Item 16. FORM 10-K SUMMARY

None

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

				DEXCOM, INC. (Registrant)
Dated: February 13, 2020				By:		/S/ QUENTIN S. BLACKFORD
						Quentin S. Blackford, Chief Operating Officer and Chief Financial Officer (Principal Financial and Accounting Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin Sayer and Quentin Blackford, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and to file same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature		Title		Date
/S/ KEVIN R. SAYER		Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer)		February 13, 2020
Kevin R. Sayer
/S/ QUENTIN S. BLACKFORD		Chief Operating Officer and Chief Financial Officer (Principal Financial and Accounting Officer)		February 13, 2020
Quentin S. Blackford
/S/ MARK FOLETTA		Lead Independent Director		February 13, 2020
Mark Foletta
/S/ STEVE ALTMAN		Director		February 13, 2020
Steve Altman
/S/ NICHOLAS AUGUSTINOS		Director		February 13, 2020
Nicholas Augustinos
/S/ RICHARD COLLINS		Director		February 13, 2020
Richard Collins
/S/ BRIDGETTE HELLER		Director		February 13, 2020
Bridgette Heller
/S/ BARBARA KAHN		Director		February 13, 2020
Barbara Kahn
/S/ JAY SKYLER		Director		February 13, 2020
Jay Skyler, M.D.
/S/ ERIC TOPOL		Director		February 13, 2020
Eric Topol, M.D.

DEXCOM, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-4
Consolidated Statements of Comprehensive Income (Loss)	F-5
Consolidated Statements of Stockholders’ Equity	F-6
Consolidated Statements of Cash Flows	F-7
Notes to Consolidated Financial Statements	F-9

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of DexCom, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of DexCom, Inc. (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 13, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

		Estimation of transaction price and variable consideration for revenue recognition
Description of the Matter		As discussed in Note 1 of the consolidated financial statements, the Company recognizes revenue from contracted insurance payors and distributors based on a transaction price which reflects the net consideration to which the Company expects to be entitled. The 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. The Company estimates reductions for rebates based on contractual arrangements, estimates of products sold subject to rebate, known events or trends and channel inventory data.
		Auditing management’s determination of transaction price including variable consideration involved a high degree of subjectivity in evaluating management’s estimates. In determining transaction price, management develops estimates based on actual historical reimbursement experience by payor. In estimating variable consideration related to rebates, management applies contracted rates to estimates of products sold subject to rebate, known events or trends and channel inventory data.

F-2

How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s processes to determine transaction price and variable consideration, including the underlying assumptions.
		Our audit procedures also included, among others, evaluating the significant assumptions and the accuracy and completeness of the underlying data used in management’s calculations. For transaction price, this included testing management’s estimate of the claim denials and historical reimbursement experience through a combination of underlying data validation by inspection of source documents and independent recalculation of management’s analysis. For rebates, this included testing contractual rates, management’s estimates of products sold subject to rebate, and inventory held by distributors at the end of the period, through a combination of underlying data validation by inspection of source documents, agreement to underlying contracts, review for consistency against historical data, and trending of inventory held at distributors versus inventory sold into the channel. In addition, we inspected the results of the Company’s retrospective review analysis of rebates claimed, evaluated the estimates made based on historical experience and performed sensitivity analyses over the Company's significant assumptions.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2000

San Diego, California

February 13, 2020

F-3

DexCom, Inc.
Consolidated Balance Sheets

	December 31,
(In millions—except par value data)	2019				2018
Assets
Current assets:
Cash and cash equivalents	$	446.2			$	1,137.0
Short-term marketable securities	1,087.1				248.6
Accounts receivable, net	286.3				226.7
Inventory	119.8				70.7
Prepaid and other current assets	30.0				16.5
Total current assets	1,969.4				1,699.5
Property and equipment, net	321.3				183.1
Operating lease right-of-use assets	71.5				—
Goodwill	18.6				18.7
Other assets	14.2				14.7
Total assets	$	2,395.0			$	1,916.0
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	256.4			$	147.1
Accrued payroll and related expenses	88.5				72.4
Operating lease liabilities, current portion	13.6				—
Deferred revenue	1.7				2.9
Total current liabilities	360.2				222.4
Long-term senior convertible notes	1,059.7				1,010.3
Operating lease liabilities, net of current portion	72.4				—
Other long-term liabilities	20.1				20.0
Total liabilities	1,512.4				1,252.7
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 5.0 million shares authorized; no shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively	—				—
Common stock, $0.001 par value, 200.0 million shares authorized; 92.4 million and 91.6 million shares issued and outstanding, respectively, at December 31, 2019; 91.1 million and 90.0 million shares issued and outstanding, respectively, at December 31, 2018	0.1				0.1
Additional paid-in capital	1,675.9				1,560.6
Accumulated other comprehensive income	2.3				1.5
Accumulated deficit	(695.7		)		(798.9		)
Treasury stock at cost; 0.8 million shares at December 31, 2019	(100.0		)		(100.0		)
Total stockholders’ equity	882.6				663.3
Total liabilities and stockholders’ equity	$	2,395.0			$	1,916.0

See accompanying notes

F-4

DexCom, Inc.
Consolidated Statements of Operations

	Twelve Months Ended December 31,
(In millions—except per share data)	2019				2018				2017
Revenue	$	1,476.0			$	1,031.6			$	718.5
Cost of sales	544.5				367.7				226.4
Gross profit	931.5				663.9				492.1
Operating expenses
Research and development	273.5				199.7				185.4
Collaborative research and development fee	—				217.7				—
Selling, general and administrative	515.7				432.8				349.2
Total operating expenses	789.2				850.2				534.6
Operating income (loss)	142.3				(186.3		)		(42.5		)
Interest expense	(60.3		)		(22.7		)		(12.8		)
Income (loss) from equity investments	(4.2		)		80.1				—
Interest and other income, net	26.4				2.4				6.7
Income (loss) before income taxes	104.2				(126.5		)		(48.6		)
Income tax expense	3.1				0.6				1.6
Net income (loss)	$	101.1			$	(127.1	)		$	(50.2	)
Basic net income (loss) per share	$	1.11			$	(1.44	)		$	(0.58	)
Shares used to compute basic net income (loss) per share	91.1				88.2				86.3
Diluted net income (loss) per share	$	1.10			$	(1.44	)		$	(0.58	)
Shares used to compute diluted net income (loss) per share	92.3				88.2				86.3

See accompanying notes

F-5

DexCom, Inc.
Consolidated Statements of Comprehensive Income (Loss)

		Twelve Months Ended December 31,
(In millions)		2019				2018				2017
Net income (loss)		$	101.1			$	(127.1	)		$	(50.2	)
Other comprehensive income (loss), net of income taxes:
Foreign currency translation gain (loss)		0.4				4.0				(1.4		)
Unrealized gain (loss) on marketable debt securities		0.4				0.1				(0.2		)
Total other comprehensive income (loss), net		0.8				4.1				(1.6		)
Comprehensive income (loss)		$	101.9			$	(123.0	)		$	(51.8	)

See accompanying notes

F-6

DexCom, Inc.
Consolidated Statements of Stockholders’ Equity

(In millions)		Common Stock							Additional Paid-In Capital				Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit				Treasury Stock				Total Stockholders’ Equity
Shares			Amount
Balance at December 31, 2016		84.6			$	0.1			$	905.7			$	(1.0	)		$	(621.0	)		$	—			$	283.8
Issuance of common stock under equity incentive plans		2.3			—				2.7				—				—				—				2.7
Issuance of common stock for Employee Stock Purchase Plan		0.1			—				7.4				—				—				—				7.4
Share-based compensation expense		—			—				106.7				—				—				—				106.7
Equity component of convertible 2022 Note issuance, net of issuance costs		—			—				70.6				—				—				—				70.6
Adoption of ASU 2016-09		—			—				0.6				—				(0.6		)		—				—
Net loss		—			—				—				—				(50.2		)		—				(50.2		)
Other comprehensive loss		—			—				—				(1.6		)		—				—				(1.6		)
Balance at December 31, 2017		87.0			0.1				1,093.7				(2.6		)		(671.8		)		—				419.4
Issuance of common stock under equity incentive plans		1.8			—				1.9				—				—				—				1.9
Issuance of common stock for Employee Stock Purchase Plan		0.2			—				8.9				—				—				—				8.9
Share-based compensation expense		—			—				101.9				—				—				—				101.9
Issuance of common stock for collaborative research and development fee		1.8			—				217.7				—				—				—				217.7
Equity component of convertible 2023 Note issuance, net of issuance costs		—			—				171.6				—				—				—				171.6
Sale of warrants		—			—				183.8				—				—				—				183.8
Convertible note hedge		—			—				(218.9		)		—				—				—				(218.9		)
Purchases of treasury stock		(0.8	)		—				—				—				—				(100.0		)		(100.0		)
Net loss		—			—				—				—				(127.1		)		—				(127.1		)
Other comprehensive income		—			—				—				4.1				—				—				4.1
Balance at December 31, 2018		90.0			0.1				1,560.6				1.5				(798.9		)		(100.0		)		663.3
Cumulative-effect adjustment from adoption of new lease accounting standard (Note 6)		—			—				—				—				2.1				—				2.1
Issuance of common stock under equity incentive plans		1.4			—				0.3				—				—				—				0.3
Issuance of common stock for Employee Stock Purchase Plan		0.2			—				11.6				—				—				—				11.6
Share-based compensation expense		—			—				102.7				—				—				—				102.7
Realization of tax benefit related to 2023 Note Hedge		—			—				0.7				—				—				—				0.7
Net income		—			—				—				—				101.1				—				101.1
Other comprehensive income		—			—				—				0.8				—				—				0.8
Balance at December 31, 2019		91.6			$	0.1			$	1,675.9			$	2.3			$	(695.7	)		$	(100.0	)		$	882.6

See accompanying notes

F-7

DexCom, Inc.
Consolidated Statements of Cash Flows

	Twelve Months Ended December 31,
(In millions)	2019				2018				2017
Operating activities
Net income (loss)	$	101.1			$	(127.1	)		$	(50.2	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization	48.7				29.1				16.1
Share-based compensation	102.7				101.9				106.2
Non-cash interest expense	49.6				17.9				9.4
Non-cash collaborative research and development fee through issuance of common stock	—				217.7				—
Unrealized gain on equity investment	—				(36.0		)		—
Realized (gain) loss on equity investment	4.2				(44.1		)		—
Other non-cash income and expenses	2.1				4.7				7.9
Changes in operating assets and liabilities:
Accounts receivable, net	(60.0		)		(93.2		)		(31.8		)
Inventory	(49.1		)		(25.5		)		0.4
Prepaid and other assets	(7.2		)		(3.0		)		(6.7		)
Operating lease right-of-use assets and liabilities, net	(2.4		)		—				—
Accounts payable and accrued liabilities	109.0				56.2				21.1
Accrued payroll and related expenses	16.0				23.8				14.8
Deferred revenue, deferred rent and other liabilities	(0.2		)		0.8				4.8
Net cash provided by operating activities	314.5				123.2				92.0
Investing activities
Purchase of marketable securities	(2,030.4		)		(452.5		)		(171.8		)
Proceeds from sale and maturity of marketable securities	1,196.4				392.1				93.4
Purchase of other equity investments	(1.2		)		(1.0		)		—
Purchase of property and equipment	(180.0		)		(67.1		)		(66.0		)
Acquisitions, net of cash acquired	—				(11.3		)		—
Net cash used in investing activities	(1,015.2		)		(139.8		)		(144.4		)
Financing activities
Net proceeds from issuance of common stock	11.9				10.8				10.1
Purchases of treasury stock	—				(100.0		)		—
Proceeds from issuance of convertible debt, net of issuance costs	—				836.6				389.0
Proceeds from sale of warrants	—				183.8				—
Purchase of convertible note hedge	—				(218.9		)		—
Proceeds from short-term borrowings	—				—				75.0
Repayment of short-term borrowings	—				—				(75.0		)
Other financing activities	(1.2		)		(1.9		)		—
Net cash provided by financing activities	10.7				710.4				399.1
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(0.7		)		1.8				0.3
Increase (decrease) in cash, cash equivalents and restricted cash	(690.7		)		695.6				347.0
Cash, cash equivalents and restricted cash, beginning of period	1,137.1				441.5				94.5
Cash, cash equivalents and restricted cash, end of period	$	446.4			$	1,137.1			$	441.5
Reconciliation of cash, cash equivalents and restricted cash, end of period:
Cash and cash equivalents	$	446.2			$	1,137.0			$	441.5
Restricted cash	0.2				0.1				—
Total cash, cash equivalents and restricted cash	$	446.4			$	1,137.1			$	441.5

F-8

Supplemental disclosure of non-cash investing and financing transactions:
Acquisition of property and equipment included in accounts payable and accrued liabilities	$	14.2			$	10.8			$	6.3
Supplemental cash flow information:
Cash paid during the year for interest	$	10.4			$	3.6			$	2.4
Cash paid during the year for income taxes	$	4.8			$	2.3			$	1.4

See accompanying notes

F-9

DexCom, Inc.
Notes to Consolidated Financial Statements
December 31, 2019

1. Organization and Significant Accounting Policies

Organization and Business

DexCom, Inc. is a medical device company focused on the design, development and commercialization of CGM system(s) for use by people with diabetes and by healthcare providers. Unless the context requires otherwise, the terms “we,” “us,” “our,” the “company,” or “DexCom” refer to DexCom, Inc. and its subsidiaries.

Basis of Presentation and Principles of Consolidation

The consolidated financial statements include the accounts of DexCom, Inc. and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. We have reclassified certain amounts previously reported in our financial statements to conform to the current presentation.

The functional currencies of our international subsidiaries are generally the local currencies. We translate the financial statements of our foreign subsidiaries into U.S. dollars using period-end exchange rates for assets and liabilities and average exchange rates for each period for revenue, costs and expenses. We include translation-related adjustments in comprehensive income (loss) and in accumulated other comprehensive income in the equity section of our consolidated balance sheet. Gains and losses resulting from certain intercompany transactions as well as transactions with customers and vendors that are denominated in currencies other than the functional currency of each entity give rise to foreign exchange gains or losses that we record in interest and other income, net in our consolidated statements of operations.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires us to make certain estimates and assumptions that affect the amounts reported in our financial statements and the disclosures made in the accompanying notes. Areas requiring significant estimates include pharmacy rebates, transaction price, net accounts receivable, excess or obsolete inventories and the valuation of inventory, and accruals for litigation contingencies. Despite our intention to establish accurate estimates and use reasonable assumptions, actual results may differ from our estimates.

Fair Value Measurements

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—Unadjusted quoted prices that are available in active markets for identical assets or liabilities.

Level 2—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.

Level 3—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 carry our marketable securities at fair value. We carry our other financial instruments, such as cash and cash equivalents, 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. For more information see Note 3, “Fair Value Measurements.”

F-10

Cash and Cash Equivalents

We consider highly liquid investments with a maturity of 90 days or less at the time of purchase to be cash equivalents.

Marketable Securities

We have classified our marketable securities with remaining maturity at purchase of more than three months and remaining maturities of one year or less as short-term marketable securities. We have also classified marketable securities with remaining maturities of greater than one year as short-term marketable securities based upon our ability and intent to use any and all of those marketable securities to satisfy the liquidity needs of our current operations.

We calculate realized gains or losses on our marketable securities using the specific identification method. We carry our marketable debt securities at fair value with unrealized gains and losses reported as a separate component of stockholders’ equity in our consolidated balance sheets and included in comprehensive income (loss). Realized gains and losses on marketable debt securities are included in interest and other income, net in our consolidated statements of operations. We carry our marketable equity securities at fair value with realized and unrealized gains and losses reported in income on equity investments in our consolidated statements of operations.

We invest in various types of debt securities, including debt securities in government-sponsored entities, corporate debt securities, U.S. Treasury securities and commercial paper. We do not generally intend to sell these investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity. See Note 3, “Fair Value Measurements” and Note 4, “Balance Sheet Details – Short-Term Marketable Securities” for more information on our marketable debt securities and our marketable equity securities.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are generally recorded at the invoiced amount for Distributors and at net realizable value for Direct customers, which is determined using estimates of claim denials and historical reimbursement experience without regard to aging category. Accounts receivable are not interest bearing. We evaluate the creditworthiness of significant customers and generally do not require collateral from our customers. We maintain an allowance for doubtful accounts for potential credit losses. Uncollectable accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a customer account is uncollectable. Generally, receivable balances greater than one year past due are deemed uncollectable.

Concentration of Credit Risk and Significant Customers

Financial instruments which potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, short-term marketable securities, and accounts receivable. We limit our exposure to credit risk by placing our cash and investments with high credit quality financial institutions. We have also established guidelines regarding diversification of our investments and their maturities that are designed to maintain principal and maximize liquidity. We review these guidelines periodically and modify them to take advantage of trends in yields and interest rates and changes in our operations and financial position.

The following table sets forth the percentages of total revenue or gross accounts receivable for customers that represent 10% or more of the respective amounts for the periods shown:

	Revenue									Gross Accounts Receivable
	Twelve Months Ended December 31,									As of December 31,
	2019			2018			2017			2019			2018
Distributor A	17	%		15	%		16	%		21	%		19	%
Distributor B	12	%		12	%		14	%		*			15	%
Distributor C	10	%		*			*			*			*

• Less than 10%

F-11

Inventory

Inventory is valued at the lower of cost or net realizable value on a part-by-part basis that approximates first in, first out. 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. Once written down the adjustments are considered permanent and are not reversed until the related inventory is sold or disposed of.

Our products require customized products and components that currently are available from a limited number of sources. We purchase certain components and materials from single sources due to quality considerations, costs or constraints resulting from regulatory requirements.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation. We calculate depreciation using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are generally three years for computer software and hardware, four to fifteen years for machinery and equipment, and five years for furniture and fixtures. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the remaining lease term. We include the amortization of assets that are recorded under finance leases in depreciation expense.

We review property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We estimate the recoverability of the asset by comparing the carrying amount to the future undiscounted cash flows that we expect the asset to generate. We estimate the fair value of the asset based on the present value of future cash flows for those assets. If the carrying value of an asset exceeds its estimated fair value, we would record an impairment loss equal to the difference.

Goodwill

We record goodwill when the fair value of consideration transferred in a business combination exceeds the fair value of the identifiable assets acquired and liabilities assumed. Goodwill and other intangible assets that have indefinite useful lives are not amortized, but we test them annually for impairment in the fourth quarter of our fiscal year and whenever events or changes in circumstances indicate that it is more likely than not that the fair value is less than the carrying value. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, including a decline in market capitalization, a significant adverse change in legal factors, business climate or operational performance of the business, and an adverse action or assessment by a regulator.

We perform our goodwill impairment analysis at the reporting unit level, which aligns with DexCom’s reporting structure and the availability of discrete financial information. We perform the first step of our annual impairment analysis by either comparing a reporting unit’s estimated fair value to its carrying amount or doing a qualitative assessment of a reporting unit’s fair value from the last quantitative assessment to determine if there is potential impairment. We may do a qualitative assessment when the results of the previous quantitative test indicated the reporting unit’s estimated fair value was significantly in excess of the carrying value of its net assets and we do not believe there have been significant changes in the reporting unit’s operations that would significantly decrease its estimated fair value or significantly increase its net assets. If a quantitative assessment is performed the evaluation includes management estimates of cash flow projections based on internal future projections and/or use of a market approach by looking at market values of comparable companies. Key assumptions for these projections include revenue growth, future gross margin and operating margin growth, and weighted cost of capital and terminal growth rates. The revenue and margin growth are based on increased sales of new and existing products as we maintain investments in research and development. Additional assumed value creators may include increased efficiencies from capital spending. The resulting cash flows are discounted using a weighted average cost of capital. Operating mechanisms and requirements to ensure that growth and efficiency assumptions will ultimately be realized are also considered in the evaluation, including the timing and probability of regulatory approvals for our products to be commercialized. We also consider DexCom’s market capitalization as a part of our analysis.

F-12

If the estimated fair value of a reporting unit exceeds the carrying amount of the net assets assigned to that unit, goodwill is not impaired and no further analysis is required. If the carrying value of the net assets assigned to a reporting unit exceeds the estimated fair value of the unit, we perform the second step of the impairment test. In this step we allocate the fair value of the reporting unit calculated in step one to all of the assets and liabilities of that unit, as if we had just acquired the reporting unit in a business combination. The excess of the fair value of the reporting unit over the total amount allocated to the assets and liabilities represents the implied fair value of goodwill. If the carrying amount of a reporting unit’s goodwill exceeds its implied fair value, we would record an impairment loss equal to the difference. We recorded no goodwill impairment charges for the twelve months ended December 31, 2019, 2018 or 2017.

The change in goodwill for the twelve months ended December 31, 2017 and December 31, 2019 consisted of translation adjustments on our foreign currency denominated goodwill. The change in goodwill for the twelve months ended December 31, 2018 consisted of goodwill we recorded for acquisitions that were not significant, individually or in the aggregate, and translation adjustments on our foreign currency denominated goodwill.

Intangible Assets and Other Long-Lived Assets

We amortize intangible assets with a finite life, such as acquired technology, customer relationships, trade names and trademarks, on a straight-line basis over their estimated useful lives, which range from two to five years. We review intangible assets that have finite lives and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We estimate the fair value of the asset based on the present value of future cash flows for those assets. If the carrying value of an asset exceeds its estimated fair value, we would record an impairment loss equal to the difference.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized, which requires significant judgment. The realization of deferred tax assets is dependent, in part, upon future taxable income. In assessing whether our deferred tax assets will be realized, we consider all available evidence, both positive and negative. Such evidence includes historical earnings, future reversals of existing taxable temporary differences, estimates of future taxable income, and the feasibility of ongoing tax planning strategies. We have recorded a full valuation allowance on our net deferred tax asset balances for all periods presented because of the uncertainty related to utilization of our deferred tax assets.

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

We file federal and state income tax returns in the United States and income tax returns in various other foreign jurisdictions with varying statutes of limitations. Due to net operating losses incurred, our income tax returns from inception to date are subject to examination by taxing authorities. We recognize interest expense and penalties related to income tax matters, including unrecognized tax benefits, as a component of income tax expense.

Warranty Accrual

Estimated warranty costs associated with a product are recorded at the time revenue is recognized. We estimate future warranty costs by analyzing historical warranty experience for the timing and amount of returned product, and expectations for future warranty activity based on changes and improvements to the product or process that are in place or will be in place in the future. We evaluate these estimates on at least a quarterly basis to determine the continued appropriateness of our assumptions.

F-13

Loss Contingencies

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 financial statements if it is significant. If we determine that a loss is possible and the range of the loss can be reasonably determined, then 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.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of two elements, net income (loss) and other comprehensive income (loss). We report all components of comprehensive income (loss), including net income (loss), in our financial statements in the period in which they are recognized. Total comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. We report net income (loss) and the components of other comprehensive income (loss), including foreign currency translation adjustments and unrealized gains and losses on marketable securities, net of their related tax effect to arrive at total comprehensive income (loss).

Revenue Recognition

We generate our revenue from the sale of our Reusable Hardware and disposable sensors, which we refer to in this section as “Components”.

We adopted ASC Topic 606 effective January 1, 2018 using the modified retrospective method. Our revenue recognition policies under ASC Topic 606 are explained below.

Policy elections and practical expedients taken

•	We report revenue net of taxes collected from customers, which are subsequently remitted to governmental authorities;

•	We account for shipping and handling activities that are performed after a customer has obtained control of a good as fulfillment costs rather than as separate performance obligations;

•	We do not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer; and

•	If we expect, at contract inception, that the period between the transfer of control and corresponding payment from the customer will be one year or less, we do not adjust the amount of consideration for the effects of a significant financing component.

Contracts and performance obligations

We consider customer purchase orders, which in most cases are governed by agreements with distributors or third-party payors, to be contracts with a customer. For each contract, we consider the obligation to transfer Components to the customer, each of which are distinct, to be separate performance obligations. We also provide free-of-charge software, mobile applications and updates for our DexCom Share® remote monitoring system. The standalone selling prices of our free-of-charge software, mobile applications and updates are estimated based on an expected cost plus a margin approach.

Transaction price

Transaction price for the Components 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.

Variable consideration

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

Product Returns. In accordance with the terms of their distribution agreements, most distributors do not have rights of return outside of our limited warranty. The distributors typically have a limited time frame to notify us of any missing, damaged, defective or non-conforming products. We generally provide a “30-day money back guarantee” program whereby first-time end-user customers may return Reusable Hardware. Product returns have historically been immaterial.

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Revenue recognition

The timing of revenue recognition is based on the satisfaction of performance obligations. Substantially all of the performance obligations associated with our Components are satisfied at a point in time, which typically occurs at shipment of our products. Terms of direct and distributor orders are generally Freight on Board (FOB) shipping point for U.S. orders or Free Carrier (FCA) shipping point for international orders. For certain of our distributors, control transfers at delivery of the product to the customer.

In cases where our free-of-charge software, mobile applications and updates are deemed to be separate performance obligations, revenue is recognized over time on a ratable basis over the estimated life of the related hardware component.

Our sales of Components include an assurance-type warranty.

Judgments and Estimates

In determining how revenue should be recognized, a five-step process is used, which requires judgment and estimates that can have a significant impact on the amount and timing of revenue we report. These judgments and estimates include identifying performance obligations in the contract, determining whether the performance obligations are separate, allocating the transaction price to each separate performance obligation, determining the timing of revenue recognition for separate performance obligations and estimating the amount of variable consideration to include in the transaction price.

Contract balances

Contract balances represent amounts presented in the consolidated balance sheets when either we have transferred goods or services to the customer or the customer has paid consideration to us under the contract. These contract balances include accounts receivable and deferred revenue. Payment terms vary by contract type and type of customer and generally range from 30 to 90 days.

Accounts receivable as of December 31, 2019 included unbilled accounts receivable of $3.6 million. Unbilled accounts receivable consists of revenue recognized for Components we have delivered but not yet invoiced to customers. We expect to invoice and collect all unbilled accounts receivable within twelve months.

We record deferred revenue when we have entered into a contract with a customer and cash payments are received or due prior to transfer of control or satisfaction of the related performance obligation. The table below shows revenue that we recognized as a result of changes in the contract liability balances in the periods shown.

	Twelve Months Ended December 31,
(In millions)	2019				2018
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	$	2.6			$	1.9

Our performance obligations are generally satisfied within 12 months of the initial contract date. As of December 31, 2019, the deferred revenue balance related to performance obligations that will be satisfied after 12 months was $2.1 million. and is included in other long-term liabilities on our consolidated balance sheets. As of December 31, 2018, we had no deferred revenue balance related to performance obligations that will be satisfied after 12 months.

Deferred cost of sales

Deferred cost of sales are associated with sales for which revenue recognition criteria are not met but product has shipped and released from inventory. Deferred cost of sales are included in prepaid and other current assets in our consolidated balance sheets.

Incentive compensation costs

We generally expense incentive compensation associated with our internal sales force when incurred because the amortization period for such costs, if capitalized, would have been one year or less. We record these costs in selling, general and administrative expense in our consolidated statement of operations.

Product Shipment Costs

We record the amounts we charge our customers for the shipping and handling of our products in revenue and we record the related costs as cost of sales in our statements of operations.

F-15

Research and Development

We expense costs of research and development as we incur them. 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 primarily consist of employee compensation, including salary, fringe benefits, share-based compensation, and temporary employee expenses. We also incur significant expenses to operate our clinical trials that include 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 CGM systems include certain software that we develop. We expense software development costs as we incur them until technological feasibility has been established, at which time we capitalize development costs until the product is available for general release to customers. To date, our software has been available for general release concurrent with the establishment of technological feasibility and, accordingly, we have not capitalized any development costs.

Advertising Costs

We expense advertising costs as we incur them to selling, general and administrative expenses. Advertising expense was $31.8 million, $25.4 million and $21.9 million for the twelve months ended December 31, 2019, 2018 and 2017, respectively.

Leases

We determine if an arrangement is a lease at inception. Lease right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The interest rate used to determine the present value of the future lease payments is our incremental borrowing rate, because the interest rate implicit in most of our leases is not readily determinable. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in similar economic environments. The operating lease right-of-use asset also includes any lease payments made and excludes lease incentives. We have lease agreements with lease and non-lease components, which are generally accounted for separately. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease payments that do not depend on a rate or index, payments associated with non-lease components, and costs related to leases with terms of less than 12 months are expensed as incurred.

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/market-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. The Monte 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.

We account for forfeitures as they occur by reversing any share-based compensation expense related to awards that will not vest.

F-16

Net Income (Loss) Per Share

Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of common shares outstanding during the period and, when dilutive, potential common share equivalents.

Potentially dilutive common shares consist of shares issuable from stock options, unvested RSUs, warrants and the 2022 and 2023 Senior Convertible Notes. Potentially dilutive common share equivalents shares from outstanding stock options, warrants and unvested RSUs are determined using the average share price for each period under the treasury stock method. Potentially dilutive shares issuable upon conversion of our 2022 and 2023 Senior Convertible Notes are determined using the if-converted method.

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods shown.

		Twelve Months Ended December 31,
(In millions)		2019				2018				2017
Net income (loss)		$	101.1			$	(127.1	)		$	(50.2	)
Net income (loss) per common share
Basic		$	1.11			$	(1.44	)		$	(0.58	)
Diluted		$	1.10			$	(1.44	)		$	(0.58	)
Basic weighted average shares outstanding		91.1				88.2				86.3
Dilutive potential common stock outstanding:
Stock options and employee stock purchase plan		—				—				—
Restricted stock units		1.2				—				—
2023 Warrants		—				—				—
2022 senior convertible notes		—				—				—
2023 senior convertible notes		—				—				—
Diluted weighted average shares outstanding		92.3				88.2				86.3

In periods of net losses, we exclude potentially dilutive common shares from the computation of the diluted net loss per share for those periods as the effect would be anti-dilutive.

Outstanding anti-dilutive securities not included in the diluted net income (loss) per share attributable to common stockholders calculations were as follows:

	Twelve Months Ended December 31,
(In millions)	2019			2018			2017
Options outstanding to purchase common stock	—			0.1			0.4
Unvested restricted stock units	0.2			2.7			2.7
2023 Warrants	5.2			5.2			—
Senior convertible notes due 2022	4.0			4.0			4.0
Senior convertible notes due 2023	5.2			5.2			—
Total	14.6			17.2			7.1

F-17

Recent Accounting Guidance

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (ASU 2016-02), which requires a lessee to recognize most leases on the consolidated balance sheet as lease liabilities with corresponding right-of-use assets. We adopted ASU 2016-02 utilizing the modified retrospective transition method at the beginning of the first quarter of 2019. See Note 6, “Leases and Other Commitments” for more information on the impact of our adoption of ASU 2016-02 and related disclosures.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (ASU 2017-12), which is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency regarding the scope and results of hedging programs. The guidance in this update is applied using a cumulative-effect adjustment to retained earnings at the beginning of the fiscal year of adoption. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Our adoption of ASU 2017-12 at the beginning of the first quarter of 2019 did not have a significant impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods, and early adoption is permitted. We expect to adopt the standard on its effective date in the first quarter of 2020. We believe the adoption will modify the way we analyze financial instruments, but currently do not expect the adoption to have a material financial impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). This new guidance eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. ASU 2017-04 is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. We do not expect the adoption to have a material financial impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public business entities will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. ASU 2018-13 is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. We do not expect the adoption to have a material financial impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other – Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (ASU 2018-15). This new guidance requires a customer in a cloud computing arrangement to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. ASU 2018-15 is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. Application of this guidance can be applied either prospectively or retrospectively. We will adopt the new standard on January 1, 2020 on a prospective basis. We do not expect the adoption to have a material financial impact on our consolidated financial statements, however, the adoption of this standard will result in an increase in capitalized assets related to qualifying cloud computing arrangement implementation costs incurred after the adoption date.

F-18

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted. We are currently evaluating the impact that this guidance will have on our consolidated financial statements.

2. Development and Other Agreements

Collaboration with Verily Life Sciences

On November 20, 2018, we entered into an Amended and Restated Collaboration and License Agreement with Verily Life Sciences LLC (an Alphabet Company) and Verily Ireland Limited (collectively, Verily), which we refer to as the Restated Collaboration Agreement. This replaced our original Collaboration and License Agreement with Verily dated August 10, 2015, as amended in October 2016, including the royalty obligations provisions under that original agreement. Pursuant to the Restated Collaboration Agreement, we and Verily have agreed to continue to jointly develop a certain next-generation CGM product, and potentially one or more additional CGM products, for which we will have exclusive commercialization rights.

The Restated Collaboration Agreement also provides us with an exclusive license to use intellectual property of Verily resulting from the collaboration, and certain Verily patents, in the development, manufacture and commercialization of blood-based or interstitial glucose monitoring products more generally (subject to certain exclusions, which are outside of the CGM field as it is commonly understood). It also provides us with non-exclusive license rights under Verily’s other intellectual property rights to develop, manufacture and commercialize those kinds of glucose monitoring products and certain CGM-product companion software functionalities. The Restated Collaboration Agreement requires us to use commercially reasonable efforts to develop, launch and commercialize the CGM product(s) that are the subject of the collaboration according to certain timing and other objectives, and provides for one executive sponsor from each of DexCom and Verily to meet periodically and make decisions related to the collaboration (within a limited scope of authority) by consensus.

In consideration of Verily’s performance of its obligations under the joint development plan of the Restated Collaboration Agreement, the licenses granted to us and the amendment of the original agreement, we have made upfront and incentive payments and we will make potential future milestone payments upon the achievement of certain goals. In the fourth quarter of 2018, we made an initial payment of $250.0 million through the issuance of 1,840,943 shares of our common stock. We recorded a $217.7 million charge in our consolidated statement of operations during 2018 relating to the issuance of this common stock because this milestone payment did not meet the capitalization criteria. The amount of the charge was based on our closing stock price of $118.28 per share on December 28, 2018, the date on which we obtained the necessary regulatory approvals and the transaction closed. During 2019, we made an incentive payment of $3.2 million due to the completion of certain development obligations and recorded as research and development in the consolidated statement of operations. Additional milestone payments of up to a total of $275.0 million may become due and payable by us upon the achievement of future development, product regulatory approval and revenue milestones. These payments may be paid in cash or shares of our common stock, at our election. If we elect to make all $275.0 million of these payments in shares, we will issue a total of 2,025,036 shares of our common stock, based on the volume weighted average trading price during the 15 consecutive days ending on the date of the Restated Collaboration Agreement. Alternatively, if we elect to make all $275.0 million of these 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.

The Restated Collaboration Agreement will continue until December 31, 2028, unless terminated by either party upon uncured material breach of the Restated Collaboration Agreement by the other party. Upon achievement of the first revenue milestone event and payment of the corresponding milestone fee by us, the term of the Restated Collaboration Agreement will be extended until December 31, 2033.

3. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

We estimate the fair value of our Level 1 financial instruments, which are in active markets, using unadjusted quoted market prices for identical instruments.

F-19

We obtain the fair values for our Level 2 financial instruments, which are not in active markets, from a primary professional pricing source that uses quoted market prices for identical or comparable instruments, rather than direct observations of quoted prices in active markets. Fair values obtained from this professional pricing source can also be based on pricing models whereby all significant observable inputs, including maturity dates, issue dates, settlement date, benchmark yields, reported trades, broker-dealer quotes, issue spreads, benchmark securities, bids, offers or other market related data, are observable or can be derived from, or corroborated by, observable market data for substantially the full term of the asset. We validate the quoted market prices provided by our primary pricing service by comparing the fair values of our Level 2 marketable securities portfolio balance provided by our primary pricing service against the fair values of our Level 2 marketable securities portfolio balance provided by our investment managers.

The following table summarizes financial assets that we measured at fair value on a recurring basis as of December 31, 2019, classified in accordance with the fair value hierarchy:

	Fair Value Measurements Using
(In millions)	Level 1				Level 2				Level 3				Total
Cash equivalents	$	110.1			$	144.9			$	—			$	255.0
Debt securities, available for sale:
U.S. government agencies	—				676.0				—				676.0
Commercial paper	—				248.2				—				248.2
Corporate debt	—				162.9				—				162.9
Total debt securities, available for sale	—				1,087.1				—				1,087.1
Other assets (1)	0.7				—				—				0.7
Total assets measured at fair value on a recurring basis	$	110.8			$	1,232.0			$	—			$	1,342.8

(1) Includes assets which are held pursuant to a deferred compensation plan for our executives, which consist mainly of mutual funds.

The following table summarizes financial assets that we measured at fair value on a recurring basis as of December 31, 2018, classified in accordance with the fair value hierarchy:

	Fair Value Measurements Using
(In millions)	Level 1				Level 2				Level 3				Total
Cash equivalents	$	199.3			$	66.7			$	—			$	266.0
Equity investment in Tandem Diabetes Care, Inc.	38.0				—				—				38.0
Debt securities, available for sale:
U.S. government agencies	—				173.1				—				173.1
Commercial paper	—				36.2				—				36.2
Corporate debt	—				1.3				—				1.3
Total debt securities, available for sale	—				210.6				—				210.6
Total assets measured at fair value on a recurring basis	$	237.3			$	277.3			$	—			$	514.6

There were no transfers between Level 1 and Level 2 securities during the years ended December 31, 2019 and December 31, 2018. There were no transfers into or out of Level 3 securities during the years ended December 31, 2019 and 2018.

F-20

We hold certain other investments that we do not measure at fair value on a recurring basis. The carrying values of these investments are not significant and we include them in other assets in our consolidated balance sheets. It is impracticable for us to estimate the fair value of these investments on a recurring basis due to the fact that these entities are often privately held and limited information is available. We monitor the information that becomes available from time to time and adjust the carrying values of these investments if there are identified events or changes in circumstances that have a significant adverse effect on the fair values.

Fair Value of Senior Convertible Notes

The fair value, based on trading prices (Level 1), of our Senior Convertible Notes were as follows as of the dates indicated:

	Fair Value Measurements Using Level 1
(In millions)	December 31, 2019				December 31, 2018
0.75% Senior Convertible Notes due 2022	$	890.8			$	540.2
0.75% Senior Convertible Notes due 2023	1,260.0				859.6
Total fair value of outstanding senior convertible notes	$	2,150.8			$	1,399.8

For more information on the carrying values of our 2022 Notes and 2023 Notes, see Note 5, “Debt.”

Foreign Currency and Derivative Financial Instruments

From time to time we engage in limited hedging transactions to reduce foreign currency risks. The fair values of these derivatives are based on quoted market prices, which are Level 1 inputs, and the derivative instruments are recorded in current assets or current liabilities in our balance sheets consistent with the nature of the instrument at period end. Derivative gains and losses are included in interest and other income, net in our consolidated statement of operations.

As of December 31, 2019, a notional amount of $8.0 million was outstanding to hedge currency risk relating to certain intercompany balances. The resulting impact from the hedging activity on our consolidated financial statements was not significant for the year ended December 31, 2019.

As of December 31, 2018, a notional amount of $60.0 million was outstanding to hedge currency risk relating to certain intercompany balances. Derivative instrument gains on forward exchange contracts were $0.4 million for the twelve months ended December 31, 2018. The fair value of the forward contract exchange derivative instrument liability was $0.2 million as of December 31, 2018. We entered into no foreign currency forward contracts during 2017.

Our foreign currency exposures vary but are primarily concentrated in the British Pound, the Euro, and the Canadian Dollar. We monitor the costs and the impact of foreign currency risks upon our financial results as part of our risk management program. We do not use derivative financial instruments for speculation or trading purposes or for activities other than risk management. We do not require and are not required to pledge collateral for these financial instruments and we do not carry any master netting arrangements to mitigate the credit risk.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

In accordance with authoritative guidance, we measure certain non-financial assets and liabilities at fair value on a non-recurring basis. These measurements are usually performed using the discounted cash flow method and Level 3 inputs. These include items such as non-financial assets and liabilities initially measured at fair value in a business combination and non-financial long-lived assets measured at fair value for an impairment assessment. In general, non-financial assets, including goodwill, intangible assets, and property and equipment, are measured at fair value when there are indicators of impairment and are recorded at fair value only when any impairment is recognized. We recorded no significant impairment losses during the twelve months ended December 31, 2019, 2018 and 2017.

F-21

4. Balance Sheet Details

Short-Term Marketable Securities

Short-term marketable securities, consisting of equity securities and debt securities, were as follows as of the dates indicated:

	December 31, 2019
(In millions)	Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Market Value
Debt securities, available for sale:
U.S. government agencies	$	675.6			$	0.4			$	—			$	676.0
Commercial paper	248.1				0.1				—				248.2
Corporate debt	163.0				—				(0.1		)		162.9
Total debt securities, available for sale	$	1,086.7			$	0.5			$	(0.1	)		$	1,087.1

	December 31, 2018
(In millions)	Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Market Value
Equity investment in Tandem Diabetes Care, Inc	$	2.0			$	36.0			$	—			$	38.0
Debt securities, available for sale:
U.S. government agencies	$	173.2			$	—			$	(0.1	)		$	173.1
Commercial paper	36.2				—				—				36.2
Corporate debt	1.3				—				—				1.3
Total debt securities, available for sale	$	210.7			$	—			$	(0.1	)		$	210.6
Total marketable securities	$	212.7			$	36.0			$	(0.1	)		$	248.6

As of December 31, 2019 and 2018, all of our debt securities had contractual maturities of less than twelve months. Gross realized gains and losses on our debt securities for the twelve months ended December 31, 2019, 2018 and 2017 were not significant.

We periodically review our portfolio of debt securities to determine if any investment is other-than-temporarily impaired due to changes in credit risk or other potential valuation concerns. We believe that the investments we held at December 31, 2019 were not other-than-temporarily impaired. Unrealized losses on available-for-sale debt securities at that date were not significant and were due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities. We do not intend to sell these investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

The following table reconciles the net gain recognized on equity securities during the twelve months ended December 31, 2019, 2018 and 2017 to the unrealized gain recognized during those periods on equity securities still held at the reporting dates.

	Twelve Months Ended December 31,
(In millions)	2019				2018				2017
Net gains and losses recognized during the period on equity securities	$	(4.2	)		$	80.1			$	—
Less: Net gains and losses recognized during the period on equity securities sold during the period	4.2				(44.1		)		—
Unrealized gains recognized during the reporting period on equity securities still held at the reporting date	$	—			$	36.0			$	—

F-22

Accounts Receivable

	December 31,
(In millions)	2019				2018
Accounts receivable	$	292.1			$	233.9
Less allowance for doubtful accounts	(5.8		)		(7.2		)
Total accounts receivable, net	$	286.3			$	226.7

Inventory

	December 31,
(In millions)	2019				2018
Raw materials	$	64.9			$	30.8
Work-in-process	11.1				11.2
Finished goods	43.8				28.7
Total inventory	$	119.8			$	70.7

During the twelve months ended December 31, 2019, we recorded excess and obsolete inventory charges of $14.1 million in cost of sales as a result of our ongoing assessment of sales demand, inventory on hand for each product and the continuous improvement and innovation of our products. During the twelve months ended December 31, 2018, we recorded excess and obsolete inventory charges of $7.3 million in cost of sales primarily as a result of the approval and launch of our G6 system and our ongoing assessment of sales demand and the continuous improvement and innovation of our products.

Property and Equipment

	December 31,
(In millions)	2019				2018
Building and land	$	15.5			$	6.0
Furniture and fixtures	12.8				9.0
Computer software and hardware	32.7				29.2
Machinery and equipment	130.2				80.7
Leasehold improvements	102.5				80.7
Construction in progress	132.6				57.3
Total cost	426.3				262.9
Less accumulated depreciation and amortization	(105.0		)		(79.8		)
Total property and equipment, net	$	321.3			$	183.1

Building and Land. Although we do not legally own these premises, under previous lease accounting standards we were deemed the owner of the construction project during the construction period of our manufacturing facility in Mesa, Arizona under a build-to-suit lease arrangement. As a result of our adoption of ASC 842, we de-recognized the estimated fair value of the building shell that was included in “building and land” in our consolidated balance sheets as of December 31, 2018 and the related lease liability and recorded the difference between the asset and liability as an adjustment to retained earnings at the beginning of the first quarter of 2019. The December 31, 2019 balance in “building and land” represents our finance lease right-of-use assets as a result of our adoption of ASC 842.

Depreciation expense related to property and equipment for the twelve months ended December 31, 2019, 2018 and 2017 was $46.9 million, $28.6 million, and $16.1 million, respectively.

Loss on disposal of property and equipment during the twelve months ended December 31, 2019, 2018 and 2017 recorded in operating expenses was $10.5 million, $5.4 million and $11.0 million, respectively.

F-23

Accounts Payable and Accrued Liabilities

	December 31,
(In millions)	2019				2018
Accounts payable trade	$	102.3			$	75.5
Accrued tax, audit, and legal fees	14.0				11.7
Accrued rebates	93.3				36.1
Accrued warranty	7.4				6.8
Other accrued liabilities	39.4				17.0
Total accounts payable and accrued liabilities	$	256.4			$	147.1

Restructuring Plan. In February 2019, our Board of Directors approved a restructuring plan that resulted in the transition of certain of our operations to the Philippines. We incurred total pre-tax charges and costs of approximately $8.0 million, primarily for employee severance benefits under both ongoing and one-time benefit arrangements. We incurred most of these costs in the first half of 2019 and the restructuring activities have been substantially completed as of December 31, 2019.

Accrued Warranty

Warranty costs are reflected in our statements of operations as cost of sales. Reconciliations of our accrued warranty costs for the twelve months ended December 31, 2019 and 2018 were as follows:

	Twelve Months Ended December 31,
(In millions)	2019				2018
Beginning balance	$	6.8			$	8.8
Charges to costs and expenses	32.7				17.4
Costs incurred	(32.1		)		(19.4		)
Ending balance	$	7.4			$	6.8

Other Long-Term Liabilities

	December 31,
(In millions)	2019				2018
Finance lease obligations	$	14.4			$	7.3
Deferred rent	—				9.4
Other liabilities	5.7				3.3
Total other liabilities	$	20.1			$	20.0

Our adoption of ASC 842 during the first quarter of 2019 affected the balances of finance lease liabilities and deferred rent. See Note 6, “Leases And Other Commitments” for more information on leases.

F-24

5. Debt

Senior Convertible Notes

The carrying amounts of our senior convertible notes were as follows as of the dates indicated:

	December 31,
(Dollars in millions)	2019				2018
0.75% Senior Convertible Notes due 2022:
Principal amount	$	400.0			$	400.0
Unamortized debt discount	(37.2		)		(51.1		)
Unamortized debt issuance costs	(4.6		)		(6.3		)
Net carrying amount of Senior Convertible Notes due 2022	358.2				342.6
0.75% Senior Convertible Notes due 2023:
Principal amount	850.0				850.0
Unamortized debt discount	(140.0		)		(171.8		)
Unamortized debt issuance costs	(8.5		)		(10.5		)
Net carrying amount of Senior Convertible Notes due 2023	701.5				667.7
Total net carrying amount of senior convertible notes	$	1,059.7			$	1,010.3
Carrying value of equity component of convertible senior notes, net of debt issuance costs
Senior Convertible Notes due 2022	$	70.6			$	70.6
Senior Convertible Notes due 2023	$	171.6			$	171.6
Remaining amortization period of debt discount on the liability component
Senior Convertible Notes due 2022	2.5 years				3.5 years
Senior Convertible Notes due 2023	4.0 years				5.0 years

The amount by which the notes’ if-converted value exceeds their principal amount is as of the dates indicated:

	December 31,
(In millions)	2019				2018
Senior Convertible Notes due 2022	$	486.2			$	125.4
Senior Convertible Notes due 2023	372.4				—
Total by which the notes’ if-converted value exceeds their principal amount	$	858.6			$	125.4

F-25

The following table summarizes the components of interest expense and the effective interest rates for each of our senior convertible notes for the periods shown.

(Dollars in millions)	Twelve Months Ended December 31,
	2019				2018				2017
Interest expense recognized:
0.75% Senior Convertible Notes due 2022:
Contractual coupon interest	$	3.0			$	3.0			$	1.9
Accretion of debt discount (1)	13.9				13.4				8.2
Amortization of debt issuance costs	1.7				1.6				1.0
Interest expense recognized on 2022 Notes	18.6				18.0				11.1
0.75% Senior Convertible Notes due 2023:
Contractual coupon interest	6.3				0.5				—
Accretion of debt discount (2)	31.9				2.6				—
Amortization of debt issuance costs	2.0				0.2				—
Interest expense recognized on 2023 Notes	40.2				3.3				—
Total interest expense recognized on senior notes	$	58.8			$	21.3			$	11.1
Effective interest rates:
0.75% Senior Convertible Notes due 2022	5.1		%		5.1		%		5.1		%
0.75% Senior Convertible Notes due 2023	5.6		%		5.6		%		—

(1) The discount on the 2022 Notes is being amortized through May 15, 2022. Interest on the 2022 Notes began accruing upon issuance and is payable semi-annually on May 15 and November 15 of each year.

(2) The discount on the 2023 Notes is being amortized through December 1, 2023. Interest on the 2023 Notes began accruing upon issuance and is payable semi-annually on June 1 and December 1 of each year.

0.75% Senior Convertible Notes due 2022

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). The net proceeds from the offering, after deducting initial purchasers’ discounts and costs directly related to the offering, were approximately $389.0 million. The initial conversion rate of the 2022 Notes is 10.0918 shares per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $99.09 per share, subject to adjustments. The 2022 Notes may be settled in cash, stock, or a combination thereof, solely at our discretion. We use the if-converted method for assumed conversion of the 2022 Notes to compute the weighted average shares of common stock outstanding for diluted earnings per share.

Since upon conversion by the holders we may elect to settle such conversion in shares of our common stock, cash, or a combination thereof, we accounted for the cash conversion option as an equity instrument classified to stockholders’ equity. As a result, we recognized $72.6 million in additional paid-in-capital during 2017.

No principal payments are due on the 2022 Notes prior to maturity. Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2022 Notes includes customary terms and covenants, including certain events of default after which the 2022 Notes may be due and payable immediately.

Conversion Rights at the Option of the Holders

In the event of a fundamental change (as defined in the indenture related to the 2022 Notes), holders of the 2022 Notes have the right to require us to repurchase for cash all or a portion of their notes at a price equal to 100% of the principal amount of the 2022 Notes, plus any accrued and unpaid interest. Holders of the 2022 Notes who convert their notes in connection with a make-whole fundamental change (as defined in the indenture) or following the delivery by DexCom of a notice of redemption are, under certain circumstances, entitled to an increase in the conversion rate.

F-26

Prior to 5:00 p.m., New York City time, on the business day immediately preceding February 15, 2022, holders of the 2022 Notes may convert all or a portion of their notes, in multiples of $1,000 principal amount, only under the following circumstances:

(1)

during any calendar quarter commencing after September 30, 2017 (and only during such calendar quarter), if the last reported sale price of common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price of the Notes on each such trading day;

(2)	during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each day of that five day consecutive trading day period was less than 98% of the product of the last reported sale price of common stock and the applicable conversion rate of the Notes on such trading day;

(3)	if we call any or all of the Notes for redemption, at any time prior to the close on business on the scheduled trading day immediately preceding the redemption date; or

(4)	upon the occurrence of specified corporate transactions.

On or after February 15, 2022, until 5:00 p.m., New York City time, on the business day immediately preceding the maturity date, holders of the 2022 Notes may convert all or a portion of their notes regardless of the foregoing circumstances.

Circumstance (1) listed above occurred during the quarters ended March 31, 2019, September 30, 2019 and December 31, 2019. As a result, the 2022 Notes became convertible at the option of the holders from April 1, 2019 through June 30, 2019, October 1, 2019 through December 31, 2019 and will remain convertible at the option of the holder from January 1, 2020 through March 31, 2020.

Holders of 2022 Notes with an insignificant principal amount exercised their option to convert their 2022 Notes during the second and fourth quarters of 2019 and we settled these conversions with shares of our common stock. We continue to classify the carrying value of the liability component of the 2022 Notes as long-term debt, and the equity component of the 2022 Notes as permanent equity in our consolidated balance sheets as of December 31, 2019.

Conversion Rights at Our Option

DexCom may not redeem the 2022 Notes prior to May 15, 2020. On or after May 15, 2020, DexCom may redeem for cash all or part of the 2022 Notes, at its option, if the last reported sale price of our common stock has been at least 140% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which DexCom provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the 2022 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

0.75% Senior Convertible Notes due 2023

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). The net proceeds from the offering, after deducting initial purchasers’ discounts and costs directly related to the offering, were approximately $836.6 million. The initial conversion rate of the 2023 Notes is 6.0869 shares per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $164.29 per share, subject to adjustments. We entered into transactions for a convertible note hedge (the 2023 Note Hedge) and warrants (the 2023 Warrants) concurrently with the issuance of the 2023 Notes. The 2023 Notes may be settled in cash, stock, or a combination thereof, solely at our discretion. We use the if-converted method for assumed conversion of the 2023 Notes to compute the weighted average shares of common stock outstanding for diluted earnings per share.

Since upon conversion by the holders we may elect to settle such conversion in shares of our common stock, cash, or a combination thereof, we accounted for the cash conversion option as an equity instrument classified to stockholders’ equity. As a result, we recognized $174.4 million in additional paid-in capital during 2018.

No principal payments are due on the 2023 Notes prior to maturity. Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2023 Notes includes customary terms and covenants, including certain events of default after which the 2023 Notes may be due and payable immediately.

F-27

Conversion Rights at the Option of the Holders

Holders of the 2023 Notes have the right to require us to repurchase for cash all or a portion of their notes at 100% of their principal amount, plus any accrued and unpaid interest, upon the occurrence of a fundamental change (as defined in the indenture relating to the notes). We will also be required to increase the conversion rate for holders who convert their 2023 Notes in connection with certain fundamental changes occurring prior to the maturity date or following the delivery by DexCom of a notice of redemption.

Holders of the 2023 Notes may convert all or a portion of their notes at their option prior to 5:00 p.m., New York City time, on the business day immediately preceding September 1, 2023, in multiples of $1,000 principal amount, only under the following circumstances:

(1)

during any calendar quarter commencing after March 31, 2019 (and only during such calendar quarter), if the last reported sale price of common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price of the 2023 Notes on each such trading day;

(2)	during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2023 Notes for each day of that five-day consecutive trading day period was less than 98% of the product of the last reported sale price of common stock and the applicable conversion rate of the 2023 Notes on such trading day;

(3)	if we call any or all of the 2023 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or

(4)	upon the occurrence of specified corporate transactions.

On or after September 1, 2023, until 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding the maturity date, holders of the 2023 Notes may convert all or a portion of their notes regardless of the foregoing circumstances.

Circumstance (1) listed above occurred during the quarter ended December 31, 2019. As a result, the 2023 Notes are convertible at the option of the holders from January 1, 2020 and will remain convertible until March 31, 2020. We continue to classify the carrying value of the liability component of the 2023 Notes as long-term debt, and the equity component of the 2023 Notes as permanent equity in our consolidated balance sheets as of December 31, 2019.

Conversion Rights at Our Option

DexCom may not redeem the 2023 Notes prior to December 1, 2021. On or after December 1, 2021 and prior to September 1, 2023, DexCom may redeem for cash all or part of the 2023 Notes, at its option, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which DexCom provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the 2023 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

2023 Note Hedge

In connection with the offering of the 2023 Notes, in November 2018 we entered into convertible note hedge transactions 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 we accounted for it as an equity instrument by recognizing $218.9 million in additional paid-in capital during 2018. The 2023 Note Hedge 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. An assumed exercise of the 2023 Note Hedge by us is considered anti-dilutive since the effect of the inclusion would always be anti-dilutive with respect to the calculation of diluted earnings per share.

F-28

2023 Warrants

In November 2018, we also sold warrants to the 2023 Counterparties to acquire up to 5.2 million shares of our common stock. 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. We received $183.8 million in cash proceeds from the sale of the 2023 Warrants, which we recorded in additional paid-in capital during 2018. The 2023 Warrants could have a dilutive effect on our earnings per share to the extent that the price of our common stock during a given measurement period exceeds the strike price of the 2023 Warrants. The strike price of the 2023 Warrants is initially $198.38 per share and is subject to certain adjustments under the terms of the warrant agreements. We use the treasury share method for assumed conversion of the 2023 Warrants when computing the weighted average common shares outstanding for diluted earnings per share.

Revolving Credit Agreement

Terms of the Revolving Credit Agreement

On December 19, 2018, we entered into an amended and restated revolving credit agreement (the Credit Agreement) which provides for available principal amount of $200.0 million which can be increased up to $500.0 million at our option subject to customary conditions and approval of our lenders. Borrowings under the Credit Agreement are available for general corporate purposes, including working capital and capital expenditures.

Information related to availability and outstanding borrowings on our Credit Agreement is as follows:

	December 31,
(In millions)	2019
Available principal amount	$	200.0
Letters of credit sub-facility	10.0
Outstanding borrowings	—
Outstanding letters of credit	4.4
Total available balance	195.6

Revolving loans under the Credit Agreement bear interest at our choice of one of two base rates plus a range of applicable margin rates that are based on our leverage ratio. The first base rate is the highest of (a) the publicly announced JPMorgan Chase prime rate, (b) the federal funds rate, or (c) the overnight bank funding rate, and the applicable margin rate ranges from 0.375% to 1.000%. The second base rate is a LIBOR-based rate, and the applicable margin rate ranges from 1.375% to 2.000%. We will also pay a commitment fee of between 0.2% and 0.3%, payable quarterly in arrears, on the average daily unused amount of the revolving facility based on our leverage ratio.

The Credit Agreement will mature on the earlier to occur of (i) December 19, 2023 or (ii) 91 days prior to the maturity date of the 2022 Notes or (iii) 91 days prior to the maturity date of the 2023 Notes if both (a) the aggregate outstanding principal amount of the 2022 Notes or the 2023 Notes, as applicable, is greater than EBITDA for the period of four consecutive fiscal quarters ending prior to such date and (b) unrestricted domestic cash on hand is less than the aggregate outstanding principal amount of the 2022 Notes or the 2023 Notes, as applicable, plus $100.0 million.

Our obligations under the Credit Agreement are guaranteed by our existing and future wholly-owned domestic subsidiaries, and are secured by a first-priority security interest in substantially all of the assets of DexCom and the guarantors, including all or a portion of the equity interests of our domestic subsidiaries and first-tier foreign subsidiaries but excluding real property and intellectual property (which is subject to a negative pledge). The Credit Agreement contains covenants that limit certain indebtedness, liens, investments, transactions with affiliates, dividends and other restricted payments, subordinated indebtedness and amendments to subordinated indebtedness documents, and sale and leaseback transactions of DexCom or any of its domestic subsidiaries. The Credit Agreement also requires us to maintain a maximum leverage ratio and a minimum fixed charge coverage ratio. We were in compliance with these covenants as of December 31, 2019.

F-29

6. Leases And Other Commitments

Leases

We lease office, manufacturing and warehouse space facilities under various domestic and international operating leases that expire at various times through August 2026. Certain of our leases have renewal options which allow us to extend the lease term typically between three and five years per option and some of our leases have multiple options to extend. We have one finance lease for our manufacturing facility in Mesa, Arizona under a lease that expires in March 2028 with options to renew this lease for four additional five-year terms. Our facility leases generally provide for periodic rent increases and many contain escalation clauses. Certain leases also require us to pay taxes, insurance, and maintenance.

The remaining lease terms of our leases range from less than one year to approximately thirteen years; and represent the non-cancellable periods of the leases, including extension options that we determined are reasonably certain to be exercised.

We adopted ASC 842 utilizing the modified retrospective transition method through a $2.1 million cumulative-effect adjustment to accumulated deficit at the beginning of the first quarter of 2019. We will continue to report financial information for fiscal years prior to 2019 under the previous lease accounting standards and as such prior comparative periods have not been recast. We elected the package of practical expedients permitted under the transition guidance in the new standard, which allowed us to carry forward the historical classification of leases that were in place as of January 1, 2019.

Under the previous lease accounting standards we were deemed the owner of our Mesa, Arizona building during the construction period. As a result of our adoption of ASC 842, we have de-recognized the estimated fair value of the building shell and the related lease liability as of December 31, 2018 and recorded the difference between the asset and liability as an adjustment to retained earnings at the beginning of the first quarter of 2019.

In addition, as a result of our adoption of ASC 842 we recorded operating lease right-of-use assets of $26.7 million, finance lease right-of-use assets of $15.3 million, operating lease liabilities of $40.4 million and finance lease liabilities of $15.9 million in our consolidated balance sheets at the beginning of the first quarter of 2019, with no material impact to our consolidated statement of operations.

Operating lease right-of-use assets and liabilities are presented separately in our consolidated balance sheets. Finance lease right-of-use assets are included in property and equipment and finance lease liabilities are included in accounts payable and accrued liabilities and in other long-term liabilities in our consolidated balance sheets.

As of December 31, 2019, the maturities of our operating and finance lease liabilities were as shown in the table below:

(In millions)	Operating Leases				Finance Leases
2020	$	17.4			$	1.3
2021	17.4				1.3
2022	14.6				1.4
2023	14.3				1.4
2024	12.5				1.5
Thereafter	23.9				13.9
Total future lease cost (1)	100.1				20.8
Less: Amount representing interest	(14.3		)		(5.8		)
Present value of future payments	85.8				15.0
Less: Short-term leases not recorded as a liability	0.2				—
Revised present value of future lease payments	86.0				15.0
Less: Current portion	(13.6		)		(0.6		)
Long-term portion	$	72.4			$	14.4

(1) Total future lease cost excludes $5.5 million of legally binding minimum lease payments for leases signed but not yet commenced.

F-30

The components of lease expense for the twelve months ended December 31, 2019 were as follows:

	Twelve Months Ended December 31,
(In millions)	2019
Finance lease cost:
Amortization of right-of-use assets	$	1.1
Interest on lease liabilities	0.8
Operating lease cost	12.2
Short-term lease cost (1)	3.5
Variable lease cost (2)	3.9
Total lease cost	$	21.5

(1) Short-term lease cost is primarily related to temporary office space associated with the transition of certain operations to the Philippines.

(2) Variable lease costs are primarily related to common area maintenance charges and property taxes.

Prior to January 1, 2019, we recorded operating lease rent expense under ASC 840 on a straight-line basis over the non-cancellable lease term. Rent expense for the twelve months ended December 31, 2018 and 2017 was $12.5 million and $11.1 million, respectively.

Other information related to leases was as shown in the table below. All figures include the leases recorded at the beginning of the first quarter of 2019 as a result of our adoption of ASC 842.

	Twelve Months Ended December 31,
(Dollars in millions)	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	14.3
Operating cash flows from finance leases	$	0.8
Financing cash flows from finance leases	$	0.5
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	80.6
Finance leases	$	15.5
Weighted average remaining lease term in years:
Operating leases	6.2
Finance leases	13.3
Weighted average discount rate:
Operating leases	5.0		%
Finance leases	5.0		%

Amortization of operating lease right-of-use asset included in cash flows from operating activities in the Consolidated Statements of Cash Flows was $9.1 million for the twelve months ended December 31, 2019.

Purchase Commitments

We are party to various purchase arrangements related to our manufacturing and research and development activities. As of December 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.

F-31

7. Contingencies

Litigation

On March 28, 2016, AgaMatrix, Inc., or AgaMatrix, filed a patent infringement lawsuit against us in the U.S. District Court for the District of Oregon, asserting that certain of our products infringe three patents held by AgaMatrix. (After filing suit, AgaMatrix reorganized its business and the Court granted AgaMatrix’s motion to substitute the newly created entity WaveForm Technologies, Inc., as the plaintiff following AgaMatrix’s transfer of the three asserted patents to WaveForm.) DexCom filed petitions for inter partes review with the Patent Trial and Appeal Board, or PTAB, of the U.S. Patent and Trademark Office, challenging each of the three asserted patents as being unpatentable in view of prior art. The PTAB issued a Final Written Decision for each of the first two patents on February 28, 2018, where the PTAB found the majority of asserted claims from the first patent unpatentable and the remaining claims under review not unpatentable. The PTAB found all claims under review from the second patent not unpatentable. On September 12, 2018, the PTAB found all of the asserted claims in the third patent unpatentable. In October 2018, we filed in the District Court a motion for summary judgment that all remaining asserted claims are invalid. The District Court granted that motion and, on August 23, 2019, entered judgment in our favor. On September 6, 2019, WaveForm appealed the judgment. The appeal is pending and no hearing date has been set.

We have also filed several lawsuits against AgaMatrix. We filed a patent infringement lawsuit against AgaMatrix in the United States District Court for the Central District of California, or C.D. Cal., in which a Final Judgment of non-infringement was entered by the C.D. Cal judge on February 23, 2018 and affirmed on appeal by the Federal Circuit on March 7, 2019. AgaMatrix was awarded attorneys’ fees for this lawsuit. As of December 31, 2019, we have accrued an immaterial amount for those fees. The fee decision is currently on appeal to the Federal Circuit. On September 15, 2017, we filed a patent infringement lawsuit against AgaMatrix in the United States District Court for the District of Delaware, asserting certain single-point blood glucose monitoring products of AgaMatrix infringe two patents held by us. In addition, on September 18, 2017, we filed a Complaint against AgaMatrix in the International Trade Commission, referred to as the ITC, requesting that the ITC institute an investigation and issue an order excluding certain products of AgaMatrix from importation into or sale in the United States based on AgaMatrix’s infringement of the same two patents asserted in the Delaware litigation. The investigation was terminated by the ITC on April 4, 2019 with a finding of non-infringement. The decision is currently on appeal.

Neither the outcome of these lawsuits nor the amount and range of potential loss associated with the lawsuits can be assessed at this time. Other than the attorneys’ fees described above, as of December 31, 2019 we have accrued no amounts for contingent losses associated with these suits.

We are subject to various claims, complaints and legal actions that arise from time to time in the normal course of business, including commercial insurance, product liability and employment related matters. In addition, from time to time we may bring claims or initiate lawsuits against various third parties with respect to matters arising out of the ordinary course of our business, including commercial and employment related matters. We do not expect that the resolution of these matters would, or will, have a material adverse effect or material impact on our financial position or results of operations.

8. Income Taxes

Income (loss) before income taxes subject to taxes in the following jurisdictions is as follows:

	Twelve Months Ended December 31,
(In millions)	2019				2018				2017
United States	$	119.1			$	(28.3	)		$	12.4
Outside of the United States	(14.9		)		(98.2		)		(61.0		)
Total	$	104.2			$	(126.5	)		$	(48.6	)

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Significant components of the provision for income taxes are as follows:

	Twelve Months Ended December 31, 2019
(In millions)	2019				2018				2017
Current:
Federal	$	—			$	—			$	—
State	1.0				2.7				0.1
Foreign	1.9				0.1				1.5
Total current income taxes	2.9				2.8				1.6
Deferred:
Federal	—				(1.7		)		—
State	—				(0.5		)		—
Foreign	0.2				—				—
Total deferred income taxes	0.2				(2.2		)		—
Total	$	3.1			$	0.6			$	1.6

At December 31, 2019, we had federal, state and foreign tax net operating loss carryforwards of approximately $438.8 million, $324.1 million, and $124.1 million, respectively. The federal and state tax loss carryforwards will begin to expire in 2027 and 2020, respectively, unless previously utilized. The foreign net operating losses carry forward indefinitely.

At December 31, 2019, we also had federal and state research and development tax credit carryforwards of approximately $54.4 million and $52.7 million, respectively. $0.1 million of the federal research and development tax credit will begin to expire in 2020, unless previously utilized. The state research and development tax credit will carryforward indefinitely until utilized.

Utilization of net operating losses and credit carryforwards is subject to an annual limitation due to ownership change limitations provided by Section 382 and 383 of the Internal Revenue Code of 1986, as amended, and similar state provisions. An ownership change limitation occurred as a result of the stock offering completed in February 2009. The limitation will likely result in approximately $2.1 million of U.S. income tax credits that will expire unused. The related deferred tax assets have been removed from the components of our deferred tax assets as summarized in the table below. We performed a Section 382 study on the remaining federal and state net operating losses and tax credit carryforwards and have determined that there is no annual limitation on them as of December 31, 2019.

Significant components of our deferred tax assets as of December 31, 2019 and 2018 are shown below. A valuation allowance of approximately $332.2 million has been established as of December 31, 2019 to offset the deferred tax assets, as realization of such assets is uncertain. We maintain a deferred tax liability related to indefinite-lived intangible assets that is not netted against the deferred tax assets. Reversal of the taxable temporary difference for these intangible assets cannot serve as a source of income for realization of the deferred tax assets because the deferred tax liability will not reverse until the intangible assets are sold or written down due to impairment.

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	December 31,
(In millions)	2019				2018
Deferred tax assets:
Net operating loss carryforwards	$	127.4			$	162.0
Capitalized research and development expenses	57.1				62.1
Tax credits	78.6				59.0
Share-based compensation	10.9				12.5
Fixed and intangible assets	14.0				16.0
Accrued liabilities and reserves	62.0				22.5
Convertible Debt	1.7				—
Total gross deferred tax assets	351.7				334.1
Less: valuation allowance	(332.2		)		(330.1		)
Total net deferred tax assets	19.5				4.0
Deferred tax liabilities:
Fixed assets and acquired intangibles assets	(19.6		)		(3.8		)
Convertible debt discount	—				(0.1		)
Total deferred tax liabilities	(19.6		)		(3.9		)
Net deferred tax assets (liabilities)	$	(0.1	)		$	0.1

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 of December 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.

As of December 31, 2019, deferred tax assets for which any subsequently recognized tax benefits will be credited to additional paid-in capital rather than to income tax benefit totaled $55.7 million.

The reconciliation between our effective tax rate on income (loss) from continuing operations and the statutory rate is as follows:

	Twelve Months Ended December 31,
(In millions)	2019				2018				2017
Income taxes at statutory rates	$	21.9			$	(26.6	)		$	(17.0	)
State income tax, net of federal benefit	(2.3		)		(5.5		)		(0.7		)
Permanent items	1.0				1.3				0.7
Research and development credits	(10.8		)		(11.7		)		(13.3		)
Foreign rate differential	5.6				3.7				5.4
Stock and officers compensation	(14.7		)		(5.1		)		(10.4		)
Rate change	—				—				(0.1		)
Unrecognized tax benefits	—				—				(15.4		)
Impact of adoption of ASU 2016-16	—				(13.3		)		—
Impact of Tax Cuts and Jobs Act of 2017	—				(0.4		)		105.7
Other	(1.0		)		1.3				(2.2		)
Change in valuation allowance	3.4				56.9				(51.1		)
Income taxes at effective rates	$	3.1			$	0.6			$	1.6

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The following table summarizes the activity related to our gross unrecognized tax benefits:

(In millions)
Balance at January 1, 2017	$	39.8
Decreases related to prior year tax positions	(14.9		)
Increases related to current year tax positions	3.3
Decrease related to Tax Cuts and Jobs Act of 2017	(5.4		)
Balance at December 31, 2017	22.8
Decreases related to prior year tax positions	(0.3		)
Increases related to current year tax positions	3.4
Balance at December 31, 2018	25.9
Decreases related to prior year tax positions	(0.9		)
Increases related to current year tax positions	4.5
Balance at December 31, 2019	$	29.5

Due to the valuation allowance recorded against our deferred tax assets, none of the total unrecognized tax benefits as of December 31, 2019 would reduce our annual effective tax rate if recognized. Interest and penalties are classified as a component of income tax expense and were not material for any period presented. Due to net operating losses incurred, tax years from 1999 and forward for federal and state purposes and from 2016 and forward for foreign jurisdictions remain open to examination by the major taxing jurisdictions to which we are subject. The IRS commenced an audit of our 2015 and 2016 federal income tax returns in February 2018. The audit closed in June 2019 with no significant changes to our unrecognized tax benefits.

We operate under a tax holiday in the Philippines, which is effective through December 31, 2023, and may be extended for another three years if certain additional requirements are satisfied. The tax holiday is conditional upon remaining in good standing, committing no violation of PEZA Rules and Regulations, pertinent circulars and directives. The impact of this tax holiday decreased foreign taxes by $0.2 million in 2019.

9. Employee Benefit Plans and Stockholders’ Equity

401(k) Plan

We have a defined contribution 401(k) retirement plan (the 401(k) Plan) covering substantially all employees in the United States that meet certain age requirements. Employees who participate in the 401(k) Plan may contribute up to 75% of their compensation each year, subject to Internal Revenue Service limitations and the terms and conditions of the plan. Under the terms of the 401(k) Plan, we may elect to match a discretionary percentage of contributions. In April 2018, we began matching 50% of contributions up to 4% of annual compensation. Total matching contributions were $4.8 million and $2.6 million for the twelve months ended December 31, 2019, and 2018, respectively.

Employee Stock Purchase Plan, or ESPP

Under the 2015 Employee Stock Purchase Plan (the 2015 ESPP) eligible employees can purchase shares of our common stock at semi-annual intervals through periodic payroll deductions during defined Offering Periods. A total of up to 1.5 million shares may be issued under the 2015 ESPP and it expires upon the earliest to occur of (a) termination of the 2015 ESPP by our board of directors, (b) issuance of all of the shares of common stock reserved for issuance under the plan, or (c) May 28, 2025.

Payroll deductions may not exceed 10% of the participant’s cash compensation subject to certain limitations, and the purchase price will not be less than 85% of the lower of the fair market value of the common stock at either the beginning of the applicable Offering Period or the Purchase Date.

We issued 150,408 and 189,904 and 122,857 shares of common stock under the 2015 ESPP during the twelve months ended December 31, 2019, 2018 and 2017, respectively.

Equity Incentive Plans

In May 2015, we adopted the Amended and Restated 2015 Equity Incentive Plan (the 2015 Plan), which replaced our 2005 Equity Incentive Plan and provides for the grant of incentive and nonstatutory stock options, restricted stock, stock bonuses, stock appreciation rights, and restricted stock units to employees, directors or consultants of the Company. On May 30, 2019 our stockholders approved an increase to the maximum number of shares that may be issued under the 2015 Plan. We are permitted to issue up to 9.8 million shares under the 2015 Plan.

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Treasury Stock

Repurchased shares of our common stock are held as treasury shares until they are reissued or retired. When we reissue treasury stock, if the proceeds from the sale are more than the average price we paid to acquire the shares we record an increase in additional paid-in capital. Conversely, if the proceeds from the sale are less than the average price we paid to acquire the shares, we record a decrease in additional paid-in capital to the extent of increases previously recorded for similar transactions and a decrease in retained earnings for any remaining amount.

We issue new shares of common stock to satisfy option exercises and RSU vesting under our employee equity incentive plans. We have not yet determined the ultimate disposition of the 0.8 million shares that we repurchased in 2018, and consequently we continue to hold them as treasury shares rather than retiring them. No shares of our common stock were repurchased during 2019.

Stock Options

We have not granted any stock options since 2010. As of December 31, 2019 we have 28,385 options outstanding, all of which are in-the-money. The options have a weighted- average remaining contractual term of 0.27 years, a weighted- average exercise price of $10.11 per share, and an aggregate intrinsic value of $5.9 million. The aggregate intrinsic value of options outstanding and exercisable is calculated as the difference between the exercise price of the underlying options and the $218.74 per share market price of our common stock at December 31, 2019.

The total intrinsic value of stock options exercised as of the date of exercise was as follows:

	Twelve Months Ended December 31,
(In millions)	2019				2018				2017
Intrinsic value of options exercised	$	7.4			$	30.0			$	21.6

Restricted Stock Units (RSUs)

RSU awards typically vest annually over three or four years and vesting is subject to continued services. A summary of our RSU activity for the twelve months ended December 31, 2019, 2018 and 2017 is as follows:

(In millions except weighted average grant date fair value)	Shares			Weighted Average Grant Date Fair Value				Aggregate Intrinsic Value
Nonvested at December 31, 2016	3.7			$	62.51
Granted	1.3			75.78
Vested	(1.9	)		58.92
Forfeited	(0.4	)		67.97
Nonvested at December 31, 2017	2.7			70.68				$	154.5
Granted	1.7			66.07
Vested	(1.4	)		68.44
Forfeited	(0.3	)		68.56
Nonvested at December 31, 2018	2.7			69.19				319.0
Granted	0.7			144.37
Vested	(1.4	)		69.45
Forfeited	(0.2	)		83.45
Nonvested at December 31, 2019	1.8			$	96.63			$	392.0

The total vest-date fair value of RSUs vested was $207.2 million, $120.9 million and $144.5 million for the twelve months ended December 31, 2019, 2018 and 2017, respectively.

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Common Stock Reserved for Future Issuance

Shares of common stock reserved for future issuance were as follows as of the dated indicated:

	December 31,
(In millions)	2019			2018
Stock options and awards under our plans:
Stock options granted and outstanding	—			0.1
Unvested restricted stock units	1.8			2.7
Reserved for future grant	4.9			3.2
Employee Stock Purchase Plan	0.9			1.1
Total	7.6			7.1

Share-based Compensation

The following table summarizes share-based compensation expense related to restricted stock units and employee stock purchases under the ESPP for the twelve months ended December 31, 2019, 2018 and 2017:

	Twelve Months Ended December 31,
(In millions)	2019				2018				2017
Cost of sales	$	9.0			$	9.2			$	9.6
Research and development	33.5				33.0				37.5
Selling, general and administrative	60.2				59.7				59.1
Total share-based compensation expense included in net loss	$	102.7			$	101.9			$	106.2

We estimate the fair value of ESPP purchase rights on the date of grant using the Black-Scholes option pricing model and the assumptions below for the specified reporting periods.

	Twelve Months Ended December 31,
	2019			2018			2017
Risk free interest rate	1.72 - 2.55			1.55 – 2.25			0.75 – 1.12
Dividend yield	—	%		—	%		—	%
Expected volatility of DexCom common stock	0.40 - 0.51			0.50 – 0.67			0.33 – 0.56
Expected life (in years)	1			1			1

At December 31, 2019, unrecognized estimated compensation costs related to unvested restricted stock units and ESPP shares totaled $119.3 million and are expected to be recognized through 2022.

10. Business Segment and Geographic Information

Reportable Segments

An operating segment is identified as a component of a business that has discrete financial information available and for which the chief operating decision maker must decide the level of resource allocation. In addition, the guidance for segment reporting indicates certain quantitative materiality thresholds. None of the components of our business meet the definition of an operating segment.

We currently consider our operations to be, and manage our business globally within, one reportable segment, which is consistent with how our President and Chief Executive Officer, who is our chief operating decision maker, reviews our business, makes investment and resource allocation decisions, and assesses operating performance.

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Disaggregation of Revenue

DexCom is domiciled in the United States. We sell our CGM systems through a direct sales force in the United States, Canada and some countries in Europe, and through 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. We disaggregate our revenue from contracts by geography and by major sales channel as we believe they best depict how the nature, amount and timing of revenues and cash flows are affected by economic factors.

Revenues by geographic region

During the twelve months ended December 31, 2019, 2018 and 2017, no individual country outside the United States generated revenue that represented more than 10% of our total revenue. The following table sets forth revenues by our two primary geographical markets, the United States and outside of the United States, based on the geographic location to which we deliver the product:

	Twelve Months Ended December 31,
	2019							2018							2017
(Dollars in millions)	Amount				% of Total			Amount				% of Total			Amount				% of Total
Revenues:
United States	$	1,161.5			79	%		$	818.4			79	%		$	596.2			83	%
Outside of the United States	314.5				21	%		213.2				21	%		122.3				17	%
Total	$	1,476.0			100	%		$	1,031.6			100	%		$	718.5			100	%

The majority of our long-lived assets are located in the United States.

Revenues by customer sales channel

The following table sets forth revenues by major sales channel for the twelve months ended December 31, 2019, 2018 and 2017:

	Twelve Months Ended December 31,
	2019							2018							2017
(Dollars in millions)	Amount				% of Total			Amount				% of Total			Amount				% of Total
Revenues:
Distributor	$	1,011.6			69	%		$	652.9			63	%		$	538.0			75	%
Direct	464.4				31	%		378.7				37	%		180.5				25	%
Total	$	1,476.0			100	%		$	1,031.6			100	%		$	718.5			100	%

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11. Quarterly Financial Information (Unaudited)

The following is a summary of our quarterly results of operations for the years ended December 31, 2019 and 2018:

		For the Three Months Ended
(In millions except per share data)		December 31				September 30				June 30				March 31
Year ended December 31, 2019
Revenues		$	462.8			$	396.3			$	336.4			$	280.5
Gross profit		309.3				246.9				206.5				168.8
Total operating expenses		207.8				190.9				207.3				183.2
Net income (loss)		92.7				45.8				(10.5		)		(26.9		)
Basic net income (loss) per share (1)		$	1.01			$	0.50			$	(0.12	)		$	(0.30	)
Diluted net income (loss) per share (1)		$	1.00			$	0.50			$	(0.12	)		$	(0.30	)
Year ended December 31, 2018
Revenues		$	338.0			$	266.7			$	242.5			$	184.4
Gross profit		222.8				168.6				153.6				118.9
Total operating expenses		387.4				154.7				158.5				149.6
Net income (loss)		(179.7		)		46.6				30.2				(24.2		)
Basic net income (loss) per share (1)		$	(2.03	)		$	0.53			$	0.34			$	(0.28	)
Diluted net income (loss) per share (1)		$	(2.03	)		$	0.52			$	0.34			$	(0.28	)

(1) Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.

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DexCom, Inc.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
(In millions)

Allowance for doubtful accounts
Balance at December 31, 2016	$	12.4
Provision for doubtful accounts	5.3
Write-offs and adjustments	(7.0		)
Recoveries	0.7
Balance at December 31, 2017	$	11.4

Allowance for doubtful accounts
Balance at December 31, 2017	$	11.4
Provision for doubtful accounts	3.6
Write-offs and adjustments	(8.3		)
Recoveries	0.5
Balance at December 31, 2018	$	7.2

Allowance for doubtful accounts
Balance at December 31, 2018	$	7.2
Provision for doubtful accounts	0.9
Write-offs and adjustments	(3.0		)
Recoveries	0.7
Balance at December 31, 2019	$	5.8

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