What changed in this filing

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Item 1. Financial Statements

2021-05-05 compared with 2020-11-05 · 188 added, 268 removed, 423 unchanged (52% of the section changed)

3 unchanged sentences

(In thousands, except par value)

September 30, December 31,

March 31, December 31,

(Unaudited) (Note 1)

27 unchanged sentences

Common stock, $ 0.001 par value;

200,000 shares authorized, 62,116 and 59,396 shares issued and outstanding at September 30, 2020 (unaudited) and December 31, 2019, respectively.

200,000 shares authorized, 62,571 and 62,335 shares issued and outstanding at March 31, 2021 (unaudited) and December 31, 2020, respectively.

Additional paid-in capital 968,450 1,025,233

7 unchanged sentences

(In thousands, except per share data)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Sales $ 141,037 $ 97,926

10 unchanged sentences

Change in fair value of common stock warrants ( 690 ) ( 1,922 )

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

Total other expense, net ( 1,924 ) ( 1,196 )

Loss before income taxes ( 5,161 ) ( 14,769 )

3 unchanged sentences

Unrealized gain (loss) on short-term investments $ ( 38 ) $ 42

Foreign currency translation gain (loss) 216 ( 11 ) ( 10 ) 13

Foreign currency translation loss ( 76 ) ( 409 )

Comprehensive loss $ ( 5,158 ) $ ( 15,234 )

Net loss per share, basic $ ( 0.15 ) $ ( 0.05 ) $ ( 0.85 ) $ ( 0.47 )

Net loss per share, diluted $ ( 0.15 ) $ ( 0.09 ) $ ( 0.85 ) $ ( 0.47 )

Weighted average shares used to compute basic net loss per share 61,529 58,801 60,568 58,268

Weighted average shares used to compute diluted net loss per share 61,529 59,196 60,568 58,268

Net loss per share, basic and diluted $ ( 0.08 ) $ ( 0.25 )

Weighted average shares used to compute basic and diluted net loss per share 62,448 59,740

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended September 30, 2020

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss) Accumulated

Deficit Total

Stockholders’

Shares Amount

Balance at June 30, 2020 60,787 $ 61 $ 934,402 $ 43 $ ( 666,802 ) $ 267,704

Exercise of stock options 1,072 1 29,030 — — 29,031

Exercise of common stock warrants 257 — 899 — — 899

Fair value of common stock warrants at time of exercise — — 25,870 — — 25,870

Stock-based compensation — — 12,301 — — 12,301

Unrealized (loss) on short-term investments — — — ( 69 ) — ( 69 )

Foreign currency translation adjustments — — — 216 — 216

Net loss — — — — ( 9,408 ) ( 9,408 )

Balance at September 30, 2020 62,116 $ 62 $ 1,002,502 $ 190 $ ( 676,210 ) $ 326,544

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Common Stock Additional

6 unchanged sentences

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

Effect of change in accounting for convertible debt (1)

— — ( 85,803 ) — 9,049 ( 76,754 )

Exercise of stock options 111 1 3,135 — — 3,136

Issuance of common stock for Employee Stock Purchase Plan 229 — 4,916 — — 4,916

Exercise of common stock warrants 125 — 437 — — 437

Fair value of common stock warrants at time of exercise — — 12,434 — — 12,434

Equity component of convertible note 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 — — 44,521 — — 44,521

Unrealized gain on short-term investments — — — 78 — 78

Foreign currency translation adjustments — — — ( 10 ) — ( 10 )

Net loss — — — — ( 51,382 ) ( 51,382 )

Balance at September 30, 2020 62,116 $ 62 $ 1,002,502 $ 190 $ ( 676,210 ) $ 326,544

See accompanying notes to unaudited condensed consolidated financial statements.

Three Months Ended September 30, 2019

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss)

Deficit Total

Stockholders’

Shares Amount

Balance at June 30, 2019 58,589 $ 58 $ 769,704 $ 162 $ ( 624,579 ) $ 145,345

Exercise of stock options 440 1 7,033 — — 7,034

Fair value of common stock warrants at time of exercise — — 13 — — 13

Stock-based compensation — — 17,574 — — 17,574

Stock-based compensation expense — — 13,014 — — 13,014

Unrealized loss on short-term investments — — — ( 38 ) — ( 38 )

1 unchanged sentence

Net loss — — — — ( 5,044 ) ( 5,044 )

Balance at September 30, 2019 59,029 $ 59 $ 794,324 $ 91 $ ( 627,480 ) $ 166,994

Nine Months Ended September 30, 2019

Balance at March 31, 2021 62,571 $ 63 $ 968,450 $ 106 $ ( 655,205 ) $ 313,414

Three Months Ended March 31, 2020

Common Stock Additional

7 unchanged sentences

Exercise of stock options 673 1 11,474 — — 11,475

Issuance of common stock for Employee Stock Purchase Plan 168 — 2,951 — — 2,951

Exercise of common stock warrants 2 — 7 — — 7

Fair value of common stock warrants at time of exercise — — 141 — — 141

Stock-based compensation — — 39,739 — — 39,739

Stock-based compensation expense — — 15,808 — — 15,808

Unrealized gain on short-term investments — — — 42 — 42

1 unchanged sentence

Net loss — — — — ( 14,867 ) ( 14,867 )

Balance at September 30, 2019 59,029 $ 59 $ 794,324 $ 91 $ ( 627,480 ) $ 166,994

See accompanying notes to unaudited condensed consolidated financial statements.

Balance at March 31, 2020 60,071 $ 60 $ 847,056 $ ( 245 ) $ ( 639,695 ) $ 207,176

(1) The Company adopted ASU No.

2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity effective January 1, 2021 (see Note 2, “Summary of Significant Accounting Policies”).

TANDEM DIABETES CARE, INC.

1 unchanged sentence

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating Activities

Net loss $ ( 5,044 ) $ ( 14,867 )

Adjustments to reconcile net loss to net cash provided by operating activities:

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

Depreciation and amortization expense 3,485 1,830

Amortization of debt discount and debt issuance costs 6,233 —

Amortization of debt issuance costs 428 —

Provision for expected credit losses 143 862

1 unchanged sentence

Change in fair value of common stock warrants 690 1,922

Amortization of discount on short-term investments ( 1,446 ) ( 302 )

Benefit for deferred income taxes ( 2,126 ) —

Amortization of premium (discount) on short-term investments 209 ( 66 )

Stock-based compensation expense 12,947 15,865

Other ( 73 ) 19

Changes in operating assets and liabilities:

9 unchanged sentences

Other long-term liabilities ( 372 ) ( 1,704 )

Net cash provided by operating activities 9,432 22,463

Net cash provided (used) by operating activities 28,685 ( 20,631 )

Investing Activities

3 unchanged sentences

Purchases of property and equipment ( 3,524 ) ( 6,766 )

Acquisition of intangible assets ( 4,886 ) —

Net cash used in investing activities ( 236,430 ) ( 36,054 )

Net cash (used in) provided by investing activities ( 6,094 ) 32,916

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 ) —

Proceeds from issuance of common stock under Company stock plans 3,135 11,474

16 unchanged sentences

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.

The Company is incorporated in the state of Delaware.

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

Tandem Diabetes Care, Inc.

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 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 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 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 software 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 other complementary digital health offerings, such as the t:connect cloud-based diabetes management application (t:connect) and the Tandem Device Updater, a Mac and PC-compatible tool which offers and supports different updates of the Company’s insulin pump software from a personal computer.

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 three pumps outside the United States since 2018.

Four of the insulin pumps have featured integration with CGM technology, of which two have also 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 (iCGM) devices;

in February 2019, the t:slim X2 was the first insulin pump 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 in the United States.

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

The Company has incurred operating losses since its inception and had an accumulated deficit of $ 676.2 million as of September 30, 2020, which included a net loss of $ 51.4 million for the nine months ended September 30, 2020.

Management believes that the cash, 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 cash collected from product sales, private and public offerings of equity securities, and debt financing.

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

12 unchanged sentences

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 stockholders’ equity section of the Company’s condensed consolidated balance sheets.

Translation related adjustments are included in other comprehensive loss, and in accumulated other comprehensive income in the stockholders’ equity section of the Company’s condensed 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 condensed consolidated statements of operations.

Reclassification

Reclassifications

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

2 unchanged sentences

Summary of Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2020, as compared to those disclosed in the Annual Report, with the exception of policies put in place with regards to its convertible senior notes issued in May 2020.

There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2021, as compared to those disclosed in the Annual Report, other than the adoption of ASU No.

2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, effective January 1, 2021 (see Note 7, “Convertible Senior Notes”).

Use of Estimates

2 unchanged sentences

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 because key operating decisions and resource allocations are made by the CODM using consolidated financial data.

Restricted Cash

The Company recorded $ 8.0 million of restricted cash as of March 31, 2021, representing funds deposited and held in escrow in connection with an investment commitment.

The restricted cash balance is included as a component of cash and cash equivalents on the condensed consolidated balance sheet at March 31, 2021, and the condensed consolidated statement of cash flows for the three months ended March 31, 2021.

Accounts Receivable

1 unchanged sentence

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.

2 unchanged sentences

Short-term investments are carried at fair value.

The Company determined the fair value of its convertible senior notes at September 30, 2020 to be $ 367.2 million, based on Level 2 quoted market prices as of that date (see Note 7, “Convertible Senior Notes”).

The estimated fair value of certain of the Company’s common stock warrants was determined using the Black-Scholes pricing model as of September 30, 2020 and December 31, 2019 (see Note 5, “Fair Value Measurements”).

The Company determined the fair value of its convertible senior notes to be $ 306.2 million at March 31, 2021, and $ 333.5 million at December 31, 2020, based on Level 2 quoted market prices (see Note 7, “Convertible Senior Notes”).

The estimated fair value of certain of the Company’s common stock warrants was determined using the Black-Scholes pricing model as of March 31, 2021 and December 31, 2020 (see Note 5, “Fair Value Measurements”).

Operating Lease Right-of-Use Assets and Liabilities

In February 2016, the 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 their obligation to make lease payments arising from the lease.

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.

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.

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

Rent expense on noncancellable 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 (see Note 6, “Leases”).

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 similar lease incentives are recorded as property and equipment and 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.

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 6, “Leases”).

Intangible Assets Subject to Amortization

Intangible assets subject to amortization consist of developed technology and patents purchased or licensed that are related to the Company’s commercialized products, and are included in other long-term assets on the consolidated balance sheets.

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.

The Company reviews its 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 March 31, 2021.

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.

(Sugarmate), the developer of a mobile app designed to help people 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 purchase price was allocated to a technology-based intangible asset, which is being amortized on a straight-line basis over an estimated useful life of five years .

The Company’s results of operations for the three and nine months ended September 30, 2020 included the operating results of Sugarmate since the date of acquisition, the amounts of which were not material.

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.

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

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

The Company’s results of operations include the operating results of Sugarmate since the date of acquisition, the amounts of which were not material.

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.

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.

3 unchanged sentences

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 typically is upon shipment for our distributor arrangements and upon receipt for sales directly to individual customers.

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.

1 unchanged sentence

When 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 September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020 December 31, 2019

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 March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021 December 31, 2020

Deferred revenue $ 6,313 $ 5,508

1 unchanged sentence

Total $ 18,022 $ 15,934

Sales Returns

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 September 30, 2020 and December 31, 2019, respectively.

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

Warranty Reserve

6 unchanged sentences

Recently released versions of the pump may not incur warranty costs in a manner similar to previously released pumps, on which the Company initially bases its warranty estimate of newer pumps.

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.

The following table provides a reconciliation of the change in product warranty liabilities from December 31, 2019 through September 30, 2020 (in thousands):

Balance at December 31, 2019 $ 16,724

The Company may make further adjustments to the warranty reserve when deemed appropriate, giving additional consideration to the 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.

The following table provides a reconciliation of the changes in product warranty liabilities for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended

Balance at beginning of period $ 22,075 $ 16,724

Provision for warranties issued during the period 5,896 4,814

1 unchanged sentence

Decreases in warranty estimates ( 546 ) ( 1,387 )

Balance at September 30, 2020 $ 18,193

As of September 30, 2020 and December 31, 2019, total product warranty reserves of $ 18.2 million and $ 16.7 million, respectively, were included in the following consolidated balance sheet accounts (in thousands):

September 30, 2020 December 31, 2019

Balance at end of period $ 23,169 $ 16,761

As of March 31, 2021 and December 31, 2020, total product warranty reserves of $ 23.2 million and $ 22.1 million, respectively, were included in the following consolidated balance sheet accounts (in thousands):

March 31, 2021 December 31, 2020

Other current liabilities $ 9,316 $ 8,409

13 unchanged sentences

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

For all periods presented other than the three months ended September 30, 2019, 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.

For the three months ended September 30, 2019, the net loss used in the calculation of diluted net loss per share was increased by $ 2.3 million to remove the decrease in fair value of common stock warrants based on the dilutive effect of assumed exercise, and the denominator was increased by 394,433 shares calculated under the treasury stock method.

For the three month periods ended March 31, 2021 and 2020, 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.

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):

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Warrants to purchase common stock 379 609

Options to purchase common stock 5,068 5,710

Unvested restricted stock units 134 N/A 61 N/A

Unvested restricted stock units 133 N/A

Awards granted under the ESPP 78 198

Convertible senior notes (if-converted) 2,554 N/A 1,286 N/A

8,661 6,661 6,879 6,623

Convertible senior notes (if-converted) 2,554 N/A

Recent Accounting Pronouncements

6 unchanged sentences

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.

2018-13, Fair Value Measurement:

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement , which adds and modifies certain disclosure requirements for fair value measurements.

Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements.

However, public 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 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 5, “Fair Value Measurements”).

In December 2019, the FASB issued ASU No.

11 unchanged sentences

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.

The Company elected to early adopt the new standard on January 1, 2021 using the modified retrospective method, and recorded a net reduction to accumulated deficit of $ 9.0 million, a decrease to additional paid-in capital of $ 85.8 million, and an increase to convertible senior notes, net - long-term of $ 76.8 million to reflect the impact of the accounting change (see Note 7, “Convertible Senior Notes”).

Short-Term Investments

1 unchanged sentence

Government, and financial institutions and corporations with strong credit ratings.

The following represents a summary of the estimated fair value of short-term investments as of September 30, 2020 and December 31, 2019 (in thousands):

At September 30, 2020 Maturity

The following represents a summary of the estimated fair value of short-term investments as of March 31, 2021 and December 31, 2020 (in thousands):

At March 31, 2021 Maturity

(in years) Amortized

11 unchanged sentences

66,684 7 ( 13 ) 66,678

Supranational bonds Less than 2

3,015 — ( 1 ) 3,014

Total $ 392,615 $ 53 $ ( 22 ) $ 392,646

16 unchanged sentences

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

Unrealized losses on available-for-sale debt securities at September 30, 2020 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.

Unrealized losses on available-for-sale debt securities at March 31, 2021 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 September 30, 2020.

Accordingly, the Company has not recognized any impairment losses related to its available-for-sale debt securities at March 31, 2021.

Accounts Receivable and Inventories

1 unchanged sentence

Accounts receivable consisted of the following (in thousands):

September 30, December 31,

2021 December 31,

Accounts receivable $ 77,232 $ 86,052

2 unchanged sentences

Allowance for Credit Losses

The following table provides a reconciliation of the change in the estimated allowance for expected accounts receivable credit losses for the three and nine month periods ended September 30, 2020 and 2019 (in thousands):

The following table provides a reconciliation of the changes in the estimated allowance for expected accounts receivable credit losses for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Balance at beginning of the period $ 3,857 $ 3,304

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Balance at end of the period $ 3,559 $ 3,384

Inventories consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):

September 30,

Inventories consisted of the following as of March 31, 2021 and December 31, 2020 (in thousands):

2021 December 31,

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Unobservable inputs in which there is little or no market data and that are significant to the fair value of the assets or liabilities, which require the reporting entity to develop its own valuation techniques that require input assumptions.

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

Fair Value Measurements at September 30, 2020

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

Fair Value Measurements at March 31, 2021

(Level 1) (Level 2) (Level 3)

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Corporate debt securities 66,678 — 66,678 —

Supranational bonds 3,014 — 3,014 —

Total assets $ 503,262 $ 250,813 $ 252,449 $ —

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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.

The Company’s Level 3 liabilities at September 30, 2020 and December 31, 2019 include 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 nine months ended September 30, 2020 and 2019, the Company issued 259,115 shares and 93,470 shares of common stock, respectively, upon the exercise of Series A warrants.

As of September 30, 2020 and 2019, there were Series A warrants outstanding to purchase 158,200 shares and 417,315 shares, respectively, of the Company’s common stock (see Note 8, “Stockholders’ Equity”).

The Company’s Level 3 liabilities at March 31, 2021 and December 31, 2020 include the remaining Series A warrants issued by the Company in connection with the public offering of common stock in October 2017, and which expire in October 2022.

As of March 31, 2021 and 2020, there were Series A warrants outstanding to purchase 29,700 shares and 415,200 shares, respectively, of the Company’s common stock (see Note 8, “Stockholders’ Equity”).

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

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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 September 30, 2020 and December 31, 2019 are presented below:

September 30, 2020 December 31, 2019

The assumptions used to estimate the fair values of the outstanding Series A warrants at March 31, 2021 and December 31, 2020 are presented below:

Series A Warrants

March 31, 2021 December 31, 2020

Risk-free interest rate 0.1 % 0.1 %

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Expected term (in years) 1.5 1.8

The following table presents a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the nine months ended September 30, 2020 and 2019:

Nine Months Ended September 30,

The following table presents a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

Balance at beginning of the period $ 14,261 $ 23,509

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Balance at end of the period $ 2,517 $ 25,290

Of the loss recognized from the change in fair value of common stock warrants for the nine months ended September 30, 2020 and 2019, $ 8.5 million and $ 8.6 million, respectively, was attributable to warrants outstanding as of September 30, 2020 and 2019.

Of the loss recognized from the change in fair value of common stock warrants for the three months ended March 31, 2021 and 2020, a gain of $ 0.2 million and a loss of $ 1.9 million was attributable to warrants outstanding as of March 31, 2021 and 2020, respectively.

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

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.

These noncancellable operating leases have initial lease terms ranging 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 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 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 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 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 recognizes lease expense for these leases on a straight-line basis over the lease term.

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

In March 2021, the Company entered into a second amendment (Second Amendment) to its lease agreement covering approximately 59,013 square feet of general administrative office space (Existing Premises) located on Vista Sorrento Parkway, in San Diego, California (Vista Sorrento Lease).

The Second Amendment expanded the Existing Premises by adding approximately 14,916 square feet of general administrative office space (Expansion Space), and extended the lease term for the Existing Premises through January 2028.

The Expansion Space lease Commencement Date occurred in March 2021, and the lease term expires in January 2028.

The Company has two options to extend the term of the Vista Sorrento Lease, covering both the Existing Premises and the Expansion Space, each option providing for an additional period of five years .

The Company recognized right-of-use leased assets and corresponding operating lease liabilities of $ 15.1 million on the consolidated balance sheet in the first quarter of 2021 related to the Second Amendment.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Operating lease cost $ 2,006 $ 1,756

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Total lease cost $ 2,028 $ 1,820

Maturities of operating lease liabilities at September 30, 2020 were as follows (in thousands):

Maturities of operating lease liabilities at March 31, 2021 were as follows (in thousands):

Years Ending December 31,

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

September 30,

2021 December 31,

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Weighted-average discount rate used to determine operating lease liabilities 5.6 % 6.6 %

Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows from operating leases, was $ 5.9 million and $ 3.1 million for the nine months ended September 30, 2020 and 2019, respectively.

Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows used for operating leases, was $ 2.3 million and $ 1.6 million for the three months ended March 31, 2021 and 2020, respectively.

Convertible Senior Notes

In May 2020, the Company entered into a purchase agreement with certain counterparties for the sale of an aggregate of $ 250.0 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 consisted of a $ 250.0 million initial placement (Base Notes) and an over-allotment option that provided the initial purchasers of the Base Notes with the option to purchase an additional $ 37.5 million aggregate principal amount of notes (together with the Base Notes, the Notes), which was fully exercised.

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

Bank National Association, as trustee (Indenture).

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 (Notes) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

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.

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

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

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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.

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

Additionally, in the event of a fundamental change, 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.

Initially, 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 carrying amount of the equity component representing the conversion option for the Notes was $ 85.8 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.

The Notes consisted of the following (in thousands):

September 30, 2020

Principal $ 287,500

The carrying amount of the equity component representing the co nversion option for the Notes was $ 85.8 million and was recorded as a debt discount, to be amortized to interest expense at an effective interest rate of 9.9 %.

In addition, t he 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, to be amortized to interest expense under the effective interest rate method.

On January 1, 2021, the Company early adopted 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.

The ASU eliminates the cash conversion feature models in ASC 470-20, Debt with Conversion and Other Options , which required an issuer of certain convertible debt to separately account for embedded conversion features as a component of equity.

Instead, an issuer will account for these securities as a single unit of account, unless the conversion feature meets certain criteria.

The Company adopted the new standard using the modified retrospective method, and recorded a net reduction to accumulated deficit of $ 9.0 million, a decrease to additional paid-in capital of $ 85.8 million, and an increase to convertible senior notes, net - long-term of $ 76.8 million to reflect the impact of the accounting change.

The Notes are now accounted for as a single liability measured at amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

The liability and equity components of the Notes consisted of the following (in thousands) at March 31, 2021 and December 31, 2020:

March 31, 2021 December 31, 2020

Principal amount $ 287,500 $ 287,500

Unamortized debt discount and debt issuance costs ( 7,332 ) ( 84,516 )

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Carrying amount of the equity component $ — $ 85,803

As of September 30, 2020, the debt discount and debt issuance costs associated with the Notes will be amortized over the remaining period of approximately 4.6 years.

The following table details interest expense recognized related to the Notes for the three and nine months ended September 30, 2020 (in thousands):

As of March 31, 2021, the unamortized debt issuance costs of $ 7.3 million associated with the Notes will be amortized to interest expense, at an effective interest rate of 2.2 %, over the remaining term of the Notes of approximately 4.1 years.

The following table details interest expense recognized related to the Notes for the three months ended March 31, 2021 (in thousands):

Three Months Ended

September 30, 2020 Nine Months Ended

September 30, 2020

March 31, 2021

Contractual interest expense $ 1,078

Amortization of debt issuance costs 428

Amortization of debt discount 3,533 5,830

Total interest expense $ 1,506

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 September 30, 2020, the “if-converted value” did not exceed the principal amount of the Notes.

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

As of March 31, 2021, 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.

In connection with the issuance of the Notes, the Company entered into Capped Call Transactions in May of 2020 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.

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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.

For accounting purposes, the Capped Call Transactions 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 Call Transactions 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.

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Shares Reserved for Future Issuance

The following shares of the Company’s common stock were reserved for future issuance as of September 30, 2020 (in thousands):

The following shares of the Company’s common stock were reserved for future issuance as of March 31, 2021 (in thousands):

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

Shares underlying outstanding warrants 254

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Shares underlying unvested restricted stock units 136

Shares authorized for future equity award grants 2,117

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

Shares authorized for future equity award grants 1,957

Common Stock Warrants

Warrants outstanding to purchase shares of the Company's common stock as of September 30, 2020 were as follows:

Warrants outstanding to purchase shares of the Company's common stock as of March 31, 2021 were as follows:

Issue Date Exercise Price Per Share Warrants Outstanding Expiration Date

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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 257,000 and 291,894 shares of its common stock upon the exercise of warrants during the three and nine months ended September 30, 2020, and 200 and 93,470 shares of its common stock upon the exercise of warrants during the three and nine months ended September 30, 2019.

The Company issued 1,072,499 and 2,198,986 shares, respectively, of its common stock upon the exercise of stock options during the three and nine months ended September 30, 2020.

The Company issued 439,646 and 1,213,428 shares, respectively, of its common stock upon the exercise of stock options during the three and nine months ended September 30, 2019.

The Company issued 125,000 and 2,320 shares of its common stock, respectively, upon the exercise of warrants during the three months ended March 31, 2021 and March 31, 2020.

The Company issued 110,424 and 672,442 shares of its common stock, respectively, upon the exercise of stock options during the three months ended March 31, 2021 and 2020.

The ESPP enables eligible employees to purchase shares of the Company’s common stock using their after-tax payroll deductions, subject to certain conditions.

Generally, offerings under the ESPP consist of a two-year offering period with four six-month purchase periods which begin in May and November of each year.

During the nine months ended September 30, 2020 and 2019, 229,320 and 168,165 shares of the Company’s common stock, respectively, were purchased under the ESPP for proceeds of $ 4.9 million and $ 3.0 million, respectively.

There were no shares of common stock purchased under the ESPP during the three months ended March 31, 2021 and 2020.

Stock-Based Compensation

The Company granted options to purchase 1,010,996 shares of common stock under the 2013 Plan during the nine months ended September 30, 2020.

During the nine months ended September 30, 2019, the Company granted options to purchase 2,916,906 shares of common stock under the 2013 Plan, of which 1,644,715 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 these 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 three months ended March 31, 2021 and 2020, the Company granted options to purchase 115,400 and 229,911 shares of common stock under the 2013 Plan, respectively.

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 .

The Company also granted 2,846 and 134,694 restricted stock units (RSUs), respectively, during the three and nine months ended September 30, 2020.

These RSUs have a grant price equal to the closing price of the Company’s common stock on the award date, and vest 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 , except for 17,857 RSUs which vest in annual installments over a period of one to three years .

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

The Company also granted 3,208 restricted stock units (RSUs) during the three months ended March 31, 2021.

These RSUs have a grant value equal to the closing price of the Company’s common stock on the award date, and vest in annual installments over a period of three years .

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

Stock Options

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Weighted average grant date fair value (per share) $ 60.98 $ 43.40

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Expected term (in years) 6.1 6.1

Nine Months Ended

September 30,

Weighted average grant date fair value (per share) $ 36.18 $ 33.49

Risk-free interest rate 0.2 % 2.3 %

Expected dividend yield 0.0 % 0.0 %

Expected volatility 65.7 % 75.9 %

Expected term (in years) 1.3 1.3

The Company records stock-based compensation expense associated with the ESPP using the Black-Scholes option-pricing model.

Valuations are performed on the grant date at the beginning of the purchase period, which generally occurs in May and November of each year.

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Cost of sales $ 1,476 $ 2,164

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Research and development 2,062 2,200

Total $ 12,837 $ 17,230 $ 45,123 $ 39,386

The total stock-based compensation expense capitalized as part of the cost of the Company’s inventories was $ 0.7 million and $ 1.3 million as of September 30, 2020 and December 31, 2019, respectively.

For the three and nine months ended September 30, 2020 and 2019, the Company’s income tax expense was primarily attributable to state and foreign income tax expense as a result of current taxable income in those jurisdictions.

The nine months ended September 30, 2020 also included a benefit associated with release of valuation allowance related to the acquisition of Sugarmate during the second quarter of 2020.

The Company used the year-to-date effective tax rate method to determine its interim income tax expense for federal and state jurisdictions where a reliable estimate of the annual effective tax rate could not be made.

The Company maintains a full valuation allowance against its net deferred tax assets as of September 30, 2020 based on the current assessment that it is not more likely than not these future benefits will be realized before expiration.

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act).

The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of the COVID-19 global pandemic.

While the CARES Act provides sweeping tax changes in response to the COVID-19 global pandemic, some of the more significant provisions which are expected to impact the Company’s financial statements include removal of certain limitations on utilization of net operating losses, increasing the loss carryback period for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act.

Due to the recent enactment of the CARES Act, the Company is unable to quantify the impact, if any, that the CARES Act will have on its financial position, results of operations or cash flows but it is not anticipated to be significant.

Total stock-based compensation expense $ 12,947 $ 15,865

The total stock-based compensation expense capitalized as part of the cost of the Company’s inventories was $ 0.7 million and $ 0.6 million at March 31, 2021 and December 31, 2020, respectively.

The Company recognized an income tax benefit of $ 0.1 million on a pre-tax loss of $ 5.2 million for the three months ended March 31, 2021, compared to income tax expense of $ 0.1 million on a pre-tax loss of $ 14.8 million for the three months ended March 31, 2020.

The income tax benefit for the three months ended March 31, 2021 was primarily attributable to the pre-tax loss position and excess tax benefits from stock compensation recorded discretely during the quarter.

Income tax expense for the three months ended March 31, 2020 was primarily attributable to state and foreign income tax expense as a result of current taxable income in those jurisdictions.

For the three months ended March 31, 2021, the Company calculated the provision (benefit) for income taxes by applying an estimate of the annual effective tax rate for the full year to ordinary income (loss) adjusted by the tax impact of discrete items.

For the three months ended March 31, 2020, the Company calculated the provision for income taxes using a discrete effective tax rate method as the annual effective tax rate method would not provide a reliable estimate.

The Company continues to maintain a full valuation allowance against its net deferred tax assets as of March 31, 2021, based on the current assessment that it is not more likely than not these future benefits will be realized before expiration.

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 three months ended March 31, 2021 and 2020, 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 its products are shipped.

Three Months Ended

United States $ 103,339 $ 79,546

International 37,698 18,380

Total Sales $ 141,037 $ 97,926

Sales to distributors accounted for 68 % and 69 % of the Company’s total domestic sales for the three months ended March 31, 2021 and 2020, respectively.

Sales to distributors accounted for 96 % and 93 % of the Company’s total international sales for the three months ended March 31, 2021 and 2020, respectively.

Commitments and Contingencies

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, data privacy, employment, regulatory, product liability and contractual matters.

In April 2020, the Company was named as a defendant in four federal class action lawsuits relating to a data breach it experienced in January 2020, each of which was subsequently dismissed.

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

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), California Consumer Privacy Act (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;

(ii) the demurrer of the CCPA claim was sustained;

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

A second demurrer was heard by the Court on March 29, 2021 with the following outcome:

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

and (ii) the demurrer of the UCL and contract claims were narrowed in scope to dismiss three plaintiffs for either failing to allege cognizable damages or injuries-in-fact, resulting in two remaining plaintiffs.

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 the County of San Diego.

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.

The Company presently is unable to determine the ultimate outcome of these lawsuits or determine the amount (or range) of possible losses associated with the lawsuits.

From time to time, the Company is involved in various other legal proceedings, regulatory matters, and other disputes or claims arising from or related to the normal course of our business activities, including actions with respect to intellectual property, data privacy, 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 losses based on the developments in these proceedings or matters.

A liability is recorded in the consolidated financial statements if it is determined that it is probable that a loss has been incurred, and that the amount (or range) of the loss can be reasonably estimated.

Because of the uncertainties related to any pending proceedings or matters, the Company is currently unable to predict their ultimate outcome and, with respect to any legal proceeding or regulatory matter where no liability has been accrued, to make a reasonable estimate of the possible loss (or range of loss) that could result from an adverse outcome.

As of September 30, 2020 and December 31, 2019, there were no legal proceedings, regulatory matters, or other disputes or claims for which a material loss was considered probable or for which the amount (or range) of loss was deemed to be reasonably estimable.

However, regardless of the outcome, legal proceedings, regulatory matters, and other disputes and claims can have an adverse impact on the Company because of legal costs, diversion of management time and resources, and other factors.

Because of the uncertainties related to any pending proceedings or matters, the Company is currently unable to predict their ultimate outcome and, with respect to any proceeding or matter where no liability has been accrued, to make a reasonable estimate of the possible loss (or range of loss) that could result from an adverse outcome.

As of March 31, 2021 and December 31, 2020, there were no legal proceedings, regulatory matters, or other disputes or claims for which a material loss was considered probable or for which the amount (or range) of loss was reasonably estimable.

However, regardless of the merits of the claims raised or the outcome, legal proceedings, regulatory matters, and other disputes and claims may have an adverse impact on the Company because of as a result of defense and settlement costs, diversion of management time and resources, and other factors.

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

What changed 10-Q

Item 1. Financial Statements