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 include, among other things, impacts on our business due to health pandemics or other contagious outbreaks, such as the current COVID-19 pandemic. 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 our consolidated financial statements and related notes in Part II, Item 8 of this Annual Report. Overview WHO WE ARE We are a medical device company primarily focused on the design, development and commercialization of continuous glucose monitoring, or CGM, systems for the management of diabetes by patients, caregivers, and clinicians around the world. We received approval from theFood and Drug Administration , or FDA, and [[Image Removed:
dxcm-20211231_g4.jpg]]
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.
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[[Image Removed: dxcm-20211231_g5.jpg]] Global Presence
We have built a direct sales organization
in the United States , Australia , Canada ,
New Zealand , and certain countries in
Europe to call on health care
professionals, such as endocrinologists,
physicians and diabetes educators, who
can educate and influence patient
adoption of continuous glucose
monitoring. To complement our direct
sales efforts, we have entered into
distribution arrangements in the United
States , and certain countries in Africa ,
Asia , Europe , Latin America , and the
Middle East , as well as Australia ,
Canada , and New Zealand that allow
distributors to sell our products.
[[Image Removed: dxcm-20211231_g6.jpg]][[Image Removed: dxcm-20211231_g7.jpg]] Future Developments
Product Development: We plan to develop
future generations of technologies that
are focused on improved performance and
convenience and that will enable
intelligent insulin administration. Over
the longer term, we plan to continue to
develop and improve networked platforms
with open architecture, connectivity and
transmitters capable of communicating
with other devices. We also intend to
expand our efforts to accumulate CGM
patient data and metrics and apply
predictive modeling and machine learning
to generate interactive CGM insights that
can inform patient behavior.
Partnerships: We also continue to pursue
and support development partnerships with
insulin pump companies and companies or
institutions developing insulin delivery
systems, including automated insulin
delivery systems.
New Opportunities: We are also exploring
how to extend our offerings to other
opportunities, including for people with
Type 2 diabetes that are non-insulin
using, people with pre-diabetes, people
who are obese, people who are pregnant,
and people in the hospital setting.
Eventually, we may apply our
technological expertise to products
beyond glucose monitoring.
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[[Image Removed: dxcm-20211231_g8.jpg]]
[[Image Removed: dxcm-20211231_g9.jpg]] Impact of COVID-19 Pandemic
During 2020 and 2021, we have been
subject to challenging social and
economic conditions created as a
result of the novel strain of
coronavirus, SARS-CoV-2, or
COVID-19. These conditions continue
to create various financial impacts
to our operations by necessitating
precautions for our personnel to
operate safely both in person as
well as remotely. Costs incurred
include items like incremental
payroll costs, consulting support,
IT infrastructure and
facilities-related costs.
As the result of the COVID-19
pandemic, we made Dexcom CGM systems
available for use in hospital
settings and other healthcare
facilities to assist frontline
workers. The extent of the impact of
the COVID-19 pandemic on our
operational and financial
performance will depend on certain
developments, including the duration
and spread of the outbreak, impact
on our customers and our sales
cycles, employee or industry events,
and effect on our vendors, all of
which are uncertain and cannot be
predicted. The COVID-19 pandemic and
its adverse effects have become more
prevalent in the locations where we,
our customers, suppliers or
third-party business partners
conduct business and as a result, we
have experienced moderate
disruptions in our global
operations. We have experienced and
may experience constrained supply or
curtailed customer demand, including
due to customer loss of private
health insurance coverage for our
products, that could materially
adversely impact our business,
results of operations and overall
financial performance in future
periods. We currently utilize third
parties to, among other things,
manufacture components and materials
for our devices, and to provide
services such as sterilization
services and we purchase these
materials and services from numerous
suppliers worldwide.
The COVID-19 pandemic has and may
continue to have an adverse impact
on our manufacturing and
distribution capabilities.
Disruptions relating to the COVID-19
pandemic, including shelter-in-place
orders in the U.S. and other
countries, could prevent employees,
suppliers, distributors, and others
from accessing manufacturing
facilities and from transporting our
products or the components required
to manufacture our products. For
example, we have experienced some
supply chain disruption due to the
global restrictions resulting from
the COVID-19 pandemic in the
manufacturing of our next-generation
CGM product. Further, worldwide
supply chain disruption relating to
the COVID-19 pandemic has resulted
in product shortages that has and
may continue to impact our ability
to manufacture our devices. As of
the filing date of this Annual
Report, the extent to which COVID-19
may impact our financial condition
or results of operations or guidance
is uncertain. The effect of the
COVID-19 pandemic will not be fully
reflected in our results of
operations and overall financial
performance until future periods.
See "Risk Factors" in Part I, Item
1A of this Annual Report for further
discussion of the possible impact of
the COVID-19 pandemic on our
business.
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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. 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. Variability reflected in the sensitivity
analysis presented below is based on our recent historical experience. Actual
results may differ from these estimates under different assumptions or
conditions.
While our significant accounting policies are described in Note 1 to the
consolidated financial statements in Part II, Item 8 of this Annual Report, we
believe that the following accounting 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 estimates and their disclosure in this Annual Report with the Audit
Committee of our Board of Directors.
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 accrual estimate 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.
Historically, adjustments to these estimates to reflect actual results or
updated expectations, have not been material to our overall business and
generally have been less than 1% of revenue. An increase or decrease of 1% in
our estimate of products sold subject to rebate during 2021, holding all other
assumptions constant, would increase or decrease revenue by approximately $11.5
million .
For more information, see Revenue Recognition in Note 1 to the consolidated
financial statements in Part II, Item 8 of this Annual Report.
Excess and Obsolete Inventory
We assess the value of our inventory on a quarterly basis and write down those
inventories based on quality control testing data, obsolescence, or in excess of
our forecasted demand to the lower of their cost or net realizable value. Our
estimates of forecasted demand are based upon our analysis and assumptions
including, but not limited to, expected product lifecycles, product development
plans and historical usage by product. If actual market conditions are less
favorable than our forecasts, or actual demand from our customers is lower than
our estimates, we may be required to record additional inventory write-downs. If
actual market conditions are more favorable than anticipated, inventory
previously written down may be sold, resulting in lower cost of sales and higher
income from operations than expected in that period.
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 basis of assets and liabilities as
described in Note 1 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. 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. Realization of deferred tax assets is dependent
upon future earnings in applicable tax jurisdictions. We maintain a valuation
allowance on our California research and
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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 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. 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.
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. 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.
73
--------------------------------------------------------------------------------Overview of Financial Results The most important financial indicators that we use to assess our business are revenue growth, gross profit, operating income, net income, and cash flow from operations.
Key highlights for fiscal 2021 include the following:
Revenue Gross Profit Operating Income Net Income Operating Cash Flow
$2.45 billion $1.68 billion $265.8 million $154.7 million $442.5 million up 27% from 2020 up 31% from 2020 down 11% from 2020 down 69% from down 7% from 2020 2020
We ended fiscal 2021 with cash, cash equivalents and short-term marketable
securities totaling
Business Trends
In addition to the general impacts of COVID-19 on our company as described in
the Overview, looking ahead we expect our business could be affected by the
following:
•Increase in the worldwide incidence of people diagnosed with diabetes and costs
related to the management and treatment of diabetes.
•Changes in medical reimbursement policies and programs.
•Growing demand for digital health technologies by both healthcare providers and
consumers to reduce costs, empower consumers to make better-informed decisions
about their own health and provide new options for facilitating prevention,
early diagnosis of life-threatening diseases, and management of chronic
conditions outside of traditional health care settings.
•Continued product innovation and competition from other CGM device makers.
•Our ability to scale efficiently with the construction of our production
facility in Malaysia .
•Our ability to successfully develop, obtain regulatory approval of and
commercialize the products within our pipeline, in particular, our next
generation G7 CGM system.
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--------------------------------------------------------------------------------Results of Operations
[[Image Removed: dxcm-20211231_g10.jpg]]
Financial Overview
For discussion related to the results of operations and changes in financial
condition for fiscal 2020 compared to fiscal 2019 refer to "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Part II, Item 7 of our 2020 Annual Report on Form 10-K, which was filed with the
United States Securities and Exchange Commission on February 11, 2021 .
Twelve Months Ended December 31, 2021 Compared to Twelve Months Ended December 31, 2020
Twelve Months Ended December 31, 2021 - 2020
(In millions, except per share % of Revenue % of Revenue
amounts) 2021 (1) 2020 (1) $ Change % Change
Revenue $ 2,448.5 100 % $ 1,926.7 100 % $ 521.8 27 %
Cost of sales 768.0 31 % 646.6 34 % 121.4 19 %
Gross profit 1,680.5 68.6 % 1,280.1 66.4 % 400.4 31 %
Operating expenses:
Research and development 517.1 21 % 359.9 19 % 157.2 44 %
Collaborative research and
development fee 87.1 4 % - - % 87.1 *
Selling, general and
administrative 810.5 33 % 620.7 32 % 189.8 31 %
Total operating expenses 1,414.7 58 % 980.6 51 % 434.1 44 %
Operating income 265.8 11 % 299.5 16 % (33.7) (11) %
Interest expense (100.3) (4) % (84.7) (4) % (15.6) 18 %
Loss on extinguishment of debt (1.5) - % (5.9) - % 4.4 (75) %
Income from equity investments 11.6 - % - - % 11.6 *
Interest and other income
(expense), net (1.7) - % 16.1 1 % (17.8) *
Income before income taxes 173.9 7 % 225.0 12 % (51.1) (23) %
Income tax expense (benefit) 19.2 1 % (268.6) (14) % 287.8 *
Net income $ 154.7 6 % $ 493.6 26 % $ (338.9) (69) %
(1) The sum of the individual percentages may not equal the total due to rounding. * Not meaningful
75
--------------------------------------------------------------------------------Revenue
We expect that revenue we generate from the sales of our products will fluctuate from quarter to quarter. We typically experience seasonality, with lower sales in the first quarter of each year compared to the immediately preceding fourth quarter. This seasonal sales pattern relates toU.S. annual insurance deductible resets and unfunded flexible spending accounts. Cost of Sales Cost of sales includes direct labor and materials costs related to each product sold or produced, including assembly, test labor and scrap, as well as factory overhead supporting our manufacturing operations. Factory overhead includes facilities, material procurement and control, manufacturing engineering, quality assurance, supervision and management. These costs are primarily salary, fringe benefits, share-based compensation, facility expense, supplies and purchased services. All of our manufacturing costs are included in cost of sales. Research and Development Our research and development expenses primarily consist of engineering and research expenses related to our continuous glucose monitoring technology, clinical trials, regulatory expenses, quality assurance programs, materials and products for clinical trials. Research and development expenses are primarily related to employee compensation, including salary, fringe benefits, share-based compensation, and temporary employee expenses. We also incur significant expenses to operate our clinical trials including 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. Selling, General and Administrative Our selling, general and administrative expenses primarily consist of salary, fringe benefits and share-based compensation for our executive, financial, sales, marketing, information technology and administrative functions. 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. Twelve Months EndedDecember 31, 2021 Compared to Twelve Months EndedDecember 31, 2020 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 strategy. Revenue Disposable sensor and other revenue comprised approximately 84% of total revenue and Reusable Hardware revenue comprised approximately 16% of total revenue for the twelve months endedDecember 31, 2021 . Disposable sensor and other revenue comprised approximately 81% of total revenue and Reusable Hardware revenue comprised approximately 19% of total revenue for the twelve months endedDecember 31, 2020 . Cost of sales increased primarily due to an increase in sales volume. Cost of Sales & Gross The increase in gross profit and gross profit margin in 2021 compared Profit to 2020 were primarily driven by increased revenue and cost savings associated with incremental improvements to product design, manufacturing efficiencies and economies of scale. Research and development expense increased primarily due to$62.7 million in additional third party and
consulting fees primarily related
to software development for new products and significant enhancements,
$49.1 million in additional salaries, bonuses, and payroll-related
Research and costs primarily due to higher headcount, and $13.2 million in
Development Expense additional clinical trials costs related to pivotal trials. 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.
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Collaborative research and development
fees of
twelve months ended December 31, 2021 represents expense incurred in
Development Fee the 2018 collaboration and license agreement with Verily. See Note 2
"Development and Other Agreements" to the consolidated financial
statements in Part II, Item 8 of this Annual Report for more
information.
Selling, general and administrativeexpense increased primarily due to
$84.0 million in additional advertising and marketing costs due to an increase in worldwide marketing campaigns,$60.5 million in additional Selling, General and salaries, bonuses, and payroll-related costs primarily due to higher Administrative Expense headcount primarily related to an expansion in our sales force,$16.3 million in additional legal expense related to litigation,$7.4 million of investments in customer
experience, partially offset by
$12.9 million in lower third party service provider fees due to a change in our channel strategy. The loss on extinguishment of debt of$1.5 million and$5.9 million is primarily related to the conversions
and/or repurchases of our senior
Loss on Extinguishment of convertible notes for the twelve months ended
Debt December 31, 2020 , respectively. See Note 5 "Debt" to the consolidated
financial statements in Part II, Item 8 of this Annual Report for more
information about these transactions.
Income from Equity Income from equity investments of $11.6 million for the twelve months
Investments ended December 31, 2021 consisted solely of realized gains from the
sale of an equity investment.
Interest expense is comprised primarily of costs related to our senior
Interest Expense convertible notes. Interest expenseincreased primarily due to the May
2020 issuance of our 2025 Notes.
Interest and other income (expense), net,consists primarily of Interest and Other Income interest income on our short-term marketable securities portfolio and
(Expense), Net foreign currency transaction gains and losses due to the effects of
foreign currency fluctuations. The decrease in interest income was
primarily related to a decline in market interest rates.
We recorded pre-tax income for the twelve months ended December 31,
2021 and December 31, 2020 . The income tax expense we recorded for 2021
is primarily attributable to income taxexpense from normal, recurring
Income Tax Expense operations offset by excess tax benefits recognized for employee
(Benefit) share-based compensation, generation of research and development tax
credits, and a one-time tax benefitrelated to tax law changes. The
income tax benefit we recorded for 2020 is primarily attributable to
the release of our valuation allowance on specific U.S. and foreign
deferred tax assets.
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Liquidity and Capital Resources
Overview, Capital Resources, and Capital Requirements
Our principal sources of liquidity are our existing cash, cash equivalents and
marketable securities, cash generated from operations, proceeds from our senior
convertible notes issuances, and access to our Credit Facility. Our primary uses
of cash have been for research and development programs, selling and marketing
activities, capital expenditures, acquisitions of businesses, and debt service
costs.
We expect that cash provided by our operations may fluctuate in future periods
as a result of a number of factors, including fluctuations in our operating
results, working capital requirements, and capital deployment decisions. We have
historically invested our cash primarily in U.S. dollar-denominated, investment
grade, highly liquid obligations of U.S. government agencies, commercial paper,
corporate debt, and money market funds. Certain of these investments are subject
to general credit, liquidity, and other market risks. The general condition of
the financial markets and the economy may increase those risks and may affect
the value and liquidity of investments and restrict our ability to access the
capital markets.
Our future capital requirements will depend on many factors, including but not
limited to:
The evolution of the Our ability to efficiently The success of our research
international expansion of our scale our operations to meet and development efforts;
business and the revenue demand for our currentand any
generated by sales of our future products;
approved products and other
future products;
The expenses we incur in The costs, timing and risks of The costs of filing,
manufacturing, developing, delays of additional regulatory prosecuting, defending and
selling and marketing our approvals; enforcing any patent claims
products; and other intellectual
property rights;
The quality levels of our The emergence of competing or The terms and timing of any
products and services; complementary technological collaborative, licensing and
developments; other arrangements that we
may establish;
The third-party reimbursement of The rate of progress and cost The acquisition of
our products for our customers; of our clinical trials and businesses, products and
other development activities; technologies and our ability
to integrate and manage any
acquired businesses, products
and technologies.
We expect that existing cash and short-term investments and cash flows from our
future operations will generally be sufficient to fund our ongoing core
business. As current borrowing sources become due, we may be required to access
the capital markets for additional funding. As we assess inorganic growth
strategies, we may need to supplement our internally generated cash flow with
outside sources. In the event that we are required to access the debt market, we
believe that we will be able to secure reasonable borrowing rates. As part of
our liquidity strategy, we will continue to monitor our current level of
earnings and cash flow generation as well as our ability to access the market in
light of those earning levels.
A substantial portion of our operations are located in the United States , and
the majority of our sales since inception have been made in U.S. dollars.
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 Australian Dollar, the British Pound, the Canadian
Dollar, the Euro and the Malaysian Ringgit, 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 hedging
transactions to reduce foreign currency risks. 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.
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Main Sources of Liquidity
Cash, cash equivalents and short-term marketable securities
Our cash, cash equivalents and short-term marketable securities totaled $2.73
billion as of December 31, 2021 . None of those funds were restricted and
approximately 95% of those funds were located in the United States .
Cash flow from Operations
For the twelve months ended December 31, 2021 , we had positive cash inflows of
$442.5 million from operating activities. We anticipate that we will continue to
generate positive cash inflows for the foreseeable future.
Senior Convertible Notes
We received net proceeds of $836.6 million in November 2018 from the 2023 Notes
offering and net proceeds of $1.19 billion in May 2020 from the 2025 Notes
offering. We used $100.0 million of the net proceeds from the offering of the
2023 Notes to repurchase a portion of our common stock in 2018. We 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 2022, or 2022 Notes. We intend to
use the remainder of the net proceeds from the 2023 Notes and 2025 Notes
offerings 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.
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. See Note 5
"Debt" to the consolidated financial statements in Part II, Item 8 of this
Annual Report for conversion activity related to the 2023 Notes and shares
received as the result of exercising a portion of the 2023 Note Hedge as well as
for more information about the 2023 Notes and the 2025 Notes, the 2023 Note
Hedge, and the 2023 Warrants.
Revolving Credit Agreement
As of December 31, 2021 , we had no outstanding borrowings, $7.3 million in
outstanding letters of credit, and a total available balance of $192.7 million
under the Amended Credit Agreement. We monitor counterparty risk associated with
the institutional lenders that are providing the Credit Facility. We currently
believe that the Credit Facility will be available to us should we choose to
borrow under it. Revolving loans will be available for general corporate
purposes, including working capital and capital expenditures. See Note 5 "Debt"
to the consolidated financial statements in Part II, Item 8 of this Annual
Report for more details on the Revolving Credit Agreement.
Short-term Liquidity Requirements
Our short-term liquidity requirements primarily consist of regular operating
costs, interest payments related to our senior convertible notes, capital
expenditures for the development of our manufacturing facilities and office
spaces, and short-term material cash requirements as described below. As of
December 31, 2021 , we had a working capital ratio of 5.11 and a quick ratio of
4.50, which indicates that our current assets are more than enough to cover our
short-term liabilities. We expect to have significant capital expenditures for
the next year to drive our strategic initiative of building out our
manufacturing facility and equipment in Malaysia and the capacity scale-up in
Mesa, Arizona .
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.
Long-term Liquidity Requirements
Our long-term liquidity requirements primarily consist of interest and principal
payments related to our senior convertible notes, capital expenditures for the
development of our manufacturing facilities and office spaces, and long-term
material cash requirements as described below. As of December 31, 2021 , we had a
debt-to-assets ratio of 0.35, which indicates that our total assets are more
than enough to cover our short-term and long-term debts. As demand grows for our
products, we will continue to expand global operations to meet demand through
investments in manufacturing and operations. We expect to meet our long-term
liquidity requirements from our main sources of liquidity as described above to
support our future operations, capital expenditures, acquisitions, and other
liquidity requirements associated with our operations beyond the next 12 months.
As of December 31, 2021 , we have outstanding senior convertible notes that will
mature in December 2023 for the 2023 Notes and November 2025 for the 2025 Notes.
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
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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 for the United
States and Malaysia , and research and development activities. See Purchase
Commitments in Note 6 to the consolidated financial statements in Part II, Item
8 of this Annual Report for more information.
We issued senior convertible notes in November 2018 and May 2020 . The
obligations presented above include both principal and interest for these notes.
Although these notes mature in 2023 and 2025, they may be converted into cash
and shares of our common stock prior to maturity if certain conditions are met.
Any conversion prior to maturity can result in repayment of the principal
amounts sooner than the scheduled repayment as indicated in the table. As of
December 31, 2021 , we had outstanding letters of credit of $7.3 million for
which we cannot forecast with certainty the amount and timing of repayments. See
Note 5 "Debt" to the consolidated financial statements in Part II, Item 8 of
this Annual Report for further discussion of the terms of our senior convertible
notes.
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 a land lease in Penang,
Malaysia for the build-out of our international manufacturing facility lease
that expires in 2080. We anticipate incurring significant expenditures related
to the build-out of the Malaysia manufacturing facility and equipment in the
next 24 months. See Leases in Note 6 to the consolidated financial statements in
Part II, Item 8 of this Annual Report for more information.
Under our Restated Collaboration Agreement with Verily, upon the first
regulatory approval of our next generation G7 CGM system, a regulatory approval
milestone payment equivalent to 736,377 shares of our common stock, calculated
based on the $100.0 million initial milestone amount divided by the
volume-weighted average trading price during the 15 consecutive days ending on
the date of the Restated Collaboration Agreement, will become payable.
Additional sales-based milestone payments equivalent to 1,288,660 shares of our
common stock, calculated based on the $175.0 million initial milestone amount
divided by the volume-weighted average trading price during the 15 consecutive
days ending on the date of the Restated Collaboration Agreement, may become due
and payable by us upon achievement of certain sales-based milestones. All
milestones may be paid in cash or shares of our common stock, at our election.
If we elect to make these milestone payments in cash, any such cash payment
would be equal to the number of shares that would otherwise be issued for the
given milestone payment multiplied by the value of our stock on the date the
relevant milestone is achieved, adjusted for stock splits, dividends, and the
like. We intend to pay these milestones in shares of our common stock and as
such we do not expect to have a material cash requirement for this agreement.
See Note 2 "Development and Other Agreements" to the consolidated financial
statements in Part II, Item 8 of this Annual Report for further discussion of
the Collaboration Agreement with Verily.
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Cash FlowsThe 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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As of December 31, 2021 , we had $2.73 billion in cash, cash equivalents and
short-term marketable securities, which is an increase of $23.5 million compared
to $2.71 billion as of December 31, 2020 .
The primary cash flows during the twelve months ended December 31, 2021 and 2020
are described below. See the consolidated financial statements in Part II, Item
8 of this Annual Report for complete consolidated statements of cash flows for
these periods.
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Twelve Months Ended
December 31, 2021 December 31, 2020
+ $154.7 million of net +
income and $419.8 and $2.8 million of net
million of net non-cash adjustments,
non-cash adjustments,
including
partially offset by net benefit to tax expense
$132.0 million of net
associated with the release
changes in working of the valuation allowance
capital balances related to deferred tax
assets, partially offset by
in working capital balances
Net non-cash Net non-cash adjustments
Operating Cash Flows adjustments were were primarily related to a
primarily related to net benefit to tax expense
collaborative associated with the release
research and of the valuation allowance
development fees, related to deferred tax
share-based assets, share-based
compensation, compensation, non-cash
non-cash interest interest expense for our
expense for our senior convertible notes,
senior convertible and depreciation and
notes, and amortization.
depreciation and
amortization.
+ $193.2 million net -
proceeds from of marketable securities
marketable securities
+ $15.7 million in - $199.0 million capital
proceeds from the expenditures
sale of an equity
investment
Investing Cash Flows - $389.2 million
capital expenditures
- $30.2 million in
acquisitions, net of
cash acquired
- $5.0 million in
purchases of equity
investments
+ $20.3 million in + $1.19 billion in proceeds
proceeds from the from issuance of our 2025
issuance of common Notes, net of issuance costs
stock under our
employee stock plans
Financing Cash Flows - $9.9 million in + $15.3 million in proceeds
payments for from the issuance of common
financing leases stock under our employee
stock plans
-
for repurchase of a portion
of our 2022 Notes
Recent Accounting Guidance
For a description of recently issued accounting guidance that is applicable to our financial statements, see Note 1 "Organization and Significant Accounting Policies" to the consolidated financial statements in Part II, Item 8 of this Annual Report.
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