What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-07-30 · 192 added, 152 removed, 268 unchanged (56% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis together with our financial statements and related notes in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (Quarterly Report).

This Quarterly Report contains forward-looking statements within the meaning of the federal securities laws, which statements are subject to considerable risks and uncertainties.

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In June 2018, the t:slim X2 was the first insulin pump designated as compatible with iCGM devices;

in February 2019 the t:slim X2 was the first insulin pump to receive ACE pump designation, and in December 2019 our Control-IQ technology for the t:slim X2 was cleared as the first iAGC for users age 14 and older.

In June 2020, we received an expanded indication for our Control-IQ technology for users age six and older.

In the four-year period ended June 30, 2020 , we shipped approximately 169,000 insulin pumps, which is representative of our estimated global installed customer base, assuming the typical four-year reimbursement cycle.

in February 2019 the t:slim X2 was the first insulin pump to receive ACE pump designation, and in December 2019 our Control-IQ technology for the t:slim X2 was cleared as the first iAGC.

In the four-year period ended September 30, 2020, we shipped approximately 188,000 insulin pumps, which is representative of our estimated global installed customer base, assuming the typical four-year reimbursement cycle.

Approximately 152,000 of these pumps were shipped to customers in the United States and approximately 36,000 were shipped to international markets.

Today, our t:slim X2 hardware platform represents 100% of our new pump shipments and now nearly all of our in-warranty customers benefit from having the X2 platform.

Today, our t:slim X2 hardware platform represents 100% of our new pump shipments and nearly all of our in-warranty customers benefit from having the X2 platform.

The simple-to-use t:slim X2 is the smallest durable insulin pump available, and the only commercial insulin pump that allows users to update their pumps’ software quickly and easily from a personal computer using our revolutionary Tandem Device Updater tool.

This unique offering positions us to bring future innovations, including our next generation AID algorithms, to our in-warranty t:slim X2 customers faster than the industry has been able to in the past and independent of the typical four-year insurance pump reimbursement cycle.

This unique offering has allowed us to bring future innovations, including our next generation AID algorithms, to our in-warranty t:slim X2 customers faster than the industry was able to in the past and independent of the typical four-year insurance pump reimbursement cycle.

We have offered in-warranty t:slim customers in the United States four different software updates for no-cost since the Tandem Device Updater was approved in July 2016, including our two AID algorithms, Basal-IQ technology and Control-IQ technology.

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It is the first and only system cleared to deliver automatic correction boluses in addition to adjusting insulin to help prevent high and low blood sugar.

Outside the United States we began selling efforts with t:slim X2 with Dexcom G5 CGM integration in the third quarter of 2018, offering no-cost software updates for Basal-IQ technology in the third quarter of 2019, and initiated our scaled launch of Control-IQ technology updates in select geographies in July 2020, which we plan to continue throughout the second half of 2020, subject to required regulatory and reimbursement approvals.

Outside the United States we began selling efforts with t:slim X2 with Dexcom G5 CGM integration in the third quarter of 2018, and began offering Basal-IQ technology in the third quarter of 2019.

In July 2020, we initiated our scaled launch of Control-IQ technology in select geographies, which we plan to continue subject to required regulatory and reimbursement approvals.

Our insulin pump products are generally considered durable medical equipment and have an expected lifespan of at least four years.

In addition to insulin pumps, we sell disposable products that are used together with our pumps and are replaced every few days, including cartridges for storing and delivering insulin, and infusion sets that connect the insulin pump to a user’s body.

We continue to deliver complementary offerings in support of our digital health strategy, beyond t:connect and the Tandem Device Updater.

In support of our digital health strategy, we continue to develop and launch complementary offerings beyond t:connect and the Tandem Device Updater.

In the first quarter of 2020, we began a limited launch in the United States of our first-generation t:connect mobile application, followed by general availability in July 2020.

This mobile app was designed to wirelessly upload pump data to our t:connect diabetes management application, receive notification of pump alerts and alarms, and provide a discrete, secondary display of glucose and insulin data.

This mobile app wirelessly uploads pump data to our t:connect diabetes management application, receives notification of pump alerts and alarms, and provides a discrete, secondary display of glucose and insulin data.

The availability of this mobile app is intended to reduce patient burden and increase healthcare provider office efficiency by reducing the manual and more time-consuming steps historically required for data extraction.

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We intend to support the Sugarmate app in addition to our t:connect mobile app to provide a wide variety of features intended to benefit a broad community of people with diabetes.

For the six months ended June 30, 2020 and 2019 , our consolidated sales were $207.2 million and $159.3 million , respectively.

For the six months ended June 30, 2020 and 2019 , our net loss was $42.0 million and $24.5 million , respectively.

Worldwide pump sales accounted for 60% and 71% of our total sales, respectively, for the six months ended June 30, 2020 and 2019 , while pump-related supplies and accessories accounted for the remainder in each year.

Our accumulated deficit as of June 30, 2020 and December 31, 2019 was $666.8 million and $624.8 million , respectively.

These amounts included $265.2 million and $216.6 million of accumulated non-cash stock-based compensation charges and non-cash charges from the change in fair value of common stock warrants as of June 30, 2020 and December 31, 2019 , respectively.

For the nine months ended September 30, 2020 and 2019, our consolidated sales were $330.8 million and $253.9 million, respectively.

For the nine months ended September 30, 2020 and 2019, our net loss was $51.4 million and $27.4 million, respectively.

Worldwide pump sales accounted for 62% and 69% of our total sales, respectively, for the nine months ended September 30, 2020 and 2019, while pump-related supplies and accessories accounted for the remainder in each year.

Our accumulated deficit as of September 30, 2020 and December 31, 2019 was $676.2 million and $624.8 million, respectively.

These amounts included $281.6 million and $216.6 million of accumulated non-cash stock-based compensation charges and non-cash charges from the change in fair value of common stock warrants as of September 30, 2020 and December 31, 2019, respectively.

In the United States, we have rapidly increased sales since the commercial launch of our first product by expanding our sales, clinical and marketing organization, by developing, commercializing and marketing multiple differentiated products that utilize our proprietary technology platform and consumer-focused approach, and by providing strong customer support.

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We believe that by demonstrating our product benefits and the shortcomings of existing insulin therapies, more people will choose our insulin pumps for their therapy needs, allowing us to further penetrate and expand the market worldwide.

In addition, we believe publications, such as the results from the study using Control-IQ technology that was published in the New England Journal of Medicine in October 2019, and post-market real-world data will be valuable in demonstrating the clinical outcome benefits derived from our system to healthcare providers and payors.

In addition, we believe publications, such as the results from studies using Control-IQ technology that were published in the New England Journal of Medicine in October 2019 and August 2020, and post-market real-world data will be valuable in demonstrating the clinical outcome benefits derived from our system to healthcare providers and payors.

We also believe we are positioned well to address consumers’ needs and preferences with our current products and products under development and by offering customers access to our future innovations through the Tandem Device Updater, as they are approved by the local regulating bodies.

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COVID-19 Global Pandemic Impact and Considerations

We are deemed an essential healthcare business under applicable governmental orders based on the critical nature of the products we offer and the community we serve.

We experienced a modest impact from the COVID-19 global pandemic during the first quarter of 2020, which became more pronounced in the second quarter.

We originally anticipated that our sales outside the United States may experience a greater proportional impact due to differences in the sales process in domestic versus international markets, but the impact was relatively consistent worldwide.

We anticipate that our sales and operating results will continue to be adversely impacted for the duration of the pandemic.

Additionally, certain programs originally planned to begin in the second quarter were delayed, such as human factors studies associated with our product development efforts.

We recently commenced some of these studies in a limited fashion.

The full extent of the impact of the COVID-19 global pandemic on our future business and operations is difficult to estimate and will depend on a number of factors including the scope and duration of the COVID-19 global pandemic.

We are deemed an essential healthcare business under applicable governmental orders based on the critical nature of the products we offer and the communities we serve.

We experienced a modest impact from the COVID-19 global pandemic during the first quarter of 2020, which became more pronounced in the second and third quarters.

We originally anticipated that our sales outside the United States would experience a greater proportional impact due to differences in the sales process in domestic versus international markets.

Initially, the impact to our business was relatively consistent worldwide but we have since seen varying degrees of impact in international markets based on local conditions.

The impact from COVID-19 on our sales outside the United States during the fourth quarter of 2020 may be even more difficult to estimate due to the recent announcements of additional restrictions and lock-downs in multiple European countries.

We anticipate that our sales and operating results will continue to be adversely impacted and subject to unpredictable variability for the duration of the pandemic.

For example, certain programs originally planned to begin in the second quarter of 2020 were delayed until the second half of the year, such as human factors studies associated with our product development efforts.

Programs originally planned to be begin or to be completed in the second half of 2020 may also be delayed until future periods.

In addition, regulatory timelines may be difficult to predict as the FDA has stated that its review process may take longer than normal due to the impact of the COVID-19 global pandemic.

We have taken steps to prioritize the health and safety of our employees and customers during the COVID-19 global pandemic, while working to maintain a continuous supply of products, training and customer support.

To that end, we have increased the frequency of our communications to employees, suppliers, customers, and healthcare providers.

Starting in March 2020, we restricted non-essential employee travel, banned visitors from all of our facilities, and transitioned those employees able to perform their job function outside of our facilities to a remote work environment.

Since March 2020, we have restricted non-essential employee travel, banned visitors from all of our facilities, and transitioned those employees able to perform their job function outside of our facilities to a remote work environment.

For our field-based sales and clinical employees, we initially discontinued all in-person activities and began utilizing technology to remotely engage healthcare providers and customers.

We continue to work closely with our healthcare providers and customers, remaining flexible in our method of interaction.

For our employees in manufacturing and warehousing positions involved in production and fulfillment operations, we implemented preventative measures to comply with social distancing requirements and have taken measures to help ensure safety, including requiring temperature checks for our employees before each shift.

To help ensure the safety and health of our employees in manufacturing and warehousing positions involved in production and fulfillment operations, we have implemented preventative measures to comply with social distancing requirements and require temperature checks of our employees before each shift.

In response to developments surrounding the COVID-19 global pandemic, we initiated discussions with our key suppliers in early 2020 regarding their abilities to fulfill existing orders, and we have continued to regularly assess their capacity.

At this time, we believe many of our suppliers are deemed essential businesses under applicable governmental orders, and we have not experienced and do not anticipate disruption in our ability to manufacture insulin pumps and cartridges due to component procurement limitations.

Our finished goods and raw material inventory for insulin pumps, as well as available manufacturing capacity, meet or exceed our target levels and position us well to respond to unforeseen disruptions in the near term.

In the first quarter of 2020, we observed customers purchasing cartridges and infusion sets at a higher rate than anticipated.

We continue to focus on building up our inventory for finished cartridges and infusion sets to targeted levels.

Near the end of the first quarter of 2020, our third-party cartridge manufacturer completed validation and commenced commercial-scale manufacturing to supplement our existing cartridge manufacturing capacity, which we believe will assist us in meeting product demand and allow us to build up inventory levels in line with our targets.

In addition, our primary infusion set manufacturer continues to work through inventory constraints and we have asked some customers to accept substitutions of similar products to prevent delays in order fulfillment.

We are carefully managing our pump supplies inventory while we work to overcome these temporary challenges.

Commercially, we have been communicating with our customers and healthcare providers through social media, direct email outreach and our website, in addition to the regular communications sent by our sales and clinical employees.

We are also leveraging our technology platforms, such as our t:connect diabetes management application, to support healthcare providers as many of them are utilizing telehealth capabilities in their practices at increased levels.

By the end of the first quarter of 2020, we expanded our remote new pump training offering to all customers who purchased a t:slim X2 insulin pump, and more recently have begun offering in-person trainings on a limited basis.

At this time, we believe many of our suppliers are deemed essential businesses under applicable governmental orders, and we have not experienced, and do not anticipate experiencing, disruption in our ability to manufacture insulin pumps and cartridges due to component procurement limitations.

Our finished goods and raw material inventory for insulin pumps, as well as available manufacturing capacity, position us well to respond to unforeseen disruptions in the near term.

During the first six months of 2020, we experienced certain challenges managing our inventory, primarily due to the impacts of the COVID-19 global pandemic.

For example, in the first quarter of 2020, we observed customers purchasing cartridges and infusion sets at a higher rate than anticipated.

In addition, during the second quarter of 2020, our primary infusion set manufacturer experienced certain inventory constraints which resulted in our having to ask some customers to accept substitutions of similar products to prevent delays in order fulfillment.

Our infusion set inventory has returned to more normal levels and we continue to focus on building and maintaining adequate levels of inventory for finished cartridges.

Our third-party cartridge manufacturer completed validation and commenced commercial-scale manufacturing near the end of the first quarter to supplement our existing cartridge manufacturing capacity, which we believe will assist us in meeting product demand in future periods.

Commercially, we have been communicating with our customers and healthcare providers through social media, direct email outreach and our website, in addition to regular communications sent by our sales and clinical employees.

We are also leveraging our technology platforms, such as our t:connect diabetes management application, to support healthcare providers, as many of them are increasingly utilizing telehealth capabilities in their practices.

By the end of the first quarter of 2020, we expanded our remote new pump training offering to all customers who purchased a t:slim X2 insulin pump, and in the third quarter, we resumed offering in-person trainings under specific conditions.

We are prudently managing our use of cash and completed a convertible debt financing in May 2020 to further strengthen our balance sheet.

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We anticipate that t:sport will be our first insulin pump to support full pump-control from our mobile application, subject to FDA review and approval.

A separate controller may be offered in addition to or in advance of full mobile control availability.

A separate controller may be offered in addition to full mobile control availability.

