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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to        
Commission File Number:  000-51222
dxcm-20220630_g1.jpg
DEXCOM, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0857544
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
6340 Sequence Drive, San Diego, CA 92121
(Address of principal executive offices)
(858200-0200
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 Par Value Per ShareDXCMNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of July 21, 2022, there were 392,581,776 shares of the registrant’s common stock outstanding.

DexCom, Inc.
Table of Contents
Page
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DexCom, Inc.
Consolidated Balance Sheets
(Unaudited)
June 30, 2022December 31, 2021
(In millions, except par value data)
(As Adjusted)*
Assets
Current assets:
Cash and cash equivalents$735.4 $1,052.6 
Short-term marketable securities2,019.4 1,678.6 
Accounts receivable, net560.8 514.3 
Inventory339.5 357.3 
Prepaid and other current assets153.6 81.6 
Total current assets3,808.7 3,684.4 
Property and equipment, net942.9 801.8 
Operating lease right-of-use assets77.9 88.1 
Goodwill25.6 26.5 
Intangibles, net28.0 31.5 
Deferred tax assets309.5 290.5 
Other assets24.8 10.5 
Total assets$5,217.4 $4,933.3 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities$688.3 $573.0 
Accrued payroll and related expenses94.8 125.2 
Short-term operating lease liabilities21.2 20.5 
Deferred revenue2.7 2.1 
Total current liabilities807.0 720.8 
Long-term senior convertible notes1,967.3 1,981.8 
Long-term operating lease liabilities87.7 98.6 
Other long-term liabilities99.5 90.0 
Total liabilities2,961.5 2,891.2 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 5.0 million shares authorized; no shares issued and outstanding at June 30, 2022 and December 31, 2021
  
Common stock, $0.001 par value, 800.0 million shares authorized; 392.9 million and 392.6 million shares issued and outstanding, respectively, at June 30, 2022; and 391.4 million and 388.0 million shares issued and outstanding, respectively, at December 31, 2021
0.4 0.4 
Additional paid-in capital2,028.9 2,108.7 
Accumulated other comprehensive income (loss)
(23.0)0.5 
Retained earnings286.9 138.7 
Treasury stock, at cost; 0.3 million shares at June 30, 2022 and 3.4 million shares at December 31, 2021
(37.3)(206.2)
Total stockholders’ equity2,255.9 2,042.1 
Total liabilities and stockholders’ equity$5,217.4 $4,933.3 
* We adjusted our 2021 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted on a full retrospective basis. All periods presented have also been adjusted to reflect the four-for-one stock split. Refer to Note 1, “Organization and Significant Accounting Policies,” for further information.
See accompanying notes
3

DexCom, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,

2022202120222021
(In millions, except per share data)
(As Adjusted)*
(As Adjusted)*
Revenue$696.2 $595.1 $1,325.0 $1,100.1 
Cost of sales246.7 178.0 477.4 339.1 
Gross profit449.5 417.1 847.6 761.0 
Operating expenses:
Research and development121.7 129.1 257.6 238.5 
Amortization of intangible assets1.9 0.5 3.9 1.0 
Selling, general and administrative248.9 186.5 467.8 374.6 
Total operating expenses372.5 316.1 729.3 614.1 
Operating income77.0 101.0 118.3 146.9 
Interest expense(4.7)(4.8)(9.3)(9.5)
Income from equity investments  0.2  
Interest and other income, net3.0 0.9 2.2 1.0 
Income before income taxes75.3 97.1 111.4 138.4 
Income tax expense (benefit)24.4 18.7 (36.8)3.5 
Net income$50.9 $78.4 $148.2 $134.9 
Basic net income per share$0.13 $0.20 $0.38 $0.35 
Shares used to compute basic net income per share392.5 386.9 390.7 386.1 
Diluted net income per share$0.12 $0.19 $0.36 $0.33 
Shares used to compute diluted net income per share421.4 427.1 429.1 426.8 
* We adjusted our 2021 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted on a full retrospective basis. All periods presented have also been adjusted to reflect the four-for-one stock split. Refer to Note 1, “Organization and Significant Accounting Policies,” for further information.

See accompanying notes
4

DexCom, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,

2022202120222021
(In millions)
(As Adjusted)*
(As Adjusted)*
Net income$50.9 $78.4 $148.2 $134.9 
Other comprehensive income (loss), net of tax:
Translation adjustments and other(13.9)0.2 (15.3)(0.1)
Unrealized loss on marketable debt securities(3.0)(0.3)(8.2)(0.3)
Total other comprehensive loss, net of tax(16.9)(0.1)(23.5)(0.4)
Comprehensive income$34.0 $78.3 $124.7 $134.5 
* We adjusted our 2021 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted on a full retrospective basis. Refer to Note 1, “Organization and Significant Accounting Policies,” for further information.

See accompanying notes
5

DexCom, Inc.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
Three Months Ended June 30, 2022
(In millions)Common StockAdditional
Paid-In
Capital
Accumulated Other Comprehensive LossRetained EarningsTreasury StockTotal
Stockholders’
Equity
SharesAmount
Balance at March 31, 2022392.5 $0.4 $1,996.3 $(6.1)$236.0 $(37.3)$2,189.3 
Issuance of common stock under equity incentive plans0.1 — — — — — — 
Share-based compensation expense— — 32.6 — — — 32.6 
Net income— — — — 50.9 — 50.9 
Other comprehensive loss, net of tax— — — (16.9)— — (16.9)
Balance at June 30, 2022392.6 $0.4 $2,028.9 $(23.0)$286.9 $(37.3)$2,255.9 

Three Months Ended June 30, 2021
(In millions)Common StockAdditional
Paid-In
Capital
Accumulated Other Comprehensive IncomeRetained Earnings (Accumulated Deficit)Treasury StockTotal
Stockholders’
Equity
SharesAmount
Balance at March 31, 2021 (As Adjusted)*386.8 $0.4 $1,763.2 $2.9 $(21.7)$(100.0)$1,644.8 
Issuance of common stock under equity incentive plans0.2 — — — — — — 
Share-based compensation expense— — 31.6 — — — 31.6 
Net income— — — — 78.4 — 78.4 
Other comprehensive loss, net of tax— — — (0.1)— — (0.1)
Balance at June 30, 2021 (As Adjusted)*387.0 $0.4 $1,794.8 $2.8 $56.7 $(100.0)$1,754.7 
* We adjusted our 2021 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted on a full retrospective basis. All periods presented have also been adjusted to reflect the four-for-one stock split. Refer to Note 1, “Organization and Significant Accounting Policies,” for further information.
See accompanying notes
6

DexCom, Inc.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
Six Months Ended June 30, 2022
(In millions)Common StockAdditional
Paid-In
Capital
Accumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotal
Stockholders’
Equity
SharesAmount
Balance at December 31, 2021 (As Adjusted)*388.0 $0.4 $2,108.7 $0.5 $138.7 $(206.2)$2,042.1 
Issuance of common stock under equity incentive plans1.5 — — — — — — 
Issuance of common stock for Employee Stock Purchase Plan0.1 — 10.1 — — — 10.1 
Issuance of common stock in connection with achievement of regulatory approval milestone, net of issuance costs2.9 — (189.3)— — 189.2 (0.1)
Conversions of 2023 Notes0.4 — 4.2 — — 13.2 17.4 
Benefit of note hedge upon conversions of 2023 Notes(0.3)— 33.5 — — (33.5) 
Share-based compensation expense— — 61.7 — — — 61.7 
Net income— — — — 148.2 — 148.2 
Other comprehensive loss, net of tax— — — (23.5)— — (23.5)
Balance at June 30, 2022392.6 $0.4 $2,028.9 $(23.0)$286.9 $(37.3)$2,255.9 

Six Months Ended June 30, 2021
(In millions)Common StockAdditional
Paid-In
Capital
Accumulated Other Comprehensive IncomeRetained Earnings (Accumulated Deficit)Treasury StockTotal
Stockholders’
Equity
SharesAmount
Balance at December 31, 2020 (As Adjusted)*384.4 $0.4 $1,726.5 $3.2 $(78.2)$(100.0)$1,551.9 
Issuance of common stock under equity incentive plans2.5 — — — — — — 
Issuance of common stock for Employee Stock Purchase Plan0.1 — 8.7 — — — 8.7 
Share-based compensation expense— — 59.6 — — — 59.6 
Net income— — — — 134.9 — 134.9 
Other comprehensive loss, net of tax— — — (0.4)— — (0.4)
Balance at June 30, 2021 (As Adjusted)*387.0 $0.4 $1,794.8 $2.8 $56.7 $(100.0)$1,754.7 
* We adjusted our 2021 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted on a full retrospective basis. All periods presented have been adjusted to reflect the four-for-one stock split. Refer to Note 1, “Organization and Significant Accounting Policies,” for further information.

See accompanying notes
7

DexCom, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
20222021
(In millions)
(As Adjusted)*
Operating activities
Net income$148.2 $134.9 
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization80.4 44.4 
Share-based compensation61.7 59.6 
Non-cash interest expense3.2 4.2 
Realized (gain) loss on equity investment(0.2) 
Deferred income taxes(19.8)0.1 
Other non-cash income and expenses16.0 16.0 
Changes in operating assets and liabilities:
Accounts receivable, net(47.1)(54.9)
Inventory16.7 (84.5)
Prepaid and other assets(82.5)(27.1)
Operating lease right-of-use assets and liabilities, net(3.4)1.1 
Accounts payable and accrued liabilities96.0 8.8 
Accrued payroll and related expenses(31.1)(16.2)
Deferred revenue and other liabilities5.7 3.0 
Net cash provided by operating activities243.8 89.4 
Investing activities
Purchases of marketable securities(1,143.7)(1,171.9)
Proceeds from sale and maturity of marketable securities785.6 1,628.3 
Purchases of property and equipment(193.1)(200.9)
Acquisitions, net of cash acquired(3.2) 
Other investing activities(2.3)(4.5)
Net cash provided by (used in) investing activities(556.7)251.0 
Financing activities
Net proceeds from issuance of common stock10.1 8.7 
Other financing activities(9.1)(8.3)
Net cash provided by financing activities1.0 0.4 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(5.3)0.1 
Increase (decrease) in cash, cash equivalents and restricted cash(317.2)340.9 
Cash, cash equivalents and restricted cash, beginning of period1,053.6 818.2 
Cash, cash equivalents and restricted cash, end of period$736.4 $1,159.1 
Reconciliation of cash, cash equivalents and restricted cash, end of period:
Cash and cash equivalents$735.4 $1,158.8 
Restricted cash1.0 0.3 
Total cash, cash equivalents and restricted cash$736.4 $1,159.1 
8

Six Months Ended
June 30,
20222021
(As Adjusted)*
Supplemental disclosure of non-cash investing and financing transactions:
Shares issued for conversions of 2023 Notes$35.9 $ 
Shares received under note hedge upon conversions of 2023 Notes$(33.5)$ 
Acquisition of property and equipment included in accounts payable and accrued liabilities$59.8 $43.2 
Right-of-use assets obtained in exchange for operating lease liabilities$(0.8)$10.4 
Right-of-use assets obtained in exchange for finance lease liabilities$15.7 $4.6 
* We adjusted our 2021 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted on a full retrospective basis. Refer to Note 1, “Organization and Significant Accounting Policies,” for further information.

See accompanying notes
9

DexCom, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization and Significant Accounting Policies
Organization and Business
DexCom, Inc. is a medical device company that develops and markets continuous glucose monitoring, or CGM, systems for the management of diabetes by patients, caregivers, and clinicians around the world. 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
We have prepared the accompanying unaudited consolidated financial statements in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission, or SEC, Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included.
Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. We expect that revenues we generate from the sales of our products will fluctuate from quarter to quarter. We experience seasonality that is typical in our industry, with lower sales in the first quarter of each year compared to the fourth quarter of the previous year.
These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2021 included in the Annual Report on Form 10-K that we filed with the SEC on February 14, 2022.
These 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. Amortization expense related to intangible assets has been presented separately from selling, general and administrative expenses in our consolidated statement of operations.
We determine the functional currencies of our international subsidiaries by reviewing the environment where each subsidiary primarily generates and expends cash. For international subsidiaries whose functional currencies are the local currencies, we translate the financial statements 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 and in accumulated other comprehensive income (loss) in the equity section of our consolidated balance sheets. We record gains and losses resulting from transactions with customers and vendors that are denominated in currencies other than the functional currency and from certain intercompany transactions in interest and other income, net in our consolidated statements of operations.
Stock Split
On June 10, 2022, the Company effected a four-for-one forward stock split of its common stock to shareholders of record as of May 19, 2022. The par value of the common stock remains $0.001 per share. All share and per share information has been retroactively adjusted to reflect the stock split for all periods presented.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the amounts reported in our consolidated financial statements and the disclosures made in the accompanying notes. Areas requiring significant estimates include rebates, transaction price, the collectibility of accounts receivable, excess or obsolete inventories and the valuation of inventory, accruals for litigation contingencies, and the amount of our worldwide tax provision and the realizability of deferred tax assets. Despite our intention to establish accurate estimates and use reasonable assumptions, actual results may differ from our estimates.
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Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are generally recorded at the invoiced amount, net of prompt pay discounts, 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 based on historical trends, the financial condition of our customers, and external market factors. We generally do not require collateral from our customers. We maintain an allowance for doubtful accounts for potential credit losses. Uncollectible accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a customer account is uncollectible. Generally, receivable balances that are more than one year past due are deemed uncollectible.
Concentration of Credit Risk
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 a few major 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.
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 capitalize inventory produced in preparation for commercial launches when it becomes probable that the product will receive regulatory approval and that the related costs will be recoverable through the commercialization of the product. A number of factors are considered, including the status of the regulatory application approval process, management’s judgment of probable future commercial use, and net realizable value.
We record adjustments to inventory for potential excess or obsolete inventory, as well as inventory that does not pass quality control testing, 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 disposed of or sold.
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.
Historically, our inventory reserves have been adequate to cover our actual losses. However, if actual product life cycles, product quality or market conditions differ from our assumptions, additional inventory adjustments that would increase cost of goods sold could be required.
Revenue Recognition
We generate our revenue from the sale of disposable sensors and our reusable transmitter and receiver, collectively referred to as Reusable Hardware. We also refer to Reusable Hardware and disposable sensors in this section as Components. We generally recognize revenue when control is transferred to our customers in an amount that reflects the net consideration to which we expect to be entitled.
In determining how revenue should be recognized, a five-step process is used, which includes identifying performance obligations in the contract, determining whether the performance obligations are separate, allocating the transaction price to each separate performance obligation, estimating the amount of variable consideration to include in the transaction price and determining the timing of revenue recognition for separate performance obligations.
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 Dexcom Share® are estimated based on an expected cost plus a margin approach.
11

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
We include an estimate of variable consideration in the calculation of the transaction price at the time of sale, when control of the Components transfers to the customer. Variable consideration includes, but is not limited to: rebates, chargebacks, consideration payable to customers such as specialty distributor and wholesaler fees, product returns provision, prompt payment discounts, and various other promotional or incentive arrangements. We classify our provisions related to variable consideration as a reduction of accounts receivable when we are not required to make a payment or as a liability when we are required to make a payment.
Estimates
We review the adequacy of our estimates for transaction price adjustments and variable consideration at each reporting date. If the actual amounts of consideration that we were to receive differ from our estimates, we would adjust our estimates and that would affect reported revenue in the period that such variances become known. If any of these judgments were to change, it could cause a material increase or decrease in the amount of revenue we report in a particular period.
Rebates
We are subject to rebates on pricing programs with managed care organizations, such as pharmacy benefit managers, governmental and third-party commercial payors, primarily in the U.S. We estimate provisions for rebates based on contractual arrangements, estimates of products sold subject to rebate, known events or trends and channel inventory data.
Chargebacks
We participate in chargeback programs, primarily with government entities in the U.S., under which pricing on products below negotiated list prices is provided to participating entities and equal to the difference between their acquisition cost and the lower negotiated price. We estimate provisions for chargebacks primarily based on historical experience on a product and program basis, current contract prices under the chargeback programs and channel inventory data.
Consideration Payable to the Customer
We pay administrative and service fees to certain of our distributors based on a fixed percentage of the product price. These fees are not in exchange for a distinct good or service and therefore are recognized as a reduction of the transaction price. We accrue for these fees based on actual net sales and contractual fee rates negotiated with the customer.
Product Returns
In accordance with the terms of their distribution agreements, most distributors do not have rights of return. 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. We estimate our product returns provision principally based on historical experience by applying a historical return rate to the amounts of revenue estimated to be subject to returns. Additionally, we consider other specific factors such as estimated shelf life of inventory in the distribution channel and changes to customer terms.
Prompt Payment Discounts
We provide customers with prompt payment discounts which may result in adjustments to the price that is invoiced for the product transferred, in the case that payments are made within a defined period. We estimate prompt payment discount accruals based on actual net sales and contractual discount rates.
Various Other Promotional or Incentive Arrangements
Other promotional or incentive arrangements are periodically offered to customers, including but not limited to co-payment assistance we provide to patients with commercial insurance, promotional programs related to the launch of products or other targeted promotions. We record a provision for the incentive earned based on the number of estimated claims and our estimate of the cost per claim related to product sales that we have recognized as revenue.
12

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 sales transactions, 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 Reusable Hardware component.
Our sales of Components include an assurance-type warranty.
Contract Balances
Contract balances represent amounts presented in our 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 June 30, 2022 included unbilled accounts receivable of $9.3 million. 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.
Our performance obligations are generally satisfied within twelve months of the initial contract date. The deferred revenue balances related to performance obligations that will be satisfied after twelve months was $21.3 million as of June 30, 2022 and $16.1 million as of December 31, 2021. These balances are included in other long-term liabilities in our consolidated balance sheets. Revenue recognized in the period from performance obligations satisfied in previous periods was not material for the periods presented.
Deferred Cost of Sales
Deferred cost of sales are associated with transactions 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 statements of operations.
Senior Convertible Notes
In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for convertible debt instruments, amends the guidance on derivative scope exceptions for contracts in an entity’s own equity, and modifies the guidance on diluted earnings per share calculations.
We previously followed in Accounting Standard Codification, or ASC, 470-20, which required us to separate each of our convertible debt instruments at issuance into two units of accounting, a liability component, based on our nonconvertible debt borrowing rate at issuance, and an equity component. Under ASU 2020-06, we now account for each of our convertible debt instruments as a single unit of accounting, a liability, because we concluded that there were no material conversion features that require bifurcation as a derivative under ASC 815-15 and our convertible debt instruments were not issued at a substantial premium. Since we adopted ASU 2020-06 using the full retrospective approach, we were required to apply the guidance to all convertible debt instruments we had outstanding as of January 1, 2020.
Upon adoption of ASU 2020-06 as of January 1, 2020, we recognized $67.8 million cumulative-effect adjustment to increase retained earnings for the decrease in interest expense and $242.3 million decrease in additional paid in capital for the elimination of the equity component. We have updated these financial statements to reflect the cumulative adjustment for the periods presented. We have labeled our prior period financial statements and related notes “As Adjusted” to indicate the change required under the new accounting guidance.
13

Below is a summary of the changes in our consolidated balance sheets we originally reported as of December 31, 2020 and 2021 under the ASC 470-20 legacy guidance compared to our adjusted balance sheets under the new ASU 2020-06 guidance we adopted and reflective of our four-for-one forward stock split:
Consolidated Balance SheetAs of December 31, 2020
(In millions)As Previously Reported ASU 2020-06 AdjustmentStock Split AdjustmentAs Adjusted
Deferred tax assets$216.4 $91.3 $ $307.7 
Long-term senior convertible notes1,667.2 365.9  2,033.1 
Common stock0.1  0.3 0.4 
Additional paid-in-capital2,125.3 (398.5)(0.3)1,726.5 
Accumulated deficit$(202.1)$123.9 $ $(78.2)
Consolidated Balance SheetAs of December 31, 2021
(In millions)As Previously Reported ASU 2020-06 AdjustmentStock Split AdjustmentAs Adjusted
Deferred tax assets$220.8 $69.7 $ $290.5 
Long-term senior convertible notes1,702.7 279.1  1,981.8 
Common stock0.1  0.3 0.4 
Additional paid-in-capital2,504.5 (395.5)(0.3)2,108.7 
Retained earnings (Accumulated deficit)$(47.4)$186.1 $ $138.7 
Below is a summary of the changes in our consolidated statements of operations for the three and six months ended June 30, 2021 we originally reported at June 30, 2021 under the ASC 470-20 legacy guidance compared to our adjusted balance sheets under the new ASU 2020-06 guidance we adopted and reflective of our four-for-one forward stock split:
Consolidated Statement of OperationsThree Months Ended June 30, 2021
(In millions, except per share data)As Previously Reported ASU 2020-06 AdjustmentAs Adjusted
Interest expense$(25.2)$20.4 $(4.8)
Income before income taxes76.7 20.4 97.1 
Income tax expense13.8 4.9 18.7 
Net income62.9 15.5 78.4 
Basic net income per share0.16 0.04 0.20 
Diluted net income per share (1)
$0.16 $0.03 $0.19 
Shares used to compute diluted net income per share398.4 28.7 427.1 
Consolidated Statement of OperationsSix Months Ended June 30, 2021
(In millions, except per share data)As Previously Reported ASU 2020-06 AdjustmentAs Adjusted
Interest expense$(50.0)$40.5 $(9.5)
Income (Loss) before taxes97.9 40.5 138.4 
Income tax expense (benefit)(5.3)8.8 3.5 
Net income103.2 31.7 134.9 
Basic net income per share0.27 0.08 0.35 
Diluted net income per share (2)
$0.26 $0.07 $0.33 
Shares used to compute diluted net income per share398.1 28.7 426.8 
(1) Dilutive net income used for diluted net income per share under ASU 2020-06 includes $2.9 million add back of interest expense, net of tax, attributable to assumed conversion of senior convertible notes.
(2) Dilutive net income used for diluted net income per share under ASU 2020-06 includes $5.8 million add back of interest expense, net of tax, attributable to assumed conversion of senior convertible notes.
14

Below is a summary of our consolidated balance sheet as of June 30, 2022 and consolidated statements of operations for the three and six months ended June 30, 2022 under the ASC 470-20 legacy guidance compared to the new ASU 2020-06 guidance we adopted.
Consolidated Balance SheetAs of June 30, 2022
(In millions)As computed under ASC 470-20ASU 2020-06 AdjustmentAs reported under ASU 2020-06
Prepaid and other current assets$169.3 $(15.7)$153.6 
Deferred tax assets235.7 73.8 309.5 
Long-term senior convertible notes1,730.7 236.6 1,967.3 
Additional paid-in-capital2,423.3 (394.4)2,028.9 
Retained earnings$71.0 $215.9 $286.9 
Consolidated Statement of OperationsThree Months Ended June 30, 2022
(In millions, except per share data)As computed under ASC 470-20ASU 2020-06 AdjustmentAs reported under ASU 2020-06
Interest expense$(25.4)$20.7 $(4.7)
Income before income taxes54.6 20.7 75.3 
Income tax expense18.8 5.6 24.4 
Net income35.8 15.1 50.9 
Basic net income per share0.09 0.04 0.13 
Diluted net income per share (1)
$0.09 $0.03 $0.12 
Shares used to compute diluted net income per share402.5 18.9 421.4 
Consolidated Statement of OperationsSix Months Ended June 30, 2022
(In millions, except per share data)As computed under ASC 470-20ASU 2020-06 AdjustmentAs reported under ASU 2020-06
Loss on extinguishment of debt$(0.4)$0.4 $ 
Interest expense(50.5)41.2 (9.3)
Income before income taxes69.8 41.6 111.4 
Income tax expense (benefit)(48.6)11.8 (36.8)
Net income118.4 29.8 148.2 
Basic net income per share (2)
0.30 0.08 0.38 
Diluted net income per share$0.29 $0.07 $0.36 
Shares used to compute diluted net income per share402.1 27.0 429.1 
(1) Dilutive net income used for diluted net income per share under ASU 2020-06 includes $1.6 million add back of interest expense, net of tax, attributable to assumed conversion of senior convertible notes.
(2) Dilutive net income used for diluted net income per share under ASU 2020-06 includes $5.5 million add back of interest expense, net of tax, attributable to assumed conversion of senior convertible notes.
Collaboration Agreements
We may enter into agreements with collaboration partners for the development and commercialization of our products. These arrangements may include payments contingent on the occurrence of certain events such as development, regulatory or sales-based milestones.
When we account for these agreements, we consider the unique nature, terms and facts and circumstances of each transaction. Below are some example activities and how we account for them:
Payments to collaboration partners through issuance of common stock as consideration in an asset acquisition are considered share-based payment to non-employees in exchange for goods within the scope of ASC Topic 718, “Compensation - Stock Compensation” The amount and the timing of the cost recognition of such milestones in our
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financial statements is driven by the accounting for the specific type of equity instrument under ASC 718 that aligns with the terms of the agreement, including any performance conditions.
The value associated with in-process research and development (“IPR&D”) in an asset acquisition incurred prior to regulatory approval is expensed as it does not have an alternative future use and is recorded as research and development expense.
The value associated with IPR&D in an asset acquisition incurred at or after regulatory approval is usually capitalized as an intangible asset and amortized over the periods in which the related products are expected to contribute to future cash flows.
Net Income Per Share
Basic net income per share attributable to common stockholders is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income 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 restricted stock units, or RSUs, performance stock units, or PSUs, warrants, and our senior convertible notes. Potentially dilutive common shares issuable upon vesting of RSUs, PSUs, and exercise of warrants are determined using the average share price for each period under the treasury stock method. Potentially dilutive common shares issuable upon conversion of our senior convertible notes are determined using the if-converted method. In periods of net losses, we exclude all potentially dilutive common shares from the computation of the diluted net loss per share for those periods as the effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted net income per share for the periods shown.

Three Months Ended
June 30,
Six Months Ended
June 30,
(In millions)2022202120222021
As AdjustedAs Adjusted
Net income$50.9 $78.4 $148.2 $134.9 
Add back interest expense, net of tax attributable to assumed conversion of senior convertible notes1.6 2.9 5.5 5.8 
Net income - diluted$52.5 $81.3 $153.7 $140.7 
Net income per common share
Basic$0.13 $0.20 $0.38 $0.35 
Diluted$0.12 $0.19 $0.36 $0.33 
Basic weighted average shares outstanding392.5 386.9 390.7 386.1 
Dilutive potential common stock outstanding: