DEXCOM, INC. 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 regardingDexCom'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" and elsewhere in this report and in our other reports filed with theSEC . 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 "Selected Financial Data" in Part II, Item 6 and our consolidated financial statements and related notes in Part II, Item 8 of this Annual 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 theFood 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 toDexCom, Inc. and its subsidiaries. We sell our reusable transmitter and receiver, collectively referred to as "Reusable Hardware" and disposable sensors through a direct sales force inthe United States ,Canada and some countries inEurope , and through distribution arrangements inthe United States , and certain countries inAfrica ,Asia ,Europe ,Latin America , and theMiddle East , as well asAustralia ,Canada , andNew Zealand . Most of our distributors stock our products and fulfill orders for our products from their inventory. 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 aggressively 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 with diabetes 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. For discussion related to the results of operations and changes in financial condition for fiscal 2018 compared to fiscal 2017 refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2018 Form 10-K, which was filed with theUnited States Securities and Exchange Commission onFebruary 21, 2019 . Critical Accounting Policies and 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 withU.S. 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. While our significant accounting policies are more fully described in Note 1 to the consolidated financial statements in Part II, Item 8 of this Annual Report, we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results. Members of our senior management have discussed the development and selection of these critical accounting policies and their disclosure in this Annual Report with the Audit Committee of our Board of Directors. 63 -------------------------------------------------------------------------------- Revenue Recognition We generate our revenue from the sale of our Reusable Hardware and disposable sensors. Disposable sensors are sold separately. We also provide free-of-charge software and mobile applications for use with our Reusable Hardware and disposable sensors. In determining how revenue should be recognized, a five-step process is used, which requires judgment and estimates within the revenue recognition process. The primary judgments include identifying the performance obligations in the contract and determining whether the performance obligations are distinct. We exercise significant judgment when we determine the transaction price, including variable consideration adjustments. If the actual amounts of consideration that we receive differ from our estimates, we would adjust our estimates and that would affect reported revenue in the period that such variances become known. If any of these judgments were to change it could cause a material increase or decrease in the amount of revenue we report in a particular period. We generally recognize revenue when control is transferred to our customers in an amount that reflects the net consideration to which we expect to be entitled. Transaction price is typically based on the contracted rates less an estimate of claim denials and historical reimbursement experience by payor, which include current and future expectations regarding reimbursement rates and payor mix. We recognize revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. We estimate reductions for rebates based on contractual arrangements, estimates of products sold subject to rebate, known events or trends and channel inventory data. For more information, see "Revenue Recognition" in Note 1 to the consolidated financial statements in Part II, Item 8 of this Annual Report. Disaggregation of Revenue. We disaggregate revenue by geographic region and by major sales channel. We have determined that disaggregating revenue into these categories achieves the ASC Topic 606 disclosure objectives of depicting how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Reconciliations of revenue disaggregated by geographic location and by major sales channel to total revenue are provided in Note 10 to the consolidated financial statements in Part II, Item 8 of this Annual Report. Share-Based Compensation Share-based compensation expense is measured at the grant date based on the estimated fair value of the award and is recognized straight-line over the requisite service period of the individual grants, which typically equals the vesting period. We value time-based Restricted Stock Units ("RSUs") at the date of grant using the intrinsic value method. Certain RSUs granted to senior management vest based on the achievement of pre-established performance or market goals. We estimate the fair value of performance-based RSUs at the date of grant using the intrinsic value method and the probability that the specified performance criteria will be met. We update our assessment of the probability that the specified performance criteria will be achieved each quarter and adjust our estimate of the fair value of the performance-based RSUs if necessary. TheMonte Carlo methodology that we use to estimate the fair value of market-based RSUs at the date of grant incorporates into the valuation the possibility that the market condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based RSUs at the date of grant must be recognized as compensation expense even if the market condition is not achieved. However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria. If any of the assumptions used change significantly, share-based compensation expense may differ materially from what we have recorded in the current period. Fair Value of Financial Instruments The authoritative guidance establishes a fair value hierarchy that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities. In general, the authoritative guidance requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset or liability's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the measurement of its fair value. The three levels of input defined by the authoritative guidance are as follows: Level 1-Uses unadjusted quoted prices that are available in active markets for identical assets or liabilities. Level 2-Uses inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly, through correlation with market data. These include quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data for substantially the full term of the assets or liabilities. 64 -------------------------------------------------------------------------------- Level 3-Uses unobservable inputs that are supported by little or no market activity and that are significant to the determination of fair value. Level 3 assets and liabilities include those whose fair values are determined using pricing models, discounted cash flow methodologies, or similar valuation techniques and significant judgment or estimation. We estimate the fair value of most of our cash equivalents using Level 1 inputs. We estimate the fair value of our marketable equity securities using Level 1 inputs and we estimate the fair value of our marketable debt securities using Level 2 inputs. We carry our other financial instruments, such as cash, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities, at cost, which approximates the related fair values due to the short-term maturities of these instruments. See Note 1 and Note 3 to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information about fair value measurements. Accounts Receivable, Net and Related Valuation Accounts We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We evaluate the collectability of our accounts receivable based on a combination of factors. We regularly analyze customer accounts, review the length of time receivables are outstanding, review historical loss rates and assess current economic trends that may impact the level of credit losses in the future. Our allowance for doubtful accounts has generally been adequate to cover our actual credit losses. However, since we cannot reliably predict future changes in the financial stability of our customers, we may need to increase our reserves if the financial conditions of our customers deteriorate. Excess and Obsolete Inventory Inventory is valued at the lower of cost or net realizable value. We record adjustments to inventory for potentially excess, obsolete, or scrapped goods in order to state inventory at net realizable value. Factors influencing these adjustments include inventories on hand and on order compared to estimated future usage and sales for existing and new products, as well as judgments regarding quality control testing data and assumptions about the likelihood of scrap and obsolescence. Historically, our inventory reserves have been adequate to cover our actual losses. However, if actual product life cycles, product quality or market conditions differ from our assumptions, additional inventory adjustments that would increase cost of goods sold could be required. Income Taxes We estimate our income taxes based on the various jurisdictions where we conduct business. Significant judgment is required in determining our worldwide income tax provision. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations and the potential for future adjustment of our uncertain tax positions by the Internal Revenue Service or other taxing jurisdictions. While we believe we have appropriate support for the positions taken on our tax returns, we regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes. 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 bases of assets and liabilities. Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized. Significant judgment is required to evaluate the need for a valuation allowance against deferred tax assets. We review all available positive and negative evidence, including projections of pre-tax book income, earnings history, and reliability of forecasting. A valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized. As ofDecember 31, 2019 , we have maintained a full valuation allowance on our deferred tax assets since inception based on our historical losses and the uncertainty of generating future taxable income to utilize our loss and credit carryforwards. A future release of our valuation allowance will result in a material tax benefit recognized in the quarter of the release. We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions that are more likely than not of being sustained upon audit, the second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. 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. Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our income tax expense in the period in which we make the change, which could have a material impact on our effective tax rate and operating results. 65 -------------------------------------------------------------------------------- Loss Contingencies We are subject to certain legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business. We review the status of each significant matter quarterly and assess our potential financial exposure. If the potential loss from a claim or legal proceeding is considered probable and the amount can be reasonably estimated, we record a liability and an expense for the estimated loss and disclose it in our consolidated financial statements if it is significant. If we determine that a loss is possible and the range of the loss can be reasonably determined, we do not record a liability or an expense but we disclose the range of the possible loss. Significant judgment is required in the determination of whether a potential loss is probable, reasonably possible, or remote as well as in the determination of whether a potential exposure is reasonably estimable. We base our judgments on the best information available at the time. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Any revision of our estimates of potential liability could have a material impact on our financial position and operating results. Results of Operations Financial Overview
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Twelve Months Ended December 31, 2019 - 2018 2018 - 2017
(In millions) 2019 2018 2017 $ Change % Change $ Change % Change
Total revenue $ 1,476.0 $ 1,031.6 $ 718.5 $ 444.4 43 % $ 313.1 44 %
Gross profit 931.5 663.9 492.1 267.6 40 % 171.8 35 %
Operating income (loss) 142.3 (186.3 ) (42.5 ) 328.6 * (143.8 ) *
Net income (loss) 101.1 (127.1 ) (50.2 ) 228.2 * (76.9 ) *
Basic net income (loss) per share 1.11 (1.44 ) (0.58 ) 2.55 * (0.86 ) * Diluted net income (loss) per share$ 1.10 $ (1.44 ) $ (0.58 ) $ 2.54 *$ (0.86 ) * * = Not Meaningful 66
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Revenue, Cost of Sales and Gross Profit
Twelve Months Ended December 31, 2019 - 2018 2018 - 2017
(In millions) 2019 2018 2017 $ Change % Change $ Change % Change
Total revenue $ 1,476.0 $ 1,031.6 $ 718.5 $ 444.4 43 % $ 313.1 44 %
Cost of sales 544.5 367.7 226.4 176.8 48 % 141.3 62 %
Gross profit $ 931.5 $ 663.9 $ 492.1 $ 267.6 40 % $ 171.8 35 %
Gross profit as a
percent of total revenue 63 % 64 % 68 %
We expect that revenues 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 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.
Fiscal 2019 Compared to Fiscal 2018
Total revenue increased $444.4 million or 43% for the twelve months ended
December 31, 2019 compared to the twelve months ended December 31, 2018 . The
2019 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 pricing pressure due to the evolution of our channel
strategy and product mix. Disposable sensor and other revenue comprised
approximately 78% of total revenue and Reusable Hardware revenue comprised
approximately 22% of total revenue for the twelve months ended December 31,
2019 . Disposable sensor and other revenue comprised approximately 75% of total
revenue and Reusable Hardware revenue comprised approximately 25% of total
revenue for the twelve months ended December 31, 2018 .
Cost of sales increased $176.8 million or 48% for the twelve months ended
December 31, 2019 compared to the twelve months ended December 31, 2018
primarily due to increased sales volume. The gross profit of $931.5 million or
63% of total revenue for the twelve months ended December 31, 2019 increased
$267.6 million compared to $663.9 million or 64% of total revenue for the same
period in 2018. The 2019 increase in gross profit dollars was primarily driven
by increased revenues, partially offset by higher warranty, freight, and excess
and obsolete inventory charges compared to 2018. The 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 gross
martin percentage for the twelve months ended December 31, 2019 was also
impacted by investments to scale infrastructure as we drove significant
production capacity expansion in 2019.
Operating Expenses
Twelve Months Ended December 31, 2019 - 2018 2018 - 2017
(In millions) 2019 2018 2017 $ Change % Change $ Change % Change
Research and development $ 273.5 $ 199.7 $ 185.4 $ 73.8 37 % $ 14.3 8 %
as a % of total revenue 19 % 19 % 26 %
Collaborative research
and development fee - 217.7 - (217.7 ) * 217.7 *
as a % of total revenue - % 21 % - %
Selling, general and
administrative 515.7 432.8 349.2 82.9 19 % 83.6 24 %
as a % of total revenue 35 % 42 % 48 %
Total operating expenses
53 % 82 % 74 %
* = Not Meaningful
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
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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.
Fiscal 2019 Compared to Fiscal 2018
Research and Development Expense. Research and development expense increased
$73.8 million or 37% for the twelve months ended December 31, 2019 compared to
the same period of 2018. The increase was primarily due to $39.7 million in
additional salaries, bonus, and payroll-related costs, $11.1 million in
additional supplies costs, and $7.3 million in additional facilities 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.
Collaborative Research and Development Fee. Collaborative research and
development fee decreased $217.7 million for the twelve months ended
December 31, 2019 compared to the same period of 2018. During 2018, we recorded
a one time $217.7 million collaborative research and development charge related
to our collaboration and license agreement with Verily. See Note 2 to the
consolidated financial statements in Part II, Item 8 of this Annual Report for
more information about this collaboration agreement.
Selling, General and Administrative Expense. Selling, general and administrative
expense increased $82.9 million or 19% for the twelve months ended December 31,
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 $20.5 million in additional third party service
provider fees, $13.1 million in additional salaries, bonus and payroll-related
costs, $11.0 million in additional consulting fees, $9.3 million in additional
marketing costs, $8.6 million in additional depreciation, and $7.5 million in
restructuring charges.
Non-Operating Income and Expenses
Interest Expense
Interest expense increased $37.6 million to $60.3 million for the twelve months
ended December 31, 2019 compared to $22.7 million for the same period of 2018.
The increase was primarily due to an additional interest expense for our 2023
Notes, which were issued in November 2018 .
Income/Loss from Equity Investments
Loss from equity investments of $4.2 million for the twelve months ended
December 31, 2019 and income from equity investments of $80.1 million for the
twelve months ended months ended December 31, 2018 consist 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 was $28.4 million and $10.5 million for the twelve months ended
December 31, 2019 and 2018, respectively, and is related to our marketable debt
securities portfolio. The increase in interest income was primarily related to
an increase in the average invested balances during 2019 compared to 2018.
Other income (expense) for the twelve months ended December 31, 2019 and 2018
consists primarily of foreign currency transaction gains and losses due to the
effects of foreign currency fluctuations.
Income Tax Expense
We recorded pre-tax income for the twelve months ended December 31, 2019 , and
pre-tax loss for the twelve months ended December 31, 2018 . The income tax
expense we recorded for 2019 is primarily attributable to state and foreign
income tax expense. The nominal income tax expense we recorded for 2018 is
primarily due to withholding and other income tax expenses in profitable
jurisdictions.
68
--------------------------------------------------------------------------------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. 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 inU.S. dollar-denominated, investment grade, highly liquid obligations ofU.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 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 inthe United States , and the majority of our sales since inception have been made inU.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 ofthe 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 theU.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 currently engage in limited hedging transactions to reduce foreign currency risks on certain intercompany balances. 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$1,533.3 million as ofDecember 31, 2019 . None of those funds were restricted and approximately 98% of those funds were located inthe United States . 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 ones. Our cash, cash equivalents and short-term marketable securities as ofDecember 31, 2019 increased by$147.7 million fromDecember 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 69 -------------------------------------------------------------------------------- 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 InDecember 2018 , we entered into an amended and restated 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 ofDecember 31, 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. Senior Convertible Notes The following table summarizes our outstanding convertible note obligations: Initial Conversion Conversion rate Price per Aggregate Principal per share of Share of Issuance Date Coupon (in millions) Maturity Date common stock Common Stock June 2017 0.75% $ 400.0 May 15, 2022 10.0918$99.09 November 2018 0.75% 850.0 December 1, 2023 6.0869$164.29 Total $ 1,250.0 We used a portion of the net proceeds from the offering of the Notes due 2022 (the 2022 Notes) to repay$75.0 million of borrowings under our existing credit facility in 2017. We used a portion of the net proceeds from the offering of the Notes due 2023 (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 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, inNovember 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 onDecember 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 InNovember 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 onMarch 1, 2024 . See Note 5 to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information about the terms of the Credit Agreement, 2022 Notes and 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 consolidated financial statements in Part II, Item 8 of this Annual Report for complete statements of cash flows for these periods.
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Twelve Months Ended
December 31, Change
(In millions) 2019 2018 2017 2019 - 2018 2018 - 2017
Net cash provided by operating
activities $ 314.5 $ 123.2 $ 92.0 $ 191.3 $ 31.2
Net cash used in investing
activities (1,015.2 ) (139.8 ) (144.4 ) (875.4 ) 4.6
Net cash provided by financing
activities 10.7 710.4 399.1 (699.7 ) 311.3
Effect of exchange rates on
cash, cash equivalents, and
restricted cash (0.7 ) 1.8 0.3 (2.5 ) 1.5
Increase (decrease) in cash,
cash equivalents and restricted
cash $ (690.7 ) $ 695.6 $ 347.0 As ofDecember 31, 2019 , we had$1,533.3 million in cash, cash equivalents and short-term marketable securities, which is an increase of$147.7 million compared to$1,385.6 million as ofDecember 31, 2018 . The primary cash flows during the twelve months endedDecember 31, 2019 and 2018 are described below. Operating Cash Flows Net cash provided by operating activities during 2019 was comprised of net income of$101.1 million , net adjustments of$207.3 million and$6.1 million of changes in working capital balances. Net adjustments were primarily related to share-based compensation, depreciation and amortization, non-cash interest expense for our senior convertible notes, and a loss on the sale of our remaining equity investment in Tandem Diabetes Care, Inc. Net cash provided by operating activities during 2018 was comprised of a net loss of$127.1 million , offset by$291.2 million of net adjustments and$40.9 million of changes in working capital balances. Net adjustments were primarily related to share-based compensation, depreciation and amortization, and non-cash interest expense for our senior convertible notes, and realized and unrealized gains on our equity investment in Tandem Diabetes Care, Inc. Investing Cash Flows Net cash used in investing activities during 2019 was primarily comprised of$835.2 million for net purchases of marketable securities and other equity investments and$180.0 million for capital expenditures. Net cash used in investing activities during 2018 was primarily comprised of$61.4 million for net purchases of marketable securities and other equity investments and$67.1 million for capital expenditures. Financing Cash Flows Net cash provided by financing activities during 2019 was primarily comprised of$11.9 million in proceeds from the issuance of common stock under our employee stock plans. Net cash provided by financing activities during 2018 was primarily comprised of$836.6 million in net proceeds from the issuance of our 2023 Notes and$183.8 million in proceeds from the sale of the 2023 Warrants, partially offset by$218.9 million for the purchase of the 2023 Note Hedge and$100.0 million to purchase shares of our common stock. Contractual Obligations We are party to various leasing arrangements, primarily for office, manufacturing and warehouse space that expire at various times throughMarch 2028 . The following table summarizes our outstanding contractual obligations as ofDecember 31, 2019 and the effect those obligations are expected to have on our liquidity and cash flows in future periods: Less More than 1-3 3-5 than (In millions) Total(3) 1 Year(3) Years(1) Years(1) 5 Years Senior convertible notes (1)$ 1,283.0 $ 9.4 $ 417.2 $ 856.4 $ - Lease obligations (2) 120.9 18.7 34.7 29.7 37.8 Total$ 1,403.9 $ 28.1 $ 451.9 $ 886.1 $ 37.8
(1) We issued senior convertible notes in May and
2022 and we issued senior convertible notes in
in
and interest for these notes. Although these notes mature in 2022 and 2023,
they may be converted into cash and shares of
71-------------------------------------------------------------------------------- our common stock prior to maturity if certain conditions are met. Any conversion prior to maturity can result in repayment of the principal amounts sooner than the scheduled repayment as indicated in the table. See Note 5 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. (2) Includes a finance lease obligation related to ourMesa, Arizona facility. See Note 6 to the consolidated financial statements in Part II, Item 8 of this Annual Report for more information. We are also party to various purchase arrangements related to components used in manufacturing and research and development activities. As ofDecember 31, 2019 , we had approximately$165.8 million of open purchase orders and contractual obligations in the ordinary course of business, most of which are due within one year. Off-Balance Sheet Arrangements
As of
For a description of recently issued accounting guidance that is applicable to our financial statements, see Note 1 to the consolidated financial statements in Part II, Item 8 of this Annual Report.
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