What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-18 compared with 2024-02-08 · 67 added, 59 removed, 189 unchanged (40% of the section changed)

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

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

We 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 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 systems, 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.

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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.

With the introduction of Stelo, we are also pursuing and supporting development partnerships with consumer technology product companies that seek to provide metabolic health insights to their customers.

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.

We are also exploring how to extend our offerings to other opportunities, including for 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.

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.

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Pharmacy Rebates

We estimate provisions for pharmacy rebates based on contractual arrangements, estimates of products sold subject to rebate, known events or trends and channel inventory data.

Estimates associated with rebates on products sold through our distributors under pharmacy benefits are the most significant component of our variable consideration estimates and most at risk for material adjustment because of the time delay between the recording of the provision and its ultimate settlement, an interval that generally ranges from 30 to 90 days, but can last up to one year.

We estimate pharmacy rebates based on contractual arrangements, estimates of products sold subject to rebate, known events or trends, and channel inventory data.

Estimates associated with pharmacy rebates are the most significant component of our variable consideration estimates and most at risk for material adjustment because of the time delay between the recording of the pharmacy rebate and its ultimate settlement, an interval that generally ranges from 30 to 90 days, but can last up to one year.

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

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An increase or decrease of 1% in our estimate of products sold subject to rebate during 2024, holding all other assumptions constant, would increase or decrease revenue by approximately $38.7 million.

For more information, see Revenue Recognition in Note 1 “Organization and Significant Accounting Policies” to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

For more information, see Note 1 “ Organization and Significant Accounting Policies—Revenue Recognition ” to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

Excess and Obsolete Inventory

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

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

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

Significant judgment is required to evaluate the need for a valuation allowance against deferred tax assets.

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Realization of deferred tax assets is dependent upon future earnings in applicable tax jurisdictions.

We maintain a valuation allowance on our California research and development tax credits and certain foreign intangible assets, as it is more likely than not that those deferred tax assets will not be realized.

We recognize and measure benefits for uncertain tax positions using a two-step approach as described in Note 1 “Organization and Significant Accounting Policies” to the consolidated financial statements in Part II, Item 8 of this Annual Report.

We maintain a valuation allowance on our California research and development tax credits, foreign tax credits and certain foreign intangible assets, as it is more likely than not that those deferred tax assets will not be realized.

We recognize and measure benefits for uncertain tax positions using a two-step approach as described in Note 1 “ Organization and Significant Accounting Policies—Income Taxes ” to the consolidated financial statements in Part II, Item 8 of this Annual Report.

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

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Twelve Months Ended December 31, 2024 - 2023

(In millions, except per share amounts)

2023 % of Revenue (1)

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

2023 % of Revenue (1)

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** 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.

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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

Our amortization expense primarily relates to acquired technology and intellectual property and other acquired intangible assets.

Selling, general and administrative

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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.

Income from equity investments

Income from equity investments is comprised of realized gains from the sale of an equity investment.

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, and interest expense related to our senior convertible notes.

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.

Twelve Months Ended December 31, 2024 Compared to Twelve Months Ended December 31, 2023

Twelve Months Ended December 31, 2024 - 2023

2024 2023 Change in Revenues

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

United States $ 2,889.8 72% $ 2,625.3 72% $ 264.5 10%

International 1,143.2 28% 997.0 28% 146.2 15%

Total Revenue $ 4,033.0 100% $ 3,622.3 100% $ 410.7 11%

Twelve Months Ended December 31, 2024 Compared to

Twelve Months Ended December 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, partially offset by mix shift and price associated with the evolution of our channel and product strategy.

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 500,000 - 600,000 net users, excluding Stelo customers, to our worldwide customer base in 2024.

The increase in revenue was offset by pricing headwinds due to greater rebate eligibility and channel mix.

Disposable sensor and other revenue comprised approximately 95% of total revenue and Reusable Hardware revenue comprised approximately 5% of total revenue for the twelve months ended December 31, 2024.

Disposable sensor and other revenue comprised approximately 90% of total revenue and Reusable Hardware revenue comprised approximately 10% of total revenue for the twelve months ended December 31, 2023.

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 in 2023 compared to 2022 was primarily driven by the increase of 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 $33.7 million in compensation-related costs most notably due to higher headcount, partially offset by $15.9 million of lower third party and consulting fees primarily related to software development for new products and significant enhancements.

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 500,000 - 600,000 net users, excluding Stelo customers, to our worldwide customer base in 2024.

The decrease in gross profit margin percentage in 2024 compared to 2023 was primarily driven by product and channel mix changes, higher freight costs, and non-cash charges including a $22.7 million inventory build charge, and $20.6 million in inventory damaged in transit and certain build configurations that lowered production yield.

Twelve Months Ended December 31, 2024 Compared to

Twelve Months Ended December 31, 2023

Research and development expense Research and development expense increased primarily due to $20.5 million in compensation and related costs due to higher headcount, $11.2 million in clinical trials, supplies and other support costs, and $5.9 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 $88.8 million in compensation-related costs most notably due to higher headcount, $37.8 million in legal expense primarily related to a patent infringement lawsuit, and $36.6 million in advertising and marketing costs associated with global product launches.

Other income (expense), net Other income (expense), net, increased primarily due to $111.2 million in interest and dividend income on our cash, cash equivalents, and marketable securities portfolio.

The increase in interest income was related to a change in market interest rates, as well as an increase in the average invested balances during 2023 compared to 2022.

Income tax expense (benefit) We recorded income tax expense on pre-tax book income for the twelve months ended December 31, 2023 and December 31, 2022.

The income tax expense we recorded for 2023 is primarily attributable to income tax expense from normal, recurring operations as well as income taxes related to an intra-entity transfer of certain intellectual property 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 income tax expense we recorded for 2022 is primarily attributable to income tax expense from normal, recurring operations partially offset by excess tax benefits recognized for employee share-based compensation (net of disallowed executive compensation) and the Verily milestone.

Selling, general and administrative expense Selling, general and administrative expense increased primarily due to $33.5 million in advertising and marketing costs, $30.7 million in compensation and related costs due to higher headcount, $18.0 million in software and data costs, and $10.1 million in travel related expenses.

Income tax expense The income tax expense recorded for the twelve months ended December 31, 2024 was 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 nondeductible executive compensation, the Verily milestone payment, the impacts of certain foreign tax return filings and generation of research and development tax credits.

The income tax expense recorded for the twelve months ended December 31, 2023 was primarily attributable to income tax expense from normal, recurring operations, as well as income taxes related to an intra-entity transfer of certain intellectual property 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 decrease in our effective tax rate for the twelve months ended December 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

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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;

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None of those funds were restricted and $2.36 billion (approximately 92%) of those funds were located in the United States.

Cash flow from Operations

Cash flows from Operations

For the twelve months ended December 31, 2024, we had positive cash flows of $989.5 million from operating activities.

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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 from the 2028 Notes offering.

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.

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See Note 5 “ Debt ” to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information about our senior convertible notes and the 2028 Capped Calls.

Revolving Credit Agreement

Amended Credit Agreement

As of December 31, 2024, we had no outstanding borrowings, $7.7 million in outstanding letters of credit, and a total available balance of $192.3 million under the Amended Credit Agreement.

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

See Note 5 “Debt” to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more details on the Revolving Credit Agreement.

See Note 5 “ Debt ” to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information on the Amended Credit Agreement.

Short-term Liquidity Requirements

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As of December 31, 2024, we had a working capital ratio of 1.47 and a quick ratio of 1.22, 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 expect to incur significant capital expenditures for the next year as we continue to invest in equipment and our manufacturing facilities.

As of December 31, 2024, we have outstanding senior convertible notes classified as current that will mature in November 2025.

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 II, Item 8 of this Annual Report for information on conversion rights prior to maturity.

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 Dexcom shares or for other strategic initiatives that strengthen our foundation for long-term growth.

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

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

As of December 31, 2023, we have outstanding senior convertible notes that will mature in November 2025 and May 2028.

As of December 31, 2024, we have outstanding senior convertible notes classified as long-term that will mature in 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 II, Item 8 of this Annual Report for information on conversion rights prior to maturity.

See Note 5 “ Debt — Senior Convertible Notes ” to the consolidated financial statements in Part II, Item 8 of this Annual Report for information on conversion rights prior to maturity.

Material Cash Requirements

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

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

We issued our outstanding senior convertible notes in May 2020 and May 2023.

These obligations include both principal and interest for these notes.

Although these 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 can result in repayment of the principal amounts sooner than the scheduled repayment.

See Note 5 “Debt” to the consolidated financial statements in Part II, Item 8 of this Annual Report for further discussion of the terms of our senior convertible notes.

See Note 6 “ Leases and Other Commitments — Purchase Commitments ” to the consolidated financial statements in Part II, Item 8 of this Annual Report 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 9 “ Stockholder’s Equity — Share Repurchase Program and Treasury Shares ” to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information about our 2024 Share Repurchase Program.

See Note 5 “ Debt ” to the consolidated financial statements in Part II, Item 8 of this Annual Report 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 for the build-out of our international manufacturing facility lease that expire through 2082.

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

See Note 5 “Debt” to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information about the terms of the Credit Agreement, our senior convertible notes, and the 2028 Capped Calls.

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

We anticipate incurring significant expenditures related to the build-out of our manufacturing facilities and investment in equipment.

See Note 6 “ Leases and Other Commitments—Leases ” to the consolidated financial statements in Part II, Item 8 of this Annual Report 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 II, Item 8 of this Annual Report for complete consolidated statements of cash flows for these periods.

As of December 31, 2023, we had $2.72 billion in cash, cash equivalents and short-term marketable securities, which is an increase of $267.9 million compared to $2.46 billion as of December 31, 2022.

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

As of December 31, 2024, we had $2.58 billion in cash, cash equivalents and short-term marketable securities, which is a decrease of $144.7 million compared to $2.72 billion as of December 31, 2023.

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

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

Investing Cash Flows - $253.0 million in net purchases of marketable securities

Investing Cash Flows + $248.1 million in net proceeds from marketable securities

- $253.0 million in net purchases of marketable securities

- $358.8 million in capital expenditures

- $236.6 million in capital expenditures

- $138.5 million in net purchases of marketable securities

- $19.5 million in purchases of equity investments

- $14.5 million in purchases of equity investments

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

+ $26.6 million in proceeds from issuance of common stock under our employee stock plans

- $81.3 million in purchases of non-marketable equity securities

- $19.5 million in purchases of non-marketable equity securities

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

- $787.3 million in payments for conversions of senior convertible notes

- $15.6 million in payments for financing leases

- $688.7 million in purchases of treasury stock

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

What changed 10-K

Item 7. Management’s Discussion and Analysis