• AID Enhancements – We intend to further enhance our automated insulin delivery system and are considering alternative strategies to deliver new features and benefits to our customers on a regular basis.

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We consider the number of insulin pump units shipped per quarter domestically and internationally to be an important metric for managing our business.

In the four-year period ended June 30, 2020 , we shipped approximately 169,000 insulin pumps, of which approximately 137,000 were shipped to customers in the United States and approximately 32,000 were shipped to international markets.

In the four-year period ended September 30, 2020, we shipped approximately 188,000 insulin pumps, of which approximately 152,000 were shipped to customers in the United States and approximately 36,000 were shipped to international markets.

Pump shipments to customers in the United States by fiscal quarter were as follows:

Pump Units Shipped for Each of the Three Months Ended in Respective Years - U.S.

March 31 June 30 September 30 December 31 Total

2012 — 9 204 844 1,057

2013 852 1,363 1,851 2,406 6,472

2014 1,723 2,235 2,935 3,929 10,822

2015 2,487 3,331 3,431 6,234 15,483

2016 4,042 4,582 3,896 4,418 16,938

2017 2,816 3,427 3,868 6,950 17,061

2018 4,444 5,447 7,379 12,935 30,205

2019 9,669 12,799 13,814 17,453 53,735

2020 13,158 14,735 18,380 N/A 46,273

Pump shipments to international customers by fiscal quarter were as follows:

Pump Units Shipped for Each of the Three Months Ended in Respective Years - International

March 31 June 30 September 30 December 31 Total

2018 N/A N/A 1,055 3,233 4,288

2019 5,063 8,459 4,025 2,149 19,696

2020 4,220 3,952 3,641 N/A 11,813

Trends Impacting Financial Condition and Operating Results

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Recent Developments

Expanded Pediatric Indication of the t:slim X2 Insulin Pump with Control-IQ Technology

In June 2020, we announced U.S.

FDA clearance of an expanded pediatric indication for the t:slim X2 insulin pump with Control-IQ technology to children age six and older.

The product was previously approved for ages 14 and older.

Control-IQ technology is an advanced hybrid closed-loop feature designed to increase time in range (70-180 mg/dL).

Acquisition of Sugarmate

In June 2020, we acquired Sugarmate, a popular mobile app for people with diabetes who use insulin.

The Sugarmate app (www.sugarmate.io) is designed to help people with diabetes visualize diabetes therapy data in innovative ways.

It allows users to log glucose data and health and nutrition information, and can provide notifications and alerts to users, their family, and their caregivers.

Collaboration with Abbott

In June 2020, we announced that we finalized an agreement to develop and commercialize integrated diabetes solutions that combine Abbott Laboratories world-leading continuous glucose monitoring technology with our innovative insulin delivery systems to provide more options for people to manage their diabetes.

UnitedHealthcare

UnitedHealthcare issued a network bulletin that includes Tandem Diabetes Care, Inc.

as a network provider, effective July 1, 2020.

Patent Cross-License Agreement with Medtronic

In July 2020, we announced that we entered into a non-exclusive patent cross-license agreement with Medtronic plc for certain technologies in the field of diabetes.

With certain exclusions, this agreement applies to the companies’ existing products, as well as new products for at least the next five years, and also includes a provision not to clone one another’s products.

NEJM Publication of Pediatric Study Demonstrating Increased Time-In-Range Using the t:slim X2 Insulin Pump with Control-IQ Technology

In August 2020, we announced publication by the New England Journal of Medicine (NEJM) of results from the Protocol 5 study (DCLP5) of the International Diabetes Closed Loop (iDCL) trial.

Results demonstrated increased time spent in range (70-180 mg/dL) in children ages six to 13 years old using the t:slim X2 insulin pump with Control-IQ advanced hybrid closed-loop technology.

Components of Results of Operations

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While the opportunity to transition former Animas customers positively impacted our 2019 quarterly sales trends worldwide, we do not anticipate that this trend will continue to have a significant impact.

In the first half of 2020, the COVID-19 global pandemic had a major impact on businesses around the world.

Although we experienced only a modest impact on our first quarter financial results, the impact in the second quarter was more pronounced.

During 2020, the COVID-19 global pandemic had a major impact on businesses around the world.

While we experienced only a modest negative impact from the pandemic during the first quarter of 2020, the negative impact during the second and third quarters of 2020 was more pronounced, and we anticipate that our sales and operating results will continue to be adversely impacted in future periods.

Starting in March 2020 we ceased nearly all in-person sales, marketing and training activities and adopted numerous other changes to our daily business operations.

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Our sales outside the United States have been negatively impacted due to similar disruptions.

The full extent of the impact of the COVID-19 global pandemic on our business and operations will depend on a number of factors, including the depth and duration of the COVID-19 global pandemic.

Initially, the impact was relatively consistent worldwide but we have since seen varying degrees of impact in international markets based on local conditions.

The full extent of the impact of the COVID-19 global pandemic on our business and operations will depend on a number of factors, including the scope and duration of the pandemic, varying government responses to the pandemic and potential delays to product development timelines.

Separate from any impacts of the COVID-19 global pandemic, our quarterly sales have historically fluctuated, and may continue to fluctuate substantially in the periods surrounding anticipated and actual regulatory approvals and commercial launches of new products by us or our competitors.

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Infusion sets and pump accessories are manufactured by third-party suppliers.

Cost of sales includes raw materials, labor costs, manufacturing overhead expenses, product training costs, royalties, freight, reserves for expected warranty costs, scrap and charges for excess and obsolete inventories.

Cost of sales includes raw materials, labor costs, manufacturing overhead expenses, product training costs, royalties, freight, reserves for expected warranty costs, costs of supporting our digital health platforms, scrap and charges for excess and obsolete inventories.

Manufacturing overhead expenses include expenses relating to quality assurance, manufacturing engineering, material procurement, inventory control, facilities, equipment, information technology and operations supervision and management.

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In addition, as demand for our products increases, we may continue to make additional investments in manufacturing capacity or increase our reliance on third parties for manufacturing-related services, either of which could have a negative impact on our gross margins.

Specifically, in 2020, we intend to invest in additional manufacturing equipment to meet anticipated long-term demand for our cartridges, which may initially place downward pressure on the gross margin percentage associated with our pump-related supplies.

Other factors impacting our overall gross margin percentage may include the changing percentage of products sold to distributors versus directly to individual customers, varying levels of reimbursement among third-party payors in domestic and international markets, the timing and success of new regulatory approvals and product launches, the impact of the valuation and amortization of employee stock option and RSU awards on non-cash stock-based compensation expense allocated to cost of sales, changes in warranty estimates, training costs, licensing and royalty costs, cost associated with excess and obsolete inventories, and changes in our manufacturing processes, capacity, costs or output.

Specifically, in 2020 we began investing in additional manufacturing equipment that will double our existing capacity to meet anticipated long-term demand for our cartridges, which may initially place downward pressure on the gross margin percentage associated with our pump-related supplies.

Other factors impacting our overall gross margin percentage may include the changing percentage of products sold to distributors versus directly to individual customers, varying levels of reimbursement among third-party payors in domestic and international markets, the timing and success of new regulatory approvals and product launches, the impact of the valuation and amortization of employee stock awards on non-cash stock-based compensation expense allocated to cost of sales, changes in warranty estimates, training costs, licensing and royalty costs, increased costs to support our digital health platforms, cost associated with excess and obsolete inventories, and changes in our manufacturing processes, capacity, costs or output.

Selling, General and Administrative

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field sales and clinical organization during the third quarter of 2019 to support an expected increase in demand for our products.

We had approximately 90 sales territories in the United States as of June 30, 2020 .

We had approximately 90 sales territories in the United States as of September 30, 2020.

Our existing territories are generally maintained by sales representatives and field clinical specialists, and supported by managed care liaisons, additional sales management and other customer support personnel, which have also been rapidly expanding to support our growing installed base.

Our operations in Canada are comprised of approximately 10 sales territories.

Our operations in Canada are comprised of approximately ten sales territories.

Other significant SG&A expenses include those incurred for product demonstration samples, commercialization activities associated with new product launches, travel, trade shows, outside legal fees, independent auditor fees, outside consultant fees, insurance premiums, facilities costs and information technology costs.

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We will continue to evaluate, and may further increase, the number of our field sales and clinical personnel in order to optimize the coverage of our existing territories.

Additionally, we realized a notable increase in non-cash stock-based compensation expense allocated to SG&A beginning in the third quarter of 2018, and again in the second quarter of 2019, due to the valuation of certain employee stock option grants and the impact on the valuation of the significant increase in our stock price over the previous year.

We expect higher non-cash stock-based compensation expense, which was sustained through the first half of 2020, will begin to decline in future quarters.

Additionally, we realized a notable increase in non-cash stock-based compensation expense allocated to SG&A beginning in the third quarter of 2018, and again in the second quarter of 2019, due to the valuation of certain 2018 and 2019 employee stock option grants and the impact on the valuation of the significant increase in our stock price over the previous year.

We recognized higher non-cash stock-based compensation expense through the first half of 2020, and experienced a reduction in the third quarter of 2020 as certain 2018 employee stock option grants are now fully amortized.

Our SG&A expenses may be affected by our response to the COVID-19 global pandemic, including reduced spending in areas such as non-essential employee travel, which may be offset by increased spending to support measures designed to prioritize the retention, health, safety and welfare of our employees.

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Other income and expense primarily consists of changes in the fair value of certain warrants issued in connection with our public offering of common stock in October 2017, interest expense which includes the amortization of debt discount and debt issuance costs related to our Convertible Senior Notes issued in May 2020 (our Notes), and interest earned on our cash equivalents and short-term investments.

We expect interest expense to increase in the third quarter of 2020 as our Notes will be outstanding for the entire period, and other income and expense to fluctuate from period to period primarily due to the revaluation of the outstanding Series A warrants, which expire in the fourth quarter of 2022.

We expect interest expense in future quarters to be comparable with that of the third quarter of 2020 as our Notes were outstanding for the entire period, and total other income and expense, net to fluctuate from period to period primarily due to the revaluation of the outstanding Series A warrants, which expire in the fourth quarter of 2022.

Income Tax Expense (Benefit)

Because we are in a net loss position with respect to federal income taxes, income tax expense is expected to primarily consist of state and foreign income tax expense as a result of current taxable income in those jurisdictions.

Income tax expense (benefit) may fluctuate in future quarters due to adjustments related to non-recurring transactions and changes in certain tax assessments.

Results of Operations

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except percentages) 2020 2019 2020 2019

Domestic $ 107,517 $ 78,842 $ 276,340 $ 203,867

International 16,086 15,815 54,425 50,040

Total sales 123,603 94,657 330,765 253,907

Cost of sales 58,290 43,974 160,801 119,967

Gross profit 65,313 50,683 169,964 133,940

Gross margin 53 % 54 % 51 % 53 %

Operating expenses:

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Other income (expense), net:

Interest and other income

Interest and other expense

Interest income and other, net 143 854 1,235 2,381

Interest expense (4,855) — (8,030) —

Change in fair value of common stock warrants (3,648) 2,321 (19,906) (10,849)

Total other expense, net

Total other income (expense), net (8,360) 3,175 (26,701) (8,468)

Loss before income taxes (9,369) (2,829) (53,320) (27,333)

Income tax benefit

Comparison of the Three Months Ended June 30, 2020 and 2019

For the three months ended June 30, 2020 , sales were $109.2 million , which included $20.0 million of international sales.

Income tax expense (benefit) 39 72 (1,938) 72

Net loss $ (9,408) $ (2,901) $ (51,382) $ (27,405)

Comparison of the Three Months Ended September 30, 2020 and 2019

For the three months ended September 30, 2020, sales were $123.6 million, which included $16.1 million of international sales.

Sales were $94.7 million for the same period in 2019, which included $15.8 million of international sales.

The increase in worldwide sales of $16.0 million in the second quarter of 2020 compared to the second quarter of 2019 was primarily driven by an increase in domestic sales of $18.9 million on higher pump shipments, offset by a decrease in international sales of $2.9 million associated with non-recurring market dynamics in the prior year.

The increase in worldwide sales of $28.9 million in the third quarter of 2020 compared to the third quarter of 2019 was primarily driven by a 23% increase in worldwide pump shipments to 22,021 in the third quarter of 2020, compared to 17,839 in the third quarter of 2019, and a 43% increase in pump-related supply sales.

Sales of pump-related supplies increased primarily due to a 46% increase in our estimated installed base of customers.

Domestic sales by product were as follows (in thousands):

Three Months Ended

September 30,

Pump $ 69,464 $ 52,914

Infusion sets 26,133 17,646

Cartridges 11,767 8,149

Other 153 133

Total Domestic Sales $ 107,517 $ 78,842

Domestic pump sales were $56.4 million for the second quarter of 2020, compared to $48.8 million in the second quarter of 2019, as pump shipments increased 15% compared to the same period in the prior year due to continued strong demand for our products following the January 2020 domestic launch of our t:slim X2 insulin pump with Control-IQ technology.

Domestic pump shipments were 14,735 in the second quarter of 2020 compared to 12,799 in the second quarter of 2019.

Domestic pump sales were $69.5 million for the third quarter of 2020, compared to $52.9 million in the third quarter of 2019, as pump shipments increased 31% compared to the same period in the prior year due to continued strong demand for our products following the January 2020 domestic launch of our t:slim X2 insulin pump with Control-IQ technology.

Domestic pump shipments were 18,380 in the third quarter of 2020 compared to 13,814 in the third quarter of 2019.

Sales of pump-related supplies increased primarily due to a 42% increase in our estimated domestic installed base of customers.

Sales to distributors accounted for 71% and 74% of our total domestic sales for the three months ended June 30, 2020 and 2019 , respectively.

Sales to distributors accounted for 74% and 72% of our total domestic sales for the three months ended September 30, 2020 and 2019, respectively.

Our percentage of sales to distributors versus individual customers is principally determined by the mix of customers ordering our products within the period and whether or not we have a contractual arrangement with their underlying third-party insurance payor.

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Three Months Ended

September 30,

Pump $ 9,045 $ 10,310

Infusion sets 5,118 3,444

Cartridges 1,761 2,018

Total International Sales $ 16,086 $ 15,815

International pump sales were $9.1 million for the second quarter of 2020, compared to $17.0 million in the second quarter of 2019, which was positively impacted by the transition of former Animas customers to our products and the fulfillment of pump demand from backlog that existed at the end of 2018 due to supply constraints.

Sales of pump-related supplies increased primarily due to an 81% increase in our estimated international installed base of customers.

Sales to distributors accounted for 96% and 93% of our total international sales for the three months ended June 30, 2020 and 2019 , respectively.

International pump sales were $9.0 million for the third quarter of 2020, compared to $10.3 million in the third quarter of 2019, as pump shipments declined 10% compared to the same period in the prior year.

Sales of pump-related supplies benefited from a 64% increase in our estimated international installed base of customers.

The ordering patterns of our international distributors for pumps and supplies is highly variable from period to period, particularly during the typical third quarter European holiday season.

This variability was compounded by the varying levels of impact of the global pandemic across the international markets in which we operate.

Sales to distributors accounted for 91% and 89% of our total international sales for the three months ended September 30, 2020 and 2019, respectively.

Cost of Sales and Gross Profit .

Our cost of sales for the three months ended June 30, 2020 was $54.8 million , resulting in gross profit of $54.4 million , compared to cost of sales of $43.4 million for the same period in 2019 resulting in gross profit of $49.9 million .

The gross margin percentage for the three months ended June 30, 2020 was 50% , compared to 54% in the same period in 2019 .

The increase in our gross profit for the three months ended June 30, 2020 was primarily the result of the $16.0 million increase in total sales.

Gross profit and gross margin were negatively impacted by an increase in royalty and stock-based compensation costs, and to a lesser extent, costs associated with retaining incremental direct labor employees for risk mitigation in the COVID-19 environment, the expansion of cartridge manufacturing capacity and increased spending to support our digital health product offerings.

These cost increases were partially offset by an increase in pump average selling prices.

We recognized $1.7 million of product royalty costs in the second quarter of 2020 associated with sales of products with Control-IQ technology and free software updates offered to customers in the United States.

Non-cash stock-based compensation expense allocated to cost of sales was $2.2 million for the three months ended June 30, 2020 , compared to $1.3 million in the same period in 2019 .

Additionally, per unit overhead manufacturing costs for pumps increased in the second quarter of 2020 due to the differing sales dynamics compared to the same period in 2019.

In 2019, pumps were being manufactured at a significantly higher rate to fulfill the existing backlog and increase inventory to desired stocking levels.

In 2020, production levels declined from lower sales demand attributable to the COVID-19 global pandemic.

The gross margin percentage was also pressured by changes in product mix from these sales dynamics.

Pump sales, which have the highest gross margin, were 60% of total sales in the second quarter of 2020 versus 71% in the second quarter of 2019.

Our cost of sales for the three months ended September 30, 2020 was $58.3 million , resulting in gross profit of $65.3 million, compared to cost of sales of $44.0 million for the same period in 2019 resulting in gross profit of $50.7 million.

The gross margin percentage for the three months ended September 30, 2020 was 53%, compared to 54% in the same period in 2019.

The increase in our gross profit for the three months ended September 30, 2020 was primarily the result of the $28.9 million increase in total sales.

Gross profit and gross margin were negatively impacted by royalty costs, for which there was no comparable expense in the prior year.

We recognized $1.7 million of product royalty costs in the third quarter of 2020 associated with sales of products with Control-IQ technology and free software updates downloaded by existing customers in the United States, as well as in certain international markets where we launched Control-IQ in the third quarter.

On an aggregate basis, other non-manufacturing costs, which primarily consist of warranty, freight, training and digital health product support costs, reflected improvement on a per unit basis.

Gross margin was also pressured to a lesser extent by other factors that are more temporary in nature or anticipated to be leveraged through growth in future quarters, including costs associated with COVID-19 risk mitigation, managing pump production to achieve desired stocking levels, the expansion of cartridge manufacturing capacity and increased spending to support our digital health product offerings.

Other factors that have and may continue to impact the gross margin percentage are changes in product and geographical mix and the level of non-cash stock-based compensation allocated to cost of sales.

Pump sales, which have the highest gross margin, were 64% of total worldwide sales in the third quarter of 2020 versus 67% in the third quarter of 2019.

Non-cash stock-based compensation expense allocated to cost of sales was $2.1 million for the three months ended September 30, 2020, compared to $1.8 million in the same period of 2019, representing 2% of sales in both periods.

Selling, General and Administrative Expenses.

SG&A expenses increased 24% to $50.4 million for the three months ended June 30, 2020 from $40.6 million for the same period in 2019 .

SG&A expenses increased 12% to $50.2 million for the three months ended September 30, 2020 from $44.6 million for the same period in 2019.

Employee-related expenses for our SG&A functions comprise the majority of SG&A expenses.

The increase compared to 2019 was primarily the result of a $9.3 million increase in salaries, incentive compensation and other employee benefits due to an increase in personnel to support additional sales territories, higher sales and other services in support of our growing installed customer base, which included an increase of $2.7 million in non-cash stock-based compensation.

Non-cash stock-based compensation expense allocated to SG&A was $11.7 million for the three months ended June 30, 2020 , compared to $9.0 million in the same period in 2019 .

The increase in non-cash stock-based compensation expense was primarily due to the valuation of certain 2019 employee stock option grants and the impact on the valuation of the significant increase in our stock price.

We also experienced increased costs for software maintenance, facilities maintenance, and outside consulting of $2.1 million, offset by a $1.2 million decrease in travel and entertainment, supplies and outside services expenses.

The increase compared to 2019 was primarily the result of an $8.5 million increase in salaries, incentive compensation and other employee benefits due to an increase in personnel to support additional sales territories, higher sales and other services in support of our growing installed customer base, offset by a decrease of $4.2 million in non-cash stock-based compensation.

Non-cash stock-based compensation expense allocated to SG&A was $8.9 million for the three months ended September 30, 2020, compared to $13.1 million in the same period in 2019.

The higher non-cash stock-based compensation expense in the prior year was primarily due to the valuation of certain 2018 employee stock option grants which are now fully amortized, partially offset by non-cash stock-based compensation expense associated with increased headcount in 2020.

We also experienced increased costs for software maintenance, facilities maintenance, and outside consulting of $3.1 million, offset by a $1.2 million decrease in travel and entertainment, and outside services expenses.

Research and Development Expenses .

R&D expenses increase d 43% to $16.0 million for the three months ended June 30, 2020 from $11.2 million for the same period in 2019 .

The increase in R&D expenses was primarily the result of an increase of $2.3 million in salaries, incentive compensation and other employee benefits due to an increase in personnel to support our product development efforts, as well as an increase of $2.3 million in outside services, consulting services and equipment and maintenance costs attributable to R&D.

Non-cash stock-based compensation expense allocated to R&D was $2.6 million for the three months ended June 30, 2020 , compared to $2.1 million in the same period in 2019 .

Other Income and Expense .

Total other expense for the three months ended June 30, 2020 was $17.1 million compared to total other income of $0.4 million in the same period in 2019 .

Other expense for the three months ended June 30, 2020 primarily consisted of a $14.3 million revaluation loss from the change in the fair value of certain warrants due to the significant appreciation of our stock price, and $3.2 million of interest expense which includes the amortization of debt discount and debt issuance costs related to our Notes issued in the second quarter of 2020.

Other income for the three months ended June 30, 2019 primarily consisted of interest earned on our cash equivalents and short-term investments, offset by a $0.4 million revaluation loss from the change in the fair value of certain warrants.

Comparison of the Six Months Ended June 30, 2020 and 2019

For the six months ended June 30, 2020 , sales were $207.2 million , which included $38.3 million of international sales.

For the six months ended June 30, 2019 , sales were $159.3 million , which included $34.2 million of international sales.

The increase in worldwide sales of $47.9 million in the first half of 2020 compared to the first half of 2019 was primarily driven by $43.7 million in pump-related supplies sales from a 48% growth in the worldwide installed base and an increase in domestic pump sales of $20.4 million , offset by the effect of international product mix and non-recurring market dynamics in the prior year.

R&D expenses increased 34% to $16.1 million for the three months ended September 30, 2020 from $12.0 million for the same period in 2019.

The increase in R&D expenses was primarily the result of an increase of $2.2 million in salaries, incentive compensation and other employee benefits due to an increase in personnel to support our product development efforts, offset by a decrease of $0.6 million in non-cash stock-based compensation.

Non-cash stock-based compensation expense allocated to R&D was $1.8 million for the three months ended September 30, 2020 , compared to $2.4 million in the same period in 2019.

We also experienced increased costs for consulting services and equipment and maintenance attributable to R&D of $2.3 million.

Other Income (Expense), Net .

Total other expense, net for the three months ended September 30, 2020 was $8.4 million compared to total other income, net of $3.2 million in the same period in 2019.

Total other expense, net for the three months ended September 30, 2020 primarily consisted of a $3.6 million revaluation loss from the change in the fair value of certain warrants due to the appreciation of our stock price, and $4.9 million of interest expense which includes the amortization of debt discount and debt issuance costs related to our Notes issued in the second quarter of 2020.

Total other income, net for the three months ended September 30, 2019 primarily consisted of a $2.3 million gain on revaluation from the change in the fair value of certain warrants, and interest earned on our cash equivalents and short-term investments.

Comparison of the Nine Months Ended September 30, 2020 and 2019

For the nine months ended September 30, 2020, sales were $330.8 million, which included $54.4 million of international sales.

For the nine months ended September 30, 2019, sales were $253.9 million, which included $50.0 million of international sales.

The increase in worldwide sales of $76.9 million in the first nine months of 2020 compared to the first nine months of 2019 was primarily driven by $127.2 million in pump-related supplies sales from a 46% growth in the worldwide installed base and an increase in domestic pump sales of $36.9 million, offset by the effect of international product mix and non-recurring market dynamics in the prior year.

Domestic sales by product were as follows (in thousands):

Six Months Ended

Nine Months Ended

September 30,

Pump $ 175,550 $ 138,624

Infusion sets 68,883 44,335

Cartridges 31,418 20,530

Other 489 378

Total Domestic Sales $ 276,340 $ 203,867

Domestic pump sales were $106.1 million for the first half of 2020, compared to $85.7 million in the first half of 2019, as pump shipments increased 24% compared to the same period in the prior year due to continued strong demand for our products following the January 2020 domestic launch of our t:slim X2 insulin pump with Control-IQ technology.

Domestic pump shipments were 27,893 in the first half of 2020 compared to 22,468 in the first half of 2019.

Domestic pump sales were $175.6 million for the first nine months of 2020, compared to $138.6 million in the first nine months of 2019, as pump shipments increased 28% compared to the same period in the prior year due to continued strong demand for our products following the January 2020 domestic launch of our t:slim X2 insulin pump with Control-IQ technology.

Domestic pump shipments were 46,273 in the first nine months of 2020 compared to 36,282 in the first nine months of 2019.

Sales of pump-related supplies increased primarily due to a 42% increase in our estimated domestic installed base of customers.

Sales to distributors accounted for 70% and 74% of our total domestic sales for the six months ended June 30, 2020 and 2019 , respectively.

Sales to distributors accounted for 72% and 73% of our total domestic sales for the nine months ended September 30, 2020 and 2019, respectively.

International sales by product were as follows (in thousands):

Six Months Ended

Nine Months Ended

September 30,

Pump $ 27,985 $ 36,472

Infusion sets 18,794 8,225

Cartridges 7,315 5,130

Other 331 213

Total International Sales $ 54,425 $ 50,040

International pump sales were $18.9 million for the first half of 2020, compared to $26.2 million in the first half of 2019, which was positively impacted by the transition of former Animas customers to our products, and the fulfillment of certain international pump demand from backlog that existed at the end of 2018 due to supply constraints in prior periods.

International pump sales were $28.0 million for the first nine months of 2020, compared to $36.5 million in the first nine months of 2019.

The first half of 2019 was positively impacted by the transition of former Animas customers to our products and the fulfillment of certain international pump demand from backlog that existed at the end of 2018 due to supply constraints in prior periods.

Sales of pump-related supplies increased primarily due to an 64% increase in our estimated international installed base of customers.

Sales to distributors accounted for 95% and 95% of our total international sales for the six months ended June 30, 2020 and 2019 , respectively.

The ordering patterns of our international distributors for pumps and supplies is highly variable from period to period, particularly during the typical third quarter European holiday season.

This variability was compounded by the varying levels of impact of the global pandemic across the international markets in which we operate.

Sales to distributors accounted for 93% and 93% of our total international sales for the nine months ended September 30, 2020 and 2019, respectively.

Cost of Sales and Gross Profit .

Our cost of sales for the six months ended June 30, 2020 was $102.5 million resulting in gross profit of $104.7 million , compared to $76.0 million of cost of sales for the same period in 2019 resulting in gross profit of $83.3 million .

The gross margin percentage for the six months ended June 30, 2020 was 51% compared to 52% in the same period in 2019 .

The increase in our gross profit for the six months ended June 30, 2020 was primarily the result of the $47.9 million increase in total sales.

Gross profit and gross margin were primarily impacted by an increase in royalty and stock-based compensation costs, partially offset by an improvement in other per unit manufacturing costs, as well as other non-manufacturing costs which primarily consist of warranty, freight and training.

We recognized $3.0 million of product royalty costs in the first six months of 2020 associated with the first quarter launch of Control-IQ technology in the United States.

Additionally, non-cash stock-based compensation expense allocated to cost of sales was $4.3 million for the six months ended June 30, 2020 , compared to $2.4 million in the same period in 2019.

The gross margin percentage was also pressured by changes in product mix compared to the same period of the prior year.

Pump sales, which have the highest gross margin, were 60% of total sales in the first six months of 2020 compared to 70% in the same period in 2019.

Our cost of sales for the nine months ended September 30, 2020 was $160.8 million resulting in gross profit of $170.0 million, compared to $120.0 million of cost of sales for the same period in 2019 resulting in gross profit of $133.9 million.

The gross margin percentage for the nine months ended September 30, 2020 was 51% compared to 53% in the same period in 2019.

The increase in our gross profit for the nine months ended September 30, 2020 was primarily the result of the $76.9 million increase in total sales, including higher volumes shipped and improvement in pump average selling prices.

Gross profit and gross margin were negatively impacted by royalty costs, for which there was no comparable expense in the prior year.

We recognized $4.7 million of product royalty costs in the first nine months of 2020 associated with the first quarter launch of Control-IQ technology in the United States and a staged introduction in international markets beginning in the third quarter.

On an aggregate basis, other non-manufacturing costs, which primarily consist of warranty, freight, training and digital health product support costs, reflected improvement on a per unit basis, as well as per unit manufacturing costs for pumps.

Pump sales, which have the highest gross margin, were 62% of total worldwide sales in the first nine months of 2020 compared to 69% in the same period in 2019.

Non-cash stock-based compensation expense allocated to cost of sales was $6.5 million for the nine months ended September 30, 2020, compared to $4.2 million in the same period in 2019.

Selling, General and Administrative Expenses.

SG&A expenses increase d 33% to $100.2 million for the six months ended June 30, 2020 from $75.5 million for the same period in 2019 .

SG&A expenses increased 25% to $150.4 million for the nine months ended September 30, 2020 from $120.2 million for the same period in 2019.

Employee-related expenses for our SG&A functions comprise the majority of SG&A expenses.

The increase compared to 2019 was primarily the result of a $25.4 million increase in salaries, incentive compensation and other employee benefits due to an increase in personnel to support additional sales territories, higher sales and our growing installed customer base, which included an increase of $3.0 million in non-cash stock-based compensation.

Non-cash stock-based compensation expense allocated to SG&A was $23.2 million for the six months ended June 30, 2020, compared to $16.0 million in the same period in 2019.

We also experienced increased costs for equipment and supplies, outside consulting and outside services of $3.6 million.

Non-cash stock-based compensation expense allocated to SG&A was $32.1 million for the nine months ended September 30, 2020, compared to $29.1 million in the same period in 2019.

The increase in non-cash stock-based compensation expense was primarily due to increased headcount, as well as the valuation of certain 2019 employee stock option grants and the impact on the valuation of the significant increase in our stock price over the previous year.

We also experienced increased costs for software maintenance, supplies, and outside consulting of $7.6 million, offset by decreased costs for travel and outside services of $2.3 million.

Research and Development Expenses .

R&D expenses increase d 46% to $30.1 million for the six months ended June 30, 2020 from $20.6 million for the same period in 2019 .

The increase in R&D expenses was primarily the result of an increase of $4.4 million in salaries, incentive compensation and other employee benefits due to an increase in personnel to support our product development efforts, as well as an increase of $5.1 million in outside services, consulting services and equipment and maintenance costs attributable to R&D.

Non-cash stock-based compensation expense allocated to R&D was $4.8 million for the six months ended June 30, 2020 , compared to $3.8 million in the same period in 2019 .

Other Income and Expense .

Total other expense for the six months ended June 30, 2020 and 2019 was $18.3 million and $11.6 million , respectively.

Other expense for the six months ended June 30, 2020 primarily consisted of a $16.3 million revaluation loss from the change in the fair value of certain warrants due to the significant appreciation of our stock price during the first six months of 2020, and $3.2 million of interest expense which includes the amortization of debt discount and debt issuance costs related to our Notes issued in the second quarter of 2020 .

Other expense for the six months ended June 30, 2019 primarily consisted of a $13.2 million revaluation loss from the change in the fair value of certain warrants.

Interest and other income for the six months ended June 30, 2020 and 2019 primarily consisted of interest earned on our cash equivalents and short-term investments.

R&D expenses increased 42% to $46.2 million for the nine months ended September 30, 2020 from $32.6 million for the same period in 2019.

The increase in R&D expenses was primarily the result of an increase of $6.1 million in salaries, incentive compensation and other employee benefits due to an increase in personnel to support our product development efforts, as well as an increase of $7.5 million in consulting services, supplies, and equipment and maintenance costs attributable to R&D.

Non-cash stock-based compensation expense allocated to R&D was $6.6 million for the nine months ended September 30, 2020, compared to $6.1 million in the same period in 2019.

Other Income (Expense), Net .

Total other expense, net for the nine months ended September 30, 2020 and 2019 was $26.7 million and $8.5 million, respectively.

Other expense for the nine months ended September 30, 2020 primarily consisted of a $19.9 million revaluation loss from the change in the fair value of certain warrants due to the significant appreciation of our stock price during the first nine months of 2020, and $8.0 million of interest expense which includes the amortization of debt discount and debt issuance costs related to our Notes issued in the second quarter of 2020.

Other expense for the nine months ended September 30, 2019 primarily consisted of a $10.8 million revaluation loss from the change in the fair value of certain warrants.

Interest income and other, net for the nine months ended September 30, 2020 and 2019 primarily consisted of interest earned on our cash equivalents and short-term investments.

Income Tax Expense (Benefit) .

We recognized an income tax benefit of $1.9 million on pre-tax loss of $53.3 million for the nine months ended September 30, 2020, compared to income tax expense of $0.1 million on a pre-tax loss of $27.3 million for the nine months ended September 30, 2019.

The income tax benefit for the nine months ended September 30, 2020 was primarily due to benefit associated with the release of valuation allowance related to the acquisition of certain intangible assets, partially offset by state and foreign income tax expense as a result of current taxable income in those jurisdictions.

Income tax expense for the nine months ended September 30, 2019 was primarily attributable to state and foreign income tax expense as a result of current taxable income in those jurisdictions.

Liquidity and Capital Resources

As of June 30, 2020 , we had $426.3 million in cash and cash equivalents and short-term investments.

As of September 30, 2020, we had $464.5 million in cash and cash equivalents and short-term investments.

We believe that our cash and cash equivalents and short-term investments balance is sufficient to satisfy our liquidity requirements for at least the next 12 months from the date of this filing.

Historically, our principal sources of cash have included cash collected from product sales, private and public offerings of equity securities, and debt financing.

Historically, our principal sources of cash have included cash collected from product sales, private and public offerings of equity securities, exercises of employee stock awards, and debt financing.

Since the beginning of 2019, we completed the following financing activities:

• In May 2020, we raised $278.7 million in net proceeds from the issuance of the Notes, and used $34.1 million of the net proceeds to purchase capped call options in connection with the transaction (see Note 7, “Convertible Senior Notes”).

From January 2019 through June 2020, we issued 2,545,440 shares of common stock upon the exercise of stock options, and 558,392 shares of common stock were purchased under our 2013 Employee Stock Purchase Plan, which generated aggregate proceeds of $52.5 million.

From January 2019 through June 2020, we received proceeds of $0.3 million from the exercise of 95,585 outstanding warrants which were originally issued in connection with our registered public offering of common stock in October 2017.

As of June 30, 2020 , there were warrants to purchase 415,200 shares outstanding relating to the October 2017 offering.

From January 2020 through June 2020, we received proceeds of $2.0 million from the exercise of 67,799 outstanding warrants which were originally issued between August 2011 and August 2012.

As of June 30, 2020 , there were warrants to purchase 31,166 shares outstanding relating to these issuances.

• From January 2019 through September 2020, we issued 3,617,939 shares of common stock upon the exercise of stock options, and 558,392 shares of common stock were purchased under our 2013 Employee Stock Purchase Plan, which generated aggregate proceeds of $81.6 million.

• From January 2019 through September 2020, we received proceeds of $1.2 million from the exercise of 352,585 outstanding warrants which were originally issued in connection with our registered public offering of common stock in October 2017.

As of September 30, 2020, there were warrants to purchase 158,200 shares outstanding relating to the October 2017 offering.

• From January 2020 through September 2020, we received proceeds of $2.0 million from the exercise of 67,799 outstanding warrants which were originally issued between August 2011 and August 2012.

As of September 30, 2020, there were warrants to purchase 31,166 shares outstanding relating to these issuances.

Our historical cash outflows have primarily been associated with cash used for operating activities such as the development and commercialization of our products, the expansion and support of our sales, marketing, clinical and customer support organizations, the expansion of our R&D activities, the expansion of our commercial activities to select international geographies, the acquisition of intellectual property, expenditures related to increases in our manufacturing capacity and improvements to our manufacturing efficiency, overall expansion of our facilities and operations, and other working capital needs.

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We will continue to evaluate new information as it becomes available and make changes as are considered necessary.

The following table shows a summary of our cash flows for the six months ended June 30, 2020 and 2019 :

Six Months Ended

The following table shows a summary of our cash flows for the nine months ended September 30, 2020 and 2019:

Nine Months Ended

September 30,

(in thousands) 2020 2019

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Effect of foreign exchange rate changes on cash 70 36

Net increase in cash and cash equivalents $ 78,306 $ 4,234

Operating Activities .

Net cash used in operating activities was $5.1 million for the six months ended June 30, 2020 , compared to $0.6 million in the same period in 2019 .

The increase in net cash used in operating activities was primarily driven by an increase in net loss, driven by increased operating expenses, particularly SG&A expenses and research and development.

Working capital changes during the first half of 2020 primarily consisted of an increase in inventories, as decreases in accrued expenses and employee-related liabilities were substantially offset by increases in deferred revenue and other current liabilities.

Accounts receivable decreased to $45.0 million at June 30, 2020 from $46.6 million at December 31, 2019 , primarily due to the timing of sales and collections.

Inventories increased to $62.3 million at June 30, 2020 from $49.1 million at December 31, 2019 , primarily to support the growth in our business.

Net cash provided by operating activities was $9.4 million for the nine months ended September 30, 2020, compared to $22.5 million in the same period in 2019.

The decrease in net cash provided by operating activities was due to an increase in our operating loss on higher operating expenses, as well as working capital changes primarily related to accounts payable and accrued expenses.

Working capital changes during the first nine months of 2020 primarily consisted of increases in accounts receivable, inventories, accounts payable, deferred revenue, and other current liabilities, all of which are related to the growth in our business.

Accounts receivable increased to $52.1 million at September 30, 2020 from $46.6 million at December 31, 2019, as a result of higher sales in the third quarter of 2020 as compared to the fourth quarter of 2019.

Inventories increased to $70.6 million at September 30, 2020 from $49.1 million at December 31, 2019, primarily to support the growth in our business.

Investing Activities .

Net cash used in investing activities was $98.6 million for the six months ended June 30, 2020 , which was primarily related to $167.0 million of purchases of short-term investments, $16.6 million in purchases of property and equipment, and $4.8 million cash paid for the acquisition of intangible assets, offset by $89.7 million in proceeds from maturities and sales of short-term investments.

Net cash used in investing activities was $13.9 million for the six months ended June 30, 2019 , which was primarily related to $74.2 million of purchases of short-term investments and $8.2 million in purchases of property and equipment, offset by $68.5 million in proceeds from maturities and sales of short-term investments.

Net cash used in investing activities was $236.4 million for the nine months ended September 30, 2020, which was primarily related to $332.0 million of purchases of short-term investments, $23.3 million in purchases of property and equipment, and $4.9 million cash paid for the acquisition of intangible assets, offset by $123.7 million in proceeds from maturities and sales of short-term investments.

Net cash used in investing activities was $36.1 million for the nine months ended September 30, 2019, which was primarily related to $126.3 million of purchases of short-term investments and $12.8 million in purchases of property and equipment, offset by $103.0 million in proceeds from maturities and sales of short-term investments.

Financing Activities.

Net cash provided by financing activities was $275.3 million for the six months ended June 30, 2020 , which primarily consisted of $278.7 million in proceeds from the issuance of the Convertible Senior Notes which was partially offset by $34.1 million in payments related to the Capped Call Options, and $28.6 million in proceeds from the issuance of common stock under our stock plans.

Net cash provided by financing activities was $10.8 million for the six months ended June 30, 2019 , which primarily consisted of proceeds from the issuance of common stock under our stock plans.

Net cash provided by financing activities was $305.2 million for the nine months ended September 30, 2020, which primarily consisted of $278.7 million in proceeds from the issuance of the Convertible Senior Notes which was partially offset by $34.1 million in payments for the purchase of the related Capped Call Options, and $57.7 million in proceeds from the issuance of common stock under our stock plans.

Net cash provided by financing activities was $17.8 million for the nine months ended September 30, 2019, which primarily consisted of proceeds from the issuance of common stock under our stock plans.

Our liquidity position and capital requirements are subject to fluctuation based on a number of factors, including the following:

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Off-Balance Sheet Arrangements

As of June 30, 2020 , we did not have any off-balance sheet arrangements.

As of September 30, 2020, we did not have any off-balance sheet arrangements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis