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MarketScreener Homepage  >  Equities  >  Nasdaq  >  DexCom, Inc.    DXCM

DEXCOM, INC.

(DXCM)
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DEXCOM : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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11/06/2019 | 05:22pm EST
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document, 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 report,
deal with future events, are subject to various risks and uncertainties, and
actual results could differ materially from those anticipated in those
forward-looking statements. The risks and uncertainties that could cause actual
results to differ materially are more fully described under "Risk Factors" in
Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018,
elsewhere in this Quarterly Report, 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
financial statements and related notes in Part I, Item 1 of this Quarterly
Report.
Overview
We are a medical device company primarily focused on the design, development and
commercialization of continuous glucose monitoring, or CGM, systems for use by
people with diabetes and by healthcare providers. 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. Unless the context
requires otherwise, the terms "we," "us," "our," the "company," or "DexCom"
refer to DexCom, Inc. and its subsidiaries.
We sell our durable CGM systems and disposable sensors through a direct sales
force in the United States, Canada and some countries in Europe, and through
distribution arrangements in the United States, Canada, Australia, New Zealand
and some countries in Europe, Asia, Latin America, the Middle East and Africa.
We plan to develop future generations of technologies that are focused on
improved performance and convenience and that will enable intelligent insulin
administration. We also are 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 in the hospital setting. We will continue to develop a networked platform
with open architecture, connectivity and transmitters capable of communicating
with other devices and software systems. 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.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations
are based on our financial statements, which we have prepared in accordance with
GAAP. The preparation of these 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 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.
Our significant accounting policies are more fully described in Note 1 to the
financial statements included in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2018. The accounting policies and estimates which are
most critical to a full understanding and evaluation of our reported financial
results are described in Management's Discussion and Analysis of Financial
Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K
for the fiscal year ended December 31, 2018. There were no material changes to
our critical accounting policies during the nine months ended September 30,
2019.


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Results of Operations
Financial Overview
                                                    Three Months Ended September 30,             Q3 2019 - Q3 2018
(Dollars in millions, except per share amounts)        2019                   2018            $ Change        % Change
Total revenues                                  $         396.3         $         266.7     $    129.6           49  %
Gross profit                                              246.9                   168.6           78.3           46  %
Gross profit as a percent of total revenues                  62 %                    63 %
Operating income                                           56.0                    13.9           42.1          303  %
Net income                                                 45.8                    46.6           (0.8 )         (2 )%
Diluted net income per share                    $          0.50         $          0.52     $    (0.02 )         (4 )%


                                                   Nine Months Ended September 30,           YTD 2019 - YTD 2018
(Dollars in millions, except per share amounts)        2019                 2018           $ Change        % Change
Total revenues                                  $        1,013.2$       693.6$    319.6            46  %
Gross profit                                               622.2               441.1          181.1            41  %
Gross profit as a percent of total revenues                   61 %                64 %
Operating income (loss)                                     40.8               (21.7 )         62.5          (288 )%
Net income                                                   8.4                52.6          (44.2 )         (84 )%
Diluted net income per share                    $           0.09       $        0.59$    (0.50 )         (85 )%


Revenue, Cost of Sales and Gross Profit
We sell our durable CGM systems and disposable sensors through a direct sales
force and through distribution arrangements. Most of our distributors stock our
products and fulfill orders for our products from their inventory.
We expect that revenues we generate from the sales of our products will
fluctuate from quarter to quarter. We experience seasonality that is typical in
our industry, with lower sales in the first quarter of each year compared to the
fourth quarter of the previous year. This seasonal sales pattern relates to U.S.
annual insurance deductible resets and unfunded flexible spending accounts.
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. A portion of our costs are currently fixed due to our moderate level
of production volumes compared to our potential capacity. All of our
manufacturing costs are included in cost of sales.
Quarter Ended September 30, 2019 Compared to Quarter Ended September 30, 2018
                                                Three Months Ended September 30,             Q3 2019 - Q3 2018
(Dollars in millions)                              2019                   2018             $ Change       % Change
Total revenues                              $         396.3         $         266.7     $      129.6          49 %
Cost of sales                                         149.4                    98.1             51.3          52 %
Gross profit                                $         246.9         $         168.6     $       78.3          46 %
Gross profit as a percent of total revenue               62 %               

63 %



Revenues. Total revenues increased $129.6 million or 49% for the three months
ended September 30, 2019 compared to the three months ended September 30, 2018.
The 2019 revenue increase was primarily driven by increased sales volume of the
Components due to the continued growth of our worldwide customer base, partially
offset by pricing pressure due to the

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evolution of our channel strategy and product mix. Disposable sensor and other
revenue comprised approximately 80% of total revenues and durable systems
revenue comprised approximately 20% of total revenues for the three months ended
September 30, 2019. Disposable sensor and other revenue comprised approximately
73% of total revenues and durable systems revenue comprised approximately 27% of
total revenues for the three months ended September 30, 2018.
Cost of Sales. Cost of sales increased $51.3 million or 52% for the three months
ended September 30, 2019 compared to the three months ended September 30, 2018
primarily due to increased sales volume. The gross profit of $246.9 million or
62% of total revenues for the three months ended September 30, 2019 increased
$78.3 million compared to $168.6 million or 63% of total revenues for the same
period in 2018. The third quarter 2019 increase in gross profit dollars was
driven primarily by increased revenues, partially offset by higher excess and
obsolete inventory charges compared with the third quarter of 2018. The third
quarter 2019 decrease in gross margin percentage is primarily a function of the
evolution of our channel strategy and product mix as we launch new products and
expand internationally.
Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30,
2018
                                            Nine Months Ended September 30,         YTD 2019 - YTD 2018
(Dollars in millions)                           2019              2018     
      $ Change        % Change
Total revenues                              $  1,013.2$       693.6$       319.6          46 %
Cost of sales                                    391.0               252.5             138.5          55 %
Gross profit                                $    622.2$       441.1$       181.1          41 %
Gross profit as a percent of total revenue          61 %                64 %


Revenues. Total revenues increased $319.6 million or 46% for the nine months
ended September 30, 2019 compared to the nine months ended September 30, 2018.
The 2019 revenue increase was primarily driven by increased sales volume of the
Components due to the continued growth of our worldwide customer base, partially
offset by pricing pressure due to the evolution of our channel strategy and
product mix. Disposable sensor and other revenue comprised approximately 78% of
total revenues and durable systems revenue comprised approximately 22% of total
revenues for the nine months ended September 30, 2019. Disposable sensor and
other revenue comprised approximately 73% of total revenues and durable systems
revenue comprised approximately 27% of total revenues for the nine months ended
September 30, 2018.
Cost of Sales. Cost of sales increased $138.5 million or 55% for the nine months
ended September 30, 2019 compared to the nine months ended September 30, 2018
primarily due to increased sales volume. The gross profit of $622.2 million or
61% of total revenues for the nine months ended September 30, 2019 increased
$181.1 million compared to $441.1 million or 64% of total revenues for the same
period in 2018. The year-to-date 2019 increase in gross profit dollars was
driven primarily by increased revenues, partially offset by higher warranty,
freight, and excess and obsolete inventory charges compared with the same period
of 2018.
The year-to-date 2019 decrease in gross margin percentage is primarily a
function of the evolution of our channel strategy and product mix as we launch
new products and expand internationally. Our year-to-date 2019 gross margin
percentage was also impacted by higher warranty and freight charges compared
with the same period of 2018 in addition to investments to scale infrastructure
as we drive significant production capacity expansion in 2019.
Operating Expenses
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 clinical site reimbursement,
clinical trial product and associated travel expenses. Our research and
development expenses also include fees for design services, contractors and
development materials.
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. 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.
On February 21, 2019, we announced a restructuring plan that will result in the
transition of certain of our operations to the Philippines. The restructuring
plan is designed to reduce operating expenses in order to improve cost
competitiveness,

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enable strategic flexibility, and increase the scalability of certain business
functions. We expect the restructuring plan to impact approximately 350 full
time employees, or approximately 13% of our total full time workforce as of
December 31, 2018. We estimate that we will incur pre-tax charges and costs of
approximately $8.0 million, primarily for employee severance benefits under both
ongoing and one-time benefit arrangements. We have incurred most of these costs
in the first half of 2019 and expect the restructuring activities to be
substantially complete by the end of 2019.
Quarter Ended September 30, 2019 Compared to Quarter Ended September 30, 2018
                                              Three Months Ended September 30,             Q3 2019 - Q3 2018
(Dollars in millions)                            2019                   2018            $ Change       % Change
Research and development                  $          66.7         $          50.1     $      16.6          33 %
as a % of total revenue                                17 %                    19 %
Selling, general and administrative                 124.2                   104.6            19.6          19 %
as a % of total revenue                                31 %                    39 %
Total operating expenses                  $         190.9         $         154.7     $      36.2          23 %
as a % of total revenue                                48 %                    58 %


Research and Development. Research and development expense increased $16.6
million or 33% for the three months ended September 30, 2019 compared to the
same period of 2018. The increase was primarily due to $9.0 million in
additional salaries, bonus, and payroll-related costs, $3.2 million in
additional supplies costs, and $1.9 million in additional facilities costs.
Selling, General and Administrative. Selling, general and administrative expense
increased $19.6 million or 19% for the three months ended September 30, 2019
compared to the same period of 2018. The increase was primarily due to higher
sales-related costs commensurate with revenue growth and the continued
commercialization of our products in the United States and international
markets. Significant elements of the increase in selling, general, and
administrative expenses included $5.2 million in additional third party service
provider fees, $3.9 million in additional consulting fees, $2.8 million in
additional depreciation, $2.3 million in marketing expenses, and $1.2 million in
higher sales commissions.
Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30,
2018
                                               Nine Months Ended September 30,             YTD 2019 - YTD 2018
(Dollars in millions)                            2019                   2018             $ Change         % Change
Research and development                  $         194.7         $         142.1     $        52.6           37 %
as a % of total revenue                                19 %                    20 %
Selling, general and administrative                 386.7                   320.7              66.0           21 %
as a % of total revenue                                38 %                    46 %
Total operating expenses                  $         581.4         $         462.8     $       118.6           26 %
as a % of total revenue                                57 %                    67 %


Research and Development. Research and development expense increased $52.6
million or 37% for the nine months ended September 30, 2019 compared to the same
period of 2018. The increase was primarily due to $29.9 million in additional
salaries, bonus, and payroll-related costs, $7.2 million in additional supplies
costs, $4.4 million in additional facilities costs, and a $3.2 million milestone
payment under our collaborative research and development agreement with Verily
Life Sciences.
Selling, General and Administrative. Selling, general and administrative expense
increased $66.0 million or 21% for the nine months ended September 30, 2019
compared to the same period of 2018. The increase was primarily due to higher
sales-related costs commensurate with revenue growth and the continued
commercialization of our products in the United States and international
markets. Significant elements of the increase in selling, general, and
administrative expenses included $14.3 million in additional third party service
provider fees, $12.7 million in additional salaries, bonus and payroll-related
costs, $9.1 million in additional consulting fees, $7.4 million in restructuring
charges, $6.9 million in additional depreciation, and $6.4 million in higher
sales commissions.

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Non-Operating Income and Expenses
Interest Expense
Interest expense is related to our 2022 Notes and 2023 Notes and to commitment
fees for unused balances on our revolving Credit Agreement.
Interest expense increased $10.2 million to $15.1 million for the three months
ended September 30, 2019 compared to $4.9 million for the three months ended
September 30, 2018. The increase was primarily due to an additional $10.1
million of interest expense for the 2023 Notes, which were issued in November
2018.
Interest expense increased $30.5 million to $45.0 million for the nine months
ended September 30, 2019 compared to $14.5 million for the nine months ended
September 30, 2018. The increase was primarily due to an additional $30.0
million of interest expense for the 2023 Notes, which were issued in November
2018.
Income (Loss) from Equity Investments
Loss from equity investments of $4.2 million for the nine months ended
September 30, 2019 and income from equity investments of $34.9 million and $85.0
million for the three and nine months ended September 30, 2018, respectively,
consists solely of realized and unrealized gains and losses on our equity
investment in Tandem Diabetes Care, Inc. We sold all of our remaining equity
investment in Tandem during the first quarter of 2019.
Interest and Other Income (Expense), Net
Interest income is related to our marketable debt securities portfolio. Interest
income was $7.4 million and $21.5 million for the three and nine months ended
September 30, 2019, respectively, compared to $2.5 million and $6.2 million for
the three and nine months ended September 30, 2018, respectively. Average
invested balances and average interest rates both increased during 2019 compared
to 2018.
Other income (expense) for the three and nine months ended September 30, 2019
and 2018 consists primarily of foreign currency transaction gains and losses due
the effects of foreign currency fluctuations.
Income Tax Expense (Benefit)
We recorded income tax expense of $0.0 million and income tax benefit of $1.8
million on pre-tax income of $45.8 million and $44.8 million for the three
months ended September 30, 2019 and September 30, 2018, respectively. We
recorded income tax expense of $1.5 million and income tax benefit of $2.2
million on pre-tax income of $9.9 million and $50.4 million, for the nine months
ended September 30, 2019 and September 30, 2018, respectively. For the nine
months ended September 30, 2019, the income tax expense is attributable to
foreign and state income tax expense as a result of current taxable income in
those jurisdictions. The income tax benefits in the prior periods are primarily
attributable to a refund of foreign withholding tax, partially offset by state
and foreign income tax expense. No income tax benefit was recorded on losses in
jurisdictions where valuation allowances are recorded against net deferred tax
assets.
We maintain a full valuation allowance against our net deferred tax assets as of
September 30, 2019 based on our assessment that it is not more likely than not
these future benefits will be realized before expiration. We analyze our ability
to realize our deferred tax assets quarterly, weighing all available positive
and negative evidence of future taxable income. A release of some or all of our
valuation allowance will result in a material income tax benefit in our
financial statements.
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
convertible notes issuances, and access to our revolving line of credit. 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. Historically we have not generated significant cash flows
from operations. However, as we have grown our profitability profile has
continued to improve.
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-sponsored enterprises,
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

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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 revenue generated by sales of our approved products and other future

products;

• the expenses we incur in manufacturing, developing, selling and marketing

our products;

• the quality levels of our products and services;

• the third-party reimbursement of our products for our customers;


•      our ability to efficiently scale our operations to meet demand for our
       current and any future 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 rate of progress and cost of our clinical trials and other development

activities;

• the success of our research and development efforts;

• the emergence of competing or complementary technological developments;


•      the terms and timing of any collaborative, licensing and other
       arrangements that we may establish;

• the acquisition of businesses, products and technologies and our ability

to integrate and manage any acquired businesses, products and

technologies; and

• the evolution of the international expansion of our business.



We expect that existing cash 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.
Accordingly, our assessment is that we have no material net exposure to foreign
currency exchange rate fluctuations at this time. However, as our business in
markets outside of the United States continues to increase, we will be exposed
to foreign currency exchange risk related to our foreign operations.
Fluctuations in the rate of exchange between the U.S. dollar and foreign
currencies, primarily the British Pound, the Euro, and the Canadian Dollar,
could adversely affect our financial results, including our revenues, revenue
growth rates, gross margins, income and losses as well as assets and
liabilities. We will continue to monitor and manage our financial exposures due
to exchange rate fluctuations as an integral part of our overall risk management
program.
Our cash, cash equivalents and short-term marketable securities totaled $1.430
billion as of September 30, 2019. None of those funds were restricted and
approximately 98% of those funds were located in the U.S. We intend to reinvest
a substantial portion of our foreign earnings in those businesses, and we
currently do not anticipate that we will need funds generated by foreign
operations to fund our domestic operations.
Our cash, cash equivalents and short-term marketable securities as of
September 30, 2019 increased by $44.3 million from December 31, 2018 due to the
factors described in "Cash Flows" below. We believe that our cash, cash
equivalents, and marketable securities balances, projected cash contributions
from our commercial operations, and our $200.0 million revolving line of credit,
of which $195.6 million remains available, will be sufficient to meet our
anticipated seasonal working capital needs, capital expenditure requirements,
contractual obligations, commitments, debt service requirements, and other
liquidity requirements associated with our operations for at least the next 12
months.
Revolving Credit Agreement
In December 2018, we entered into a five-year $200.0 million revolving Credit
Agreement, including a sub-facility of up to $10.0 million for letters of
credit. Subject to customary conditions and the approval of any lender whose
commitment would be increased, we have the option to increase the maximum
principal amount available under the Credit Agreement by up to an additional
$300.0 million, resulting in a maximum available principal amount of $500.0
million. However, at this time none of the lenders have committed to provide any
such increase in their commitments. Revolving loans under the Credit Agreement
will be available for general corporate purposes, including working capital and
capital expenditures. As of September 30, 2019, we had no outstanding
borrowings, $4.4 million in outstanding letters of credit, and a total available
balance of $195.6 million under the 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.

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See Note 5 to the financial statements in Part I, Item 1 of this Quarterly
Report for more information about the terms of the Credit Agreement.
Senior Convertible Notes
In June 2017, we completed an offering of $400.0 million aggregate principal
amount of unsecured senior convertible notes with a stated interest rate of
0.75% and a maturity date of May 15, 2022 (the 2022 Notes). Holders may elect to
convert the 2022 Notes any time on or after February 15, 2022 for shares of our
common stock. The 2022 Notes may be settled in cash, stock, or a combination
thereof, solely at our discretion. Interest on the 2022 Notes began accruing
upon issuance and is payable semi-annually on May 15 and November 15 of each
year.
In November 2018, we completed an offering of $850.0 million aggregate principal
amount of unsecured senior convertible notes with a stated interest rate of
0.75% and a maturity date of December 1, 2023 (the 2023 Notes). Holders may
elect to convert the 2023 Notes any time on or after September 1, 2023 for
shares of our common stock. The 2023 Notes may be settled in cash, stock, or a
combination thereof, solely at our discretion. Interest on the 2023 Notes began
accruing upon issuance and is payable semi-annually on June 1 and December 1 of
each year.
We used a portion of the net proceeds from the offering of the 2022 Notes to
repay $75.0 million of borrowings under our previous credit facility in 2017. We
used a portion of the net proceeds from the offering of the 2023 Notes to
repurchase 0.8 million shares of our common stock for $100.0 million in 2018.
The remainder of the net proceeds from the 2022 Notes and the 2023 Notes
offerings are available 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.
2023 Note Hedge
In connection with the offering of the 2023 Notes, in November 2018 we entered
into convertible note hedge transactions (the 2023 Note Hedge) with two of the
initial purchasers of the 2023 Notes (the 2023 Counterparties) entitling us to
purchase up to 5.2 million shares of our common stock at an initial price
of $164.29 per share, each of which is subject to adjustment. The cost of the
2023 Note Hedge was $218.9 million and it will expire on December 1, 2023. The
2023 Note Hedge is expected to reduce the potential equity dilution upon any
conversion of the 2023 Notes and/or offset any cash payments we are required to
make in excess of the principal amount of converted 2023 Notes if the daily
volume-weighted average price per share of our common stock exceeds the strike
price of the 2023 Note Hedge. The strike price of the 2023 Note Hedge initially
corresponds to the conversion price of the 2023 Notes and is subject to certain
adjustments under the terms of the 2023 Note Hedge.
2023 Warrants
In November 2018, we also sold warrants (the 2023 Warrants) to the 2023
Counterparties to acquire up to 5.2 million shares of our common stock for cash
proceeds of $183.8 million. The 2023 Warrants require net share settlement and a
pro-rated number of warrants will expire on each of the 60 scheduled trading
days starting on March 1, 2024.
See Note 5 to the financial statements in Part I, Item 1 of this Quarterly
Report for more information about the 2022 Notes, the 2023 Notes, the 2023 Note
Hedge, and the 2023 Warrants.
Cash Flows
The following table sets forth a summary of our cash flows for the periods
indicated. See the 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,
(In millions)                                        2019            2018          Change

Net cash provided by operating activities $ 170.8$ 89.5

     $     81.3
Net cash used in investing activities                 (920.9 )       (170.7 )       (750.2 )
Net cash provided by financing activities               10.8            8.8            2.0
Effect of exchange rate changes on cash, cash
equivalents and restricted cash                         (1.7 )         (1.4 )         (0.3 )
Decrease in cash, cash equivalents and
restricted cash                                  $    (741.0 )   $    (73.8 

) $ (667.2 )



As of September 30, 2019, we had $1.430 billion in cash, cash equivalents and
short-term marketable securities, which is an increase of $44.3 million compared
to $1.386 billion as of December 31, 2018. The primary cash flows during the
nine months ended September 30, 2019 are described below.

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Operating Cash Flows
Net cash provided by operating activities during the nine months ended
September 30, 2019 was comprised of net income of $8.4 million, net changes in
working capital balances of $7.1 million and $155.3 million of net non-cash
expenses. Net non-cash expenses were primarily related to share-based
compensation, non-cash interest expense for our senior convertible notes,
depreciation and amortization, and a loss on the sale of our remaining equity
investment in Tandem Diabetes Care, Inc.
Net cash provided by operating activities during the nine months ended
September 30, 2018 was comprised of net income of $52.6 million, net changes in
working capital balances of $7.7 million, and $29.2 million of net non-cash
expenses. Net non-cash expenses were primarily related to share-based
compensation, depreciation and amortization, non-cash interest expense for our
senior convertible notes, and income of $85.0 million on our equity investment
in Tandem Diabetes Care, Inc.
Investing Cash Flows
Net cash used in investing activities during the nine months ended September 30,
2019 was primarily comprised of $785.0 million for net purchases of marketable
securities and other equity investments and $135.9 million for capital
expenditures.
Net cash used in investing activities during the nine months ended September 30,
2018 was primarily comprised of $110.0 million for net purchases of marketable
securities and other equity investments, $49.4 million for capital expenditures,
and $11.3 million cash used in an acquisition during the third quarter of 2018.
Financing Cash Flows
Net cash provided by financing activities during the nine months ended
September 30, 2019 was primarily comprised of $11.9 million from the issuance of
common stock under our employee stock plans.
Net cash provided by financing activities during the nine months ended
September 30, 2018 was primarily comprised of $10.6 million from the issuance of
common stock under our employee stock plans.
Contractual Obligations
We presented our contractual obligations as of December 31, 2018 in our Annual
Report on Form 10-K for the year then ended. There were no significant changes
to our contractual obligations during the nine months ended September 30, 2019.
We adopted ASC 842, Leases, utilizing the modified retrospective transition
method at the beginning of the first quarter of 2019. As a result of our
adoption of ASC 842, we recorded operating lease right-of-use assets of $26.7
million and operating lease liabilities of $40.4 million in our consolidated
balance sheets. See Note 2 to the financial statements in Part I, Item 1 of this
Quarterly Report for more information.
Off-Balance Sheet Arrangements
As of September 30, 2019, we did not have any significant off-balance sheet
arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements and the potential impact
of these pronouncements on our financial statements, see Note 1 to the financial
statements in Part I, Item 1 of this Quarterly Report.

© Edgar Online, source Glimpses

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