What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-04 compared with 2021-05-05 · 227 added, 122 removed, 489 unchanged (42% of the section changed)

3 unchanged sentences

(In thousands, except par value)

March 31, December 31,

June 30, December 31,

(Unaudited) (Note 1)

27 unchanged sentences

Common stock, $ 0.001 par value;

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

200,000 shares authorized, 62,952 and 62,335 shares issued and outstanding at June 30, 2021 (unaudited) and December 31, 2020, respectively.

Additional paid-in capital 997,190 1,025,233

5 unchanged sentences

TANDEM DIABETES CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Sales $ 172,139 $ 109,236 $ 313,176 $ 207,162

5 unchanged sentences

Total operating expenses 87,022 66,427 163,546 130,261

Operating loss ( 3,237 ) ( 13,573 )

Operating income (loss) 5,432 ( 12,037 ) 2,195 ( 25,610 )

Other income (expense), net:

3 unchanged sentences

Total other expense, net ( 1,363 ) ( 17,145 ) ( 3,287 ) ( 18,341 )

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

Income (loss) before income taxes 4,069 ( 29,182 ) ( 1,092 ) ( 43,951 )

Income tax expense (benefit) 61 ( 2,075 ) ( 56 ) ( 1,977 )

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

Other comprehensive loss:

Net income (loss) $ 4,008 $ ( 27,107 ) $ ( 1,036 ) $ ( 41,974 )

Other comprehensive income (loss):

Unrealized gain (loss) on short-term investments $ ( 51 ) $ 105 $ ( 89 ) $ 147

Foreign currency translation loss ( 76 ) ( 409 )

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

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

Foreign currency translation gain (loss) ( 26 ) 183 ( 102 ) ( 226 )

Comprehensive income (loss) $ 3,931 $ ( 26,819 ) $ ( 1,227 ) $ ( 42,053 )

Net income (loss) per share, basic $ 0.06 $ ( 0.45 ) $ ( 0.02 ) $ ( 0.70 )

Net income (loss) per share, diluted $ 0.06 $ ( 0.45 ) $ ( 0.02 ) $ ( 0.70 )

Weighted average shares used to compute basic net income (loss) per share 62,717 60,424 62,583 60,082

Weighted average shares used to compute diluted net income (loss) per share 65,663 60,424 62,583 60,082

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Common Stock Additional

5 unchanged sentences

Shares Amount

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

Exercise of stock options 252 — 8,172 — — 8,172

Vesting of restricted stock units, net of shares withheld for taxes 29 — ( 867 ) — — ( 867 )

Issuance of common stock for Employee Stock Purchase Plan 100 — 6,317 — — 6,317

Stock-based compensation expense — — 15,118 — — 15,118

Unrealized loss on short-term investments — — — ( 51 ) — ( 51 )

Foreign currency translation adjustments — — — ( 26 ) — ( 26 )

Net income — — — — 4,008 4,008

Balance at June 30, 2021 62,952 $ 63 $ 997,190 $ 29 $ ( 651,197 ) $ 346,085

Six Months Ended June 30, 2021

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss) Accumulated

Deficit Total

Stockholders’

Shares Amount

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)

Effect of change in accounting for convertible senior notes (1)

— — ( 85,803 ) — 9,049 ( 76,754 )

Exercise of stock options 363 1 11,307 — — 11,308

Vesting of restricted stock units, net of shares withheld for taxes 29 — ( 867 ) — — ( 867 )

Issuance of common stock for Employee Stock Purchase Plan 100 — 6,317 — — 6,317

Exercise of common stock warrants 125 — 437 — — 437

4 unchanged sentences

Net loss — — — — ( 1,036 ) ( 1,036 )

Balance at June 30, 2021 62,952 63 997,190 29 ( 651,197 ) $ 346,085

(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”).

See accompanying notes to unaudited condensed consolidated financial statements.

:AccountingStandardsUpdate202006Member

Three Months Ended June 30, 2020

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss)

Deficit Total

Stockholders’

Shares Amount

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

Three Months Ended March 31, 2020

Exercise of stock options 453 1 12,254 — — 12,255

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

Exercise of common stock warrants 34 — 2,029 — — 2,029

Equity component of convertible senior notes issuance, net of issuance costs — — 85,803 — — 85,803

Payment for capped call transactions related to convertible senior notes — — ( 34,069 ) — — ( 34,069 )

Stock-based compensation expense — — 16,413 — — 16,413

Unrealized gain on short-term investments — — — 105 — 105

Foreign currency translation adjustments — — — 183 — 183

Net loss — — — — ( 27,107 ) ( 27,107 )

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

Six Months Ended June 30, 2020

Common Stock Additional

7 unchanged sentences

Exercise of stock options 1,126 2 23,728 — — 23,730

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

Exercise of common stock warrants 36 — 2,036 — — 2,036

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

Equity component of convertible senior notes issuance, net of issuance costs — — 85,803 — — 85,803

Payment for capped call transactions related to convertible senior notes — — ( 34,069 ) — — ( 34,069 )

Stock-based compensation expense — — 32,221 — — 32,221

2 unchanged sentences

Net loss — — — — ( 41,974 ) ( 41,974 )

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”).

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

See accompanying notes to unaudited condensed consolidated financial statements.

TANDEM DIABETES CARE, INC.

1 unchanged sentence

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Operating Activities

2 unchanged sentences

Depreciation and amortization expense 6,925 4,035

Amortization of debt issuance costs 428 —

Amortization of debt discount and issuance costs 859 2,457

Provision for expected credit losses 874 1,529

Provision (recovery) for inventory obsolescence 64 ( 363 )

Provision for (recovery of) inventory obsolescence 211 ( 81 )

Change in fair value of common stock warrants 962 16,258

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

Amortization of discount on short-term investments ( 306 ) ( 1,127 )

Benefit for deferred income taxes — ( 2,126 )

Stock-based compensation expense 27,924 32,286

5 unchanged sentences

Other long-term assets ( 159 ) 6

Accounts payable 10,537 4,294

Accrued expenses 278 ( 2,124 )

Accounts payable and accrued expenses 11,957 ( 3,779 )

Employee-related liabilities 2,318 ( 3,094 )

8 unchanged sentences

Purchases of property and equipment ( 5,339 ) ( 16,552 )

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

Acquisition of intangible assets and equity investments ( 9,331 ) ( 4,805 )

Net cash used in investing activities ( 70,855 ) ( 98,605 )

Financing Activities

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

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

Payment for capped call transactions related to convertible senior notes — ( 34,069 )

Proceeds from issuance of common stock under Company stock plans, net 16,758 28,645

Proceeds from exercise of common stock warrants 438 2,036

9 unchanged sentences

Property and equipment included in accounts payable $ 452 $ 977

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

Intangible costs in other current and other long-term liabilities $ 1,029 $ 2,348

See accompanying notes to unaudited condensed consolidated financial statements.

33 unchanged sentences

Summary of Significant Accounting Policies

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.

There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 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”).

3 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.

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

6 unchanged sentences

Short-term investments are carried at fair value.

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”).

The Company determined the fair value of its convertible senior notes to be $ 326.6 million at June 30, 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 June 30, 2021 and December 31, 2020 (see Note 5, “Fair Value Measurements”).

Operating Lease Right-of-Use Assets and Liabilities

3 unchanged sentences

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.

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 condensed consolidated balance sheets.

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.

Cost Basis Equity Investment

During the second quarter of 2021, the Company made an $ 8.1 million equity investment in a private company, which represented less than 5 % of the outstanding equity of that company.

The investment is accounted for using the cost method, as the investment does not have a readily determinable fair value, and is included as a component of other long-term assets on the condensed consolidated balance sheet at June 30, 2021.

Intangible Assets Subject to Amortization

2 unchanged sentences

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.

The Company did not recognize any impairment losses during the six months ended June 30, 2021 and 2020.

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

(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.

The Sugarmate acquisition was accounted for as an acquisition of assets in accordance with Accounting Standards Update (ASU) No.

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

6 unchanged sentences

Revenue Recognition for Arrangements with Multiple Deliverables

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

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

The transaction price is determined based on the consideration expected to be received, based either on the stated value in contractual arrangements or the estimated cash to be collected in non-contracted arrangements.

4 unchanged sentences

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

March 31, 2021 December 31, 2020

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 June 30, 2021 and December 31, 2020 (in thousands):

June 30, 2021 December 31, 2020

Deferred revenue $ 7,471 $ 5,508

10 unchanged sentences

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):

The following table provides a reconciliation of the changes in product warranty liabilities for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Balance at beginning of period $ 23,169 $ 16,761 $ 22,075 $ 16,724

1 unchanged sentence

Settlements made during the period ( 4,751 ) ( 3,331 ) ( 9,007 ) ( 6,721 )

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

Decrease in warranty estimates ( 770 ) ( 451 ) ( 1,316 ) ( 1,838 )

Balance at end of period $ 25,668 $ 17,823 $ 25,668 $ 17,823

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

As of June 30, 2021 and December 31, 2020, total product warranty reserves of $ 25.7 million and $ 22.1 million, respectively, were included in the following consolidated balance sheet accounts (in thousands):

June 30, 2021 December 31, 2020

Other current liabilities $ 9,795 $ 8,409

5 unchanged sentences

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 (see Note 8, “Stockholders’ Equity”).

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.

Net Loss Per Share

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 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.

The fair value of restricted stock unit (RSU) awards issued under the 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.

The fair value of RSU awards issued under the 2013 Plan that vest based upon the Company’s actual performance relative to predefined performance metrics is estimated based on the fair market value of the underlying stock on the date of grant and the probability that the specified performance criteria will be met, subject to the awardee’s continuing service through the measurement date.

We update our assessment of the probability that the specified performance criteria will be achieved each quarter, and adjust our estimate of the fair value of the performance-based RSUs if necessary.

Net Income (Loss) Per Share

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

Diluted net income 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 stock options and unvested RSUs outstanding under the Company’s stock plans, potential awards to be granted pursuant to the ESPP, and common stock warrants, each calculated using the treasury stock method;

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

For common stock 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 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):

For the three months ended June 30, 2020, and the six months ended June 30, 2021 and 2020, there is no difference in the weighted average number of shares used to calculate basic and diluted net loss per share due to the Company’s net loss position.

For the three months ended June 30, 2021, the numerator and denominator of the diluted net income per share computation are calculated as follows:

Three Months Ended

(in thousands) 2021

Net income - basic and diluted $ 4,008

Weighted average shares outstanding - basic 62,717

Dilutive common share equivalents:

Options to purchase common stock 2,550

Unvested restricted stock units 246

Warrants to purchase common stock 148

Awards to be granted under the ESPP 2

Convertible senior notes (if-converted) —

Weighted average shares outstanding - diluted 65,663

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Options to purchase common stock — 6,195 5,136 5,992

Unvested restricted stock units 133 N/A

Awards granted under the ESPP 78 198

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

Unvested restricted stock units — 132 170 132

Warrants to purchase common stock 30 640 251 640

Awards to be granted under the ESPP — 8 4 4

Convertible senior notes (if-converted) 2,554 1,375 2,554 688

2,584 8,350 8,115 7,456

Recent Accounting Pronouncements

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

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which modifies the measurement and recognition of credit losses for most financial assets and certain other instruments.

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 prior, other-than-temporary-impairment model.

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 December 2019, the FASB issued ASU No.

In December 2019, the Financial Accounting Standards Board (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.

12 unchanged sentences

Short-Term Investments

The Company invests in marketable securities consisting of debt instruments of the U.S.

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

At March 31, 2021 Maturity

The Company invests in marketable securities primarily consisting of debt instruments of the U.S.

Government, U.S.

Government-sponsored enterprises, 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 June 30, 2021 and December 31, 2020 (in thousands):

At June 30, 2021 Maturity

(in years) Amortized

31 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 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.

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

Based on the credit quality of the available-for-sale debt securities 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 did not recognize any impairment losses related to its available-for-sale debt securities at June 30, 2021.

Accounts Receivable and Inventories

6 unchanged sentences

Allowance for Credit Losses

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):

The following table provides a reconciliation of the changes in the estimated allowance for expected accounts receivable credit losses for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Balance at beginning of the period $ 3,559 $ 3,384 $ 3,857 $ 3,304

2 unchanged sentences

Balance at end of the period $ 3,673 $ 3,139 $ 3,673 $ 3,139

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

Inventories consisted of the following as of June 30, 2021 and December 31, 2020 (in thousands):

2021 December 31,

11 unchanged sentences

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 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

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 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 June 30, 2021

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

24 unchanged sentences

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 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’s Level 3 liabilities at June 30, 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 June 30, 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.

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 March 31, 2021 and December 31, 2020 are presented below:

The assumptions used to estimate the fair values of the outstanding Series A warrants at June 30, 2021 and December 31, 2020 are presented below:

Series A Warrants

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Risk-free interest rate 0.1 % 0.1 %

1 unchanged sentence

Expected volatility 50.3 % 55.3 %

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 three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

Remaining term (in years) 1.3 1.8

The following table presents a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the six months ended June 30, 2021 and 2020:

Six Months Ended June 30,

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

Loss recognized from the change in fair value of common stock warrants 962 16,258

Decrease in fair value from warrants exercised during the period ( 12,434 ) ( 141 )

Common stock warrants exercised during the period ( 12,434 ) ( 142 )

Balance at end of the period $ 2,789 $ 39,625

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.

Of the loss recognized from the change in fair value of common stock warrants for the six months ended June 30, 2021 and 2020, $ 0.1 million and $ 16.2 million, respectively, was attributable to warrants outstanding as of June 30, 2021 and 2020.

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 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.

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 Company’s condensed consolidated balance sheets.

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

The exercise of lease renewal options is at the Company’s sole discretion.

For renewal options that are reasonably certain at the lease Commencement Date of being exercised, the Company includes the renewal option period in the lease term.

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.

5 unchanged sentences

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

The Vista Sorrento Lease term was determined assuming the renewal options would not be exercised.

The Company recognized right-of-use leased assets and corresponding operating lease liabilities of $ 15.1 million on the condensed 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

June 30, Six Months Ended

2021 2020 2021 2020

Operating lease cost $ 2,197 $ 1,899 $ 4,203 $ 3,655

1 unchanged sentence

Total lease cost $ 2,219 $ 1,970 $ 4,247 $ 3,790

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

Maturities of operating lease liabilities at June 30, 2021 were as follows (in thousands):

Years Ending December 31,

10 unchanged sentences

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 used for operating leases, was $ 2.3 million and $ 1.6 million for the three months ended March 31, 2021 and 2020, respectively.

Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows used for operating leases, was $ 4.7 million and $ 2.9 million for the six months ended June 30, 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 $ 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.

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

The Notes are the Company’s senior unsecured obligations.

25 unchanged sentences

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

The liability and equity components of the Notes consisted of the following (in thousands) at June 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

Principal amount $ 287,500 $ 287,500

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

Unamortized debt issuance costs ( 6,901 ) ( 5,446 )

Unamortized debt discount — ( 79,070 )

Net carrying amount $ 280,599 $ 202,984

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

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):

As of June 30, 2021, the unamortized debt issuance costs of $ 6.9 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 3.8 years.

The following table details interest expense recognized related to the Notes for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended

March 31, 2021

June 30, Six Months Ended

2021 2020 2021 2020

Contractual interest expense $ 1,078 $ 719 $ 2,156 $ 719

Amortization of debt issuance costs 431 159 859 159

Amortization of debt discount N/A 2,298 N/A 2,298

Total interest expense $ 1,509 $ 3,176 $ 3,015 $ 3,176

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.

As of June 30, 2021, the “if-converted value” did not exceed the principal amount of the Notes.

Capped Call Transactions

8 unchanged sentences

Shares Reserved for Future Issuance

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

The following shares of the Company’s common stock were reserved for future issuance as of June 30, 2021 (in thousands):

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

5 unchanged sentences

Common Stock Warrants

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

Warrants outstanding to purchase shares of the Company's common stock as of June 30, 2021 were as follows:

Issue Date Exercise Price Per Share Warrants Outstanding Expiration Date

3 unchanged sentences

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 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 Company issued 522 and 125,522 shares of its common stock, respectively, upon the exercise of warrants during the three and six months ended June 30, 2021, and 32,574 and 34,689 shares of its common stock, respectively, upon the exercise of warrants during the three and six months ended June 30, 2020.

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 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.

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

Stock-Based Compensation

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.

Common Stock Options

The Company granted options to purchase 239,608 and 355,008 shares of common stock, respectively, during the three and six months ended June 30, 2021, and options to purchase 621,045 and 850,956 shares of common stock, respectively, during the three and six months ended June 30, 2020.

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 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:

The Company estimates the fair value of stock options using the Black-Scholes option-pricing model on the grant date.

The assumptions used in the Black-Scholes option-pricing model for common stock options were as follows:

Stock Options

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Weighted average grant date fair value (per share) $ 54.92 $ 52.50 $ 56.89 $ 50.04

3 unchanged sentences

Expected term (in years) 6.1 6.0 6.1 6.0

Restricted Stock Units (RSUs)

The Company granted 339,386 and 342,594 restricted stock units (RSUs), respectively, during the three and six months ended June 30, 2021, and 131,848 RSUs during the three and six months ended 2020.

These RSUs have a grant value equal to the closing price of the Company’s common stock on the award date, and generally 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 .

The Company also granted 25,674 performance-based RSUs during the three months ended June 30, 2021.

The performance-based RSUs have a grant value equal to the closing price of the Company’s common stock on the award date, and vest upon the Company’s actual performance relative to predefined performance metrics and subject to the awardee’s continuing service through the December 31, 2024 measurement date.

The weighted average grant date fair value of RSUs granted were as follows:

Restricted Stock Units

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Weighted average grant date fair value (per share) $ 82.31 $ 82.33 $ 82.41 $ 82.33

Employee Stock Purchase Plan

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 condensed consolidated statement of operations for all stock-based compensation arrangements (in thousands):

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

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Weighted average grant date fair value (per share) $ 29.24 $ 36.18 $ 29.24 $ 36.18

Risk-free interest rate 0.1 % 0.2 % 0.1 % 0.2 %

Expected dividend yield 0.0 % 0.0 % 0.0 % 0.0 %

Expected volatility 47.5 % 65.7 % 47.5 % 65.7 %

Expected term (in years) 1.3 1.3 1.3 1.3

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

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Cost of sales $ 1,591 $ 2,162 $ 3,067 $ 4,326

2 unchanged sentences

Total stock-based compensation expense $ 14,977 $ 16,421 $ 27,924 $ 32,286

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.

The total stock-based compensation expense capitalized as part of the cost of the Company’s inventories was $ 0.8 million at June 30, 2021, and $ 0.6 million at December 31, 2020.

For the three and six months ended June 30, 2021, the Company recognized income tax expense of $ 0.1 million on pre-tax income of $ 4.1 million, and an income tax benefit of $ 0.1 million on pre-tax loss of $ 1.1 million, respectively.

The income tax benefit for the six months ended June 30, 2021 was primarily attributable to the pre-tax loss position and excess tax benefits from stock compensation recorded discretely during the period, partially offset by state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

For the three and six months ended June 30, 2020, the Company recognized an income tax benefit of $ 2.1 million on a pre-tax loss of $ 29.2 million, and an income tax benefit of $ 2.0 million on a pre-tax loss of $ 44.0 million, respectively.

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

The Company calculated the provision (benefit) for income taxes for the three and six months ended June 30, 2021 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 and six months ended June 30, 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 June 30, 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

7 unchanged sentences

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.

Revenues by Geographic Region and Customer Sales Channels

During the three and six months ended June 30, 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

June 30, Six Months Ended

2021 2020 2021 2020

United States $ 127,580 $ 89,277 $ 230,919 $ 168,823

1 unchanged sentence

Total Sales $ 172,139 $ 109,236 $ 313,176 $ 207,162

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.

Sales to distributors accounted for 68 % and 71 % of the Company’s total domestic sales for the three months ended June 30, 2021 and 2020, respectively, and 68 % and 70 % of total domestic sales for the six months ended June 30, 2021 and 2020, respectively.

Sales to distributors accounted for 95 % and 96 % of the Company’s total international sales for the three months ended June 30, 2021 and 2020, respectively, and 95 % of the Company’s total international sales for both the six months ended June 30, 2021 and 2020.

Commitments and Contingencies

17 unchanged sentences

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.

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.

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.

2 unchanged sentences

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.

The 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.

The parties recently agreed to resolve the matter on a class-wide basis.

The settlement is intended to resolve the claims of the individual plaintiff, as well as the remaining members of the class, unless an individual class member submits a timely request for exclusion.

The material terms of the settlement are set forth in a binding Memorandum of Agreement dated as of July 1, 2021, which is subject to the completion of a number of conditions, as well as final approval by the court.

There is no guarantee that the conditions will be met or that court approval will be obtained.

If the court does not approve the settlement, or if other conditions to approval of the settlement are not met, the case will continue and the Company will continue to vigorously defend against the claims.

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.

2 unchanged sentences

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.

Except as set forth above, as of June 30, 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