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Item 2. Management’s Discussion and Analysis

2021-11-03 compared with 2021-08-04 · 156 added, 147 removed, 321 unchanged (49% of the section changed)

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

You should read the following discussion and analysis together with our financial statements and related notes in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 (Quarterly Report).

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

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Forward-looking statements also include the assumptions underlying or relating to such statements.

In particular, forward-looking statements contained in this Quarterly Report may relate to, among other things, our future or assumed financial condition, results of operations, liquidity, trends impacting our financial results, business forecasts and plans, research and product development plans, manufacturing plans, strategic plans and objectives, capital needs and financing plans, product launches, geographic expansion, distribution plans, production capacity, clinical trials, regulatory approvals, competitive position and the impact of changes in the competitive environment, the impact of the COVID-19 global pandemic, integration of acquisitions and partner technologies, and the application of accounting guidance.

In particular, forward-looking statements contained in this Quarterly Report may relate to, among other things, our future or assumed financial condition, results of operations, liquidity, trends impacting our financial results, business forecasts and plans, research and product development plans, manufacturing plans, strategic plans and objectives, capital needs and financing plans, product launches, geographic expansion, distribution plans, production capacity, clinical trials, regulatory approvals, competitive position and the impact of changes in the competitive environment, the impact of the COVID-19 global pandemic on our business, supply chain, and the businesses of our contract manufacturers and suppliers, integration of acquisitions and partner technologies, and the application of accounting guidance.

We caution you that the foregoing list may not include all of the forward-looking statements made in this Quarterly Report.

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Today, our software-updatable t:slim X2 hardware platform represents 100% of our new pump shipments.

We now have nearly 270,000 customers in our global installed base, assuming a typical four year reimbursement cycle, of which 25% are in international markets.

Our simple-to-use t:slim X2 is based on our proprietary technology platform and is the smallest durable insulin pump available.

We now have approximately 296,000 customers in our global installed base, assuming a typical four year reimbursement cycle, of which 26% are in international markets.

Our simple-to-use t:slim X2 is based on our proprietary technology platform and is the smallest durable insulin pump available in the United States.

We have commercially offered our pump technology integrated with three generations of Dexcom’s continuous glucose monitoring (CGM) sensors.

The t:slim X2 is the only pump on which remote software updates have been made commercially available in the United States.

This experience, which offers and supports different software updates quickly and easily from a personal computer through the use of our revolutionary tool referred to as Tandem Device Updater (TDU), provides us with a unique competitive advantage.

Two of our updates provided our users access to our automated insulin delivery (AID) algorithms, Basal-IQ technology and Control-IQ technology.

Basal-IQ technology launched in August 2018 and is a predictive low glucose suspend feature that is designed to temporarily suspend insulin delivery to help reduce the frequency and duration of hypoglycemic events.

Control-IQ technology launched in January 2020 and is an advanced hybrid-closed loop feature, designed to help increase a user's time in their targeted glycemic range.

It is the first and only system cleared by the U.S.

Two of our updates provided our users access to our automated insulin delivery (AID) algorithms, Basal-IQ technology and Control-IQ tech nology.

Basal-IQ technology launched domestically in the third quarter of 2018 and its international rollout began in the third quarter of 2019.

Basal-IQ is a predictive low glucose suspend feature that is designed to temporarily suspend insulin delivery to help reduce the frequency and duration of hypoglycemic events.

Control-IQ technology launched domestically in the first quarter of 2020 and its international rollout began in the third quarter of 2020.

Our Control-IQ technology is an advanced hybrid-c losed loop feature, designed to help increase a user's time in their targeted glycemic range.

By the fourth quarter of 2021, we will have substantially completed our scaled launch of Control-IQ technology outside the United States, which was staged based on the timing of necessary regulatory clearances or approvals.

It is the first system cleared by the U.S.

Food and Drug Administration (FDA) to deliver automatic correction boluses in addition to adjusting insulin to help prevent high and low blood sugar.

Outside the United States we began selling t:slim X2 with Dexcom G5 integration in the third quarter of 2018, offering no-cost software updates for Basal-IQ technology beginning in the third quarter of 2019 and for Control-IQ technology beginning in the third quarter of 2020.

We intend to continue our scaled launch of Control-IQ technology outside the United States throughout the remainder of 2021, subject to securing necessary regulatory clearances or approvals.

We continue to offer both AID algorithms on the market to support the varying needs of people living with diabetes.

Approximately 200,000 t:slim X2 users worldwide have our Control-IQ algorithm.

However, we continue to offer both AID algorithms to support the varying needs of people living with diabetes.

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

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We also offer t:connect, a web-based data management application that provides users, their caregivers and their healthcare providers with a fast, easy and visual way to display diabetes therapy management data from our pumps, integrated CGMs and supported blood glucose meters.

In support of our digital health strategy, we continue to offer and improve t:connect and TDU, and also develop and launch other complementary offerings.

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

In support of our digital health strategy, we continue to offer and improve t:connect and TDU, and develop and launch other complementary offerings.

In the third quarter of 2020, we launched our first-generation t:connect mobile application in the United States.

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

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In the second quarter of 2021, we began limited testing of an initial version of Tandem Source, our second-generation data management platform, in the United Kingdom.

For the six months ended June 30, 2021 and 2020, our consolidated sales were $313.2 million and $207.2 million, respectively.

For the six months ended June 30, 2021 and 2020, our net loss was $1.0 million and $42.0 million, respectively.

Worldwide pump sales accounted for 61% and 60% of our total sales for the six months ended June 30, 2021 and 2020, respectively, while pump-related supplies and accessories accounted for the remainder in each year.

Our accumulated deficit as of June 30, 2021 and December 31, 2020 was $651.2 million and $659.2 million, respectively.

These amounts included $321.2 million and $292.1 million of accumulated non-cash stock-based compensation charges and non-cash charges from the change in fair value of common stock warrants as of June 30, 2021 and December 31, 2020, respectively.

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

We continue to develop and test new features for Tandem Source in anticipation of a future commercial release of the product.

For the nine months ended September 30, 2021 and 2020, our consolidated sales were $492.8 million and $330.8 million, respectively.

For the nine months ended September 30, 2021 and 2020, we reported net income of $4.8 million and net loss of $51.4 million, respectively.

Worldwide pump sales accounted for 59% and 62% of our total sales for the nine months ended September 30, 2021 and 2020, respectively, while pump-related supplies and accessories accounted for the remainder in each year.

Our accumulated deficit as of September 30, 2021 and December 31, 2020 was $645.4 million and $659.2 million, respectively.

These amounts included $337.1 million and $292.1 million of accumulated non-cash stock-based compensation charges and non-cash charges from the change in fair value of common stock warrants as of September 30, 2021 and December 31, 2020, respectively.

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

Our sales have further increased following our scaled product launches in an expanding number of geographies outside the United States.

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At the same time, by innovating and offering new product features and benefits using our t:slim X2 platform, we are able to leverage a shared global manufacturing and supply chain infrastructure.

In the United States, we are able to leverage a single sales, marketing, and clinical organization, as well as our customer support services.

In the United States, we are able to leverage a single sales, marketing, and clinical organization, as well as our customer support services to support our business and engage with our consumers, customers and healthcare providers.

In Canada, we have a separate sales organization and our customer support infrastructure benefits from close collaboration with our United States organization.

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

We experienced modest impacts from the COVID-19 global pandemic during the first quarter of 2020, which became more pronounced beginning in the second quarter and continuing through the current period.

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

During the first half of 2021, we saw a gradual increase in the amount of in-person sales and training activities in the United States as vaccination availability expanded and social-distancing requirements were relaxed.

However, we continue to see variability across the country.

We experienced modest impacts from the COVID-19 global pandemic during the first quarter of 2020, which became more pronounced beginning in the second quarter of 2020 and continued through to the current period.

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

Commercially, during the first nine months of 2021, we saw a gradual increase in the amount of in-person sales and training activities in the United States as vaccination availability expanded and social-distancing requirements were relaxed.

During the third quarter of 2021, we also saw reduced availability of customers and healthcare providers relating to people taking time off to vacation, which adversely impacted our worldwide sales of new pumps to customers during the period.

This is a common seasonal pattern outside the United States, but was seen more prominently domestically than in previous years due to the lessening of COVID-19 restrictions during the quarter.

Later in the third quarter, as diagnosis rates for COVID-19 variants began to increase, we saw sales activities begin to shift to fewer live interactions once again.

In addition, labor shortages at healthcare prescriber offices related to impacts from COVID-19 can adversely impact our sales productivity and result in practice inefficiencies.

We continue to see variability across the country and anticipate fluctuations between in-person and remote interactions will also continue.

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

For example, during the early stages of the pandemic, we experienced delays in certain programs of up to six months from when they were originally planned, such as human factors studies associated with our product development efforts.

More recently, recruiting and hiring new employees has proven more difficult due to generalized labor shortages.

There is substantial competition for talent in the markets in which we operate as the economy is entering a recovery phase and businesses increase hiring in general.

For example, during the early stages of the pandemic, we experienced delays of certain programs of up to six months from when they were originally planned, such as human factors studies associated with our product development efforts.

More recently, recruiting and hiring new employees has proven more difficult due to generalized labor shortages impacting global markets.

There is substantial competition for talent in the markets in which we operate as the economy is entering a recovery phase and businesses increase hiring to meet heightened demand.

In addition, regulatory timelines have been and may continue to be difficult to predict as the FDA has stated that its review process may take longer than normal due to the impact of the COVID-19 global pandemic, and we have experienced delays in the review of pending submissions.

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We have recently modified those restrictions to allow for some limited employee travel and visitors to our facilities with controls.

For example at our facilities in San Diego, California, those employees who are able to perform their job functions outside of our facilities continue to work in a remote environment, while employees at our facility in Boise, Idaho began a gradual return to the office during the second quarter.

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

We continue to work closely with our healthcare providers and customers, remaining flexible in our method of interaction, but during the second quarter of 2021 we began seeing an increase in the amount of in-person interactions among our field-based staff.

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

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

To help ensure the safety and health of our employees in manufacturing and warehousing positions involved in production and fulfillment operations, we have implemented preventative measures by requiring employees to wear masks and perform temperature checks before each shift.

In early 2020, we initiated having regular discussions with our key suppliers regarding their abilities to fulfill existing orders and assess their ongoing capacity.

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

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Nevertheless, our infusion set manufacturer continues to experience certain inventory constraints which have resulted in us asking some customers to accept substitutions of similar products to prevent delays in order fulfillment.

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

However, we are closely monitoring global shortages for semiconductors and copper, which are essential for the production of our insulin pumps and accessories.

Our finished goods and raw material inventory, as well as available manufacturing capacity, position us well to respond to unforeseen disruptions in the near term but we could experience greater challenges with our supply chain if pump demand meaningfully exceeds our current forecasts.

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

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

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

During the second quarter of 2021 we began seeing an increase in the amount of in-person interactions among our field-based staff with customers and healthcare providers in the United States.

During the same period, we also began observing more pronounced rates of travel and vacations by both customers and healthcare providers in the United States, coinciding with the increase in vaccination trends and relaxation of COVID-19 related restrictions on travel and social-distancing.

Historically we have seen similar summer vacation seasonality in Europe, but it is possible that we could also experience a more significant summer seasonality in the United States during 2021 due to the lifting of COVID-19 related restrictions.

Additionally, at various times since the beginning of the pandemic, components of our inventory were below our targeted stocking levels.

We use components from various suppliers to build our products.

While we have adequate raw material inventory for a substantial portion of our pump and cartridge components, we are below our targeted stocking levels for others.

Currently, we do not anticipate a significant disruption in our ability to manufacture insulin pumps and cartridges, nor do we anticipate our third-party manufacturers will be unable to provide sufficient quantities to meet product demand during the remainder of 2021.

However, we continue to monitor factors that could negatively impact our supply chain, such as global shortages of semiconductors and copper that are needed to manufacture our insulin pumps and accessories, as well as custom components for our insulin pumps and cartridges where we rely on a limited number of qualified suppliers.

At this time, we believe many of our suppliers are deemed essential businesses under applicable governmental orders, and are not at risk of being subject to orders requiring facility closures.

We could experience these or other challenges with our supply chain if demand for our products meaningfully exceeds our current forecasts, or if continued proliferation of the virus, resurgences, or the emergence of new variants results in additional or prolonged restrictions that impact global supply chains.

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

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Products Under Development

Our products under development support our strategy of focusing on both consumer and clinical needs, and include a connected (mobile) health offering, a next-generation hardware platform, which we refer to as the t:sport Insulin Delivery System (t:sport), AID system enhancements, and additional CGM integrations with our current and future products.

Our products under development support our strategy of focusing on both consumer and clinical needs, and include connected (mobile) health offerings, a next-generation hardware platform, which we refer to as the t:sport Insulin Delivery System (t:sport), AID system enhancements, and additional CGM integrations with our current and future products.

We intend to leverage our consumer-focused approach and proprietary technology platform to continue to develop products that have the features and functionality that will allow us to meet the needs of people in differentiated segments of the insulin-dependent diabetes market, including the following:

• Connected (Mobile) Health Offerings – In July of 2020, we began offering the first version of our t:connect mobile application that wirelessly uploads pump data to our cloud-based t:connect diabetes management application, receives notification of pump alerts and alarms, and provides a discrete, secondary display of glucose and insulin data.

• Connected (Mobile) Health Offerings – In the third quarter of 2020, we began offering the first version of our t:connect mobile application that wirelessly uploads pump data to our cloud-based t:connect diabetes management application, receives notification of pump alerts and alarms, and provides a discrete, secondary display of glucose and insulin data.

Future updates of our mobile application are planned to include mobile bolus delivery, additional pump control features, integrate other health-related information from third-party sources and support future capabilities for our products under development.

We plan to transition our mobile health offerings to a single, global digital platform, which is intended to provide all users, including pump users, caregivers and healthcare providers, with a simplified and tailored user experience.

The platform is being designed to enhance the user experience, streamline the pump and supplies purchasing process, and provide internal efficiencies.

In the future, data from our centralized system may be used for new product development, continuous product improvement, and for the generation of health economic outcomes data, and may ultimately support other advanced technology and patient monitoring services.

We are designing our future mobile applications to enhance the user experience, streamline the pump and supplies purchasing process, and provide internal efficiencies.

We also plan to use data from our centralized system for new product development, continuous product improvement, and for the generation of health economic outcomes data, and it may ultimately support other advanced technology and patient monitoring services.

• t:sport Insulin Delivery System – Approximately half the size of our t:slim X2 pump, the t:sport pump is being designed for people who seek even greater discretion and flexibility with the use of their insulin pump.

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

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

In addition to algorithm enhancements intended to improve clinical outcomes, we are also developing new features for greater personalization and refinements to the overall system usability.

• AID Enhancements – We intend to further enhance our automated insulin delivery system and we are planning and performing numerous clinical studies in diverse user populations to support the development of expanded labeling indications and new product features.

These include algorithm enhancements intended to improve clinical outcomes, as well as new features for greater personalization and refinements to the overall system usability.

• Additional CGM Integration – In June 2020 we announced an agreement with Abbott to develop and commercialize integrated diabetes solutions that combine Abbott’s CGM technology with our insulin delivery systems to provide more options for people to manage their diabetes.

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

In the four-year period ended June 30, 2021, we shipped approximately 269,000 insulin pumps, of which approximately 203,000 were shipped to customers in the United States and approximately 66,000 were shipped to international markets.

In the four-year period ended September 30, 2021, we shipped approximately 296,000 insulin pumps, of which approximately 219,000 were shipped to customers in the United States and approximately 77,000 were shipped to international markets.

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

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2020 13,158 14,735 18,380 24,552 70,825

2021 16,644 20,665 N/A N/A 37,309

2021 16,644 20,665 20,296 N/A 57,605

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

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2020 4,220 3,952 3,641 8,133 19,946

2021 8,708 13,152 N/A N/A 21,860

2021 8,708 13,152 11,262 N/A 33,122

Trends Impacting Financial Condition and Operating Results

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• seasonality in the United States associated with annual insurance deductibles and coinsurance requirements associated with the medical insurance plans utilized by our customers and the customers of our distributors;

• incidence of disease or illness, including the COVID-19 global pandemic, that may impact customer purchasing patterns or disrupt our supply chain;

• timing of holidays and summer vacations, which may vary by geography and may be further influenced by the lifting or relaxation of COVID-19 related restrictions during 2021;

• incidence of disease or illness, including the COVID-19 global pandemic, that may impact customer purchasing patterns or disrupt our supply chain, or create uncertainty or delay with respect to regulatory approvals;

• timing of holidays and summer vacations, which may vary by geography and may be further influenced by the lifting or relaxation of COVID-19 related restrictions during 2021 and broader availability of vaccines;

• the buying patterns of our distributors and other customers, both domestically and internationally;

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In addition to working to achieve our sales growth expectations, in the long-term we intend to continue to leverage our infrastructure investments to realize additional manufacturing, sales, marketing and administration cost efficiencies with the goal of improving our operating margins and ultimately achieving sustained profitability.

We achieved profitability for the first time in the fourth quarters of 2018, 2019 and 2020, and again in the second quarter of 2021.

We achieved profitability for the first time in the fourth quarters of 2018, 2019 and 2020, and were profitable for the nine months ended September 30, 2021.

Though we have yet to achieve profitability consistently from period to period, we believe we can ultimately achieve sustained profitability by driving incremental sales growth in U.S.

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The t:slim X2 insulin pump platform with remote software update capabilities, now represents 100% of our new pump shipments and is used by nearly all of our in-warranty customers.

Our products also include disposable cartridges and infusion sets, as well as our complementary t:connect, Tandem Device Updater and mobile application products.

Our products also include disposable insulin cartridges and infusion sets, as well as our complementary t:connect, TDU and mobile application products.

We also offer additional accessories including protective cases, belt clips, and power adapters, although sales of these products are not significant.

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Internationally, we do not expect this same impact from seasonality associated with reimbursement, although the quarterly sales trends may be impacted by a number of other factors, including summer vacations and product launches into new geographies.

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

While we experienced only a modest negative impact from the pandemic during the first quarter of 2020, which became more pronounced in the second quarter and remained through the end of the year, we anticipate that our sales and operating results will continue to be adversely impacted for the duration of the pandemic.

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

These changes remained in effect during the majority of the first half of 2021, but during the second quarter of 2021 we began seeing an increase in the amount of in-person interactions among our field-based staff with customers and healthcare providers in the United States coincident with the increase in vaccination trends and relaxation of COVID-19 related restrictions on travel and social-distancing.

Beginning in the second quarter of 2021 we also began observing more pronounced rates of travel and vacations by both customers and healthcare providers in the United States.

Historically we have seen similar summer vacation seasonality in Europe, but it is possible that we could also experience more significant summer seasonality in the United States during 2021 due to the lifting of COVID-19 related restrictions.

Accordingly, we anticipate that our sales may not follow historical trends and may be subject to unpredictable variability in the coming months based on varying levels of impact of the global pandemic across the markets in which we operate.

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

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

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

We experienced only a modest negative impact from the pandemic during the first quarter of 2020, which became more pronounced in the second quarter through the end of the year.

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

During the third quarter, we also saw reduced availability of customers and healthcare providers relating to people taking time off to vacation, which adversely impacted our worldwide sales of new pumps to customers during the period.

We anticipate that our sales may not follow historical trends and may be subject to unpredictable variability in the coming months based on varying levels of impact of the global pandemic across the markets in which we operate.

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

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Additionally, upon the announcement of FDA approval or commercial launch of a new product, either by us or one of our competitors, potential new customers may reconsider their purchasing decisions or take additional time to consider such FDA approval or product launch before making their purchasing decisions.

For instance, we believe certain customers paused their decision-making during the second half of 2019 in anticipation of the commercial availability of the t:slim X2 with Control-IQ technology.

For example, we believe certain customers paused their decision-making during the second half of 2019 in anticipation of the commercial availability of the t:slim X2 with Control-IQ technology, and similar occurrences may occur in future periods.

However, it is difficult to quantify the extent of the impact of these or similar events on future purchasing decisions.

Cost of Sales

Historically, we have manufactured our pumps and disposable cartridges at our manufacturing facility in San Diego, California.

Historically, we have manufactured our pumps and disposable insulin cartridges at our manufacturing facility in San Diego, California.

Near the end of the first quarter of 2020, our third-party cartridge manufacturer completed validation and commenced commercial-scale manufacturing to supplement our existing cartridge manufacturing capacity.

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Our selling, general and administrative (SG&A) expenses primarily consist of salary, cash-based incentive compensation, fringe benefits and non-cash stock-based compensation for our executive, financial, legal, marketing, sales, clinical, customer support, technical services, insurance verification, regulatory affairs and other administrative functions.

We began expanding our U.S.

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

We have approximately 95 sales territories in the United States as of June 30, 2021.

We have approximately 95 sales territories in the United States as of September 30, 2021 and have commenced an expansion in the fourth quarter of 2021 to approximately 110 sales territories and related customer service functions.

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

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Other income and expense primarily consists of changes in the fair value of certain warrants issued in connection with our public offering of common stock in October 2017, interest expense which includes the amortization of debt issuance costs related to our 1.50% Convertible Senior Notes due 2025, issued in May 2020 (our Notes), and interest earned on our cash equivalents and short-term investments.

We expect interest expense in future quarters to be comparable with that of the first and second quarters of 2021, assuming that none of the Notes are converted or redeemed, and total other income and expense, net to fluctuate from period to period primarily due to the revaluation of the outstanding Series A warrants, which expire in the fourth quarter of 2022.

We expect interest expense in future quarters to be comparable with that of the first three quarters of 2021, assuming that none of the Notes are converted or redeemed in future periods.

We expect the revaluation of the outstanding Series A warrants will not have a significant impact on our other income and expense from the fourth quarter of 2021, through the fourth quarter of 2022 when the remaining warrants expire.

Income Tax Expense (Benefit)

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except percentages) 2021 2020 2021 2020

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Net income (loss) $ 5,794 $ (9,408) $ 4,758 $ (51,382)

Comparison of the Three Months Ended June 30, 2021 and 2020

For the three months ended June 30, 2021, sales were $172.1 million, which included $44.6 million of international sales.

Comparison of the Three Months Ended September 30, 2021 and 2020

For the three months ended September 30, 2021, sales were $179.6 million, which included $46.5 million of international sales.

Sales were $123.6 million for the same period in 2020, which included $16.1 million of international sales.

The increase in worldwide sales of $62.9 million in the second quarter of 2021 compared to the second quarter of 2020 was driven by an 81% increase in worldwide pump shipments to 33,817 in the second quarter of 2021, compared to 18,687 in the second quarter of 2020, and a 47% increase in pump-related supply sales.

The increase in worldwide sales of $56.0 million in the third quarter of 2021 compared to the third quarter of 2020 was driven by a 43% increase in worldwide pump shipments to 31,558 in the third quarter of 2021, compared to 22,021 in the third quarter of 2020, and a 71% increase in pump-related supply sales.

Sales of pump-related supplies increased primarily due to 58% growth in our estimated worldwide installed base of customers.

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Three Months Ended

September 30,

Pump $ 78,771 $ 69,464

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Total Domestic Sales $ 133,106 $ 107,517

Domestic pump sales were $80.0 million for the second quarter of 2021, compared to $56.4 million in the second quarter of 2020, as pump shipments increased 40% compared to the same period in the prior year due to continued strong demand for our products following the January 2020 domestic launch of our t:slim X2 insulin pump with Control-IQ technology.

Domestic pump shipments were 20,665 in the second quarter of 2021, compared to 14,735 in the second quarter of 2020.

Domestic pump sales were $78.8 million for the third quarter of 2021, compared to $69.5 million in the third quarter of 2020.

Domestic pump shipments were 20,296 in the third quarter of 2021, compared to 18,380 in the third quarter of 2020.

The increase in pump shipments was primarily due to continued strong demand for our products following the January 2020 domestic launch of our t:slim X2 insulin pump with Control-IQ technology, offset by the impact from increased travel and vacations by both customers and healthcare providers in the United States, as well as increased rates of infection related to COVID-19 variants.

Sales of pump-related supplies increased primarily due to a 45% increase in our estimated domestic installed base of customers.

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

Sales to distributors accounted for 68% and 74% of our total domestic sales for the three months ended September 30, 2021 and 2020, respectively.

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

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Three Months Ended

September 30,

Pump $ 23,762 $ 9,045

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Cartridges 6,269 1,761

Other 315 162

Total International Sales $ 46,521 $ 16,086

International pump sales were $27.6 million for the second quarter of 2021, compared to $9.1 million in the second quarter of 2020, as pump shipments increased 233% compared to the same period in the prior year due to strong demand for our products as we continue to expand the launch of Control-IQ technology, which began in the third quarter of 2020, outside the United States, as well as the varying impact of the global pandemic.

International pump sales were $23.8 million for the third quarter of 2021, compared to $9.0 million in the third quarter of 2020, as pump shipments increased 209% compared to the same period in the prior year due to strong demand for our products as we continue to expand the launch of Control-IQ technology, which began in the third quarter of 2020, outside the United States, as well as the varying impact of the global pandemic.

Sales of pump-related supplies benefited from a 115% increase in our estimated international installed base of customers.

The ordering patterns of our international distributors for pumps and supplies is highly variable from period to period.

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

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

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

Sales to distributors accounted for 96% and 91% of our total international sales for the three months ended September 30, 2021 and 2020, respectively.

Cost of Sales and Gross Profit .

Our cost of sales for the three months ended June 30, 2021 was $79.7 million , resulting in gross profit of $92.5 million, compared to cost of sales of $54.8 million for the same period in 2020 resulting in gross profit of $54.4 million.

The gross margin for the three months ended June 30, 2021 was 54%, compared to 50% in the same period in 2020.

The increase in our gross profit for the three months ended June 30, 2021 was primarily the result of the $62.9 million increase in total sales.

Our cost of sales for the three months ended September 30, 2021 was $82.9 million , resulting in gross profit of $96.7 million, compared to cost of sales of $58.3 million and gross profit of $65.3 million for the same period in 2020.

The gross margin for the three months ended September 30, 2021 was 54%, compared to 53% in the same period in 2020.

The increase in our gross profit for the three months ended September 30, 2021 was primarily the result of the $56.0 million increase in total sales.

Gross profit and gross margin both benefited from improvement in the per unit manufacturing costs for pumps and cartridges from efficiencies in the manufacturing process, leverage of fixed overhead and increased volumes from our third-party cartridge manufacturer.

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To a lesser extent, overall average selling prices slightly pressured gross margin as international pump sales comprised a greater portion of total pump sales compared to the prior year, while supply average selling prices reflected modest benefit from the growth of our international installed base.

Royalty expense was $1.9 million for the three months ended June 30, 2021, compared to $1.7 million in the same period in 2020.

Royalty expense was $1.9 million for the three months ended September 30, 2021, compared to $1.7 million in the same period in 2020.

Other factors that have and may continue to have an impact on the gross margin percentage are changes in product and customer mix.

Pump sales, which have the highest gross margin, were 63% of total worldwide sales in the second quarter of 2021 versus 60% in the second quarter of 2020.

Non-cash stock-based compensation expense allocated to cost of sales was $1.6 million for the three months ended June 30, 2021, compared to $2.2 million in the same period in 2020.

Pump sales, which have the highest gross margin, were 57% of total worldwide sales in the third quarter of 2021 versus 64% in the third quarter of 2020.

Non-cash stock-based compensation expense allocated to cost of sales was $1.6 million for the three months ended September 30, 2021, compared to $2.1 million in the same period in 2020.

Selling, General and Administrative Expenses.

SG&A expenses increased 32% to $66.5 million for the three months ended June 30, 2021 from $50.4 million for the same period in 2020.

SG&A expenses increased 29% to $64.9 million for the three months ended September 30, 2021 from $50.2 million for the same period in 2020.

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

The increase compared to 2020 was primarily the result of a $9.6 million increase in salaries, incentive compensation and other employee benefits due to an increase in personnel to support additional sales territories, higher sales and other services in support of our growing installed customer base, offset by a $0.8 million decrease in non-cash stock-based compensation expense.

Non-cash stock-based compensation expense allocated to SG&A was $10.9 million for the three months ended June 30, 2021, compared to $11.7 million in the same period in 2020.

The increase in non-cash stock-based compensation expense associated with increased headcount in 2020 and 2021 was more than offset by a decrease in non-cash stock-based compensation expense from the valuation of certain 2018 employee stock option grants which are now fully amortized.

We also experienced a $5.8 million increase in other non-employee discretionary spending, including outside services, outside consulting, equipment and travel costs.

The increase compared to 2020 was primarily the result of a $9.2 million increase in salaries, incentive compensation and other employee benefits due to an increase in personnel to support additional sales territories, higher sales and other services in support of our growing installed customer base, and a $2.4 million increase in non-cash stock-based compensation expense.

Non-cash stock-based compensation expense allocated to SG&A was $11.3 million for the three months ended September 30, 2021, compared to $8.9 million in the same period in 2020.

The increase in non-cash stock-based compensation expense was associated with increased headcount in 2020 and 2021.

We also experienced a $3.1 million increase in other non-employee discretionary spending, including information technology, supplies, outside services and travel costs.

Research and Development Expenses .

R&D expenses increased 28% to $20.5 million for the three months ended June 30, 2021 from $16.0 million for the same period in 2020.

R&D expenses increased 50% to $24.1 million for the three months ended September 30, 2021 from $16.1 million for the same period in 2020.

The increase in R&D expenses was primarily the result of an increase of $4.8 million in salaries, incentive compensation and other employee benefits due to an increase in personnel to support our product development efforts.

Non-cash stock-based compensation expense allocated to R&D was $2.5 million for the three months ended June 30, 2021 , compared to $2.6 million in the same period in 2020.

Non-cash stock-based compensation expense allocated to R&D was $2.9 million for the three months ended September 30, 2021 , compared to $1.8 million in the same period in 2020.

Non-employee discretionary spending also increased $2.1 million for product development, facilities and maintenance costs.

Other Income (Expense), Net .

Total other expense, net for the three months ended June 30, 2021 was $1.4 million compared to $17.1 million in the same period in 2020.

Total other expense, net for the three months ended June 30, 2021 primarily consisted of $1.5 million of interest expense which included the amortization of debt issuance costs related to our Notes issued in the second quarter of 2020, and a $0.3 million revaluation loss from the change in the fair value of certain warrants.

Total other expense, net for the three months ended June 30, 2020 consisted of a $14.3 million loss on revaluation from the change in the fair value of certain warrants, and $3.2 million of interest expense which included the amortization of debt discount and debt issuance costs related to our Notes.

Total other expense, net for the three months ended September 30, 2021 was $1.9 million compared to $8.4 million in the same period in 2020.

Total other expense, net for the three months ended September 30, 2021 primarily consisted of $1.5 million of interest expense which included the amortization of debt issuance costs related to our Notes issued in the second quarter of 2020, and a $0.4 million revaluation loss from the change in the fair value of certain warrants.

Total other expense, net for the three months ended September 30, 2020 consisted of a $3.6 million loss on revaluation from the change in the fair value of certain warrants, and $4.9 million of interest expense which included the amortization of debt discount and debt issuance costs related to our Notes.

The decrease in interest expense was primarily due to the adoption of ASU No.

2020-06 in the first quarter of 2021 (see Note 7, “Convertible Senior Notes”).

Comparison of the Six Months Ended June 30, 2021 and 2020

For the six months ended June 30, 2021, sales were $313.2 million, which included $82.3 million of international sales.

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

The increase in worldwide sales of $106.0 million in the first six months of 2021 compared to the first six months of 2020 was driven by a 64% increase in worldwide pump shipments to 59,169 in the first six months of 2021, compared to 36,065 in the first six months of 2020, and a 51% increase in pump-related supply sales.

Comparison of the Nine Months Ended September 30, 2021 and 2020

For the nine months ended September 30, 2021, sales were $492.8 million, which included $128.8 million of international sales.

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

The increase in worldwide sales of $162.0 million in the first nine months of 2021 compared to the first nine months of 2020 was driven by a 56% increase in worldwide pump shipments to 90,727 in the first nine months of 2021, compared to 58,086 in the first nine months of 2020, and a 58% increase in pump-related supply sales.

Sales of pump-related supplies increased primarily due to a 58% growth in our estimated worldwide installed base of customers.

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

Six Months Ended

Nine Months Ended

September 30,

Pump $ 221,724 $ 175,550

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Total Domestic Sales $ 364,025 $ 276,340

Domestic pump sales were $143.0 million for the first six months of 2021, compared to $106.1 million in the first six months of 2020, as pump shipments increased 34% compared to the same period in the prior year due to continued strong demand for our products following the January 2020 domestic launch of our t:slim X2 insulin pump with Control-IQ technology.

Domestic pump shipments were 37,309 in the first six months of 2021 compared to 27,893 in the first six months of 2020.

Domestic pump sales were $221.7 million for the first nine months of 2021, compared to $175.6 million in the first nine months of 2020, as pump shipments increased 24% compared to the same period in the prior year due to continued strong demand for our products following the January 2020 domestic launch of our t:slim X2 insulin pump with Control-IQ technology.

Domestic pump shipments were 57,605 in the first nine months of 2021 compared to 46,273 in the first nine months of 2020.

Sales of pump-related supplies increased primarily due to a 45% increase in our estimated domestic installed base of customers.

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

Sales to distributors accounted for 68% and 72% of our total domestic sales for the nine months ended September 30, 2021 and 2020, respectively.

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

Six Months Ended

Nine Months Ended

September 30,

Pump $ 70,300 $ 27,985

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Total International Sales $ 128,778 $ 54,425

International pump sales were $46.5 million for the first six months of 2021, compared to $18.9 million in the first six months of 2020, as pump shipments increased 167% compared to the same period in the prior year due to strong demand for our products as we continue to expand the launch of Control-IQ technology, which began in the third quarter of 2020, outside the United States.

International pump sales were $70.3 million for the first nine months of 2021, compared to $28.0 million in the first nine months of 2020, as pump shipments increased 180% compared to the same period in the prior year due to strong demand for our products as we continue to expand the launch of Control-IQ technology, which began in the third quarter of 2020, outside the United States.

Sales of pump-related supplies increased primarily due to an 115% increase in our estimated international installed base of customers.

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

Sales to distributors accounted for 95% of our total international sales for both of the six month periods ended June 30, 2021 and 2020.

Sales to distributors accounted for 95% of our total international sales for the nine month period ended September 30, 2021, and 93% for the same period in 2020.

Cost of Sales and Gross Profit .

Our cost of sales for the six months ended June 30, 2021 was $147.4 million resulting in gross profit of $165.7 million, compared to cost of sales of $102.5 million for the same period in 2020 resulting in gross profit of $104.7 million.

The gross margin for the six months ended June 30, 2021 was 53% compared to 51% in the same period in 2020.

The increase in our gross profit for the six months ended June 30, 2021 was primarily the result of the $106.0 million increase in total sales.

Gross profit and gross margin both benefited from improvement in the per unit manufacturing costs for pumps and supplies from efficiencies in the manufacturing process, leverage of fixed overhead, increased volumes from our third-party cartridge manufacturer and material cost reductions.

Our cost of sales for the nine months ended September 30, 2021 was $230.3 million resulting in gross profit of $262.5 million, compared to cost of sales of $160.8 million and gross profit of $170.0 million for the same period in 2020.

The gross margin for the nine months ended September 30, 2021 was 53% compared to 51% in the same period in 2020.

The increase in our gross profit for the nine months ended September 30, 2021 was primarily the result of the $162.0 million increase in total sales.

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

Royalty expense was $3.5 million for the six months ended June 30, 2021, compared to $3.0 million in the same period in 2020.

Royalty expense was $5.4 million for the nine months ended September 30, 2021, compared to $4.7 million in the same period in 2020.

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

Pump sales, which have the highest gross margin, were 61% of total worldwide sales in the first six months of 2021 compared to 60% in the same period in 2020.

Non-cash stock-based compensation expense allocated to cost of sales was $3.1 million for the six months ended June 30, 2021, compared to $4.3 million in the same period in 2020.

Pump sales, which have the highest gross margin, were 59% of total worldwide sales in the first nine months of 2021 compared to 62% in the same period in 2020.

Non-cash stock-based compensation expense allocated to cost of sales was $4.6 million for the nine months ended September 30, 2021, compared to $6.5 million in the same period in 2020.

Selling, General and Administrative Expenses.

SG&A expenses increased 25% to $125.1 million for the six months ended June 30, 2021 from $100.2 million for the same period in 2020.

SG&A expenses increased 26% to $190.0 million for the nine months ended September 30, 2021 from $150.4 million for the same period in 2020.

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

The increase compared to 2020 was primarily the result of a $19.7 million increase in salaries, incentive compensation and other employee benefits due to an increase in personnel to support additional sales territories, higher sales and other services in support of our growing installed customer base, offset by a $2.9 million decrease in non-cash stock-based compensation expense.

Non-cash stock-based compensation expense allocated to SG&A was $20.3 million for the six months ended June 30, 2021, compared to $23.2 million in the same period in 2020.

We also experienced an $8.2 million increase in other non-employee discretionary spending, including outside consulting, software maintenance and outside services.

The increase compared to 2020 was primarily the result of a $25.7 million increase in salaries, incentive compensation and other employee benefits due to an increase in personnel to support additional sales territories, higher sales and other services in support of our growing installed customer base.

Non-cash stock-based compensation expense allocated to SG&A was $31.6 million for the nine months ended September 30, 2021, compared to $32.1 million in the same period in 2020.

The increase in non-cash stock-based compensation expense associated with increased headcount in 2020 and 2021, was more than offset by a decrease in non-cash stock-based compensation expense from the valuation of certain 2018 employee stock option grants which became fully amortized in the second quarter of 2020.

We also experienced a $14.4 million increase in other non-employee discretionary spending, including outside consulting, software maintenance and outside services.

Research and Development Expenses .

R&D expenses increased 28% to $38.5 million for the six months ended June 30, 2021 from $30.1 million for the same period in 2020.

R&D expenses increased 35% to $62.6 million for the nine months ended September 30, 2021 from $46.2 million for the same period in 2020.

The increase in R&D expenses was primarily the result of an increase of $11.8 million in salaries, incentive compensation and other employee benefits due to an increase in personnel to support our product development efforts.

Non-cash stock-based compensation expense allocated to R&D was $4.6 million for the six months ended June 30, 2021, compared to $4.8 million in the same period in 2020.

Non-cash stock-based compensation expense allocated to R&D was $7.5 million for the nine months ended September 30, 2021, compared to $6.6 million in the same period in 2020.

We also experienced a $3.7 million increase in other non-employee discretionary spending, including software maintenance, equipment and product development costs.

Other Income (Expense), Net .

Total other expense, net for the six months ended June 30, 2021 and 2020 was $3.3 million and $18.3 million, respectively.

Other expense for the six months ended June 30, 2021 primarily consisted of $3.0 million of interest expense which includes the amortization of debt issuance costs related to our Notes issued in the second quarter of 2020, and a $1.0 million revaluation loss from the change in the fair value of certain warrants.

Other expense for the six months ended June 30, 2020 primarily consisted of a $16.3 million revaluation loss from the change in the fair value of certain warrants and $3.2 million of interest expense which included the amortization of debt discount and debt issuance costs related to our Notes.

Interest income and other, net for the six months ended June 30, 2021 and 2020 primarily consisted of interest earned on our cash equivalents and short-term investments.

Total other expense, net for the nine months ended September 30, 2021 and 2020 was $5.2 million and $26.7 million, respectively.

Other expense for the nine months ended September 30, 2021 primarily consisted of $4.5 million of interest expense which included the amortization of debt issuance costs related to our Notes issued in the second quarter of 2020, and a $1.4 million revaluation loss from the change in the fair value of certain warrants.

Other expense for the nine months ended September 30, 2020 primarily consisted of a $19.9 million revaluation loss from the change in the fair value of certain warrants and $8.0 million of interest expense which included the amortization of debt discount and debt issuance costs related to our Notes.

Interest income and other, net for the nine months ended September 30, 2021 and 2020 primarily consisted of interest earned on our cash equivalents and short-term investments.

The decrease in interest expense was primarily due to the adoption of ASU No.

2020-06 in the first quarter of 2021 (see Note 7, “Convertible Senior Notes”).

Income Tax Expense (Benefit) .

We recognized an income tax benefit of $0.1 million on pre-tax loss of $1.1 million for the six months ended June 30, 2021, compared to an income tax benefit of $2.0 million on a pre-tax loss of $44.0 million for the six months ended June 30, 2020.

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.

The income tax benefit for the 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.

We recognized an income tax benefit of $2,000 on pre-tax income of $4.8 million for the nine months ended September 30, 2021, compared to an income tax benefit of $1.9 million on a pre-tax loss of $53.3 million for the nine months ended September 30, 2020.

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

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

Liquidity and Capital Resources

As of June 30, 2021, we had $545.3 million in cash and cash equivalents and short-term investments.

As of September 30, 2021, we had $595.0 million in cash and cash equivalents and short-term investments.

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

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• In May 2020, we raised $278.7 million in net proceeds from the issuance of the Notes, and used $34.1 million of the net proceeds to pay the cost of the Capped Call Transactions related to the Notes (see Note 7, “Convertible Senior Notes”).

• From January 2020 through June 2021, we issued 2,702,444 shares of common stock upon the exercise of stock options, and 402,312 shares of common stock were purchased under our 2013 Employee Stock Purchase Plan, which generated aggregate proceeds of $83.6 million.

• From January 2020 through June 2021, we received proceeds of $1.4 million from the exercise of 387,615 outstanding warrants which were originally issued in connection with our registered public offering of common stock in October 2017.

As of June 30, 2021, there were warrants to purchase 29,700 shares outstanding relating to the October 2017 offering.

• From January 2020 through June 2021, we received proceeds of $2.0 million from the exercise of 71,261 outstanding warrants which were originally issued between August 2011 and August 2012.

As of June 30, 2021, there were warrants to purchase 27,704 shares outstanding relating to these issuances.

• From January 2020 through September 2021, we issued 3,165,455 shares of common stock upon the exercise of stock options, and 402,312 shares of common stock were purchased under our 2013 Employee Stock Purchase Plan, which generated aggregate proceeds of $103.5 million.

• From January 2020 through September 2021, we received proceeds of $1.5 million from the exercise of 416,315 outstanding warrants which were originally issued in connection with our registered public offering of common stock in October 2017.

As of September 30, 2021, there were warrants to purchase 1,000 shares outstanding relating to the October 2017 offering.

• From January 2020 through September 2021, we received proceeds of $2.1 million from the exercise of 73,985 outstanding warrants which were originally issued between August 2011 and August 2012.

As of September 30, 2021, there were warrants to purchase 19,722 shares outstanding relating to these issuances.

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

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

The following table shows a summary of our cash flows for the six months ended June 30, 2021 and 2020:

Six Months Ended

The following table shows a summary of our cash flows for the nine months ended September 30, 2021 and 2020:

Nine Months Ended

September 30,

(in thousands) 2021 2020

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Operating Activities .

Net cash provided by operating activities was $57.6 million for the six months ended June 30, 2021, compared to $5.1 million net cash used by operating activities in the same period in 2020.

The improvement to net cash provided by operating activities for 2021 compared to 2020 was driven by higher sales and gross profit in 2021, which resulted in a reduction in net loss when adjusted for non-cash expenses, particularly stock-based compensation expense, as well as working capital changes.

Working capital changes during the first six months of 2021 primarily consisted of increases in inventories, accounts payable and accrued expenses, deferred revenue and employee related liabilities related to the growth in our business, and a decrease in accounts receivable related to the timing of sales and cash collections.

Accounts receivable decreased to $80.2 million at June 30, 2021 from $82.2 million at December 31, 2020.

Inventories increased to $66.7 million at June 30, 2021 from $63.7 million at December 31, 2020.

Net cash provided by operating activities was $91.7 million for the nine months ended September 30, 2021, compared to $9.4 million in the same period in 2020.

The improvement to net cash provided by operating activities for 2021 compared to 2020 was driven by higher sales and gross profit in 2021, which resulted in a $37.5 million improvement to net income when adjusted for non-cash expenses, particularly stock-based compensation expense, as well as a $44.8 million increase from working capital changes.

Working capital changes during the first nine months of 2021, which primarily consisted of increases in employee related liabilities, accounts payable and accrued expenses, deferred revenue, and accounts receivable related to the growth in our business, provided $28.8 million in cash compared to a use of $16.0 million from working capital changes in the same period of 2020.

Accounts receivable increased to $87.5 million at September 30, 2021 from $82.2 million at December 31, 2020.

Inventories increased to $65.7 million at September 30, 2021 from $63.7 million at December 31, 2020.

Investing Activities .

Net cash used in investing activities was $70.9 million for the six months ended June 30, 2021, which was primarily related to $385.6 million of purchases of short-term investments, $9.3 million cash paid for the acquisition of intangible assets and equity investments, and $5.3 million in purchases of property and equipment, offset by $329.4 million in proceeds from maturities and sales of short-term investments.

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

Net cash used in investing activities was $110.1 million for the nine months ended September 30, 2021, which was primarily related to $542.8 million of purchases of short-term investments, $9.3 million cash paid for the acquisition of intangible assets and equity investments, and $8.4 million in purchases of property and equipment, offset by $450.5 million in proceeds from maturities and sales of short-term investments.

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

Financing Activities.

Net cash provided by financing activities was $17.2 million for the six months ended June 30, 2021, which primarily consisted of proceeds from the issuance of common stock under our stock plans.

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

Net cash provided by financing activities was $36.0 million for the nine months ended September 30, 2021, which primarily consisted of proceeds from the issuance of common stock under our stock plans.

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

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

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Off-Balance Sheet Arrangements

As of June 30, 2021, we did not have any off-balance sheet arrangements.

As of September 30, 2021, we did not have any off-balance sheet arrangements.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis