What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-02-24 compared with 2020-02-24 · 488 added, 317 removed, 567 unchanged (59% of the section changed)

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Consolidated Statements of Stockholders’ Equity (Deficit) for the Years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the Years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Cash Flows for th e Y ears ended December 31, 2020, 2019 and 2018

Notes to Consolidated Financial Statements

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 24, 2021 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update (ASU) No.

2016-02, Leases ( Topic 842 ), and the related amendments.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Description of the Matter

The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Warranty reserve – Estimation of Product Replacement Reserve

As discussed in Note 2 to the consolidated financial statements, the Company has a warranty reserve of $16.7 million.

Description of the Matter As discussed in Note 2 to the consolidated financial statements, the Company has a warranty reserve of $22.1 million.

The Company provides insulin pump end customers with a four-year warranty and may replace any pumps that do not function in accordance with the product specifications.

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Management applies significant judgment to determine relevant assumptions to calculate the reserve, including the assessment of historical warranty experience and replacement cost.

Auditing management’s warranty reserve on pumps was complex and judgmental due to the significant estimation required by management in determining the value of the warranty reserve.

Auditing management’s estimate of warranty reserve on pumps was complex and judgmental due to the significant estimation required by management in estimating the value of the warranty reserve.

In particular, the warranty reserve estimate is sensitive due to significant assumptions including replacement rates and replacement product costs, especially as it relates to recently released pump versions for which replacement rates specific to that version are not yet known.

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These assumptions are affected by actual customer experience and changes in these assumptions could have a material impact on the Company’s estimated reserve.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s significant assumptions in determining the warranty reserve.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the warranty reserve estimation process.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to these determinations and management’s significant assumptions for the warranty reserve.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the warranty reserve estimation process.

For example, we tested controls over management's review and calculation of significant assumptions underlying the warranty reserve, such as replacement rates and actual replacement product costs, and tested controls over the accuracy and completeness of data used.

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In addition, for revisions made to the estimated reserve, we evaluated the reasonableness of the subsequent changes by comparing the revised assumptions to the original estimated assumptions and evaluated the reasons for the subsequent change.

Valuation of Convertible Notes

Description of the Matter As described in Note 7 to the consolidated financial statements, in May 2020 the Company issued $287.5 million of convertible senior notes due in 2025 (Convertible Notes), which permit the Company to settle in cash or stock at its option.

The Company entered into separate capped call transactions to reduce potential dilution upon conversion of the Convertible Notes.

These transactions are collectively referred to as the Convertible Notes Transactions.

Auditing the Company’s determination of the value allocated to the liability and equity components was complex and highly judgmental as a result of the significant estimation required to determine the fair value of the liability component, measured at the estimated fair value of similar debt without the conversion option.

The difference between the initial proceeds of the Convertible Notes and the value allocated to the liability component being recognized in stockholders’ equity (deficit) as the carrying amount of the equity component.

The fair value of similar debt that does not have an associated conversion feature was determined using the Company’s effective interest rate.

The effective interest rate for the Convertible Notes was estimated using a binomial lattice model with various assumptions, the most significant assumptions being expected volatility of the Company’s common stock and discount rate.

Additionally, the Company performed a detailed analysis of the terms of the Convertible Notes Transactions to identify whether any derivatives that required separate mark-to-market accounting under applicable accounting guidance were present.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s Convertible Notes Transactions.

For example, we tested the Company’s controls over the initial recognition and measurement of the Convertible Notes Transactions, including the assessment of the risk adjusted yield and the recording of the associated liability and equity components.

Our testing of the Company’s initial accounting for the Convertible Notes Transactions, among other procedures, included reading the underlying agreements and evaluating the Company’s accounting analysis of the initial accounting of the Convertible Notes Transactions, including the determination of the balance sheet classification of each transaction and identification of any derivatives included in the arrangements.

To test the estimated fair value of the conversion option, our audit procedures included, among others, evaluating methodologies used in the valuation model and testing the significant assumptions.

For example, we compared the discount rate that was adjusted for the Company’s credit risk to the interest rates on comparable debt instruments, and we compared the forward-looking implied volatility to our independently calculated estimated equity volatility specific to the convertible note.

In addition, we involved our internal valuation specialists to assist in our evaluation of the significant assumptions and methodologies used by the Company.

We have also evaluated the Company’s financial statement disclosures related to these matters included in Note 7 to the consolidated financial statements.

/s/ Ernst & Young LLP

We have served as the Company's auditor since 2009.

San Diego, CA

San Diego, California

February 24, 2021

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CONSOLIDATED BALANCE SHEETS

(In thousands except par values)

(In thousands except par value)

Current assets:

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Accounts receivable, net 82,195 46,585

Inventories, net

Inventories 63,721 49,073

Prepaid and other current assets 6,383 4,025

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Other long-term assets 9,385 1,485

Total assets $ 716,415 $ 326,110

Liabilities and Stockholders’ Equity

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Total current liabilities 103,852 99,396

Convertible senior notes, net - long-term 202,984 —

Operating lease liabilities - long-term 15,914 14,063

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Additional paid-in capital 1,025,233 819,626

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income 220 122

Accumulated deficit ( 659,210 ) ( 624,828 )

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Year Ended December 31,

2020 2019 2018

Sales $ 498,830 $ 362,305 $ 183,866

Cost of sales 238,310 168,093 94,044

Gross profit 260,520 194,212 89,822

Operating expenses:

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Other income (expense), net:

Interest and other income

Interest and other expense

Interest income and other, net 1,567 3,193 1,439

Interest expense ( 12,805 ) — ( 7,561 )

Loss on extinguishment of debt — — ( 5,313 )

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Loss before income taxes ( 36,282 ) ( 24,604 ) ( 122,560 )

Income tax expense

Other comprehensive loss:

Income tax expense (benefit) ( 1,900 ) 149 51

Net loss $ ( 34,382 ) $ ( 24,753 ) $ ( 122,611 )

Other comprehensive income (loss):

Unrealized gain (loss) on short-term investments $ ( 20 ) $ 77 $ ( 13 )

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Net loss per share - basic and diluted $ ( 0.56 ) $ ( 0.42 ) $ ( 2.55 )

Weighted average shares used to compute basic and diluted net loss per

Weighted average shares used to compute basic and diluted net loss per share 60,990 58,507 48,129

The accompanying notes are an integral part of the consolidated financial statements.

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(In thousands)

Shares Amount Additional

Capital Accumulated

Comprehensive

Income (Loss)

Income (Loss) Accumulated

Deficit Total

Stockholders’

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Exercise of stock options 136 — 1,027 — — 1,027

Issuance of common stock in public offering, net of underwriter’s discount and offering costs

Issuance of common stock warrants in connection with term loan

Issuance of common stock for Employee Stock Purchase Plan 81 — 1,364 — — 1,364

Stock-based compensation

Unrealized gain on short-term investments

Balance at December 31, 2017

Exercise of stock options

Exercise of common stock warrants 8,603 9 29,566 — — 29,575

Issuance of common stock in public offering, net of underwriter’s discount and offering costs

Fair value of common stock warrants at time of exercise — — 54,000 — — 54,000

Issuance of common stock for Employee Stock Purchase Plan

Stock-based compensation

Issuance of common stock in public offering, net of underwriter’s discount and offering costs 38,535 38 172,891 — — 172,929

Stock-based compensation expense 80 — 24,003 — — 24,003

Unrealized loss on short-term investments — — — ( 13 ) — ( 13 )

Adjustment to retained earnings from adoption of ASC 606 — — — — 149 149

Net loss — — — — ( 122,611 ) ( 122,611 )

Balance at December 31, 2018 57,554 $ 57 $ 731,306 $ ( 13 ) $ ( 600,075 ) $ 131,275

Exercise of stock options 1,422 1 17,674 — — 17,675

Issuance of common stock for Employee Stock Purchase Plan 327 1 6,205 — — 6,206

Exercise of common stock warrants 93 — 327 — — 327

Fair value of common stock warrants at time of exercise — — 5,492 — — 5,492

Issuance of common stock for Employee Stock

Purchase Plan

Stock-based compensation

Stock-based compensation expense — — 58,622 — — 58,622

Unrealized gain on short-term investments, net of deferred tax — — — 77 — 77

Foreign currency translation adjustments — — — 58 — 58

Net loss — — — — ( 24,753 ) ( 24,753 )

Balance at December 31, 2019 59,396 $ 59 $ 819,626 $ 122 $ ( 624,828 ) $ 194,979

Issuance of common stock under equity incentive plans 2,341 2 57,748 — — 57,750

Issuance of common stock for Employee Stock Purchase Plan 303 1 9,115 — — 9,116

Exercise of common stock warrants 295 — 2,950 — — 2,950

Fair value of common stock warrants at time of exercise — — 26,335 — — 26,335

Equity component of convertible notes issuance, net of issuance cost — — 85,803 — — 85,803

Purchase of capped call options related to convertible notes — — ( 34,069 ) — — ( 34,069 )

Stock-based compensation expense — — 57,725 — — 57,725

Unrealized loss on short-term investments — — — ( 20 ) — ( 20 )

Foreign currency translation adjustments — — — 118 — 118

Net loss — — — — ( 34,382 ) ( 34,382 )

Balance at December 31, 2020 62,335 $ 62 $ 1,025,233 $ 220 $ ( 659,210 ) $ 366,305

The accompanying notes are an integral part of the consolidated financial statements.

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Year Ended December 31,

2020 2019 2018

Operating Activities

Net loss $ ( 34,382 ) $ ( 24,753 ) $ ( 122,611 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization expense 10,451 6,072 5,821

Interest expense related to amortization of debt discount and debt issuance costs

Payment in kind interest accrual of notes payable

Provision for allowance for doubtful accounts

Provision for inventories reserve

Amortization of debt discount and debt issuance costs 10,096 — 1,721

Provision for expected credit losses 3,016 2,322 1,448

Provision (recovery) for inventory obsolescence ( 57 ) 2,353 607

Change in fair value of common stock warrants 17,087 11,075 66,494

Amortization of premium (discount) on short-term investments ( 1,296 ) ( 565 ) 539

Benefit for deferred income taxes ( 2,126 ) ( 25 ) —

Stock-based compensation expense 58,431 58,071 23,736

Loss on extinguishment of debt — — 5,313

Other 38 ( 295 ) 152

Changes in operating assets and liabilities:

Accounts receivable, net ( 38,837 ) ( 13,698 ) ( 15,848 )

Inventories, net

Inventories ( 15,361 ) ( 30,975 ) 6,756

Prepaid and other current assets ( 2,427 ) ( 584 ) ( 1,576 )

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Purchases of property and equipment ( 27,408 ) ( 19,541 ) ( 2,986 )

Net cash provided by (used in) investing activities

Acquisition of intangible assets ( 4,886 ) — —

Net cash used in investing activities ( 296,056 ) ( 56,955 ) ( 90,739 )

Financing Activities

Proceeds from issuance of convertible senior notes, net of $ 8,809 debt issuance costs

Purchase of capped call options related to convertible senior notes ( 34,069 ) — —

Principal payments on notes payable — — ( 87,711 )

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Effect of foreign exchange rate changes on cash 387 191 —

Net increase (decrease) in cash and cash equivalents and restricted cash

Net increase in cash and cash equivalents 43,438 9,349 18,126

Cash and cash equivalents and restricted cash at beginning of period 51,175 41,826 23,700

Cash and cash equivalents and restricted cash at end of period

Cash and cash equivalents at end of period $ 94,613 $ 51,175 $ 41,826

Supplemental disclosures of cash flow information

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Right-of-use assets obtained in exchange for operating lease obligations $ 11,022 $ 11,635 $ —

Lease incentive - lessor-paid tenant improvements

Property and equipment included in accounts payable $ 1,082 $ 2,134 $ 125

Debt discount included in other long-term liabilities

Common stock warrants issued in connection with term loan

Unsettled purchase of investments classified as cash equivalents in other current liabilities

Intangible costs in accounts payable and other long-term liabilities $ 2,244 $ — $ —

The accompanying notes are an integral part of the consolidated financial statements

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Tandem Diabetes Care, Inc.

is a medical device company with an innovative approach to the design, development and commercialization of products for people with insulin-dependent diabetes.

is a medical device company with a positively different approach to the design, development and commercialization of products for people with insulin-dependent diabetes.

The Company is incorporated in the state of Delaware.

Unless the context requires otherwise, the terms the “Company” or “Tandem” refer to Tandem Diabetes Care, Inc., together with its wholly-owned subsidiary in Canada.

Unless the context requires otherwise, the terms the “Company” or “Tandem” refer to Tandem Diabetes Care, Inc., together with its wholly-owned subsidiaries in the U.S.

The Company manufactures, sells and supports insulin pump products that are designed to address the evolving needs and preferences of differentiated segments of the insulin-dependent diabetes market.

The Company’s manufacturing, sales and support activities principally focus on the t:slim X2 Insulin Delivery System (t:slim X2), the Company’s flagship pump platform which is capable of remote feature updates and is designed to display continuous glucose monitoring (CGM) sensor information directly on the pump home screen.

The Company’s insulin pump products are compatible with the Tandem Device Updater, a Mac and PC-compatible tool for the remote update of the Company's insulin pump software.

The Company’s insulin pump products are compatible with other complementary digital health offerings, such as the t:connect cloud-based data management application (t:connect) and the Tandem Device Updater, a Mac and PC-compatible tool for the remote update of the Company’s insulin pump software.

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

In addition to insulin pumps, the Company sells disposable products that are used together with the 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.

The Company has commercially launched seven insulin pumps in the United States since 2012 and two pumps outside the United States since 2018.

Four of the insulin pumps have featured CGM technology, and two have featured an automated insulin delivery (AID) algorithm.

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

in February 2019, the t:slim X2 was the first in a new device category called Alternate Controller Enabled Infusion Pumps (ACE pumps);

and in December 2019, Control-IQ technology for the t:slim X2 insulin pump was the first automated insulin dosing software in a new interoperable automated glycemic controller category.

The Company believes that the three new classifications by the United States Food and Drug Administration (FDA) for the interoperability of devices for AID will help support continued rapid innovation by streamlining the regulatory pathway for integrated products.

The consolidated financial statements included in this Annual Report have been prepared on a basis that assumes that the Company will continue as a going concern, and do not include any adjustments that may result from the outcome of this uncertainty.

This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of the Company’s liabilities and commitments in the normal course of business and does not include any adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

As of December 31, 2019 , the Company had $ 176.5 million in cash and cash equivalents and short-term investments.

The Company has incurred operating losses since its inception and had an accumulated deficit $ 624.8 million as of December 31, 2019 , which included a net loss of $ 24.8 million for the year ended December 31, 2019 .

Management believes that cash and cash equivalents and short-term investments on hand will be sufficient to satisfy the Company’s liquidity requirements for at least the next 12 months from the date of this filing.

The Company’s ability to execute on its business strategy, meet its future liquidity requirements, and achieve and maintain profitable operations, is dependent on a number of factors, including its ability to continue to gain market acceptance of its products and achieve a level of revenues adequate to support its cost structure, achieve renewal pump sales objectives, develop and launch new products, expand the commercialization of products into new international markets, maximize manufacturing efficiencies, satisfy increasing production requirements, leverage the investments made in its sales, clinical, marketing and customer support organizations, and operate its business and manufacture and sell products without infringing on third party intellectual property rights.

The Company has funded its operations primarily through private and public offerings of equity securities, and through debt financing which has since been fully repaid.

The Company may in the future seek additional capital from public or private offerings of equity or debt securities, or it may elect to borrow capital under new credit arrangements or from other sources.

If the Company issues equity or debt securities to raise additional funds, its existing stockholders may experience dilution, it may incur significant financing or debt service costs, and the new equity or debt securities may have rights, preferences and privileges senior to those of its existing stockholders.

There can be no assurance that equity or debt financing will be available on acceptable terms, or at all.

Basis of Presentation and Principles of Consolidation

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The statements include the accounts of Tandem Diabetes Care, Inc.

and its wholly-owned subsidiary in Canada.

and its wholly-owned subsidiaries in the U.S.

All significant intercompany balances and transactions have been eliminated in consolidation.

The functional currency of our foreign subsidiary is the local currency.

We translate the financial statements of our foreign subsidiary into U.S.

The functional currency of the Company's foreign subsidiary is the local currency.

The Company translates the financial statements of its foreign subsidiary 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.

Translation related adjustments are included in comprehensive loss and in accumulated other comprehensive income (loss) in the equity section of our consolidated balance sheets.

Foreign exchange gains or losses resulting from balances denominated in a currency other than the functional currency are recognized in interest and other income or interest and other expense in our consolidated statements of operations.

Translation related adjustments are included in comprehensive loss and in accumulated other comprehensive income (loss) in the stockholders' equity section of the Company's consolidated balance sheets.

Foreign exchange gains or losses resulting from balances denominated in a currency other than the functional currency are recognized in interest income and other, net in the Company's consolidated statements of operations.

Reclassifications

Certain reclassifications of prior year amounts related to the presentation of patents and long-term deferred rent on the consolidated balance sheet, and deferred rent on the consolidated statements of cash flows, have been made to conform to the current year presentation.

Prior year amounts related to the presentation of other income (expense), net on the Company’s consolidated statements of operations and comprehensive loss, have been reclassified to conform to the current year presentation.

Starting with the third quarter of 2020, the first full quarter in which the Company’s convertible senior notes were outstanding, the Company began to present non-operating expenses unrelated to the convertible senior notes with interest income and other, net.

In prior periods, other non-operating expenses were combined with interest expense and reported as interest and other expense.

Summary of Significant Accounting Policies

There have been no material changes to the Company's significant accounting policies during the year ended December 31, 2019 , as compared to those disclosed in this Annual Report other than adoption of the new lease accounting standard effective January 1, 2019 (see Note 5, ''Leases'').

There have been no material changes to the Company’s significant accounting policies during the year ended December 31, 2020, as compared to those disclosed in this Annual Report with the exception of policies put in place with regards to its convertible senior notes issued in May 2020.

Use of Estimates

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Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions.

Segment Reporting

Operating segments are identified as components of an enterprise about which discrete financial information is available for evaluation by the chief operating decision-maker (CODM) in making decisions regarding resource allocation and assessing performance.

The Company is organized based on its current product portfolio, which consists primarily of insulin pumps, disposable cartridges and infusion sets for the storage and delivery of insulin.

The Company views its operations and manages its business as one segment as key operating decisions and resource allocations are made by the CODM using consolidated financial data.

Cash Equivalents

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The Company’s short-term investments consist of Level 1 and Level 2 financial instruments in the fair value hierarchy.

The net unrealized gains or losses on available-for-sale securities are reported as a component of other comprehensive loss within the statements of operations and accumulated other comprehensive gain (loss) as a separate component of stockholders’ equity on the consolidated balance sheets.

The Company determines the realized gains or losses of available-for-sale securities using the specific identification method and includes net realized gains and losses as a component of other income or expense within the consolidated statements of operations.

The net unrealized gains or losses on available-for-sale securities are reported as a component of other comprehensive gain (loss) within the statements of operations and accumulated other comprehensive gain (loss) as a separate component of stockholders’ equity on the consolidated balance sheets.

The Company determines realized gains or losses on the sale of available-for-sale securities using the specific identification method and includes net realized gains and losses as a component of other income or expense within the consolidated statements of operations.

The Company periodically reviews available-for-sale securities for other than temporary declines in fair value below the cost basis whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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The Company grants credit to various customers in the ordinary course of business and is paid directly by customers who use the products, distributors and third-party insurance payors.

The Company maintains an allowance for doubtful accounts for potential credit losses.

Provisions are made based on historical experience, assessment of specific risk, review of outstanding invoices, and various assumptions and estimates that are believed to be reasonable under the circumstances.

The Company maintains an allowance for its current estimate of expected credit losses.

Provisions for expected credit losses are estimated based on historical experience, assessment of specific risk, review of outstanding invoices, forecasts about the future, and various assumptions and estimates that are believed to be reasonable under the circumstances, which included the Company’s estimates of credit risks as a result of the novel coronavirus pandemic (COVID-19 global pandemic).

Uncollectible accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a balance is uncollectible.

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The following table summarizes customers who accounted for 10% or more of accounts receivable, net:

Byram Healthcare

CCS Medical, Inc.

The following table summarizes customers who accounted for 10% or more of sales for the periods presented:

Customer A 12.7 % N/A

Customer B 12.3 % N/A

Customer C N/A 20.4 %

Customer D N/A 10.1 %

The following table summarizes customers who accounted for 10% or more of total sales for the periods presented:

Year Ended December 31,

Byram Healthcare

RGH Enterprises, Inc.

2020 2019 2018

Customer B 15.9 % 14.8 % 19.4 %

Customer C 12.9 % 15.4 % 15.6 %

Fair Value of Financial Instruments

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Short-term investments are carried at fair value.

The Company believes the fair value of its operating lease liabilities at December 31, 2019 approximated their carrying value, based on the borrowing rates that were available for loans with similar terms as of that date.

The Company determined the fair value of its convertible senior notes at December 31, 2020 to be $ 333.5 million, based on Level 2 quoted market prices as of that date (see Note 6, “Debt”).

The estimated fair value of certain of the Company’s common stock warrants was determined using the Black-Scholes pricing model as of December 31, 2020 and 2019 (see Note 4, "Fair Value Measurements").

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Operating Lease Right-of-Use Assets and Liabilities

Lease right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No.

2016-02, Leases .

The new standard and its related amendments (collectively referred to as ASC 842) require lessees to recognize right-of-use assets and corresponding lease liabilities for all leases with lease terms of greater than 12 months.

The new standard was effective for the Company starting in the first quarter of 2019.

The Company adopted the new standard using the modified retrospective approach and recognized right-of-use leased assets and corresponding operating lease liabilities of $ 12.4 million on the consolidated balance sheet as of January 1, 2019.

The Company did not restate prior periods.

Deferred rent of $ 1.0 million and $ 3.8 million as of January 1, 2019 was reclassified from other current liabilities and deferred rent long-term, respectively, to a reduction of the right-of-use leased assets in connection with the adoption of the standard.

Lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.

Operating lease right-of-use assets and liabilities are recognized when the Company takes possession of the leased property (the Commencement Date) based on the present value of lease payments over the lease term.

For lease agreements entered into or reassessed after the adoption of ASC 842, the Company combines lease and non-lease components.

Rent expense on noncancelable leases containing known future scheduled rent increases is recorded on a straight-line basis over the term of the respective leases beginning on the Commencement Date.

The difference between rent expense and rent paid is accounted for as a component of operating lease right-of-use assets on the Company’s consolidated balance sheet.

Landlord improvement allowances and other such lease incentives are recorded as property and equipment and as reduction of the right-of-use leased assets, and are amortized on a straight-line basis as a reduction to operating lease costs.

Leases with an initial term of 12 months or less are expensed as incurred and are not recorded as right-of-use assets on the consolidated balance sheets (see Note 5, "Leases").

Costs associated with the purchase or licensing of patents associated with the Company’s commercialized products are capitalized.

The Company reviews its capitalized patent costs periodically to determine that they have future value and an alternative future use.

Costs related to patents that the Company is not actively pursuing for commercial purposes are expensed.

The Company amortizes patent costs over the lesser of the duration of the patent term or the estimated useful lives of 10 years , beginning with the date the patents are issued or acquired.

The Company periodically re-evaluates the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of all of its long-lived assets, including property and equipment and acquired patents.

The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the asset to the Company’s business objective.

Landlord improvement allowances and other similar lease incentives are recorded as a reduction of the right-of-use leased assets, and are amortized on a straight-line basis as a reduction to operating lease costs.

Intangible Assets Subject to Amortization

On June 24, 2020, the Company acquired Sugarmate, Inc.

(Sugarmate), the developer of a popular mobile app for people with diabetes who use insulin, which is designed to help people with diabetes visualize diabetes therapy data in innovative ways.

The Sugarmate acquisition was accounted for as an acquisition of assets in accordance with ASU No.

2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business.

Substantially all of the fair value was concentrated in a single identifiable asset, a technology-based intangible asset.

The purchased intangible is being amortized on a straight-line basis over an estimated useful life of five years .

The Company’s results of operations for the year ended December 31, 2020 included the operating results of Sugarmate since the date of acquisition, the amounts of which were not material.

Finite-lived intangible assets are recorded at cost, net of accumulated amortization and, if applicable, impairment charges.

Amortization of finite-lived intangible assets is provided over their estimated useful lives on a straight-line basis.

We review our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company has not recognized any impairment losses through December 31, 2020.

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For further information, see Note 8, "Income Taxes."

Convertible Senior Notes

In accounting for the issuance of the convertible senior notes, the Company separated the notes into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of similar debt instruments that do not have associated convertible features.

The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the respective notes.

The equity component is not remeasured as long as it continues to meet the condition for equity classification.

The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the notes.

The Company allocated the issuance costs incurred to the liability and equity components of the notes based on their relative fair values.

Issuance costs attributable to the liability component were recorded as a reduction to the liability portion of the notes and are being amortized to interest expense over the term of the notes.

Issuance costs attributable to the equity component, representing the conversion option, were netted with the equity component in stockholders' equity.

Revenue Recognition

Revenue is generated primarily from sales of insulin pumps, disposable cartridges and infusion sets to individual customers and third-party distributors that resell the products to insulin-dependent diabetes customers.

In January 2018, the Company adopted the Revenue from Contracts with Customers Standard which superseded existing revenue guidance under U.S.

GAAP and International Financial Reporting Standards.

Pursuant to the Revenue from Contracts with Customers Standard’s core principle, subsequent to January 1, 2018, the Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

The Company elected to implement this new standard utilizing the modified retrospective method.

Under this approach, the Company applied the new standard to all new contracts initiated on or after the effective date, and for contracts which had remaining obligations as of the effective date the Company recorded an adjustment to the opening balance of accumulated deficit.

The accounting for the significant majority of the Company’s revenues was not impacted by the new guidance.

On January 1, 2018, the Company recorded a net reduction to accumulated deficit in the amount of $ 149,000 , to reflect the impact of the accounting change.

Prior to the implementation of this new standard, revenue was recognized when persuasive evidence of an arrangement existed, delivery had occurred and title passed, the price was fixed or determinable, and collectability was reasonably assured.

Revenue Recognition for Arrangements with Multiple Deliverables

Revenue is generated primarily from sales of insulin pumps, disposable cartridges and infusion sets to individual customers with third-party insurance coverage and through a network of distributors that resell the products to insulin-dependent diabetes customers.

The Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

Revenue Recognition for Arrangements with Multiple Performance Obligations

The Company considers the individual deliverables in its product offering as separate performance obligations.

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The Company allocates the consideration to the individual performance obligations and recognizes the consideration based on when the performance obligation is satisfied, considering whether or not this occurs at a point in time or over time.

Generally, insulin pumps, cartridges, infusion sets and accessories are deemed performance obligations that are satisfied at a point in time when the customer obtains control of the promised good, which is upon delivery.

Complementary products, such as the t:connect cloud-based data management application and the Tandem Device Updater, are considered performance obligations that are satisfied over time, as access and support for these products is provided throughout the typical four-year warranty period of the insulin pumps.

Complementary products, such as t:connect and the Tandem Device Updater, are considered performance obligations that are satisfied over time, as access and support for these products is provided throughout the typical four-year warranty period of the insulin pumps.

Accordingly, revenue related to the complementary products is deferred and recognized ratably over a four-year period.

There is no standalone value for these complementary products.

Therefore, the Company determines their value by applying the expected cost plus a margin approach and then allocates the residual to the insulin pumps.

At December 31, 2019 and 2018 , deferred revenue for these performance obligations that are satisfied over time was $ 3.5 million and $ 4.3 million , respectively, classified as current deferred revenue.

At December 31, 2019, $ 5.7 million was classified as non-current deferred revenue which is included in other long-term liabilities on the consolidated balance sheets.

Where there is no standalone value for the complementary product, the Company determines their value by applying the expected cost plus a margin approach and then allocates the residual to the insulin pumps.

Deferred revenue related to these performance obligations that are satisfied over time was included in the following consolidated balance sheet accounts in the amounts shown as of December 31, 2020 and 2019 (in thousands):

December 31, 2020 December 31, 2019

Deferred revenue $ 5,508 $ 3,465

Other long-term liabilities 10,426 5,656

Total $ 15,934 $ 9,121

Sales Returns

The Company offers a 30-day right of return to its customers from the date of shipment of any of its insulin pumps, provided a physician’s confirmation of the medical reason for the return is received.

Estimated allowances for sales returns are based on historical returned quantities as compared to pump shipments in those same periods of return.

The return rate is then applied to the sales of the current period to establish a reserve at the end of the period.

The return rates used in the reserve are adjusted for known or expected changes in the marketplace when appropriate.

The allowance for sales returns is recorded as a reduction of revenue and an increase in deferred revenue in the period in which the related sale is recorded.

The Company offers a 30 -day right of return to customers in the U.S.

and Canada from the date of shipment of its insulin pumps, provided a physician’s confirmation of the medical reason for the return is received.

Estimated allowances for sales returns are based on historical returned quantities as compared to pump shipments in those same periods of return, adjusted for known or expected changes in the marketplace when appropriate.

The amount recorded in deferred revenue on the Company’s consolidated balance sheets for allowances for sales returns was $ 0.6 million and $ 0.4 million at December 31, 2020 and 2019, respectively.

Actual product returns have not differed materially from estimated amounts reserved in the accompanying consolidated financial statements.

Actual product returns have not differed materially from estimated amounts recorded in the accompanying consolidated financial statements.

Warranty Reserve

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Estimated warranty costs are recorded at the time of shipment.

We evaluate the reserve quarterly.

The Company evaluates the reserve quarterly.

Warranty costs are primarily estimated based on the current expected product replacement cost and expected replacement rates utilizing historical experience.

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The Company may make further adjustments to the warranty reserve when deemed appropriate, giving additional consideration to length of time the pump version has been in the field and future expectations of performance based on new features and capabilities that may become available through Tandem Device Updater.

At December 31, 2019 and December 31, 2018 , the warranty reserve was $ 16.7 million and $ 9.1 million , respectively.

The following table provides a reconciliation of the change in estimated warranty liabilities for the years ended December 31, 2019 and 2018 :

The following table provides a reconciliation of the changes in product warranty liabilities for the years ended December 31, 2020, 2019 and 2018:

Year Ended December 31,

(in thousands) 2020 2019 2018

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Settlements made during the period ( 13,736 ) ( 10,167 ) ( 7,797 )

Increase (decrease) in warranty estimates

(Decrease) increase in warranty estimates ( 2,048 ) ( 582 ) 1,678

Balance at end of the year $ 22,075 $ 16,724 $ 9,138

Current portion

Non-current portion

As of December 31, 2020 and December 31, 2019, total product warranty reserves of $ 22.1 million and $ 16.7 million, respectively, were included in the following consolidated balance sheet accounts:

(in thousands) 2020 2019

Other current liabilities $ 8,409 $ 4,707

Other long-term liabilities 13,666 12,017

Total warranty reserve $ 22,075 $ 16,724

Stock-Based Compensation

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The Black-Scholes option-pricing model requires the use of assumptions about a number of variables, including stock price volatility, expected term, dividend yield and risk-free interest rate.

For awards that vest based on the achievement of service conditions, the Company recognizes expense using the straight-line method less estimated forfeitures based on historical experience.

The fair value of restricted stock unit (RSU) awards issued under the Company’s 2013 Plan that vest solely based on service is estimated based on the fair market value of the underlying stock on the date of grant.

Common Stock Warrant Liabilities

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The fair value of these common stock warrants is remeasured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense) in the accompanying statements of operations and comprehensive loss.

Advertising Costs

The Company expenses advertising costs as they are incurred.

For the years ended December 31, 2019 , 2018 and 2017 , advertising costs were $ 0.9 million , $ 0.9 million , and $ 1.1 million , respectively.

Shipping and Handling Expenses

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Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares that were outstanding for the period, without consideration for common stock equivalents.

Diluted loss per share is calculated in accordance with the treasury stock method and reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock.

Dilutive common share equivalents are comprised of warrants, potential awards granted pursuant to the ESPP, and stock options outstanding under the Company’s equity incentive plans.

For warrants that are recorded as a liability in the accompanying consolidated balance sheets, the calculation of diluted loss per share requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of the warrants and the presumed exercise of the warrants is dilutive to loss per share for the period, an adjustment is made to net loss used in the calculation to remove the change in fair value of the warrants from the numerator for the period.

Diluted loss per share reflects the potential dilution that would occur if securities exercisable for or convertible into common stock were exercised for or converted into common stock.

Dilutive common share equivalents are comprised of warrants, stock options outstanding under the Company’s equity incentive plans, unvested RSUs, and potential awards granted pursuant to the ESPP, each calculated using the treasury stock method;

and shares issuable upon conversion of the senior convertible notes using the if-converted method.

For warrants that are recorded as a liability in the accompanying condensed consolidated balance sheets, the calculation of diluted loss per share requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of the warrants and the presumed exercise of the warrants is dilutive to loss per share for the period, an adjustment is made to net loss used in the calculation to remove the change in fair value of the warrants from the numerator for the period.

Likewise, an adjustment to the denominator is required to reflect the related dilutive shares, if any, under the treasury stock method.

For the annual periods ended December 31, 2019 , 2018 and 2017 , there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position (see Note 11, "Selected Quarterly Financial Data (Unaudited)" for further details).

Potentially dilutive securities not included in the calculation of diluted net loss per share (because inclusion would be anti-dilutive) are as follows (in common stock equivalent shares, in thousands):

For the annual periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position (see Note 12, "Selected Quarterly Financial Data (Unaudited)" for quarterly details).

Potentially dilutive securities outstanding and not included in the calculation of diluted net loss per share (because inclusion would be anti-dilutive) are as follows (in thousands, in common stock equivalent shares):

Year Ended December 31,

2020 2019 2018

Warrants to purchase common stock 379 611 705

Options to purchase common stock 5,021 5,619 3,477

Unvested restricted stock units 78 N/A N/A

Awards granted under the ESPP 3 5 4

Accounting Pronouncements Issued and Not Yet Adopted

Convertible senior notes (if-converted) 1,605 N/A N/A

7,086 6,235 4,186

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

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The new standard requires the use of forward-looking expected credit loss models based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new standard.

The new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income (loss) rather than reducing the carrying amount under the current, other-than-temporary-impairment model.

The standard is effective for public business entities for annual periods beginning after December 15, 2019, and interim periods within those years.

The Company will implement the new standard in the first quarter of 2020, and does not expect the adoption to have a material financial impact on its consolidated financial statements based on current economic conditions, its outstanding accounts receivable, and the composition and credit quality of its short-term investments.

The new standard must be adopted using the modified retrospective approach and was effective for the Company starting in the first quarter of 2020.

The Company determined there was no cumulative-effect transition adjustment to the opening balance of accumulated deficit for recognition of additional credit losses upon adoption of this standard as of January 1, 2020 based on its outstanding accounts receivable, the composition and credit quality of its short-term investments, and current economic conditions as of that date.

In August 2018, the FASB issued ASU No.

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However, public companies 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.

The updated guidance is effective for annual periods beginning after December 15, 2019, and interim periods within those periods, with early adoption permitted.

The Company will implement the updated guidance in the first quarter of 2020, which will modify certain fair value measurement disclosures primarily related to our Level 3 liabilities.

The updated guidance was effective for the Company starting in the first quarter of 2020.

As a result, the Company modified certain fair value measurement disclosures primarily related to its Level 3 liabilities (see Note 4, “Fair Value Measurements”).

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes , which is intended to simplify various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law.

ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted.

The Company early adopted the new guidance in the second quarter of 2020.

As a result, the Company recognized, on a prospective basis, $ 13,000 of income tax expense in the second quarter of 2020 upon the reversal of tax benefits recorded in the first quarter of 2020 related to unrealized gains on short-term investments.

In June 2020, the FASB issued ASU No.

2020-06, Accounting for Convertible Instruments and Contracts in

an Entity’s Own Equity , which is intended to simplify the accounting for convertible instruments.

This new guidance eliminates certain models that require separate accounting for embedded conversion features, and eliminates certain of the conditions for equity classification for contracts in an entity’s own equity.

Accordingly, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives.

The new guidance can be adopted through either a modified retrospective method of transition or a fully retrospective method of transition.

ASU 2020-06 is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company is in the process of determining the impact of the adoption of the standard on its consolidated financial statements as well as whether to early adopt the new standard.

Financial Statement Information

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The following represents a summary of the estimated fair value of short-term investments at December 31, 2020 and 2019 (in thousands):

At December 31, 2019

At December 31, 2020 Maturity

(in years) Amortized

Cost Gross Unrealized

Gain Gross Unrealized

Loss Estimated

Available-for-sale securities:

Commercial paper

Government-sponsored enterprise

Treasury securities

Corporate debt securities

At December 31, 2018

Commercial paper Less than 1

$ 108,892 $ 5 $ ( 1 ) $ 108,896

Government-sponsored enterprise Less than 2

52,330 21 ( 1 ) 52,350

Treasury securities Less than 2

143,244 12 ( 2 ) 143,254

Corporate debt securities Less than 2

85,788 48 ( 13 ) 85,823

Total $ 390,254 $ 86 $ ( 17 ) $ 390,323

At December 31, 2019 Maturity

(in years) Amortized

Cost Gross Unrealized

Gain Gross Unrealized

Loss Estimated

Available-for-sale securities:

Commercial paper

Treasury securities

Corporate debt securities

The Company has classified all marketable securities, regardless of maturity, as short-term investments based upon the Company's ability and intent to use any and all of those marketable securities to satisfy the Company's current liquidity requirements.

Commercial paper Less than 1

$ 24,147 $ 10 $ — $ 24,157

Government-sponsored enterprise Less than 2

33,073 26 — 33,099

Treasury securities Less than 2

17,963 17 ( 1 ) 17,979

Corporate debt securities Less than 2

50,011 42 ( 5 ) 50,048

Total $ 125,194 $ 95 $ ( 6 ) $ 125,283

The Company has classified all marketable securities, regardless of maturity, as short-term investments based upon the Company’s ability and intent to use any of those marketable securities to satisfy the Company’s liquidity requirements.

The Company periodically reviews the portfolio of available-for-sale debt securities to determine if any investment is other-than-temporarily impaired due to changes in credit risk or other potential valuation concerns.

The Company believes that the short-term investments held at December 31, 2019 were not other-than-temporarily impaired.

Unrealized losses on available-for-sale debt securities at that date were not significant and were due to changes in interest rates, including credit spreads, and not due to increased credit risks associated with specific securities.

Unrealized losses on available-for-sale debt securities at that date were not significant and were due to changes in interest rates, including credit spreads, from perceived increased credit risks as a result of the COVID-19 global pandemic.

The Company does not intend to sell the available-for-sale debt securities that are in an unrealized loss position, and it is not more likely than not that the Company will be required to sell these debt securities before recovery of their amortized cost bases, which may be at maturity.

Based on the credit quality of the available-for-sale debt securities that are in an unrealized loss position, and the Company’s estimates of future cash flows to be collected from those securities, the Company believes the unrealized losses are not credit losses.

Accordingly, the Company has not recognized any impairment losses related to its available-for-sale debt securities at December 31, 2020.

Accounts Receivable

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Accounts receivable $ 86,052 $ 49,889

Less allowance for doubtful accounts

allowance for credit losses ( 3,857 ) ( 3,304 )

Accounts receivable, net $ 82,195 $ 46,585

The following table provides a reconciliation of the change in estimated allowance for doubtful accounts for the years ended December 31, 2019 , 2018 and 2017 (in thousands):

Allowance for

Doubtful Accounts

Balance at December 31, 2016

Provision for doubtful accounts

Write-offs and adjustments, net of recoveries

Balance at December 31, 2017

Provision for doubtful accounts

Write-offs and adjustments, net of recoveries

Balance at December 31, 2018

Provision for doubtful accounts

Allowance for Credit Losses

The following table provides a reconciliation of the changes in the estimated allowance for expected accounts receivable credit losses (formerly the allowance for doubtful accounts) for the years ended December 31, 2020, 2019 and 2018 (in thousands):

Year Ended December 31,

2020 2019 2018

Balance at beginning of the year $ 3,304 $ 1,837 $ 1,035

Provision for expected credit losses 3,016 2,322 1,448

Write-offs and adjustments, net of recoveries ( 2,463 ) ( 855 ) ( 646 )

Balance at December 31, 2019

Balance at end of the year $ 3,857 $ 3,304 $ 1,837

Inventories consisted of the following at (in thousands):

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Finished goods 17,177 11,842

Inventories, net

Total inventories $ 63,721 $ 49,073

Property and Equipment

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Manufacturing and scientific equipment 44,026 33,422

Less accumulated depreciation and amortization

Property and equipment, net

Total cost 88,955 62,788

accumulated depreciation and amortization ( 38,933 ) ( 29,865 )

Total property and equipment, net $ 50,022 $ 32,923

Depreciation and amortization expense related to property and equipment was $ 9.2 million, $ 5.7 million, and $ 5.5 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Intangible Assets Subject to Amortization

Intangible assets subject to amortization consist of patents purchased or licensed that are related to the Company’s commercialized products.

Capitalized patents at December 31, 2019 and 2018 , which are included in other long-term assets on the consolidated balance sheets, are as follows (in thousands):

Intangible assets subject to amortization consist of technology-based intangibles related to the Company’s acquisition of Sugarmate, as well as patents purchased or licensed that are related to the Company’s commercialized products.

Intangible asset s at December 31, 2020 and 2019, which were included in other long-term assets on the consolidated balance sheets, were as follows (in thousands):

Intangible assets, gross amount $ 12,502 $ 3,247

Accumulated amortization ( 3,697 ) ( 2,470 )

Weighted average remaining amortization

period (in months)

Amortization expense related to intangible assets subject to amortization amounted to $ 0.3 million for each of the years ended December 31, 2019 , 2018 , and 2017 .

The amortization expense is recorded in cost of sales in the consolidated statement of operations.

The estimated annual amortization is $ 0.3 million for annual periods 2020 and 2021, and $ 0.2 million in 2022.

Intangible assets, net $ 8,805 $ 777

Weighted average remaining amortization period (in months) 52 30

Amortization expense related to intangible assets subject to amortization amounted to $ 1.2 million, $ 0.3 million and $ 0.3 million for the years ended December 31, 2020, 2019, and 2018, respectively.

The amortization expense is recorded in cost of sales and selling, general and administrative expense in the consolidated statement of operations.

The estimated aggregate amortization expense for each of the five succeeding years is $ 2.2 million for 2021, $ 2.0 million for 2022, $ 1.9 million for each of 2023 and 2024, and $ 0.9 million for 2025.

Fair Value Measurements

Authoritative guidance on fair value measurements defines fair value, establishes a consistent framework for measuring fair value, and expands disclosures for each major asset and liability category measured at fair value on either a recurring or a nonrecurring basis.

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

Authoritative guidance on fair value measurements defines fair value, and provides a consistent framework for measuring fair value and for disclosures of each major asset and liability category measured at fair value on either a recurring or a nonrecurring basis.

Fair value is intended to reflect an assumed exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or

As a basis for considering such assumptions, the authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

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December 31, 2020

December 31, 2019

December 31, 2020 Level 1 Level 2 Level 3

Cash equivalents (1)

$ 87,300 $ 87,300 $ — $ —

Commercial paper 108,896 — 108,896 —

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Corporate debt securities 85,823 — 85,823 —

Total assets $ 477,623 $ 230,554 $ 247,069 $ —

Common stock warrants $ 14,261 $ — $ — $ 14,261

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December 31, 2019

December 31, 2018

December 31, 2019 Level 1 Level 2 Level 3

Cash equivalents (1)

$ 43,520 $ 43,520 $ — $ —

Commercial paper 24,157 — 24,157 —

Government-sponsored enterprise 33,099 — 33,099 —

Treasury securities 17,979 17,979 — —

Corporate debt securities 50,048 — 50,048 —

Total assets $ 168,803 $ 61,499 $ 107,304 $ —

Common stock warrants $ 23,509 $ — $ — $ 23,509

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The Company validates these prices through independent valuation testing and review of portfolio valuations provided by the Company’s investment managers.

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

The Company's Level 3 liabilities at December 31, 2019 and 2018 included the Series A warrants issued by the Company in connection with the public offering of common stock in October 2017.

The Series A warrants have a term of five years and initially provided holders the right to purchase 4,630,000 shares of the Company’s common stock at an exercise price of $ 3.50 per share.

The Company's Level 3 liabilities at December 31, 2020 and 2019 included the remaining Series A warrants issued by the Company in connection with the public offering of common stock in October 2017.

The Series A warrants, which expire in October 2022, initially provided holders the right to purchase 4,630,000 shares of the Company’s common stock at an exercise price of $ 3.50 per share.

The Series A warrants were initially valued in the aggregate amount of $ 5.2 million on the date of issuance utilizing a Black-Scholes pricing model.

During the years ended December 31, 2020 and 2019, the Company issued 262,615 shares and 93,470 shares of common stock, respectively, upon the exercise of Series A warrants.

As of December 31, 2020 and 2019, there were Series A warrants outstanding to purchase 154,700 shares and 417,315 shares, respectively, of the Company’s common stock (see Note 7, “Stockholders’ Equity”).

The Company reassesses the fair value of the outstanding Series A warrants at each reporting date utilizing a Black-Scholes pricing model.

Inputs used in the pricing model include estimates of stock price volatility, expected warrant life and risk-free interest rate.

Variables used in the pricing model include the closing market price of the Company’s common stock at the balance sheet date, and estimates of stock price volatility, dividend yield, expected warrant term and risk-free interest rate.

The Company develops its estimates based on publicly available historical data.

A significant increase (decrease) in any of these inputs in isolation, particularly the market price of the Company’s common stock, would have resulted in a significantly higher (lower) fair value measurement .

The assumptions used to estimate the fair values of the outstanding Series A warrants at December 31, 2020 and 2019 are presented below:

Series A Warrants

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Risk-free interest rate 0.1 % 1.6 %

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Expected term (in years) 1.8 2.8

The following table presents a summary of changes in fair value of the Company’s total Level 3 financial assets for the years ended December 31, 2019 and 2018 :

The following table presents a summary of changes in fair value of the Company’s total Level 3 financial liabilities for the years ended December 31, 2020 and 2019:

Balance at beginning of year $ 23,509 $ 17,926

Increase in fair value included in change

in fair value of common stock warrants

Decrease in fair value from warrants exercised

during the period

Loss recognized from the change in fair value of common stock warrants 17,087 11,075

Decrease in fair value from warrants exercised during the period ( 26,335 ) ( 5,492 )

Balance at end of year $ 14,261 $ 23,509

During the year ended December 31, 2019, the Company issued 93,470 shares of common stock upon the exercise of Series A warrants.

During the year ended December 31, 2018, the Company issued 8,603,321 shares of common stock upon the exercise of certain warrants issued in October 2017, and 13,450 warrants expired unexercised.

As of December 31, 2019 , there were Series A warrants outstanding to purchase 417,315 shares of the Company's common stock (see Note 6, "Stockholders' Equity").

In February 2016, the FASB issued ASU No.

2016-02, Leases .

The new standard and its related amendments (collectively referred to as ASC 842) requires lessees to recognize right-of-use assets and corresponding lease liabilities for all leases with lease terms of greater than 12 months.

It also changed the definition of a lease and expanded the disclosure requirements of lease arrangements.

In July 2018, the FASB added a transition option for implementation of the standard that allowed companies to continue to use the legacy guidance in ASC 840, Leases , including its disclosure requirements, in the comparative periods presented in the year of adoption.

The new standard must be adopted using the modified retrospective approach and was effective for the Company starting in the first quarter of fiscal 2019.

The Company elected the transition option and certain practical expedients, resulting in the recognition of right-of-use leased assets and corresponding operating lease liabilities of $ 12.4 million on the consolidated balance sheet upon adoption of the standard as of January 1, 2019.

The Company did not restate prior periods.

The Company's leases consist primarily of operating leases for general office space, laboratory, manufacturing and warehouse facilities, and equipment.

Leases with an initial term of 12 months or less are not recorded on the balance sheets.

The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Because the Company's leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments.

The Company used the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that date.

For lease agreements entered into or reassessed after the adoption of ASC 842, the Company combines lease and non-lease components.

Of the loss recognized from the change in fair value of common stock warrants for the years ended December 31, 2020 and 2019, $ 5.5 million and $ 8.9 million, respectively, was attributable to warrants outstanding as of December 31, 2020 and 2019.

The Company's leases consist of operating leases for general office space, laboratory, manufacturing and warehouse facilities, and equipment.

These noncancellable operating leases have initial lease terms from one year to seven years .

Leases with an initial term of 12 months or less are expensed as incurred and are not recorded as right-of-use assets on the consolidated balance sheets.

Certain leases include an option to renew, with renewal terms that can extend the lease term for additional periods.

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The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option that is reasonably certain to be exercised.

In January 2019, the Company entered into a lease agreement for approximately 25,332 square feet of additional general administrative office space (Initial Premises) located at 10935 Vista Sorrento Parkway, San Diego, California (Vista Sorrento Parkway Lease).

The Company recognizes lease expense for operating leases on a straight-line basis over the lease term.

Because the Company's leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the lease Commencement Date in determining the present value of future lease payments.

The Company used the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that date.

In January 2019, the Company entered into a lease agreement for approximately 25,332 square feet of additional general administrative office space (Initial Premises) located on Vista Sorrento Parkway, in San Diego, California (Vista Sorrento Lease).

The lease term for the Initial Premises commenced in March 2019 and expires in September 2022.

In May 2019, the Company entered into a First Amendment to the Vista Sorrento Parkway Lease (First Amendment) to expand the leased premises by adding approximately 33,681 square feet of additional general administrative office space (Expansion Space), and to extend the lease term for the Initial Premises through January 2023.

In May 2019, the Company entered into a First Amendment to the Vista Sorrento Lease (First Amendment) to expand the leased premises by adding approximately 33,681 square feet of additional general administrative office space (Expansion Space), and to extend the lease term for the Initial Premises through January 2023.

The lease term for the Expansion Space commenced in May 2019 and expires in January 2023.

The Company has a one-time option to extend the term of the Vista Sorrento Parkway Lease, covering both the Initial Premises and the Expansion Space, for a period of four years .

The Company recognized right-of-use leased assets and corresponding operating lease liabilities of $ 3.1 million on the consolidated balance sheet related to the Initial Premises, and $ 4.7 million related to the First Amendment to the Vista Sorrento Parkway Lease.

In March 2019, the Company entered into a lease agreement for approximately 40,490 square feet of space located at 6495 Marindustry Place, San Diego, California to house additional operations functions, including warehousing and shipping (Marindustry Place Lease).

The Company has a one -time option to extend the term of the Vista Sorrento Lease, covering both the Initial Premises and the Expansion Space, for a period of four years .

The Company recognized right-of-use leased assets and corresponding operating lease liabilities of $ 3.1 million on the consolidated balance sheet in the first quarter of 2019 related to the Initial Premises, and $ 4.7 million related to the First Amendment.

In March 2019, the Company entered into a lease agreement for approximately 40,490 square feet of space located on Marindustry Place, San Diego, California to house additional operations functions, including warehousing and shipping (Marindustry Place Lease).

The lease term commenced in May 2019 and expires in April 2026.

The Company has a one -time option to extend the term of the Marindustry Place Lease for a period of no less than three years and no more than five years .

The Company recognized right-of-use leased assets and corresponding operating lease liabilities of $ 3.4 million on the consolidated balance sheet related to the Marindustry Place Lease.

T he Company's total lease cost recorded in the consolidated statements of operations was $ 5.7 million for the year ended December 31, 2019 , which included $ 5.5 million of operating lease cost and $ 0.2 million of short-term lease cost.

Rent expense for the years ended December 31, 2018 and 2017 was $ 2.6 million and $ 3.5 million , respectively.

Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows from operating leases, was $ 4.3 million for the year ended December 31, 2019 .

The Company recognized right-of-use leased assets and corresponding operating lease liabilities of $ 3.4 million on the consolidated balance sheet on the Commencement Date in the second quarter of 2019.

In November 2019, the Company entered into a lease agreement for approximately 94,562 square feet of additional general office space located on Shoreline Drive, in Boise, Idaho (Shoreline Lease).

The lease term commenced on July 1, 2020, and expires in June 2027.

The Company has a one -time option to extend the term of the Shoreline Lease for a period of three years .

The Company recognized right-of-use leased assets and corresponding operating lease liabilities of approximately $ 6.5 million on the consolidated balance sheet on the Commencement Date in the first quarter of 2020.

In January 2020, the Company entered into a sub-lease agreement for approximately 30,703 square feet of general office space located on High Bluff Drive, in San Diego, California.

The lease term began in April 2020 and expires in March 2022.

The Company recognized right-of-use leased assets and corresponding operating lease liabilities of approximately $ 2.3 million on the consolidated balance sheet on the Commencement Date in the first quarter of 2020.

In September 2020, the Company amended certain leases covering approximately 77,000 square feet of general office and laboratory space located on Roselle Street in San Diego, California (Roselle Street Leases).

The lease amendments extended the term of each lease for an additional period of one year , and included a rent increase during the additional lease term.

The Roselle Street Leases, which would have expired in May 2022, are now scheduled to expire in May 2023.

The Company recognized additional right-of-use leased assets and corresponding operating lease liabilities of $ 2.2 million on the consolidated balance sheet in the third quarter of 2020 related to the amendment of the Roselle Street Leases.

The Company’s lease cost recorded in the consolidated statements of operations was as follows (in thousands):

Year Ended December 31,

2020 2019 2018

Operating lease cost $ 7,514 $ 4,542 $ 2,557

Short-term lease cost 219 165 46

Total lease cost $ 7,733 $ 4,707 $ 2,603

Maturities of operating lease liabilities at December 31, 2020 were as follows (in thousands):

Year Ending December 31,

Thereafter 2,099

Total undiscounted lease payments 28,373

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Operating lease liabilities - long-term $ 15,914

As of December 31, 2019 , the weighted average remaining lease term for operating leases was 3.6 years and the weighted-average discount rate used to determine the operating lease liabilities was 6.6 % .

In November 2019, the Company entered into a lease agreement for approximately 94,562 square feet of additional general office space located in Boise, Idaho (Shoreline Lease).

Subject to limited exceptions, the initial lease term is expected to commence on the earlier of (i) the date on which the Company substantially completes certain specified work related to tenant improvements, (ii) the date on which the Company commences use of the premises, or (iii) July 1, 2020 (the Commencement Date), and will expire 84 months from the first day of the first full month following the Commencement Date.

The Company has a one-time option to extend the term of the Shoreline Lease for a period of three years.

The Company currently estimates that it will recognize right-of-use leased assets and corresponding operating lease liabilities of approximately $ 6.6 million on the consolidated balance sheet upon the lease commencement in the first quarter of 2020.

Future minimum payments due under the Shoreline Lease are approximately $ 8.2 million .

The weighted-average remaining lease term and weighted-average discount rate for operating leases were as follows:

December 31, 2020 December 31, 2019

Weighted-average remaining lease term (in years) 3.7 3.6

Weighted-average discount rate used to determine operating lease liabilities 5.9 % 6.6 %

Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows from operating leases, was $ 8.2 million and $ 4.4 million for the years ended December 31, 2020 and 2019, respectively .

Convertible Senior Notes

In May 2020, the Company entered into a purchase agreement with certain counterparties for the sale of an aggregate of $ 287.5 million principal amount of 1.50 % Convertible Senior Notes due 2025 in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

The Notes were issued pursuant to an Indenture, dated May 15, 2020, between the Company and U.S.

Bank National Association, as trustee (Indenture).

The net proceeds from the issuance of the Notes were $ 244.6 million, net of debt issuance costs and cash used to purchase the capped call transactions (Capped Call Transactions) discussed below.

The Notes are the Company’s senior unsecured obligations.

Interest is payable in cash semi-annually in arrears beginning on November 1, 2020 at a rate of 1.50 % per year.

The Notes mature on May 1, 2025 unless repurchased, redeemed, or converted in accordance with their terms prior to the maturity date.

The Notes are convertible into cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s election, at an initial conversion rate of 8.8836 shares of common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $ 112.57 (Conversion Price) per share of the Company’s common stock.

The conversion rate is subject to customary adjustments for certain events as described in the Indenture.

The Company may not redeem the Notes prior to May 6, 2023.

The Company has the option to redeem for cash all or any portion of the Notes on or after May 6, 2023 if the last reported sale price of the Company’s common stock has been at least 130 % of the Conversion Price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period, at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest.

No sinking fund is provided for the Notes.

Holders of the Notes may convert all or a portion of their Notes at their option prior to November 1, 2024, in multiples of $1,000 principal amounts, only under the following circumstances:

• if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the applicable conversion price of the Notes on each such trading day;

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

• if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date;

• on the occurrence of specified corporate events.

On or after November 1, 2024, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the foregoing circumstances.

Holders of the Notes who convert in connection with a make-whole fundamental change, as defined in the Indenture, or in connection with a redemption are entitled to an increase in the conversion rate.

Additionally, in the event of a fundamental change, as defined in the Indenture, holders of the Notes may require us to repurchase all or a portion of the Notes at a price equal to 100 % of the principal amount of the Notes, plus any accrued and unpaid interest.

In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of similar debt instruments, which do not have an associated convertible feature.

The amount of the equity component representing the conversion option for the Notes was $ 88.5 million and was recorded as a debt discount, which is amortized to interest expense at an effective interest rate of 9.9 %.

The Company allocated $ 2.7 million of debt issuance costs to the equity component and the remaining debt issuance costs of $ 6.1 million were allocated to the liability component, which are amortized to interest expense under the effective interest rate method.

The equity component of the Notes will not be remeasured as long as it continues to meet the conditions for equity classification.

It is the Company’s intent and policy to settle conversions through combination settlement, which essentially involves payment in cash equal to the principal portion and delivery of shares of common stock for the excess of the conversion value over the principal portion.

The liability and equity components of the Notes consisted of the following (in thousands):

December 31, 2020

Principal $ 287,500

Unamortized debt discount and debt issuance costs ( 84,516 )

Net carrying amount $ 202,984

Carrying amount of the equity component $ 85,803

As of December 31, 2020, the debt discount and debt issuance costs associated with the Notes will be amortized over the remaining period of approximately 4.3 years using the effective interest method.

The following table details interest expense recognized related to the Notes for the year ended December 31, 2020 (in thousands):

December 31, 2020

Contractual interest expense $ 2,707

Amortization of debt issuance costs 652

Amortization of debt discount 9,446

Total interest expense $ 12,805

The Notes will have a dilutive effect to the extent the average market price per share of common stock for a given reporting period exceeds the conversion price of $ 112.57 .

As of December 31, 2020, the “if-converted value” did not exceed the principal amount of the Notes.

Capped Call Transactions

In connection with the issuance of the Notes, the Company entered into Capped Call Transactions with certain counterparties at a net cost of $ 34.1 million.

The Capped Call Transactions are intended to reduce potential dilution to holders of the Company’s common stock beyond the conversion price of $ 112.57 , up to a conversion price of $ 173.18 on any conversion of the Notes, or to offset any cash payments the Company is required to make in excess of the principal amount of such converted Notes, as the case may be, with such reduction or offset subject to a cap.

The cap price of the Capped Call Transactions is initially $ 173.18 per share of the Company’s common stock, representing a premium of 100% above the last reported sale price of $ 86.59 per share of the Company’s common stock on May 12, 2020, and is subject to certain adjustments under the terms of the Capped Call Transactions.

Conditions that cause adjustments to the initial strike price of the Capped Call Transactions mirror conditions that result in corresponding adjustments for the Notes.

For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Notes.

As these transactions meet certain criteria under the applicable accounting guidance, the Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives.

The cost of the Capped Call Transactions was recorded as a reduction of the Company’s additional paid-in capital in the Company’s consolidated balance sheet and will not be remeasured.

Term Loan Agreement

In August 2018, the Company fully repaid the term loan made by Capital Royalty Partners II, L.P.

and its affiliated funds (CRG) pursuant to the Amended and Restated Term Loan Agreement (Term Loan Agreement).

The balance of the outstanding debt during 2018 up until the time of repayment was $ 82.7 million, and was included in Notes payable long-term in the consolidated balance sheet, offset by the debt discount associated with financing fees and certain debt issuance costs.

At the time of repayment, the remaining unamortized debt discount of $ 5.3 million was accelerated and recognized as a loss on extinguishment of debt in the consolidated statement of operations for the year ended December 31, 2018.

The total repayment amount of $ 88.8 million included approximately $ 1.1 million in accrued interest, and approximately $ 5.0 million in associated financing fees that became due.

Under the Term Loan Agreement, interest was payable at the Company’s option, (i) in cash at a rate of 11.5 % per annum, or (ii) at a rate of 9.5 % of the 11.5 % per annum in cash and 2.0 % of the 11.5 % per annum (PIK Loan) to be added to the principal of the loan and subject to accruing interest.

Stockholders’ Equity (Deficit)

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The gross proceeds from the offering were approximately $ 69.0 million, before deducting underwriting discounts and commissions and other offering expenses .

From July 2017 through September 2017, the Company sold 464,108 shares of common stock under our “at-the-market” offering program at prices ranging from $ 5.64 to $ 10.54 .

The gross proceeds from the offering were $ 4.3 million , before deducting underwriting discounts and commissions and other offering expenses.

In the fourth quarter of 2017, the Company completed the October Financing, pursuant to which it sold 4,630,000 shares of common stock, Series A warrants to purchase up to 4,630,000 shares of our common stock and Series B warrants to purchase up to 4,630,000 shares of common stock at a public offering price of $ 3.50 per share and accompanying warrants (October Financing).

The gross proceeds from the October Financing were approximately $ 16.2 million , before deducting underwriting discounts and commissions and other offering expenses.

In the first quarter of 2018, the Company completed a registered public offering of 34,500,000 shares of common stock at a public offering price of $ 2.00 per share.

The gross proceeds from the offering were approximately $ 69.0 million , before deducting underwriting discounts and commissions and other offering expenses .

In the third quarter of 2018, the Company completed a public offering of 4,035,085 shares of common stock at a public offering price of $ 28.50 per share.

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The following shares of the Company's common stock were reserved for future issuance at December 31, 2020 (in thousands):

Shares reserved for issuance upon conversion of Convertible Senior Notes 2,554

Shares underlying outstanding warrants 379

Shares underlying outstanding stock options 5,804

Shares authorized for future equity award grants

Shares underlying unvested restricted stock units 133

Shares authorized for issuance pursuant to awards granted under the ESPP 1,389

Shares authorized for future equity award grants 2,039

Common Stock Warrants

As of December 31, 2019, there were Series A warrants outstanding to purchase 417,315 shares of the Company's common stock at an exercise price of $ 3.50 per share, which were issued in connection with the October 2017 Financing, and which expire in October 2022.

Also outstanding as of December 31, 2019, were warrants to purchase 193,788 shares of the Company's common stock at an exercise price of $ 23.50 per share, which were issued in March 2017, and which expire in March 2027 (see Note 8, ''Term Loan Agreement''), and warrants to purchase 98,965 shares of the Company's common stock at an exercise price of $ 73.73 per share, which were issued between August 2011 and August 2012, and which expire between August 2021 and August 2022.

Warrants outstanding to purchase shares of the Company's common stock as of December 31, 2020 were as follows:

Issue Date Exercise Price Per Share Warrants Outstanding Expiration Date

October 2017 $ 3.50 154,700 October 2022

March 2017 $ 23.50 193,788 March 2027

August 2011 - August 2012 $ 73.73 30,861 August 2021 - August 2022

Each warrant allows the holder to purchase one share of the Company's common stock at the exercise price per share of the respective warrant.

The Company issued 295,526 and 93,470 shares of its common stock upon the exercise of warrants during the years ended December 31, 2020 and 2019, respectively.

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The 2006 Plan was closed in 2013 with the approval of the 2013 Plan and no further options will be granted under the 2006 Plan.

In October 2013, the Company’s board of directors approved the 2013 Plan.

The 2013 Plan became effective immediately prior to the completion of the Company's initial public offering.

An initial 480,900 shares of common stock were reserved for issuance under the 2013 Plan.

The Company’s Amended and Restated 2013 Stock Incentive Plan (2013 Plan) was originally approved by the Company’s board of directors in October 2013.

Under the 2013 Plan, the Company may grant stock options, stock appreciation rights, restricted stock and restricted stock units to individuals who are then employees, officers, directors or consultants of the Company.

The 2013 Plan also included an “evergreen” provision, which automatically increased the shares available for issuance January 1 of each year by 4 % of common shares outstanding.

Accordingly, the shares available for issuance under the 2013 Plan were increased by 404,776 shares and 124,382 shares on January 1, 2018 and 2017, respectively.

In June 2018, the Company received approval from its stockholders to increase the number of shares of common stock reserved under the 2013 Plan by 5,500,000 shares, and to remove the evergreen provision.

In June 2018, the Company received approval from its stockholders to increase the number of shares of common stock reserved under the 2013 Plan by 5,500,000 shares.

In June 2019, the Company received approval from its stockholders to increase the number of shares of its common stock reserved for issuance under the 2013 Plan by an additional 5,000,000 shares.

The Company issued 2,339,467 and 1,418,953 shares of its common stock, respectively, upon the exercise of stock options during the years ended December 31, 2020 and 2019.

As of December 31, 2019 , there were 3,142,690 shares were available for future issuance under the 2013 Plan, and options to purchase 7,174,927 shares have been granted and are outstanding under the 2006 Plan and 2013 Plan.

During the year ended December 31, 2020, the Company issued 1,892 shares of its common stock upon the vesting of RSUs.

Common Stock Options

The maximum term of stock options granted under the 2006 Plan and 2013 Plan is ten years .

The options generally vest 25 % on the first anniversary of the original vesting date, with the balance vesting monthly over the remaining three years .

Common stock options have an exercise price equal to the closing price of the Company's common stock on the applicable award date, and generally vest over a four year period as to 25 % of the underlying shares on the first anniversary of the award, with the balance of the options vesting monthly over the following three years .

The following table summarizes stock option activities for the 2006 Plan and 2013 Plan:

Options Weighted-

Share Weighted-

Remaining Contractual

Life (in years)

Life (in years) Aggregate

Value (in thousands)

Outstanding at December 31, 2018 5,763,192 $ 23.61 8.94 $ 116,988

Granted 3,026,511 $ 54.62

Exercised ( 1,418,953 ) $ 12.46 $ 71,808

Canceled/forfeited/expired ( 195,823 ) $ 42.93 $ 4,190

Outstanding at December 31, 2019 7,174,927 $ 38.40 8.45 $ 181,408

Granted 1,130,040 $ 83.55

Exercised ( 2,339,467 ) $ 24.69 $ 161,688

Canceled/forfeited/expired ( 161,995 ) $ 27.00 $ 4,516

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Exercisable at December 31, 2020 2,980,386 $ 40.30 7.17 $ 178,540

Restricted Stock Units (RSUs)

RSUs have a grant price equal to the closing price of the Company’s common stock on the award date, and generally vest over a four year period based only on service as to 25 % of the underlying shares on the first anniversary of the award, with the balance of the RSUs vesting quarterly over the following three years .

A summary of RSU activity for the year ended December 31, 2020 is as follows:

Total RSUs Weighted-Average Grant Date Fair Value Aggregate Intrinsic Value

(in thousands)

Unvested awards outstanding at December 31, 2019 — $ — $ —

Granted 134,694 $ 82.82

Vested ( 1,892 ) $ 95.68

Unvested awards outstanding at December 31, 2020

132,802 $ 82.82 $ 12,706

Employee Stock Purchase Plan

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The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code.

Eligible employees may contribute, normally through payroll deductions, up to 15 % of their earnings for the purchase of common stock under the ESPP.

Eligible employees may contribute, through payroll deductions, up to 15 % of their earnings for the purchase of common stock under the ESPP.

The purchase price of common stock under the ESPP is the lesser of:

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Generally, the ESPP consists of a two-year offering period with four six-month purchase periods.

The ESPP initially authorized the issuance of 55,600 shares of common stock pursuant to purchase rights granted to employees.

The number of shares of common stock reserved for issuance increased on January 1 of each calendar year, from January 1, 2014 through January 1, 2018, by the lesser of (a) one percent of the number of shares issued and outstanding on the immediately preceding December 31, or (b) such lesser number of shares as determined by the Administrator.

On January 1, 2018 and 2017, the number of shares of common stock reserved for issuance under the ESPP was automatically increased by 31,096 and 101,194 shares, respectively.

In June 2018, the Company received approval from its stockholders to increase the number of shares reserved for issuance under the ESPP by 2,000,000 shares and to remove the evergreen provision.

In June 2018, the Company received approval from its stockholders to increase the number of shares reserved for issuance under the ESPP by 2,000,000 shares.

During the years ended December 31, 2020 and 2019, 302,509 shares and 329,072 shares of our common stock, respectively, were purchased under the ESPP for proceeds of $ 9.1 million and $ 6.2 million, respectively.

The ESPP was previously suspended in May 2017 due to a lack of available shares.

The suspension was accounted for as a cancellation of an award with no consideration.

The previously unrecognized compensation cost of $ 2.4 million was expensed in 2017 as of the suspension date.

Stock-Based Compensation

In June 2019, the Company granted options to purchase 1,644,715 shares of common stock under the 2013 Plan, which were originally awarded between February 2019 and June 2019, subject to and conditioned upon the approval by its stockholders of an increase in the number of shares of common stock reserved for issuance under the 2013 Plan.

In total, the Company granted options to purchase 3,026,511 shares of common stock under the 2013 Plan during the year ended December 31, 2019.

In June 2018, the Company granted options to purchase 811,800 shares of common stock under the 2013 Plan, which were originally awarded in December 2017, subject to and conditioned upon the approval by its stockholders of an increase in the number of shares of common stock authorized under the 2013 Plan.

These options have an exercise price equal to the closing price of the Company's common stock on the applicable award date, and generally vest as to 50 % of the underlying shares on the first anniversary of the award, with the balance of the options vesting monthly over the following year.

The Company also granted options to purchase 3,919,956 shares of common stock under the 2013 Plan during the year ended December 31, 2018.

These options have an exercise price equal to the closing price of the Company's common stock on the applicable award date, and generally vest as to 25 % of the underlying shares on the first anniversary of the award, with the balance of the options vesting monthly over the following three years, except with respect to options to purchase 3,389,300 shares of common stock granted in June 2018, which vest as to 50 % of the underlying shares on the first anniversary of the award, with the balance of the options vesting monthly over the following year.

During the year ended December 31, 2019, the Company granted options to purchase 3,026,511 shares of common stock under the 2013 Plan, of which 1,644,715 options were originally awarded between February 2019 and June 2019, subject to and conditioned upon the approval by its stockholders of an increase in the number of shares of common stock reserved for issuance under the 2013 Plan.

Stock-based compensation expense was not recognized for the contingent stock option grants prior to the approval by the Company’s stockholders of the increase in the number of shares of common stock reserved for issuance under the 2013 Plan, which occurred in June 2019.

During the year ended December 31, 2018, the Company granted options to purchase 4,730,956 shares of common stock under the 2013 Plan, of which 811,800 options were originally awarded in December 2017, subject to and conditioned upon the approval by its stockholders of an increase in the number of shares of common stock authorized under the 2013 Plan.

Of the total options granted, options to purchase 4,201,100 shares of common stock, granted in June 2018, vested over a two year period with 50 % of the underlying shares on the first anniversary of the award and the balance of the options vesting monthly over the following year.

The following table summarizes the allocation of stock-based compensation expense included in the consolidated statements of operations for all stock-based compensation arrangements (in thousands):

Year Ended December 31,

2020 2019 2018

Cost of sales $ 8,210 $ 6,415 $ 2,581

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Research and development 8,658 8,799 4,331

Total stock-based compensation expense $ 58,431 $ 58,071 $ 23,736

The total stock-based compensation capitalized as part of the cost of the Company’s inventories was $ 0.6 million and $ 1.3 million at December 31, 2020 and 2019, respectively.

At December 31, 2019 , the total unamortized stock-based compensation expense of approximately $ 104.0 million will be recognized over the remaining weighted average vesting term of approximately three years .

At December 31, 2020, the total unamortized stock-based compensation expense of approximately $ 120.7 million will be recognized over the remaining weighted average vesting term of approximately 2.8 years.

The assumptions used in the Black-Scholes option-pricing model are as follows:

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Year Ended December 31,

2020 2019 2018

Weighted average grant date fair value (per share) $ 54.20 $ 39.06 $ 12.94

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Year Ended December 31,

2020 2019 2018

Weighted average grant date fair value (per share) $ 36.83 $ 30.32 $ 13.48

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Expected term (in years) 1.3 1.3 1.3

(1) There were no grants made pursuant to the ESPP during the year ended December 31, 2017.

Risk-free Interest Rate .

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The expected volatility is estimated based on a weighted-average volatility of the Company’s actual historical volatility since its initial public offering in November 2013, and the historical stock volatilities of a peer group of similar companies whose share prices are publicly available.

The Company continued to use the historical volatility of peer entities during 2019 due to the lack of sufficient historical data of its stock price.

The peer group consisted of other publicly traded companies in the same industry and in a similar stage of development.

The peer group consisted of publicly traded companies in the same industry and in a similar stage of development.

During 2020, the Company transitioned to solely using the expected volatility of its own common stock.

Expected Term .

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Historical data was used to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

The loss before provision for income taxes for the Company’s domestic and international operations was as follows (in thousands):

Year Ended December 31,

2020 2019 2018

$ ( 36,667 ) $ ( 24,888 ) $ ( 122,560 )

Foreign 385 284 —

Loss before provision for income taxes $ ( 36,282 ) $ ( 24,604 ) $ ( 122,560 )

The components of income tax expense (benefit) were as follows (in thousands):

Year Ended December 31,

2020 2019 2018

Federal $ — $ — $ —

State 75 86 51

Foreign 151 88 —

Total current tax expense 226 174 51

Federal ( 1,760 ) ( 21 ) —

State ( 366 ) ( 4 ) —

Foreign — — —

Total deferred income tax benefit ( 2,126 ) ( 25 ) —

Income tax expense

Income tax expense (benefit) $ ( 1,900 ) $ 149 $ 51

The expense (benefit) for income taxes reconciles to the amount computed by applying the federal statutory rate to loss before taxes as follows (in thousands):

Year Ended December 31,

2020 2019 2018

Income tax benefit at federal statutory rate (1) $ ( 7,619 ) $ ( 5,167 ) $ ( 25,738 )

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Officers' compensation 2,612 3,133 —

Tax Cuts and Jobs Act of 2017

Other 479 972 681

Change in valuation allowance 24,450 ( 13,919 ) 12,856

Income tax expense

For the years ended December 31, 2019 and 2018, as a result of the 2017 Tax Act, the federal statutory rate was 21% .

For the year ended and 2017 , the federal statutory rate was 34% .

Income tax expense (benefit) $ ( 1,900 ) $ 149 $ 51

(1) For the years ended December 31, 2020, 2019 and 2018, the federal statutory tax rate was 21%.

Significant components of the Company’s net deferred income tax assets at December 31, 2020 and 2019 are shown below (in thousands).

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Lease liabilities 6,112 4,916

Other 12,096 9,350

Total deferred tax assets 147,245 115,378

Deferred tax liabilities:

Convertible debt ( 11,224 ) —

Fixed assets ( 7,675 ) ( 2,026 )

Other ( 6,719 ) ( 3,753 )

Total deferred tax liabilities ( 25,618 ) ( 5,779 )

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The California research credit will carry forward indefinitely.

In March 2016, the FASB issued Accounting Standards Update No.

2016 -09 , Compensation - Stock Compensation (Topic 718):

Improvements to Employee Shared-Based Payment Accounting (ASU 2016 -09 ), which simplified how several aspects of share-based payments are accounted for and presented in the consolidated financial statements.

ASU 2016 -09 was effective for public companies, and was adopted by the Company, in 2017.

Upon adoption of ASU 2016 -09 , the balance of unrecognized excess tax benefits of approximately $ 1.8 million , for which a benefit could not be previously recognized, was reversed with the impact recorded to retained earnings which was fully offset by a change to the valuation allowance.

Utilization of the Company's net operating loss and research credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions.

The annual limitations may result in the expiration of net operating loss carryforwards before utilization.

The Company has completed an analysis through December 31, 2018 to determine whether its net operating losses and credits are likely to be limited by Section 382.

Based on this study, the Company determined that an ownership change, as defined under Section 382, occurred in 2018 and the resulting limitation significantly reduced the Company’s ability to utilize its net operating loss and credit carryovers before they expire.

As a result, in 2019 the Company reduced its deferred tax assets for the net operating loss and research credit carryforwards that are projected to expire unused with a corresponding offset to the valuation allowance recorded against such assets.

The Company has completed analyses through December 31, 2020 to determine whether its net operating losses and credits are likely to be limited by Section 382.

Based on the 2018 study completed in 2019, the Company determined that an ownership change, as defined under Section 382, occurred in 2018 and the resulting limitation significantly reduced the Company’s ability to utilize its net operating loss and credit carryovers before they expire.

As a result, in 2019 the Company reduced its deferred tax assets for the net operating loss and research credit carryforwards that were projected to expire unused with a corresponding offset to the valuation allowance recorded against such assets.

Additionally, future ownership changes under Section 382 may also limit the Company's ability to fully utilize any remaining tax benefits.

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Year Ended December 31,

2020 2019 2018

Gross unrecognized tax benefits at the beginning of the year 6,580 $ 8,824 $ 8,121

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The Company is subject to taxation in the United States and various other state jurisdictions and, starting with 2018, Canada.

For the years ended December 31, 2019 , the domestic and foreign components of loss before income taxes were $ 24.9 million and income before tax of $ 0.3 million , respectively.

Prior to 2018, the losses were all domestic.

The Company’s tax years from 2006 (inception) are subject to examination by the United States and state authorities due to the carry forward of unutilized NOLs and research and development credits.

In 2017, the Tax Cuts and Jobs Act (2017 Tax Act) was enacted.

The 2017 Tax Act included a number of changes to existing U.S.

tax laws that impacted the Company, most notably a reduction of the U.S.

corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017.

The 2017 Tax Act also provided for the acceleration of depreciation for certain assets placed in service after September 27, 2017 as well as prospective changes beginning in 2018, including additional limitations on executive compensation, limitations on the deductibility of interest and capitalization of research and development expenditures.

Reduction of the U.S.

Corporate Income Tax Rate:

The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid.

Accordingly, the Company's deferred tax assets and liabilities were remeasured in 2017 upon enactment of the 2017 Tax Act to reflect the reduction in the U.S.

corporate income tax rate from the highest graduated tax 35% to a 21% flat tax.

As a result of the tax rate change, in 2017 we recorded a decrease to our deferred tax assets of $ 51.6 million and the valuation allowance was decreased by the same amount, resulting in no net tax expense.

The 2017 Tax Act no longer allows deductions for compensation in excess of $ 1.0 million for certain employees, even if paid as commissions or performance-based compensation.

It also subjects the principal executive officer, principal financial officer and three other highest paid officers to the limitation and once the individual becomes a covered person, the individual will remain a covered person for all future years.

Term Loan Agreement

In August 2018, the Company fully repaid the term loan made by Capital Royalty Partners II, L.P.

and its affiliated funds (CRG) pursuant to the Amended and Restated Term Loan Agreement (Term Loan Agreement).

The balance of the outstanding debt during 2018 up until the time of repayment was $ 82.7 million , and was included in notes payable long-term in the consolidated balance sheet, offset by the debt discount associated with financing fees and certain debt issuance costs.

Such discounts were amortized to interest expense over the term of the loan using the effective interest method.

The total repayment amount of $ 88.8 million included approximately $ 1.1 million in accrued interest, and approximately $ 5.0 million in associated financing fees that became due.

As a result of the repayment, the Company did not have any borrowings outstanding under the Term Loan Agreement as of December 31, 2019 or December 31, 2018.

The Company entered into a series of amendments to the Term Loan Agreement between 2016 and 2018, which included the addition of a financing fee payable at the maturity of the Company’s loans, the issuance of 193,788 ten-year warrants to CRG to purchase shares of the Company’s common stock at an exercise price of $ 23.50 per share, and certain other minimum financing covenants.

The financing fee was applicable to the entire aggregate principal amount of borrowings outstanding, including total PIK Loans issued.

As of December 31, 2019, the warrants to purchase 193,788 shares of the Company's common stock at an exercise price of $ 23.50 per share remained outstanding.

Employee Benefits

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Legal and Regulatory Matters

From time to time, the Company may be subject to legal proceedings or regulatory matters arising in the ordinary course of business, including actions with respect to intellectual property, employment, regulatory, product liability and contractual matters.

In May 2020 the Company was named as a defendant in three California state court class action lawsuits arising from a data breach the Company experienced in January 2020.

Collectively, these lawsuits seek statutory, compensatory, actual, and punitive damages;

equitable relief, including restitution;

pre- and post-judgment interest;

injunctive relief;

and attorney fees, costs, and expenses from the Company.

On July 24, 2020, these three pending lawsuits were consolidated into a single case in the Superior Court of the State of California in the County of San Bernardino entitled Joseph Deluna et al v.

Tandem Diabetes Care, Inc.

The consolidated case alleges violations of the Confidentiality of Medical Information Act (CMIA), CCPA, California’s Unfair Competition Law (UCL), and breach of contract.

The Company filed a demurrer seeking dismissal of all claims, which was heard by the Court on October 27, 2020, and which resulted in the following outcome:

(i) the demurrer of the CMIA claim was denied;

and (ii) the demurrer of the CCPA, UCL, and contract claims were sustained with leave to amend the pending complaint.

A second amended complaint was filed by the plaintiffs on November 25, 2020 and the Company filed a demurrer to such second amended complaint on December 28, 2020.

In September 2020, the Company was named as a defendant in a lawsuit entitled Buck Walsh, individually and on behalf of others similarly situated v.

Tandem Diabetes Care, Inc.

, which was filed in the Superior Court of the State of California in San Diego County.

The alleged violations include business and professions code and labor code violations for failure to compensate wages, unpaid meal and rest periods, and failure to reimburse for necessary business-related expenses.

The proposed class of plaintiffs includes hourly paid or non-exempt employees of the Company who were employed from April 6, 2016 through the date of adjudication.

Although the Company intends to vigorously defend against these claims, there is no guarantee that the Company will prevail.

Accordingly, the Company is unable to determine the ultimate outcome of these lawsuits or determine the amount or range of potential losses associated with the lawsuits.

From time to time, the Company may be subject to other legal proceedings or regulatory matters arising in the ordinary course of business, including without limitation, actions with respect to intellectual property, employment, regulatory, product liability and contractual matters.

In connection with these proceedings or matters, the Company regularly assesses the probability and amount (or range) of possible issues based on the developments in these proceedings or matters.

5 unchanged sentences

The Company leases general office space, laboratory, manufacturing and warehouse facilities, and equipment under noncancelable operating leases.

These noncancelable operating leases have initial lease terms from one year to seven years , and the majority of the Company's leases include an option to extend the term of the lease, generally for a period of three to five years .

The Company has the right to terminate the lease on the remaining Roselle Street buildings, which expires in May 2022, effective May 31, 2021 upon (i) delivery of written notice to the landlord no later than June 1, 2020, and (ii) an early termination payment to the landlord of approximately $ 0.4 million .

Future minimum payments due under noncancelable operating leases were $ 28.4 million as of December 31, 2020 (see Note 5, "Leases" for further details).

In connection with one of the operating leases, the Company has a $ 0.5 million unsecured standby letter of credit arrangement with a bank under which the landlord of the building is the beneficiary.

The expiration of the standby letter of credit is July 15, 2022.

Future minimum payments due under noncancelable operating leases as of December 31, 2019 were as follows (in thousands):

Year Ending December 31,

Future minimum payments due under operating leases of $ 23.1 million were included in operating lease liabilities current and long-term in the consolidated balance sheet at December 31, 2019 (see Note 5, "Leases").

The additional $ 8.3 million included in the above table consists of $ 8.2 million due under the lease of additional general office space located on Shoreline Drive, Boise, Idaho, which we entered into in November of 2019, and $ 0.1 million related to short-term leases.

Minimum annual lease payments under the Shoreline Lease will be approximately $ 0.5 million in 2020, $ 1.1 million in 2021 and 2022, $ 1.2 million in 2023 and 2024, and $ 3.1 million thereafter.

The Company currently estimates that it will recognize the Shoreline Lease operating lease liabilities on the consolidated balance sheet upon the lease commencement in the first quarter of 2020.

Purchase Obligations

2 unchanged sentences

Cancellation of outstanding purchase commitments is generally allowed but requires payment of certain costs incurred through the date of cancellation.

At December 31, 2019, obligations under our purchase agreements totaled $ 128.2 million , of which $ 112.2 million is due within one-year.

At December 31, 2020, obligations under our purchase agreements totaled $ 90.8 million, of which approximately $ 85.0 million is due within one-year.

Business Segment and Geographic Information

Segment Reporting

The Company is organized based on its current product portfolio, which consists primarily of insulin pumps, disposable cartridges and infusion sets for the storage and delivery of insulin.

The Company views its operations and manages its business as one segment and a single reporting unit because key operating decisions and resource allocations are made by the CODM using consolidated financial data.

Disaggregation of Revenue

The Company primarily sells its products through national and regional distributors in the United States on a non-exclusive basis, and through distribution partners outside the United States, including in select European countries, Canada, Australia, New Zealand, and South Africa.

In the United States and Canada, the Company utilizes a direct sales force.

The Company disaggregates its revenue by geography and by major sales channel as management believes these categories best depict how the nature, amount and timing of revenues and cash flows are affected by economic factors.

Revenues by Geographic Region and Customer Sales Channel

During the years ended December 31, 2020, 2019 and 2018, no individual country outside the United States generated revenue that represented more than 10% of total revenue.

The table below sets forth revenues for the Company’s two primary geographical markets, based on the geographic location to which our products are shipped.

For the Year Ended December 31,

(in thousands) 2020 2019 2018

United States $ 415,680 $ 302,084 $ 174,188

International 83,150 60,221 9,678

Total Sales $ 498,830 $ 362,305 $ 183,866

Sales to distributors accounted for 70 %, 73 %, and 78 % of the Company’s total domestic sales for the years ended December 31, 2020, 2019 and 2018, respectively.

Sales to distributors accounted for 94 %, 92 %, and 100 % of the Company’s total international sales for the years ended December 31, 2020, 2019 and 2018, respectively.

Selected Quarterly Financial Data (Unaudited)

The following financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the results of the interim periods.

Quarterly financial information for fiscal 2019 and 2018 is presented in the following table, in thousands, except per share data:

Quarterly financial information for the years ended December 31, 2020 and 2019 is presented in the following table (in thousands, except per share data):

For the Quarter Ended

March 31 June 30 September 30 December 31

Sales $ 97,926 $ 109,236 $ 123,603 $ 168,065

Gross profit $ 50,261 $ 54,390 $ 65,313 $ 90,556

Operating expenses $ 63,834 $ 66,427 $ 66,322 $ 71,894

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Basic net income (loss) per share (1)

$ ( 0.25 ) $ ( 0.45 ) $ ( 0.15 ) $ 0.27

Diluted net income (loss) per share (1)(2)

$ ( 0.25 ) $ ( 0.45 ) $ ( 0.15 ) $ 0.22

Sales $ 65,995 $ 93,255 $ 94,657 $ 108,398

Gross profit $ 33,353 $ 49,904 $ 50,683 $ 60,272

Operating expenses $ 44,350 $ 51,769 $ 56,687 $ 58,128

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Basic net income (loss) per share (1)

$ ( 0.40 ) $ ( 0.03 ) $ ( 0.05 ) $ 0.04

Diluted net income (loss) per share (1)(2)

$ ( 0.40 ) $ ( 0.03 ) $ ( 0.09 ) $ 0.04

(1) Net income (loss) per share is computed independently for each quarter and the full year based upon the respective average shares outstanding in each period.

Therefore, the sum of the quarterly per-share calculations may not equal the reported annual per share amounts.

With the exception of the third and fourth quarter of 2019, and the fourth quarter of 2018, there is no difference in the weighted average shares used to compute basic and diluted net income (loss) per share.

(2) With the exception of the fourth quarter of 2020, and the third and fourth quarters of 2019, there is no difference in the weighted average shares used to compute basic and diluted net income (loss) per share.

(see Note 2, ''Summary of Significant Accounting Policies'' for further details).

Subsequent Event

In January of 2020, the Company entered into a sub-lease agreement for approximately 30,703 square feet of general office space located on High Bluff Drive, in San Diego, California (High Bluff Lease).

Subject to limited exceptions, the initial lease term is expected to commence in March 2020 and expires in March 2022.

The Company currently estimates that it will recognize right-of-use leased assets and corresponding operating lease liabilities of approximately $ 2.4 million on the consolidated balance sheet upon the lease commencement in the first quarter of 2020.

Future minimum payments due under the High Bluff Lease of approximately $ 2.5 million are not included in the disclosure of future minimum payments due under noncancelable operating leases as of December 31, 2019 .

The numerator and denominator of the basic and diluted net income (loss) per share computations are calculated as follows for the respective quarters of 2020 and 2019 where basic and diluted net income (loss) per share differ:

For the Quarter Ended

(in thousands) December 31, 2020 December 31, 2019 September 30, 2019

Net income (loss) $ 17,000 $ 2,652 $ ( 2,901 )

change in fair value of common stock warrants ( 2,819 ) — ( 2,321 )

Net income (loss) - diluted $ 14,181 $ 2,652 $ ( 5,222 )

Weighted average shares outstanding - basic 62,249 59,219 58,801

Dilutive common share equivalents:

Warrants to purchase common stock 308 514 394

Options to purchase common stock 2,984 3,140 —

Unvested restricted stock units 133 N/A N/A

Awards granted under the ESPP 4 11 —

Convertible senior notes (if-converted) — N/A N/A

Weighted average shares - diluted 65,678 62,884 59,195

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

1 unchanged sentence

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-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk