwill 25.6 26.5 Intangibles, net 28.0 31.5 Deferred tax assets 309.5 290.5 Other assets 24.8 10.5 Total assets $ 5,217.4 $ 4,933.3 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable and accrued liabilities $ 688.3 $ 573.0 Accrued payroll and related expenses 94.8 125.2 Short-term operating lease liabilities 21.2 20.5 Deferred revenue 2.7 2.1 Total current liabilities 807.0 720.8 Long-term senior convertible notes 1,967.3 1,981.8 Long-term operating lease liabilities 87.7 98.6 Other long-term liabilities 99.5 90.0 Total liabilities 2,961.5 2,891.2 Commitments and contingencies Stockholders’ equity: Preferred stock, $ 0.001 par value, 5.0 million shares authorized; no shares issued and outstanding at June 30, 2022 and December 31, 2021 — — Common stock, $ 0.001 par value, 800.0 million shares authorized; 392.9 million and 392.6 million shares issued and outstanding, respectively, at June 30, 2022; and 391.4 million and 388.0 million shares issued and outstanding, respectively, at December 31, 2021 0.4 0.4 Additional paid-in capital 2,028.9 2,108.7 Accumulated other comprehensive income (loss) ( 23.0 ) 0.5 Retained earnings 286.9 138.7 Treasury stock, at cost; 0.3 million shares at June 30, 2022 and 3.4 million shares at December 31, 2021 ( 37.3 ) ( 206.2 ) Total stockholders’ equity 2,255.9 2,042.1 Total liabilities and stockholders’ equity $ 5,217.4 $ 4,933.3 * We adjusted our 2021 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted on a full retrospective basis. All periods presented have also been adjusted to reflect the four -for-one stock split. Refer to Note 1, “Organization and Significant Accounting Policies,” for further information. See accompanying notes 3 Table of Contents DexCom, Inc. Consolidated Statements of Operations (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In millions, except per share data) (As Adjusted)* (As Adjusted)* Revenue $ 696.2 $ 595.1 $ 1,325.0 $ 1,100.1 Cost of sales 246.7 178.0 477.4 339.1 Gross profit 449.5 417.1 847.6 761.0 Operating expenses: Research and development 121.7 129.1 257.6 238.5 Amortization of intangible assets 1.9 0.5 3.9 1.0 Selling, general and administrative 248.9 186.5 467.8 374.6 Total operating expenses 372.5 316.1 729.3 614.1 Operating income 77.0 101.0 118.3 146.9 Interest expense ( 4.7 ) ( 4.8 ) ( 9.3 ) ( 9.5 ) Income from equity investments — — 0.2 — Interest and other income, net 3.0 0.9 2.2 1.0 Income before income taxes 75.3 97.1 111.4 138.4 Income tax expense (benefit) 24.4 18.7 ( 36.8 ) 3.5 Net income $ 50.9 $ 78.4 $ 148.2 $ 134.9 Basic net income per share $ 0.13 $ 0.20 $ 0.38 $ 0.35 Shares used to compute basic net income per share 392.5 386.9 390.7 386.1 Diluted net income per share $ 0.12 $ 0.19 $ 0.36 $ 0.33 Shares used to compute diluted net income per share 421.4 427.1 429.1 426.8 * We adjusted our 2021 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted on a full retrospective basis. All periods presented have also been adjusted to reflect the four -for-one stock split. Refer to Note 1, “Organization and Significant Accounting Policies,” for further information. See accompanying notes 4 Table of Contents DexCom, Inc. Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In millions) (As Adjusted)* (As Adjusted)* Net income $ 50.9 $ 78.4 $ 148.2 $ 134.9 Other comprehensive income (loss), net of tax: Translation adjustments and other ( 13.9 ) 0.2 ( 15.3 ) ( 0.1 ) Unrealized loss on marketable debt securities ( 3.0 ) ( 0.3 ) ( 8.2 ) ( 0.3 ) Total other comprehensive loss, net of tax ( 16.9 ) ( 0.1 ) ( 23.5 ) ( 0.4 ) Comprehensive income $ 34.0 $ 78.3 $ 124.7 $ 134.5 * 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 5 Table of Contents DexCom, Inc. Consolidated Statements of Stockholders’ Equity (Unaudited) Three Months Ended June 30, 2022 (In millions) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Treasury Stock Total Stockholders’ Equity Shares Amount Balance at March 31, 2022 392.5 $ 0.4 $ 1,996.3 $ ( 6.1 ) $ 236.0 $ ( 37.3 ) $ 2,189.3 Issuance of common stock under equity incentive plans 0.1 — — — — — — Share-based compensation expense — — 32.6 — — — 32.6 Net income — — — — 50.9 — 50.9 Other comprehensive loss, net of tax — — — ( 16.9 ) — — ( 16.9 ) Balance at June 30, 2022 392.6 $ 0.4 $ 2,028.9 $ ( 23.0 ) $ 286.9 $ ( 37.3 ) $ 2,255.9 Three Months Ended June 30, 2021 (In millions) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income Retained Earnings (Accumulated Deficit) Treasury Stock Total Stockholders’ Equity Shares Amount Balance at March 31, 2021 (As Adjusted)* 386.8 $ 0.4 $ 1,763.2 $ 2.9 $ ( 21.7 ) $ ( 100.0 ) $ 1,644.8 Issuance of common stock under equity incentive plans 0.2 — — — — — — Share-based compensation expense — — 31.6 — — — 31.6 Net income — — — — 78.4 — 78.4 Other comprehensive loss, net of tax — — — ( 0.1 ) — — ( 0.1 ) Balance at June 30, 2021 (As Adjusted)* 387.0 $ 0.4 $ 1,794.8 $ 2.8 $ 56.7 $ ( 100.0 ) $ 1,754.7 * We adjusted our 2021 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted on a full retrospective basis. All periods presented have also been adjusted to reflect the four -for-one stock split. Refer to Note 1, “Organization and Significant Accounting Policies,” for further information. See accompanying notes 6 Table of Contents DexCom, Inc. Consolidated Statements of Stockholders’ Equity (Unaudited) Six Months Ended June 30, 2022 (In millions) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Total Stockholders’ Equity Shares Amount Balance at December 31, 2021 (As Adjusted)* 388.0 $ 0.4 $ 2,108.7 $ 0.5 $ 138.7 $ ( 206.2 ) $ 2,042.1 Issuance of common stock under equity incentive plans 1.5 — — — — — — Issuance of common stock for Employee Stock Purchase Plan 0.1 — 10.1 — — — 10.1 Issuance of common stock in connection with achievement of regulatory approval milestone, net of issuance costs 2.9 — ( 189.3 ) — — 189.2 ( 0.1 ) Conversions of 2023 Notes 0.4 — 4.2 — — 13.2 17.4 Benefit of note hedge upon conversions of 2023 Notes ( 0.3 ) — 33.5 — — ( 33.5 ) — Share-based compensation expense — — 61.7 — — — 61.7 Net income — — — — 148.2 — 148.2 Other comprehensive loss, net of tax — — — ( 23.5 ) — — ( 23.5 ) Balance at June 30, 2022 392.6 $ 0.4 $ 2,028.9 $ ( 23.0 ) $ 286.9 $ ( 37.3 ) $ 2,255.9 Six Months Ended June 30, 2021 (In millions) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income Retained Earnings (Accumulated Deficit) Treasury Stock Total Stockholders’ Equity Shares Amount Balance at December 31, 2020 (As Adjusted)* 384.4 $ 0.4 $ 1,726.5 $ 3.2 $ ( 78.2 ) $ ( 100.0 ) $ 1,551.9 Issuance of common stock under equity incentive plans 2.5 — — — — — — Issuance of common stock for Employee Stock Purchase Plan 0.1 — 8.7 — — — 8.7 Share-based compensation expense — — 59.6 — — — 59.6 Net income — — — — 134.9 — 134.9 Other comprehensive loss, net of tax — — — ( 0.4 ) — — ( 0.4 ) Balance at June 30, 2021 (As Adjusted)* 387.0 $ 0.4 $ 1,794.8 $ 2.8 $ 56.7 $ ( 100.0 ) $ 1,754.7 * We adjusted our 2021 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted on a full retrospective basis. All periods presented have been adjusted to reflect the four -for-one stock split. Refer to Note 1, “Organization and Significant Accounting Policies,” for further information. See accompanying notes 7 Table of Contents DexCom, Inc. Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2022 2021 (In millions) (As Adjusted)* Operating activities Net income $ 148.2 $ 134.9 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 80.4 44.4 Share-based compensation 61.7 59.6 Non-cash interest expense 3.2 4.2 Realized (gain) loss on equity investment ( 0.2 ) — Deferred income taxes ( 19.8 ) 0.1 Other non-cash income and expenses 16.0 16.0 Changes in operating assets and liabilities: Accounts receivable, net ( 47.1 ) ( 54.9 ) Inventory 16.7 ( 84.5 ) Prepaid and other assets ( 82.5 ) ( 27.1 ) Operating lease right-of-use assets and liabilities, net ( 3.4 ) 1.1 Accounts payable and accrued liabilities 96.0 8.8 Accrued payroll and related expenses ( 31.1 ) ( 16.2 ) Deferred revenue and other liabilities 5.7 3.0 Net cash provided by operating activities 243.8 89.4 Investing activities Purchases of marketable securities ( 1,143.7 ) ( 1,171.9 ) Proceeds from sale and maturity of marketable securities 785.6 1,628.3 Purchases of property and equipment ( 193.1 ) ( 200.9 ) Acquisitions, net of cash acquired ( 3.2 ) — Other investing activities ( 2.3 ) ( 4.5 ) Net cash provided by (used in) investing activities ( 556.7 ) 251.0 Financing activities Net proceeds from issuance of common stock 10.1 8.7 Other financing activities ( 9.1 ) ( 8.3 ) Net cash provided by financing activities 1.0 0.4 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 5.3 ) 0.1 Increase (decrease) in cash, cash equivalents and restricted cash ( 317.2 ) 340.9 Cash, cash equivalents and restricted cash, beginning of period 1,053.6 818.2 Cash, cash equivalents and restricted cash, end of period $ 736.4 $ 1,159.1 Reconciliation of cash, cash equivalents and restricted cash, end of period: Cash and cash equivalents $ 735.4 $ 1,158.8 Restricted cash 1.0 0.3 Total cash, cash equivalents and restricted cash $ 736.4 $ 1,159.1 8 Table of Contents Six Months Ended June 30, 2022 2021 (As Adjusted)* Supplemental disclosure of non-cash investing and financing transactions: Shares issued for conversions of 2023 Notes $ 35.9 $ — Shares received under note hedge upon conversions of 2023 Notes $ ( 33.5 ) $ — Acquisition of property and equipment included in accounts payable and accrued liabilities $ 59.8 $ 43.2 Right-of-use assets obtained in exchange for operating lease liabilities $ ( 0.8 ) $ 10.4 Right-of-use assets obtained in exchange for finance lease liabilities $ 15.7 $ 4.6 * 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 9 Table of Contents DexCom, Inc. Notes to Consolidated Financial Statements (Unaudited) 1. Organization and Significant Accounting Policies Organization and Business DexCom, Inc. is a medical device company that develops and markets continuous glucose monitoring, or CGM, systems for the management of diabetes by patients, caregivers, and clinicians around the world. Unless the context requires otherwise, the terms “we,” “us,” “our,” the “company,” or “Dexcom” refer to DexCom, Inc. and its subsidiaries. Basis of Presentation and Principles of Consolidation We have prepared the accompanying unaudited consolidated financial statements in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission, or SEC, Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. 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 six months ended June 30, 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. We experience seasonality that is typical in our industry, with lower sales in the first quarter of each year compared to the fourth quarter of the previous year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2021 included in the Annual Report on Form 10-K that we filed with the SEC on February 14, 2022. These consolidated financial statements include the accounts of DexCom, Inc. and our wholly owned subsidiaries. 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. Amortization expense related to intangible assets has been presented separately from selling, general and administrative expenses in our consolidated statement of operations. We determine the functional currencies of our international subsidiaries by reviewing the environment where each subsidiary primarily generates and expends cash. For international subsidiaries whose functional currencies are the local currencies, we translate the financial statements into U.S. 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 (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, net in our consolidated statements of operations. Stock Split On June 10, 2022, the Company effected a four -for-one forward stock split of its common stock to shareholders of record as of May 19, 2022. The par value of the common stock remains $ 0.001 per share. All share and per share information has been retroactively adjusted to reflect the stock split for all periods presented. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the amounts reported in our consolidated financial statements and the disclosures made in the accompanying notes. Areas requiring significant estimates include rebates, transaction price, the collectibility of accounts receivable, excess or obsolete inventories and the valuation of inventory, accruals for litigation contingencies, and the amount of our worldwide tax provision and the realizability of deferred tax assets. Despite our intention to establish accurate estimates and use reasonable assumptions, actual results may differ from our estimates. 10 Table of Contents Accounts Receivable and Allowance for Doubtful Accounts 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. We evaluate the creditworthiness of significant customers based on historical trends, the financial condition of our customers, and external market factors. We generally do not require collateral from our customers. We maintain an allowance for doubtful accounts for potential credit losses. Uncollectible accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a customer account is uncollectible. Generally, receivable balances that are more than one year past due are deemed uncollectible. Concentration of Credit Risk Financial instruments which potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, short-term marketable securities, and accounts receivable. We limit our exposure to credit risk by placing our cash and investments with a few major financial institutions. We have also established guidelines regarding diversification of our investments and their maturities that are designed to maintain principal and maximize liquidity. 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 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 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. In determining how revenue should be recognized, a five-step process is used, which includes identifying performance obligations in the contract, determining whether the performance obligations are separate, allocating the transaction price to each separate performance obligation, estimating the amount of variable consideration to include in the transaction price and determining the timing of revenue recognition for separate performance obligations. Contracts and Performance Obligations We consider customer purchase orders, which in most cases are governed by agreements with distributors or third-party payors, to be contracts with a customer. For each contract, we consider the obligation to transfer Components to the customer, each of which are distinct, to be separate performance obligations. We also provide free-of-charge software, mobile applications and updates for our Dexcom Share ® remote monitoring system. The standalone selling prices of Dexcom Share ® are estimated based on an expected cost plus a margin approach. 11 Table of Contents Transaction Price Transaction price for the Components reflects the net consideration to which we expect to be entitled. 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 We include an estimate of variable consideration in the calculation of the transaction price at the time of sale, when control of the Components transfers to the customer. Variable consideration includes, but is not limited to: 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. Estimates 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. Rebates 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. We estimate provisions for rebates based on contractual arrangements, estimates of products sold subject to rebate, known events or trends and channel inventory data. Chargebacks We participate in chargeback programs, primarily with government entities in the U.S., under which pricing on products below negotiated list prices is provided to participating entities and equal to the difference between their acquisition cost and the lower negotiated price. We estimate provisions for chargebacks primarily based on historical experience on a product and program basis, current contract prices under the chargeback programs and channel inventory data. Consideration Payable to the Customer We pay administrative and service fees to certain of our distributors based on a fixed percentage of the product price. These fees are not in exchange for a distinct good or service and therefore are recognized as a reduction of the transaction price. We accrue for these fees based on actual net sales and contractual fee rates negotiated with the customer. Product Returns In accordance with the terms of their distribution agreements, most distributors do not have rights of return. The distributors typically have a limited time frame to notify us of any missing, damaged, defective or non-conforming products. We generally provide a “ 30 -day money back guarantee” program whereby first-time end-user customers may return Reusable Hardware. We estimate our product returns provision principally based on historical experience by applying a historical return rate to the amounts of revenue estimated to be subject to returns. Additionally, we consider other specific factors such as estimated shelf life of inventory in the distribution channel and changes to customer terms. Prompt Payment Discounts We provide customers with prompt payment discounts which may result in adjustments to the price that is invoiced for the product transferred, in the case that payments are made within a defined period. We estimate prompt payment discount accruals based on actual net sales and contractual discount rates. Various Other Promotional or Incentive Arrangements Other promotional or incentive arrangements are periodically offered to customers, including but not limited to co-payment assistance we provide to patients with commercial insurance, promotional programs related to the launch of products or other targeted promotions. We record a provision for the incentive earned based on the number of estimated claims and our estimate of the cost per claim related to product sales that we have recognized as revenue. 12 Table of Contents Revenue Recognition The timing of revenue recognition is based on the satisfaction of performance obligations. Substantially all of the performance obligations associated with our Components are satisfied at a point in time, which typically occurs at shipment of our products. Terms of direct and distributor orders are generally Freight on Board (FOB) shipping point for U.S. orders or Free Carrier (FCA) shipping point for international orders. For certain sales transactions, control transfers at delivery of the product to the customer. In cases where our free-of-charge software, mobile applications and updates are deemed to be separate performance obligations, revenue is recognized over time on a ratable basis over the estimated life of the related Reusable Hardware component. Our sales of Components include an assurance-type warranty. Contract Balances Contract balances represent amounts presented in our consolidated balance sheets when either we have transferred goods or services to the customer or the customer has paid consideration to us under the contract. These contract balances include accounts receivable and deferred revenue. Payment terms vary by contract type and type of customer and generally range from 30 to 90 days. Accounts receivable as of June 30, 2022 included unbilled accounts receivable of $ 9.3 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 twelve months of the initial contract date. The deferred revenue balances related to performance obligations that will be satisfied after twelve months was $ 21.3 million as of June 30, 2022 and $ 16.1 million as of December 31, 2021. These balances are included in other long-term liabilities in our consolidated balance sheets. Revenue recognized in the period from performance obligations satisfied in previous periods was not material for the periods presented. Deferred Cost of Sales Deferred cost of sales are associated with transactions for which revenue recognition criteria are not met but product has shipped and released from inventory. Deferred cost of sales are included in prepaid and other current assets in our consolidated balance sheets. Incentive Compensation Costs We generally expense incentive compensation associated with our internal sales force when incurred because the amortization period for such costs, if capitalized, would have been one year or less. 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 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. 13 Table of Contents 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 our adjusted balance sheets under the new ASU 2020-06 guidance we adopted and reflective of our four -for-one forward stock split: Consolidated Balance Sheet As of December 31, 2020 (In millions) As Previously Reported ASU 2020-06 Adjustment Stock Split 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 Common stock 0.1 — 0.3 0.4 Additional paid-in-capital 2,125.3 ( 398.5 ) ( 0.3 ) 1,726.5 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 Stock Split 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 Common stock 0.1 — 0.3 0.4 Additional paid-in-capital 2,504.5 ( 395.5 ) ( 0.3 ) 2,108.7 Retained earnings (Accumulated deficit) $ ( 47.4 ) $ 186.1 $ — $ 138.7 Below is a summary of the changes in our consolidated statements of operations for the three and six months ended June 30, 2021 we originally reported at June 30, 2021 under the ASC 470-20 legacy guidance compared to our adjusted balance sheets under the new ASU 2020-06 guidance we adopted and reflective of our four -for-one forward stock split: Consolidated Statement of Operations Three Months Ended June 30, 2021 (In millions, except per share data) As Previously Reported ASU 2020-06 Adjustment As Adjusted Interest expense $ ( 25.2 ) $ 20.4 $ ( 4.8 ) Income before income taxes 76.7 20.4 97.1 Income tax expense 13.8 4.9 18.7 Net income 62.9 15.5 78.4 Basic net income per share 0.16 0.04 0.20 Diluted net income per share (1) $ 0.16 $ 0.03 $ 0.19 Shares used to compute diluted net income per share 398.4 28.7 427.1 Consolidated Statement of Operations Six Months Ended June 30, 2021 (In millions, except per share data) As Previously Reported ASU 2020-06 Adjustment As Adjusted Interest expense $ ( 50.0 ) $ 40.5 $ ( 9.5 ) Income (Loss) before taxes 97.9 40.5 138.4 Income tax expense (benefit) ( 5.3 ) 8.8 3.5 Net income 103.2 31.7 134.9 Basic net income per share 0.27 0.08 0.35 Diluted net income per share (2) $ 0.26 $ 0.07 $ 0.33 Shares used to compute diluted net income per share 398.1 28.7 426.8 (1) Dilutive net income used for diluted net income per share under ASU 2020-06 includes $ 2.9 million add back of interest expense, net of tax, attributable to assumed conversion of senior convertible notes. (2) Dilutive net income used for diluted net income per share under ASU 2020-06 includes $ 5.8 million add back of interest expense, net of tax, attributable to assumed conversion of senior convertible notes. 14 Table of Contents Below is a summary of our consolidated balance sheet as of June 30, 2022 and consolidated statements of operations for the three and six months ended June 30, 2022 under the ASC 470-20 legacy guidance compared to the new ASU 2020-06 guidance we adopted. Consolidated Balance Sheet As of June 30, 2022 (In millions) As computed under ASC 470-20 ASU 2020-06 Adjustment As reported under ASU 2020-06 Prepaid and other current assets $ 169.3 $ ( 15.7 ) $ 153.6 Deferred tax assets 235.7 73.8 309.5 Long-term senior convertible notes 1,730.7 236.6 1,967.3 Additional paid-in-capital 2,423.3 ( 394.4 ) 2,028.9 Retained earnings $ 71.0 $ 215.9 $ 286.9 Consolidated Statement of Operations Three Months Ended June 30, 2022 (In millions, except per share data) As computed under ASC 470-20 ASU 2020-06 Adjustment As reported under ASU 2020-06 Interest expense $ ( 25.4 ) $ 20.7 $ ( 4.7 ) Income before income taxes 54.6 20.7 75.3 Income tax expense 18.8 5.6 24.4 Net income 35.8 15.1 50.9 Basic net income per share 0.09 0.04 0.13 Diluted net income per share (1) $ 0.09 $ 0.03 $ 0.12 Shares used to compute diluted net income per share 402.5 18.9 421.4 Consolidated Statement of Operations Six Months Ended June 30, 2022 (In millions, except per share data) 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 ( 50.5 ) 41.2 ( 9.3 ) Income before income taxes 69.8 41.6 111.4 Income tax expense (benefit) ( 48.6 ) 11.8 ( 36.8 ) Net income 118.4 29.8 148.2 Basic net income per share (2) 0.30 0.08 0.38 Diluted net income per share $ 0.29 $ 0.07 $ 0.36 Shares used to compute diluted net income per share 402.1 27.0 429.1 (1) Dilutive net income used for diluted net income per share under ASU 2020-06 includes $ 1.6 million add back of interest expense, net of tax, attributable to assumed conversion of senior convertible notes. (2) Dilutive net income used for diluted net income per share under ASU 2020-06 includes $ 5.5 million add back of interest expense, net of tax, attributable to assumed conversion of senior convertible notes. 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 15 Table of Contents 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 Basic net income per share attributable to common stockholders is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares outstanding during the period and, when dilutive, potential common share equivalents. Potentially dilutive common shares consist of shares issuable from restricted stock units, or RSUs, performance stock units, or PSUs, warrants, and our senior convertible notes. Potentially dilutive common shares issuable upon vesting of RSUs, PSUs, and exercise of warrants are determined using the average share price for each period under the treasury stock method. Potentially dilutive common shares issuable upon conversion of our senior convertible notes are determined using the if-converted method. In periods of net losses, we exclude all potentially dilutive common shares from the computation of the diluted net loss per share for those periods as the effect would be anti-dilutive. The following table sets forth the computation of basic and diluted net income per share for the periods shown. Three Months Ended June 30, Six Months Ended June 30, (In millions) 2022 2021 2022 2021 As Adjusted As Adjusted Net income $ 50.9 $ 78.4 $ 148.2 $ 134.9 Add back interest expense, net of tax attributable to assumed conversion of senior convertible notes 1.6 2.9 5.5 5.8 Net income - diluted $ 52.5 $ 81.3 $ 153.7 $ 140.7 Net income per common share Basic $ 0.13 $ 0.20 $ 0.38 $ 0.35 Diluted $ 0.12 $ 0.19 $ 0.36 $ 0.33 Basic weighted average shares outstanding 392.5 386.9 390.7 386.1 Dilutive potential common stock outstanding: Restricted stock units 0.5 1.5 1.0 2.1 Warrants 9.5 10.0 10.5 9.9 Senior convertible notes 18.9 28.7 26.9 28.7 Diluted weighted average shares outstanding 421.4 427.1 429.1 426.8 Outstanding anti-dilutive securities not included in the diluted net income per share attributable to common stockholders calculations were as follows: Three Months Ended June 30, Six Months Ended June 30, (In millions) 2022 2021 2022 2021 As Adjusted As Adjusted Restricted stock units 0.2 — 0.2 — Senior convertible notes 8.0 — — — Total 8.2 — 0.2 — 16 Table of Contents Recent Accounting Guidance Recently Adopted Accounting Pronouncements 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. 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. Entities may adopt ASU 2020-06 using either a partial retrospective or fully retrospective method of transition. This ASU is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. 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. 2. 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 $ 29.57 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 7,363,772 shares of our common stock. We recorded a $ 217.7 million charge in our consolidated statements of operations 17 Table of Contents 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 $ 29.57 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 2,945,508 shares of our common stock in connection with our achievement of the related milestone. Additional sales-based milestone payments equivalent to 5,154,640 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 June 30, 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. 3. Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis We estimate the fair value of our Level 1 financial instruments, which are in active markets, using unadjusted quoted market prices for identical instruments. We obtain the fair values for our Level 2 financial instruments, which are not in active markets, from a primary professional pricing source that uses quoted market prices for identical or comparable instruments, rather than direct observations of quoted prices in active markets. 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 provided by our investment managers. 18 Table of Contents The following table summarizes financial assets that we measured at fair value on a recurring basis as of June 30, 2022, classified in accordance with the fair value hierarchy: Fair Value Measurements Using (In millions) Level 1 Level 2 Level 3 Total Cash equivalents $ 523.6 $ 25.0 $ — $ 548.6 Debt securities, available for sale: U.S. government agencies (1) — 1,588.7 — 1,588.7 Commercial paper — 198.7 — 198.7 Corporate debt — 188.5 — 188.5 Supranationals — 43.5 — 43.5 Total debt securities, available for sale — 2,019.4 — 2,019.4 Other assets (2) 9.2 — — 9.2 Total assets measured at fair value on a recurring basis $ 532.8 $ 2,044.4 $ — $ 2,577.2 (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 . The following table summarizes financial assets that we measured at fair value on a recurring basis as of December 31, 2021, classified in accordance with the fair value hierarchy: Fair Value Measurements Using (In millions) Level 1 Level 2 Level 3 Total Cash equivalents $ 791.4 $ 40.0 $ — $ 831.4 Debt securities, available for sale: U.S. government agencies — 1,210.6 — 1,210.6 Commercial paper — 189.7 — 189.7 Corporate debt — 224.3 — 224.3 Supranationals — 54.0 — 54.0 Total debt securities, available for sale — 1,678.6 — 1,678.6 Other assets (1) 7.0 — — 7.0 Total assets measured at fair value on a recurring basis $ 798.4 $ 1,718.6 $ — $ 2,517.0 (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 six months ended June 30, 2022. We hold certain other investments that we do not measure at fair value on a recurring basis. The carrying values of these investments are not significant and we include them in other assets in our consolidated balance sheets. 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 effect on the fair values. 19 Table of Contents Fair Value of Senior Convertible Notes 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) June 30, 2022 December 31, 2021 Senior Convertible Notes due 2023 $ 1,426.5 $ 2,589.6 Senior Convertible Notes due 2025 1,110.5 1,432.9 Total fair value of outstanding senior convertible notes $ 2,537.0 $ 4,022.5 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 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, net in our consolidated statements of operations. As of June 30, 2022 and December 31, 2021, notional amounts of $ 40.0 million 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 six months ended June 30, 2022 and June 30, 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 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. Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis In accordance with authoritative guidance, we measure certain non-financial assets and liabilities at fair value on a non-recurring basis. These measurements are usually performed using the discounted cash flow method or cost method and Level 3 inputs. 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 an impairment is recognized. We recorded no significant impairment losses during the three and six months ended June 30, 2022 and June 30, 2021. 4. Balance Sheet Details Short-Term Marketable Securities Short-term marketable securities, consisting of available-for-sale debt securities, were as follows as of the dates indicated: June 30, 2022 (In millions) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Market Value Debt securities, available for sale: U.S. government agencies (1) $ 1,600.5 $ — $ ( 11.8 ) $ 1,588.7 Commercial paper 198.9 — ( 0.2 ) 198.7 Corporate debt 189.3 — ( 0.8 ) 188.5 Supranationals 43.7 — ( 0.2 ) 43.5 Total debt securities, available for sale $ 2,032.4 $ — $ ( 13.0 ) $ 2,019.4 20 Table of Contents December 31, 2021 (In millions) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Market Value Debt securities, available for sale: U.S. government agencies $ 1,212.1 $ — $ ( 1.5 ) $ 1,210.6 Commercial paper 189.8 — ( 0.1 ) 189.7 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 (1) Includes debt obligations issued by U.S. government-sponsored enterprises or U.S. government agencies. As of June 30, 2022, the estimated market value of our debt securities with contractual maturities up to twelve months were $ 2,019.4 million. 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 and six months ended June 30, 2022 and June 30, 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 June 30, 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. Inventory (In millions) June 30, 2022 December 31, 2021 Raw materials $ 151.1 $ 145.2 Work-in-process 21.3 16.2 Finished goods 167.1 195.9 Total inventory $ 339.5 $ 357.3 Prepaid and Other Current Assets (In millions) June 30, 2022 December 31, 2021 Prepaid expenses $ 67.7 $ 51.9 Income tax receivables 51.2 2.3 Other current assets 34.7 27.4 Total prepaid and other current assets $ 153.6 $ 81.6 21 Table of Contents Property and Equipment (In millions) June 30, 2022 December 31, 2021 Land (1) $ 26.3 $ 15.6 Building (1) 54.3 49.1 Furniture and fixtures 32.7 30.7 Computer software and hardware 56.4 52.7 Machinery and equipment 347.4 272.9 Leasehold improvements 270.9 251.6 Construction in progress 458.7 360.7 Total cost 1,246.7 1,033.3 Less accumulated depreciation and amortization ( 303.8 ) ( 231.5 ) Total property and equipment, net $ 942.9 $ 801.8 (1 ) Represents finance lease right-of-use assets. Other Assets Other assets were $ 24.8 million and $ 10.5 million as of June 30, 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) June 30, 2022 December 31, 2021 As Adjusted Accounts payable trade $ 219.6 $ 189.4 Accrued tax, audit, and legal fees 31.7 40.6 Accrued rebates 370.9 260.5 Accrued warranty 14.2 12.9 Contractual obligations — 15.0 Other accrued liabilities 51.9 54.6 Total accounts payable and accrued liabilities $ 688.3 $ 573.0 Accrued Payroll and Related Expenses (In millions) June 30, 2022 December 31, 2021 Accrued wages, bonus and taxes $ 57.6 $ 91.8 Other accrued employee benefits 37.2 33.4 Total accrued payroll and related expenses $ 94.8 $ 125.2 Other Long-Term Liabilities (In millions) June 30, 2022 December 31, 2021 Finance lease obligations $ 61.3 $ 57.0 Deferred revenue, long-term 21.3 16.1 Deferred tax liabilities 5.6 5.9 Other liabilities 11.3 11.0 Total other long-term liabilities $ 99.5 $ 90.0 22 Table of Contents 5. Debt Senior Convertible Notes The carrying amounts of our senior convertible notes were as follows as of the dates indicated: (Dollars in millions) June 30, 2022 December 31, 2021 As Adjusted Principal amount: Senior Convertible Notes due 2023 $ 774.8 $ 792.3 Senior Convertible Notes due 2025 1,207.5 1,207.5 Total principal amount 1,982.3 1,999.8 Unamortized debt issuance costs ( 15.0 ) ( 18.0 ) Carrying amount of senior convertible notes $ 1,967.3 $ 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) June 30, 2022 December 31, 2021 Senior Convertible Notes due 2023 $ 643.4 $ 1,797.3 Senior Convertible Notes due 2025 — 141.8 Total by which the notes ’ if-converted value exceeds their principal amount $ 643.4 $ 1,939.1 The following table summarizes the components of interest expense and the effective interest rates for each of our senior convertible notes for the periods shown. Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2022 2021 2022 2021 As Adjusted As Adjusted Cash interest expense: Contractual coupon interest (1) $ 2.2 $ 2.2 $ 4.4 $ 4.6 Non-cash interest expense: Amortization of debt issuance costs 1.4 1.5 2.9 3.0 Total interest expense recognized on senior notes $ 3.6 $ 3.7 $ 7.3 $ 7.6 Effective interest rate: Senior Convertible Notes due 2023 1.1 % 1.1 % 1.1 % 1.1 % Senior Convertible Notes due 2025 0.5 % 0.5 % 0.5 % 0.5 % (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. 0.75% Senior Convertible Notes due 2023 In November 2018, we completed an offering of $ 850.0 million aggregate principal amount of unsecured senior convertible notes with a stated interest rate of 0.75 % and a maturity date of December 1, 2023 (the 2023 Notes). The net proceeds from the offering, after deducting initial purchasers’ discounts and costs directly related to the offering, were approximately $ 836.6 million. The initial conversion rate of the 2023 Notes is 24.3476 shares per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $ 41.07 per share, subject to adjustments, with a maximum conversion rate of 32.2604. We entered into transactions for a convertible note hedge (the 2023 Note Hedge) and warrants (the 2023 Warrants) concurrently with the issuance of the 2023 Notes. The 2023 Notes may be settled in cash, stock, or a combination thereof, solely at our discretion. We use the if-converted method for assumed conversion of the 2023 Notes to compute the weighted average shares of common stock outstanding for diluted earnings per share. No principal payments are due on the 2023 Notes prior to maturity. 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 23 Table of Contents Notes includes customary terms and covenants, including certain events of default after which the 2023 Notes may be due and payable immediately. 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 1,403,112 shares to settle the converted 2023 Notes during the twelve months ended December 31, 2021, of which 794,588 shares were issued out of treasury stock. We received 967,380 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. Holders of $ 17.5 million in aggregate principal amount of the 2023 Notes elected conversion at their option during the six months ended June 30, 2022. We settled these conversions using treasury stock. We issued 425,188 treasury shares to settle the converted 2023 Notes. We received 287,280 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. There were no conversions during the three months ended June 30, 2022. Conversion Rights at the Option of the Holders Holders of the 2023 Notes have the right to require us to repurchase for cash all or a portion of their notes at 100 % of their principal amount, plus any accrued and unpaid interest, upon the occurrence of a fundamental change (as defined in the indenture relating to the notes). We will also be required to increase the conversion rate for holders who convert their 2023 Notes in connection with certain fundamental changes occurring prior to the maturity date or following the delivery by Dexcom of a notice of redemption. Holders of the 2023 Notes may convert all or a portion of their notes at their option prior to 5:00 p.m., New York City time, on the business day immediately preceding September 1, 2023, in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after March 31, 2019 (and only during such calendar quarter), if the last reported sale price of Dexcom’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the applicable conversion price of the 2023 Notes on each such trading day; (2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2023 Notes for each day of that five -day consecutive trading day period was less than 98 % of the product of the last reported sale price of Dexcom’s common stock and the applicable conversion rate of the 2023 Notes on such trading day; (3) if we call any or all of the 2023 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate transactions. 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, 2021 and March 31, 2022. As a result, the 2023 Notes were convertible at the option of the holder from January 1, 2022 through June 30, 2022. Circumstance (1) listed above also occurred during the quarter ended June 30, 2022 and as a result, the 2023 Notes will remain convertible at the option of the holder from July 1, 2022 through September 30, 2022. See above for a description of conversion activity related to the 2023 Notes. Conversion Rights at Our Option 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. The redemption price will be equal to 100 % of the principal amount of the 2023 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date. 2023 Note Hedge In connection with the offering of the 2023 Notes, in November 2018 we entered into convertible note hedge transactions with two of the initial purchasers of the 2023 Notes (the 2023 Counterparties) entitling us to purchase up to 20.7 million shares of our common stock at an initial price of $ 41.07 per share, each of which is subject to adjustment. The cost of the 2023 Note Hedge was $ 218.9 million and we accounted for it as an equity instrument by recognizing $ 218.9 million in additional paid-in 24 Table of Contents capital during 2018. The 2023 Note Hedge 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. 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 In November 2018, we also sold warrants to the 2023 Counterparties to acquire up to 20.7 million shares of our common stock. 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. We received $ 183.8 million in cash proceeds from the sale of the 2023 Warrants, which we recorded in additional paid-in capital during 2018. The 2023 Warrants could have a dilutive effect on our earnings per share to the extent that the price of our common stock during a given measurement period exceeds the strike price of the 2023 Warrants. The strike price of the 2023 Warrants is initially $ 49.60 per share and is subject to certain adjustments under the terms of the warrant agreements. We use the treasury share method for assumed conversion of the 2023 Warrants when computing the weighted average common shares outstanding for diluted earnings per share. 0.25% Senior Convertible Notes due 2025 In May 2020, we completed an offering of $ 1.21 billion aggregate principal amount of unsecured senior convertible notes with a stated interest rate of 0.25 % and a maturity date of November 15, 2025 (the 2025 Notes). The net proceeds from the offering, after deducting initial purchasers’ discounts and estimated costs directly related to the offering, were approximately $ 1.19 billion. The initial conversion rate of the 2025 Notes is 6.6620 shares per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $ 150.11 per share, subject to adjustments, with a maximum conversion rate of 9.4928. The 2025 Notes may be settled in cash, stock, or a combination thereof, solely at our discretion. We use the if-converted method for assumed conversion of the 2025 Notes to compute the weighted average shares of common stock outstanding for diluted earnings per share. No principal payments are due on the 2025 Notes prior to maturity. 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. Conversion Rights at the Option of the Holders In the event of a fundamental change (as defined in the indenture related to the 2025 Notes), holders of the 2025 Notes have the right to require us to repurchase for cash all or a portion of their notes at a price equal to 100 % of the principal amount of the 2025 Notes, plus any accrued and unpaid interest. Holders of the 2025 Notes who convert their notes in connection with a make-whole fundamental change (as defined in the indenture) or following the delivery by Dexcom of a notice of redemption are, under certain circumstances, entitled to an increase in the conversion rate. Prior to 5:00 p.m., New York City time, on the business day immediately preceding August 15, 2025, holders of the 2025 Notes may convert all or a portion of their notes, in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after September 30, 2020 (and only during such calendar quarter), if the last reported sale price of Dexcom’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the applicable conversion price of the Notes on each such trading day; (2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each day of that five day consecutive trading day period was less than 98 % of the product of the last reported sale price of Dexcom’s common stock and the applicable conversion rate of the Notes on such trading day; (3) if we call any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate transactions. On or after August 15, 2025, until 5:00 p.m., New York City time, on the business day immediately preceding the maturity date, holders of the 2025 Notes may convert all or a portion of their notes regardless of the foregoing circumstances. 25 Table of Contents Conversion Rights at Our Option Dexcom may not redeem the 2025 Notes prior to May 20, 2023. On or after May 20, 2023 and prior to August 15, 2025, Dexcom may redeem for cash all or part of the 2025 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. The redemption price will be equal to 100 % of the principal amount of the 2025 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date. Revolving Credit Agreement Terms of the Revolving Credit Agreement 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) June 30, 2022 Available principal amount $ 200.0 Letters of credit sub-facility 25.0 Outstanding borrowings — Outstanding letters of credit 7.3 Total available balance $ 192.7 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. 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 June 30, 2022. As of June 30, 2022, we also have a guarantee facility related to our international operations which is collateralized by a $ 10.5 million term deposit that is included in non-current “Other assets” on our consolidated balance sheets. 26 Table of Contents 6. Contingencies Litigation We are subject to various claims, complaints and legal actions that arise from time to time in the normal course of business, including commercial insurance, product liability, intellectual property and employment related matters. 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 year ended December 31, 2021 and the six months ended June 30, 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 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. 7. Income Taxes We estimate our annual effective tax rate to be 31.4 % for the full year 2022, which differs from the U.S. 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 negative effective tax rate of 33.0 % for the six months ended June 30, 2022 was primarily due to discrete excess tax benefits recognized for share-based compensation for employees and the Verily milestone payment partially offset by income tax expense from normal, recurring operations. 8. Stockholders’ Equity Share-Based Compensation Our share-based compensation expense is associated with RSUs, PSUs, and our Employee Stock Purchase Plan, or ESPP. The following table summarizes our share-based compensation expense included in our consolidated statements of operations for the periods shown. Three Months Ended June 30, Six Months Ended June 30, (In millions) 2022 2021 2022 2021 Cost of sales $ 2.8 $ 2.6 $ 5.1 $ 4.6 Research and development 10.9 11.1 21.2 21.5 Selling, general and administrative 18.9 17.9 35.4 33.5 Total share-based compensation expense $ 32.6 $ 31.6 $ 61.7 $ 59.6 At June 30, 2022, unrecognized estimated compensation costs related to RSUs, PSUs and ESPP totaled $ 230.6 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 six months ended June 30, 2022 was $ 130.3 million and $ 17.3 million, respectively. 9. Business Segment and Geographic Information Reportable Segments An operating segment is identified as a component of a business that has discrete financial information available and for which the chief operating decision maker must decide the level of resource allocation. In addition, the guidance for segment reporting indicates certain quantitative materiality thresholds. None of the components of our business meet the definition of an operating segment. 27 Table of Contents We currently consider our operations to be, and manage our business globally within, one reportable segment, which is consistent with how our President and Chief Executive Officer, who is our chief operating decision maker, reviews our business, makes investment and resource allocation decisions, and assesses operating performance. Disaggregation of Revenue We disaggregate revenue by geographic region and by major sales channel. We have determined that disaggregating revenue into these categories achieves the ASC Topic 606 disclosure objectives of depicting how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Dexcom is domiciled in the United States. We sell our CGM systems through a direct sales force in the North America, Asia Pacific, Europe and the Middle East, 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. Revenue by geographic region During the three and six months ended June 30, 2022 and June 30, 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 June 30, 2022 Three Months Ended June 30, 2021 (Dollars in millions) Amount % of Total Amount % of Total United States $ 511.0 73 % $ 461.5 78 % Outside of the United States 185.2 27 % 133.6 22 % Total revenue $ 696.2 100 % $ 595.1 100 % Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 (Dollars in millions) Amount % of Total Amount % of Total United States $ 962.2 73 % $ 842.7 77 % Outside of the United States 362.8 27 % 257.4 23 % Total revenues $ 1,325.0 100 % $ 1,100.1 100 % Revenue by customer sales channel The following table sets forth revenue by major sales channel for the three and six months ended June 30, 2022 and June 30, 2021: Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 (Dollars in millions) Amount % of Total Amount % of Total Distributor $ 585.1 84 % $ 495.9 83 % Direct 111.1 16 % 99.2 17 % Total revenue $ 696.2 100 % $ 595.1 100 % Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 (Dollars in millions) Amount % of Total Amount % of Total Distributor $ 1,112.2 84 % $ 886.6 81 % Direct 212.8 16 % 213.5 19 % Total revenues $ 1,325.0 100 % $ 1,100.1 100 % 28 Table of Contents 10. Subsequent Events On July 26, 2022, a duly authorized committee of our Board of Directors authorized and approved a share repurchase program of up to $ 700 million of our outstanding common stock, with a repurchase period ending no later than June 30, 2023 (the “Share Repurchase Program”). Repurchases of our common stock under the Share Repurchase Program may be made from time to time, on the open market, in privately negotiated transactions or by other methods, at our discretion, and in accordance with the limitations set forth in Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended, and other applicable federal and state laws and regulations. The timing of any repurchases will depend on market conditions and will be made at our discretion. The Share Repurchase Program does not obligate us to repurchase any dollar amount or number of shares, and the program may be extended, modified, suspended, or discontinued at any time. 29 Table of Contents