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Organization and Summary of Significant Accounting Policies (Policies) | 9 Months Ended
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Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Basis of Presentation | Organization and Business DexCom, Inc. is a medical device company focused on the design, development and commercialization of continuous glucose monitoring, or CGM, systems 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 We have prepared the accompanying unaudited consolidated financial statements (the “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 nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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 financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2018 included in the Annual Report on Form 10-K that we filed with the SEC on February 21, 2019. These financial statements include the accounts of DexCom, Inc. and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Principles of Consolidation | Basis of Presentation and Principles of Consolidation We have prepared the accompanying unaudited consolidated financial statements (the “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 nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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 financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2018 included in the Annual Report on Form 10-K that we filed with the SEC on February 21, 2019. These financial statements include the accounts of DexCom, Inc. and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Reclassification | We have reclassified certain amounts previously reported in our financial statements to conform to the current presentation.
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in our financial statements and the disclosures made in the accompanying notes. Despite our intention to establish accurate estimates and use reasonable assumptions, actual results may differ from our estimates.
Concentration of Credit Risk and Significant Customers | 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 investment 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.
Revenue Recognition | Revenue Recognition We generate our revenue from the sale of our durable systems and disposable sensors (the Components). Our durable systems include a reusable transmitter and receiver. Disposable sensors are sold separately. We also provide free-of-charge software and mobile applications for use with our durable systems and disposable sensors. The initial durable system price is generally not dependent upon the subsequent purchase of any amount of disposable sensors. We sell our durable systems and disposable sensors through two main sales channels: 1) directly to customers who use our products or organizations (the Direct Channel) and 2) to distribution partners who resell our products (the Distributor Channel). In the Direct Channel, we sell the Components to customers and we receive payment directly from customers, organizations and third-party payors. Third-party payors primarily include commercial insurance companies and federal and state agencies (under Medicare and Medicaid programs). Policy elections and ASC Topic 606 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 the Components to the customer, each of which are distinct, to be separate performance obligations. The Components are individually priced and can be purchased separately or bundled in a contract. We also provide free-of-charge software, mobile applications and updates for our DexCom Share® remote monitoring system. The standalone selling prices of our mobile applications and updates are 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 contracted rates less any estimates of claim denials and historical reimbursement experience, which would include current and future expectations regarding reimbursement contracts, guidelines and payor mix, and less estimated variable consideration adjustments. Variable consideration Rebates. We estimate reductions to our revenues for rebates paid to payors, healthcare providers and distributors. Rebates are based on contractual arrangements or statutory requirements, which may vary by product, payor and individual payor plans. Our estimates are based on products sold, historical payor mix and, as available, known market events or trends and channel inventory data. We also take into consideration, as available, new information regarding changes in programs’ regulations and guidelines that would impact the amount of the actual rebates and/or our expectations regarding future payor mix for these programs. Product Returns. We generally provide a “30-day money back guarantee” program whereby first-time end-user customers may return the durable system. 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. Our returns have historically been immaterial. Revenue recognition We recognize revenue when control is transferred to our customers. The timing of revenue recognition is based on the satisfaction of performance obligations. Substantially all of the performance obligations associated with the Components are satisfied at a point in time, which typically occurs at shipment. 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 durable systems. Our sales of the durable systems include an assurance-type warranty which is accounted for based on the cost accrual method recognized as expense when the products are sold and is not considered a separate performance obligation. See Note 9, “Business Segment and Geographic Information,” for revenues disaggregated by geographic region and by sales channel. Contract balances The timing of revenue recognition, billing and cash collections results in the recording of trade receivables and deferred revenue in our consolidated balance sheets. We recognize a receivable in the period in which our right to the consideration is unconditional. We generally do not have contracts or performance obligations with a term of more than one year. Payment terms vary by contract type and type of customer and generally range from 30 to 90 days. Accounts receivable as of September 30, 2019 and December 31, 2018 included unbilled accounts receivable of $5.2 million and $5.1 million, respectively. Unbilled accounts receivable consist 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. Most of our deferred revenue as of September 30, 2019 is associated with certain of our free-of-charge software and mobile applications and will be recognized over the next twelve months. The table below shows revenue that we recognized as a result of changes in the contract liability balances in the periods shown.
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(In millions) | 2019 |  | 2018 |  | 2019 |  | 2018
Revenue recognized in the period from: |  |  |  |  |  |  |
Amounts included in contract liabilities at the beginning of the period | $ | 2.9 |  |  | $ | 5.0 |  |  | $ | 2.6 |  |  | $ | 1.9 |
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. These costs are recognized in cost of sales when the associated revenue is recognized. 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.
Leases | Leases We adopted Accounting Standards Codification Topic 842 (ASC 842) utilizing the modified retrospective transition method at the beginning of the first quarter of 2019. Under ASC 842, w e determine if an arrangement is a lease at inception. We record operating lease right-of-use assets and liabilities based on the present value of the lease payments over the lease term. In determining the present value of the lease payments, we use our incremental borrowing rate at the lease commencement date. We define the initial lease term to include the construction build-out period but to exclude lease extension periods when we are not reasonably certain to exercise our extension option. We record lease expense on a straight-line basis over the expected lease term. Lease costs which are variable and dependent on a rate, an index, or on usage of the asset are expensed in the period they are incurred. We have facilities lease agreements with lease and non-lease components, such as common area maintenance. We generally account for the lease and non-lease components of these agreements as a single lease component. We account for short-term lease expense on a straight-line basis over the lease term.
Net Income Per Share | 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. Common share equivalents that we calculate using the treasury stock method include outstanding stock options and unvested RSUs that are settleable in shares of common stock and potential common shares from convertible securities that we intend to settle using a combination of shares of our common stock and cash. Common share equivalents that we calculate using the if-converted method include potential common shares from convertible securities that we intend to settle using only shares of our common stock.
Recent Accounting Guidance | 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 2, “Leases,” 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 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. W e 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 are currently evaluating the impact that this guidance will have on our 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 are currently evaluating the impact that this guidance will have on our 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 are currently evaluating the impact that this guidance will have on our financial statements.

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