DEXCOM INC 10-Q

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 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 Quarterly Report on Form 10-Q 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. Overview Who We Are 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 and metabolic health 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 system, the Dexcom G6 ® integrated Continuous Glucose Monitoring System, or G6, in 2018, and we launched the Dexcom G7 ® , or G7, in 2023. In August 2024, we launched Stelo, our new biosensor designed for adults with prediabetes and Type 2 diabetes who do not use insulin, as the first over-the-counter glucose biosensor in the U.S. Unless the context requires otherwise, the terms “we,” “us,” “our,” the “company,” or “Dexcom” refer to DexCom, Inc. and its subsidiaries. Global Presence We have built a direct sales organization in North America and certain international markets to call on health care professionals, such as endocrinologists, physicians and diabetes educators, who can educate and influence patient adoption of continuous glucose monitoring. To complement our direct sales efforts, we have entered into distribution arrangements in North America and several international markets that allow distributors to sell our products. Future Developments Product Development: We plan to develop future generations of technologies that are focused on improved performance and convenience and that will enable intelligent insulin administration. Over the longer term, we plan to continue to develop and improve networked platforms with open architecture, connectivity and transmitters capable of communicating with other devices. We also intend to expand our efforts to accumulate CGM patient data and metrics and apply predictive modeling and machine learning to generate interactive CGM insights that can inform patient behavior. Partnerships: We also continue to pursue and support development partnerships with insulin pump companies and companies or institutions developing insulin delivery systems, including automated insulin delivery systems. New Opportunities: We are also exploring how to extend our offerings to other opportunities, including for people with Type 2 diabetes that are non-insulin using, people with pre-diabetes, people who are obese, people who are pregnant, and people in the hospital setting. Eventually, we may apply our technological expertise to products beyond glucose monitoring. 29 Table of Contents 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 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. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 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, 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, 2024 include the following: Revenue Gross Profit Operating Income Net Income Operating Cash Flow $994.2 million $593.8 million $152.0 million $134.6 million $199.5 million up 2% from the same period in 2023 down 5% from the same period in 2023 down 26% from the same period in 2023 up 12% from the same period in 2023 down 26% from the same period in 2023 We ended the third quarter of 2024 with cash, cash equivalents and short-term marketable securities totaling $2.49 billion. 30 Table of Contents Results of Operations Financial Overview Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023 Three Months Ended September 30, 2024 - 2023 (In millions, except per share amounts) 2024 % of Revenue (1) 2023 % of Revenue (1) $ Change % Change Revenue $ 994.2 100 % $ 975.0 100 % $ 19.2 2 % Cost of sales 400.4 40 % 351.7 36 % 48.7 14 % Gross profit 593.8 59.7 % 623.3 63.9 % (29.5) (5) % Operating expenses: Research and development 135.4 14 % 131.4 13 % 4.0 3 % Selling, general and administrative 306.4 31 % 286.4 29 % 20.0 7 % Total operating expenses 441.8 44 % 417.8 43 % 24.0 6 % Operating income 152.0 15 % 205.5 21 % (53.5) (26) % Other income (expense), net 25.4 3 % 34.9 4 % (9.5) (27) % Income before income taxes 177.4 18 % 240.4 25 % (63.0) (26) % Income tax expense 42.8 4 % 119.7 12 % (76.9) (64) % Net income $ 134.6 14 % $ 120.7 12 % $ 13.9 12 % Basic net income per share $ 0.34 ** $ 0.31 ** $ 0.03 10 % Diluted net income per share $ 0.34 ** $ 0.29 ** $ 0.05 17 % (1) The sum of the individual percentages may not equal the total due to rounding. ** Not meaningful Revenue 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. We typically experience seasonality, with lower sales in the first quarter of each year compared to the immediately preceding fourth quarter. This seasonal sales pattern relates to U.S. annual insurance deductible resets and unfunded flexible spending accounts. Cost of sales Cost of sales includes direct labor and materials costs related to each product sold or produced, including assembly, test labor and scrap, as well as factory overhead supporting our manufacturing operations. Factory overhead includes facilities, material procurement and control, manufacturing engineering, quality assurance, supervision and management. These costs are primarily salary, fringe benefits, share-based compensation, facility expense, supplies and purchased services. All of our manufacturing costs are included in cost of sales. In addition, amortization of certain licensing related intangibles are also included in cost of sales. Research and development 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. Selling, general and administrative 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. 31 Table of Contents Other income (expense), net 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, realized and unrealized gains and losses on equity investments, and interest expense related to our senior convertible notes. 32 Table of Contents Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023 Three Months Ended September 30, 2024 - 2023 2024 2023 Change in Revenue (In millions) Revenue % of Total Revenue % of Total $ % United States $ 701.9 71% $ 713.6 73% $ (11.7) (2)% International 292.3 29% 261.4 27% 30.9 12% Total Revenue $ 994.2 100% $ 975.0 100% $ 19.2 2% Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 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 net users to our worldwide customer base in 2023. The increase in revenue was offset by pricing headwinds due to greater rebate eligibility and channel mix. Disposable sensor and other revenue comprised approximately 96% of total revenue and Reusable Hardware revenue comprised approximately 4% of total revenue for the three months ended September 30, 2024. 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. 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 net users to our worldwide customer base in 2023. The decrease in gross profit margin percentage in the third quarter of 2024 compared to the third quarter of 2023 was primarily driven by product and channel mix changes and a $24.6 million non-cash inventory build charge. 33 Table of Contents Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023 Research and development expense Research and development expense increased primarily due to $4.5 million in clinical trials, supplies and other support costs and $2.7 million in software and data costs, offset by a $2.8 million decrease in compensation and related costs. 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 $13.6 million in advertising and marketing costs and $5.4 million in software and data costs, offset by a $7.1 million decrease in compensation and related costs. Other income (expense), net Other income (expense), net, decreased primarily due to a $9.5 million decrease in interest and dividend income on our cash, cash equivalents, and marketable securities portfolio. The decrease in interest income was related to a change in market interest rates, as well as a decrease in the average invested balances compared to the same period in 2023. Income tax expense The income tax expense recorded for the three months ended September 30, 2024 was primarily attributable to income tax expense from normal, recurring operations and discrete impacts of certain foreign tax return filings. The income tax expense recorded for the three months ended September 30, 2023 was primarily attributable to income tax expense from normal, recurring operations, discrete income tax expense related to an intra-entity transfer of certain intellectual property, and decrease in the state tax rate applied to beginning of year deferred tax assets. The decrease in our effective tax rate for the three months ended September 30, 2024 compared to the same period in 2023 is primarily attributable to impacts of the prior year tax restructuring. 34 Table of Contents Results of Operations Financial Overview Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2024 - 2023 (In millions, except per share amounts) 2024 % of Revenue (1) 2023 % of Revenue (1) $ Change % Change Revenue $ 2,919.5 100 % $ 2,587.8 100 % $ 331.7 13 % Cost of sales 1,137.1 39 % 955.5 37 % 181.6 19 % Gross profit 1,782.4 61.1 % 1,632.3 63.1 % 150.1 9 % Operating expenses: Research and development 412.9 14 % 369.7 14 % 43.2 12 % Selling, general and administrative 958.4 33 % 881.8 34 % 76.6 9 % Total operating expenses 1,371.3 47 % 1,251.5 48 % 119.8 10 % Operating income 411.1 14 % 380.8 15 % 30.3 8 % Other income (expense), net 86.6 3 % 83.4 3 % 3.2 4 % Income before income taxes 497.7 17 % 464.2 18 % 33.5 7 % Income tax expense 73.2 3 % 179.0 7 % (105.8) (59) % Net income $ 424.5 15 % $ 285.2 11 % $ 139.3 49 % Basic net income per share $ 1.08 ** $ 0.74 ** $ 0.34 46 % Diluted net income per share $ 1.04 ** $ 0.69 ** $ 0.35 51 % (1) The sum of the individual percentages may not equal the total due to rounding. ** Not meaningful 35 Table of Contents Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2024 - 2023 2024 2023 Change in Revenues (In millions) Revenue % of Total Revenue % of Total $ % United States $ 2,087.0 71% $ 1,856.2 72% $ 230.8 12% International 832.5 29% 731.6 28% 100.9 14% Total Revenue $ 2,919.5 100% $ 2,587.8 100% $ 331.7 13% Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 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 net users to our worldwide customer base in 2023. The increase in revenue was offset by pricing headwinds due to greater rebate eligibility and channel mix. Disposable sensor and other revenue comprised approximately 94% of total revenue and Reusable Hardware revenue comprised approximately 6% of total revenue for the nine months ended September 30, 2024. 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. 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 net users to our worldwide customer base in 2023. The decrease in gross profit margin percentage in 2024 compared to 2023 was primarily driven by product and channel mix changes and a $24.6 million non-cash inventory build charge. 36 Table of Contents Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 Research and development expense Research and development expense increased primarily due to $16.6 million in clinical trials, supplies and other support costs, $11.3 million in compensation and related costs, and $6.2 million in software and data costs. 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 $19.5 million in advertising and marketing costs, $17.8 million in compensation and related costs, $15.0 million in software and data costs, and $10.4 million in travel related expenses. Income tax expense The income tax expense recorded for the nine months ended September 30, 2024 was primarily attributable to income tax expense from normal, recurring operations at an estimated annual effective tax rate of 23.1%, partially offset by discrete excess tax benefits recognized for share-based compensation for employees, net of nondeductible executive compensation, the Verily milestone payment, and the impacts of certain foreign tax return filings. The income tax expense recorded for the nine months ended September 30, 2023 was primarily attributable to income tax expense from normal, recurring operations, discrete income tax expense related to an intra-entity asset transfer of certain intellectual property, and decrease in the state tax rate applied to the 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 decrease in our effective tax rate for the nine months ended September 30, 2024 compared to the same period in 2023 is primarily attributable to impacts of the prior year tax restructuring and the Verily milestone payment. 37 Table of Contents Liquidity and Capital Resources Overview, Capital Resources, and Capital Requirements Our principal sources of liquidity are our existing cash, cash equivalents and marketable securities, cash generated from operations, proceeds from our senior convertible notes issuances, and access to our Credit Facility. Our primary uses of cash have been for research and development programs, selling and marketing activities, capital expenditures, acquisitions of businesses, and debt service costs. We expect that cash provided by our operations may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, working capital requirements and capital deployment decisions. We have historically invested our cash primarily in U.S. dollar-denominated, investment grade, highly liquid obligations of U.S. government agencies, commercial paper, corporate debt, and money market funds. Certain of these investments are subject to general credit, liquidity and other market risks. The general condition of the financial markets and the economy may increase those risks and may affect the value and liquidity of investments and restrict our ability to access the capital markets. 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 any future products; Our ability to efficiently scale our operations to meet demand for our current and any future products; The success of our research and development efforts; The expenses we incur in manufacturing, developing, selling and marketing our products; The costs, timing and risks of delays of additional regulatory approvals; The costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; The quality levels of our products and services; The emergence of competing or complementary technological developments; The terms and timing of any collaborative, licensing and other arrangements that we may establish; and The third-party reimbursement of our products for our customers; The rate of progress and cost of our clinical trials and other development activities; The acquisition of businesses, products and technologies and our ability to integrate and manage any acquired businesses, products and technologies. We expect that existing cash and short-term investments and cash flows from our future operations will generally be sufficient to fund our ongoing core business. As current borrowing sources become due, we may be required to access the capital markets for additional funding. As we assess inorganic growth strategies, we may need to supplement our internally generated cash flow with outside sources. In the event that we are required to access the debt market, we believe that we will be able to secure reasonable borrowing rates. As part of our liquidity strategy, we will continue to monitor our current level of earnings and cash flow generation as well as our ability to access the market in light of those earning levels. A substantial portion of our operations are located in the United States, and the majority of our sales since inception have been made in U.S. dollars. 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 on Form 10-K for the fiscal year ended December 31, 2023, for more information. 38 Table of Contents Main Sources of Liquidity Cash, cash equivalents and short-term marketable securities Our cash, cash equivalents and short-term marketable securities totaled $2.49 billion as of September 30, 2024. None of those funds were restricted and $2.30 billion (approximately 92%) of those funds were located in the United States. Cash flows from Operations For the nine months ended September 30, 2024, we had positive cash flows of $688.1 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 $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 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 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, 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. We currently believe that the Credit Facility will be available to us should we choose to borrow under it. Revolving loans will be available for general corporate purposes, including working capital and capital expenditures. See Note 5 “ Debt ” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Amended 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, 2024, we had a working capital ratio of 2.46 and a quick ratio of 2.01, 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 to repurchase shares of our common stock 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, 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 39 Table of Contents 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, 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 — 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, and research and development activities. See “ Contractual Obligations ” below for more information. Our obligations under the 2025 Notes and 2028 Notes include both principal and interest payments. 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 or shares of our common stock, 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 8 “ Stockholder’s Equity — Share Repurchase Program and Treasury Shares ” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about our 2024 Share Repurchase Program. 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 the terms of the Amended 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 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. 40 Table of Contents Cash Flows 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 on Form 10-Q for the complete consolidated statements of cash flows for these periods. As of September 30, 2024, we had $2.49 billion in cash, cash equivalents and short-term marketable securities, which is a decrease of $231.8 million compared to $2.72 billion as of December 31, 2023. The primary cash flows during the nine months ended September 30, 2024 and September 30, 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. 41 Table of Contents Nine Months Ended September 30, 2024 September 30, 2023 Operating Cash Flows + $424.5 million of net income, $161.2 million of net non-cash adjustments, and a net increase of $102.4 million in changes of working capital balances + $285.2 million of net income, $68.4 million of net non-cash adjustments, and a net increase of $261.3 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 + $335.7 million in net proceeds from marketable securities - $719.5 million in net purchases of marketable securities - $234.2 million in capital expenditures - $184.1 million in capital expenditures - $19.5 million in purchases of equity investments Financing Cash Flows + $28.2 million in proceeds from issuance of common stock under our employee stock plans + $1.23 billion in proceeds from issuance of senior convertible notes, net of issuance costs - $750.0 million in purchases of treasury stock + $26.6 million in proceeds from issuance of common stock under our employee stock plans - $650.5 million in payments for conversions of senior convertible notes - $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 material changes to our lease obligations during the nine months ended September 30, 2024. As of September 30, 2024, we had approximately $1.26 billion 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 — 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 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.