What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-04-25 compared with 2023-10-26 · 87 added, 134 removed, 134 unchanged (62% of the section changed)

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q, including the following Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that are not purely historical regarding Dexcom’s or its management’s intentions, beliefs, expectations and strategies for the future.

These forward-looking statements fall within the meaning of the federal securities laws that relate to future events or our future financial performance.

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “potential” or “continue” or the negative of these terms or other comparable terminology.

Forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q, deal with future events, are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in the forward looking statements.

The risks and uncertainties that could cause actual results to differ materially are more fully described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on February 8, 2024, together with any updates identified under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on February 8, 2024, together with any updates identified under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, elsewhere in this Quarterly Report on Form 10-Q, and in our other reports filed with the SEC.

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

You should read the following discussion and analysis together with our consolidated financial statements and related notes in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

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

We launched our latest generation systems, the Dexcom G6 ® integrated Continuous Glucose Monitoring System, or G6, in 2018 and more recently received marketing clearance from the FDA on the Dexcom G7 ® , or G7, in December 2022.

We launched our latest generation system, the Dexcom G6 ® integrated Continuous Glucose Monitoring System, or G6, in 2018, and we launched the Dexcom G7 ® , or G7, in 2023.

In March 2024, we received marketing clearance from the FDA on Stelo, our new 15-day sensor designed for people with Type 2 diabetes who do not use insulin, as the first glucose biosensor that does not require a prescription.

Unless the context requires otherwise, the terms “we,” “us,” “our,” the “company,” or “Dexcom” refer to DexCom, Inc.

14 unchanged sentences

Critical Accounting Estimates

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

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

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as the reported revenue and expenses during the reporting periods.

3 unchanged sentences

We believe that the estimates, assumptions and judgments involved in the accounting policies described in “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates.

There were no material changes to our critical accounting estimates during the nine months ended September 30, 2023.

There were no material changes to our critical accounting estimates during the three months ended March 31, 2024.

Overview of Financial Results

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

Key Highlights for the Three Months Ended September 30, 2023 include the following:

Key Highlights for the Three Months Ended March 31, 2024 include the following:

Revenue Gross Profit Operating Income Net Income Operating

4 unchanged sentences

up 201% from the same period 2023

down 8% from the same period 2022

We ended the third quarter of 2023 with cash, cash equivalents and short-term marketable securities totaling $3.24 billion.

Business Trends

Looking ahead we expect our business could be affected by the following:

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

• Changes in medical reimbursement policies and programs.

• Growing demand for digital health technologies by both healthcare providers and consumers to reduce costs.

• An expected interest in empowering consumers to make better-informed decisions about their own health and new potential options for facilitating prevention, early diagnosis of life-threatening diseases, and management of chronic conditions outside of traditional health care settings.

• Growing research and interest in the use of CGM technology outside of the ambulatory care setting, including use by hospital systems.

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

• Our ability to scale efficiently with our Malaysia manufacturing facility.

up 35% from the same period 2023

We ended the first quarter of 2024 with cash, cash equivalents and short-term marketable securities totaling $2.90 billion.

Results of Operations

Financial Overview

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Three Months Ended September 30, 2023 - 2022

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Three Months Ended March 31, 2024 - 2023

(In millions, except per share amounts) 2024 % of Revenue (1)

6 unchanged sentences

Research and development 141.5 15 % 119.0 16 % 22.5 19 %

Amortization of intangible assets 1.7 — % 1.8 — % (0.1) (6) %

Selling, general and administrative 319.3 35 % 296.4 40 % 22.9 8 %

1 unchanged sentence

Operating income 101.1 11 % 47.2 6 % 53.9 114 %

Income from equity investments 1.0 — % — — % 1.0 **

Other income (expense), net 31.4 3 % 17.3 2 % 14.1 82 %

Income before income taxes 132.5 14 % 64.5 9 % 68.0 **

Income tax expense 119.7 12 % 45.0 6 % 74.7 **

Income tax expense (benefit) (13.9) (2) % 15.9 2 % (29.8) **

Net income $ 146.4 16 % $ 48.6 7 % $ 97.8 201 %

3 unchanged sentences

** Not meaningful

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

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

9 unchanged sentences

Research and development

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

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

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

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

Our research and development expenses primarily consist of engineering and research expenses related to our sensing technology, clinical trials, regulatory expenses, quality assurance programs, employee compensation, and business process outsourcers.

Amortization of intangible assets

1 unchanged sentence

Selling, general and administrative

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

Our selling, general and administrative expenses primarily consist of employee compensation for our executive, financial, sales, marketing, information technology and administrative functions.

Other significant expenses include commissions, marketing and advertising, IT software license costs, insurance, professional fees for our outside legal counsel and independent auditors, litigation expenses, patent application expenses and consulting expenses.

3 unchanged sentences

Other income (expense), net consists primarily of interest and dividend income on our cash, cash equivalents and short-term marketable securities portfolio, foreign currency transaction gains and losses due to the effects of foreign currency fluctuations, and interest expense related to our senior convertible notes.

Three Months Ended September 30, 2023 Compared to

Three Months Ended September 30, 2022

Revenue The revenue increase was primarily driven by increased sales volume of our disposable sensors due to the continued growth of our worldwide customer base and the shift to G7, partially offset by mix shift and price associated with the evolution of our channel and product strategy.

Disposable sensor and other revenue comprised approximately 90% of total revenue and Reusable Hardware revenue comprised approximately 10% of total revenue for the three months ended September 30, 2023.

Disposable sensor and other revenue comprised approximately 87% of total revenue and Reusable Hardware revenue comprised approximately 13% of total revenue for the three months ended September 30, 2022.

Cost of sales & Gross profit Cost of sales and gross profit increased primarily due to an increase in sales volume.

The decrease in gross profit margin percentage in the third quarter of 2023 compared to the third quarter of 2022 was primarily driven by the amortization of an intangible asset and price, product, and channel mix changes.

Research and development expense Research and development expense increased primarily due to $13.6 million in compensation-related costs most notably due to higher headcount.

We continue to believe that focused investments in research and development are critical to our future growth and competitive position in the marketplace, and to the development of new and updated products and services that are central to our core business strategy.

Selling, general and administrative expense Selling, general and administrative expense increased primarily due to $32.2 million in compensation-related costs most notably due to higher headcount and $12.6 million in legal expense primarily related to a patent infringement lawsuit.

Other income (expense), net Other income (expense), net, increased primarily due to $35.8 million in interest and dividend income on our cash, cash equivalents, and marketable securities portfolio.

The increase in interest income was related to a significant increase in market interest rates, as well as an increase in the average invested balances compared to the same period in 2022.

Income tax expense Our estimated annual effective tax rate from normal, recurring operations decreased from 28.5% to 24.7% during the three months ended September 30, 2023 primarily due to decrease in state and foreign taxes, increase in federal tax credits generated, partially offset by an increase to unrecognized tax benefits and an increase in disallowed executive compensation.

There are discrete taxes related to the intra-entity transfer of certain intellectual property and decrease in the state tax rate applied to beginning of year deferred tax assets.

The income tax expense recorded for the three months ended September 30, 2022 was primarily attributable to income tax expense from normal, recurring operations.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Nine Months Ended September 30, 2023 - 2022

(In millions, except per share amounts) 2023 % of Revenue (1)

2022 % of Revenue (1)

$ Change % Change

Revenue $ 2,587.8 100 % $ 2,094.6 100 % $ 493.2 24 %

Cost of sales 955.5 37 % 752.8 36 % 202.7 27 %

Gross profit 1,632.3 63.1 % 1,341.8 64.1 % 290.5 22 %

Operating expenses:

Research and development 369.7 14 % 367.9 18 % 1.8 — %

Amortization of intangible assets 5.2 — % 5.7 — % (0.5) (9) %

Selling, general and administrative 876.6 34 % 702.4 34 % 174.2 25 %

Total operating expenses 1,251.5 48 % 1,076.0 51 % 175.5 16 %

Operating income 380.8 15 % 265.8 13 % 115.0 43 %

Income from equity investments 1.0 — % 0.2 — % 0.8 **

Other income (expense), net 82.4 3 % (8.4) — % 90.8 **

Income before income taxes 464.2 18 % 257.6 12 % 206.6 80 %

Income tax expense 179.0 7 % 8.2 — % 170.8 **

Net income $ 285.2 11 % $ 249.4 12 % $ 35.8 14 %

Basic net income per share $ 0.74 ** $ 0.64 ** $ 0.10 16 %

Diluted net income per share $ 0.69 ** $ 0.60 ** $ 0.09 15 %

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

** Not meaningful

Nine Months Ended September 30, 2023 Compared to

Nine Months Ended September 30, 2022

Disposable sensor and other revenue comprised approximately 89% of total revenue and Reusable Hardware revenue comprised approximately 11% of total revenue for the nine months ended September 30, 2023.

Disposable sensor and other revenue comprised approximately 86% of total revenue and Reusable Hardware revenue comprised approximately 14% of total revenue for the nine months ended September 30, 2022.

Cost of sales & Gross profit Cost of sales and gross profit increased primarily due to an increase in sales volume.

The decrease in gross profit margin percentage in 2023 compared to 2022 was primarily driven by the amortization of an intangible asset and price, product, and channel mix changes.

Research and development expense Research and development expense increased primarily due to $26.8 million in compensation-related costs most notably due to higher headcount and various increases to individually insignificant items, partially offset by $16.4 million of lower third party and consulting fees primarily related to software development for new products and significant enhancements and $11.5 million in lower costs related to set-up and validation costs for new CGM equipment.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Three Months Ended March 31, 2024 - 2023

2024 2023 Change in Revenues

(In millions) Revenue % of Total Revenue % of Total $ %

United States

$ 653.2 71% $ 526.0 71% $ 127.2 24%

International 267.8 29% 215.5 29% 52.3 24%

Total Revenue $ 921.0 100% $ 741.5 100% $ 179.5 24%

Three Months Ended March 31, 2024 Compared to

Three Months Ended March 31, 2023

Revenue The revenue increase was primarily driven by increased sales volume of our disposable sensors due to the continued growth of our worldwide customer base.

We added approximately 600,000 users to our worldwide customer base in 2023.

Disposable sensor and other revenue comprised approximately 93% of total revenue and Reusable Hardware revenue comprised approximately 7% of total revenue for the three months ended March 31, 2024.

Disposable sensor and other revenue comprised approximately 88% of total revenue and Reusable Hardware revenue comprised approximately 12% of total revenue for the three months ended March 31, 2023.

Cost of sales & Gross profit Cost of sales and gross profit increased primarily due to an increase in sales volume driven by the addition of approximately 600,000 users to our worldwide customer base in 2023.

The decrease in gross profit margin percentage in the first quarter of 2024 compared to the first quarter of 2023 was primarily driven by product and channel mix changes.

Three Months Ended March 31, 2024 Compared to

Three Months Ended March 31, 2023

Research and development expense Research and development expense increased primarily due to $6.8 million in compensation-related costs most notably due to higher headcount, $5.0 million in supplies and other support costs, and $3.2 million in clinical trials costs.

Selling, general and administrative expense Selling, general and administrative expense increased primarily due to $73.9 million in compensation-related costs most notably due to higher headcount, $43.0 million in legal expense primarily related to a patent infringement lawsuit, and $30.7 million in advertising and marketing costs associated with global product launches.

Selling, general and administrative expense Selling, general and administrative expense increased primarily due to $16.0 million in compensation-related costs most notably due to higher headcount, $5.9 million of travel related expenses, and $2.5 million related to the divestiture of certain non-CGM assets, partially offset by $9.6 million in lower advertising and marketing costs.

Other income (expense), net Other income (expense), net, increased primarily due to $14.0 million in interest and dividend income on our cash, cash equivalents, and marketable securities portfolio.

The increase in interest income was related to a significant increase in market interest rates, as well as an increase in the average invested balances compared to the same period in 2022.

Income tax expense The income tax expense recorded for the nine months ended September 30, 2023 is primarily attributable to state and foreign income taxes, nondeductible executive compensation, increases to unrecognized tax benefits, and impact of foreign operations, partially offset by federal tax credits generated.

There are discrete taxes related to the intra-entity asset transfer of certain intellectual property, and decrease in the state tax rate applied to beginning of year deferred tax assets, partially offset by excess tax benefits recognized for share-based compensation for employees, net of disallowed executive compensation.

The income tax expense recorded for the nine months ended September 30, 2022 is primarily attributable to income tax expense from normal, recurring operations, partially offset by excess tax benefits recognized for share-based compensation for employees (net of disallowed executive compensation) and the Verily milestone payment, and generation of research and development tax credits.

The increase in interest income was related to a change in market interest rates, as well as an increase in the average invested balances compared to the same period in 2023.

Income tax expense (benefit) The income tax benefit recorded for the three months ended March 31, 2024 was primarily attributable to income tax expense from normal, recurring operations at an estimated annual effective tax rate of 23.8%, offset by discrete excess tax benefits recognized for share-based compensation for employees, net of disallowed executive compensation and the Verily milestone payment.

The income tax expense recorded for the three months ended March 31, 2023 was primarily attributable to income tax expense from normal, recurring operations, partially offset by discrete excess tax benefits recognized for share-based compensation for employees, net of disallowed executive compensation.

The decrease in our effective tax rate for the three months ended March 31, 2024 compared to the same period in 2023 is primarily attributable to impacts of the prior year tax restructuring and the Verily milestone payment.

Liquidity and Capital Resources

9 unchanged sentences

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

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

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

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

16 unchanged sentences

We will be exposed to additional foreign currency exchange risk related to our international operations as we expand our manufacturing internationally and as our business continues to increase in international markets.

See “Foreign Currency Exchange Risk” in Part II, Item 7A of our Annual Report for more information.

See “ Foreign Currency Exchange Risk ” in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 , for more information.

Main Sources of Liquidity

Cash, cash equivalents and short-term marketable securities

Our cash, cash equivalents and short-term marketable securities totaled $3.24 billion as of September 30, 2023.

Our cash, cash equivalents and short-term marketable securities totaled $2.90 billion as of March 31, 2024.

None of those funds were restricted and $2.67 billion (approximately 92%) of those funds were located in the United States.

Cash flow from Operations

For the nine months ended September 30, 2023, we had positive cash flows of $614.9 million from operating activities.

For the three months ended March 31, 2024, we had positive cash flows of $209.2 million from operating activities.

We anticipate that we will continue to generate positive cash flows from operations for the foreseeable future.

Senior Convertible Notes

We received net proceeds of $836.6 million in November 2018 from the 2023 Notes offering, net proceeds of $1.19 billion in May 2020 from the 2025 Notes offering, and net proceeds of $1.23 billion from the 2028 Notes offering.

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

We received net proceeds of $1.19 billion in May 2020 from the 2025 Notes offering, and net proceeds of $1.23 billion in May 2023 from the 2028 Notes offering.

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

We used $289.9 million of the net proceeds from the offering of the 2028 Notes to purchase capped call transactions and repurchase shares of our common stock in May 2023.

We intend to use the remainder of the net proceeds from the 2023 Notes, 2025 Notes, and 2028 Notes offerings for general corporate purposes and capital expenditures, including working capital needs.

We intend to use the remainder of the net proceeds from the 2025 Notes offering and 2028 Notes offering for general corporate purposes and capital expenditures, including working capital needs.

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

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

In connection with the 2023 Notes and 2028 Notes offerings, we purchased the 2023 Note Hedge and 2028 Capped Calls, respectively.

See Note 5 “Debt” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report for conversion activity related to the 2023 Notes and shares received as the result of exercising a portion of the 2023 Note Hedge as well as for more information about our senior convertible notes, the 2023 Note Hedge, the 2023 Warrants, and the 2028 Capped Calls.

In connection with the 2028 Notes offering, we purchased the 2028 Capped Calls.

See Note 5 “ Debt ” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about our senior convertible notes and the 2028 Capped Calls.

Revolving Credit Agreement

As of September 30, 2023, we had no outstanding borrowings, $7.3 million in outstanding letters of credit, and a total available balance of $192.7 million under the Amended Credit Agreement.

As of March 31, 2024, we had no outstanding borrowings, $7.6 million in outstanding letters of credit, and a total available balance of $192.4 million under the Amended Credit Agreement.

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

1 unchanged sentence

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

See Note 5 “Debt” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report for more details on the Revolving Credit Agreement.

See Note 5 “ Debt ” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Revolving Credit Agreement.

Short-term Liquidity Requirements

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

As of September 30, 2023, we had a working capital ratio of 2.80 and a quick ratio of 2.40, which indicates that our current assets are more than enough to cover our short-term liabilities.

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

As of March 31, 2024, we had a working capital ratio of 2.90 and a quick ratio of 2.43, which indicates that our current assets are more than enough to cover our short-term liabilities.

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

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

We may use cash for strategic initiatives that strengthen our foundation for long-term growth.

The outstanding principal related to our 2023 Notes of $124.3 million as of September 30, 2023 and any amount in excess of the principal amount will primarily settle through a combination of cash and stock on or before the maturity date of December 1, 2023.

We may use cash to repurchase Dexcom shares or for other strategic initiatives that strengthen our foundation for long-term growth.

Long-term Liquidity Requirements

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

As of September 30, 2023, we had a debt-to-assets ratio of 0.39, which indicates that our total assets are more than enough to cover our short-term and long-term debts.

As of March 31, 2024, we had a debt-to-assets ratio of 0.38, which indicates that our total assets are more than enough to cover our short-term and long-term debts.

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

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

As of September 30, 2023, we have outstanding senior convertible notes that will mature in November 2025 and May 2028.

As of March 31, 2024, we have outstanding senior convertible notes that will mature in November 2025 and May 2028.

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

See Note 5 “Debt” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report for information on conversion rights prior to maturity.

See Note 5 “ Debt — Senior Convertible Notes ” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on conversion rights prior to maturity.

Material Cash Requirements

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

See “Contractual Obligations” below in Part I, Item 2 of this Quarterly Report for more information.

We issued senior convertible notes in November 2018, May 2020, and May 2023.

These obligations include both principal and interest for these notes.

Although these notes mature in December 2023, November 2025, and May 2028, respectively, they may be converted into cash and/or shares of our common stock prior to maturity if certain conditions are met.

Any conversion prior to maturity can result in repayment of the principal amounts sooner than the scheduled repayment.

As of September 30, 2023, we had outstanding letters of credit of $7.3 million for which we cannot forecast with certainty the amount and timing of repayments.

See Note 5 “Debt” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report for further discussion of the terms of our senior convertible notes.

See “ Contractual Obligations ” below for more information.

Our obligations under the 2025 Notes and 2028 Notes include both principal and interest for these notes.

Although the 2025 Notes and 2028 Notes mature in November 2025 and May 2028, respectively, they may be converted into cash and/or shares of our common stock prior to maturity if certain conditions are met.

Any conversion prior to maturity may result in repayment of the principal amounts due under the Notes sooner than the scheduled repayment.

As market conditions warrant, we may, from time to time, repurchase our outstanding debt securities in the open market, in privately negotiated transactions, by exchange transaction or otherwise.

Such repurchases, if any, will depend on prevailing market conditions, our liquidity and other factors and may be commenced or suspended at any time.

The amounts involved and total consideration paid may be material.

See Note 5 “ Debt—Senior Convertible Notes ” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about the terms of the Credit Agreement, our senior convertible notes, and the 2028 Capped Calls.

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

We also have land leases in Penang, Malaysia for the build-out of our international manufacturing facility lease that expire through 2082.

We anticipate incurring significant expenditures related to the build-out of the Malaysia manufacturing facility and equipment over the next year and the build-out of the Ireland manufacturing facility and equipment over the next five years.

See Note 6 “Leases and Other Commitments” to the consolidated financial statements in Part II, Item 8 of our Annual Report for more information about our leases.

See Note 5 “Debt” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report for more information about the terms of the Credit Agreement, our senior convertible notes, the 2023 Note Hedge, the 2023 Warrants, and the 2028 Capped Calls.

We also have land leases in Penang, Malaysia that expire in 2082 and Athenry, Ireland that expire in 3023 for our international manufacturing facilities.

We anticipate incurring significant expenditures related to our Malaysia manufacturing facility and equipment over the next year and the build-out of the Ireland manufacturing facility and equipment over the next five years.

See Note 6 “ Leases and Other Commitments—Leases ” to the consolidated financial statements in Part II, Item 8 of our Annual Report for the fiscal year ended December 31, 2023 for more information about our leases.

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

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

As of September 30, 2023, we had $3.24 billion in cash, cash equivalents and short-term marketable securities, which is an increase of $784.1 million compared to $2.46 billion as of December 31, 2022.

The primary cash flows during the nine months ended September 30, 2023 and September 30, 2022 are described below.

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

Nine Months Ended

September 30, 2023 September 30, 2022

See the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for complete consolidated statements of cash flows for these periods.

As of March 31, 2024, we had $2.90 billion in cash, cash equivalents and short-term marketable securities, which is an increase of $172.9 million compared to $2.72 billion as of December 31, 2023.

The primary cash flows during the three months ended March 31, 2024 and March 31, 2023 are described below.

See the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for complete consolidated statements of cash flows for these periods.

Three Months Ended

March 31, 2024 March 31, 2023

Operating Cash Flows + $146.4 million of net income, $43.8 million of net non-cash adjustments, and a net increase of $19.0 million in changes of working capital balances

+ $249.4 million of net income and $194.9 million of net non-cash adjustments, and a net increase of $92.7 million in changes of working capital balances

Net non-cash adjustments were primarily related to share-based compensation and depreciation and amortization.

Investing Cash Flows - $719.5 million in net purchases of marketable securities

+ $48.6 million of net income, $55.3 million of net non-cash adjustments, and a net increase of $51.5 million in changes of working capital balances

Net non-cash adjustments were primarily related to depreciation and amortization, share-based compensation, and deferred income taxes.

Net non-cash adjustments were primarily related to depreciation and amortization and share-based compensation.

Investing Cash Flows + $129.4 million in net proceeds from marketable securities

- $112.0 million in net purchases of marketable securities

- $56.9 million in capital expenditures

- $74.7 million in capital expenditures

- $12.5 million in purchases of equity investments

- 19.5 million in purchases of equity investments

- $9.9 million in net purchases of marketable securities

- $3.9 million in acquisitions, net of cash acquired

Financing Cash Flows + $1.23 billion in proceeds from issuance of senior convertible notes, net of issuance costs

+ $22.5 million in proceeds from issuance of common stock under our employee stock plans

Financing Cash Flows + $13.4 million in proceeds from issuance of common stock under our employee stock plans

+ $12.3 million in proceeds from issuance of common stock under our employee stock plans

- $557.7 million in purchases of treasury stock

- $650.5 million in payments for conversions of senior convertible notes

- $14.6 million in payments for financing leases

- $188.7 million in purchases of treasury stock

- $101.3 million in purchases of capped call transactions

Contractual Obligations

We presented our contractual obligations as of December 31, 2023 in Note 6 “ Leases and Other Commitments ” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

There were no significant changes to our lease obligations during the nine months ended September 30, 2023.

As of September 30, 2023, we had approximately $420.3 million of open purchase orders and contractual obligations in the ordinary course of business, the majority of which are due within one year.

See Note 5 “Debt” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report for conversion activity related to our senior convertible notes.

There were no material changes to our lease or contractual obligations outside the ordinary course of business during the three months ended March 31, 2024.

See Note 5 “ Debt — Senior Convertible Notes ” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on our senior convertible notes.

Recent Accounting Guidance

For a description of recently issued accounting pronouncements and the potential impact on our consolidated financial statements, if any, see Note 1 “Organization and Significant Accounting Policies” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes to our quantitative and qualitative disclosures about market risk during the nine months ended September 30, 2023.

See Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for a detailed discussion of our market risks.

See Note 1 “ Organization and Significant Accounting Policies ” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding recently issued accounting pronouncements and the potential impact on our consolidated financial statements, if any.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis