What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-02-22 compared with 2021-02-24 · 397 added, 399 removed, 656 unchanged (55% of the section changed)

Quantitative and Qualitative Disclosures about Market Risk.

We invest our excess cash primarily in commercial paper, corporate debt securities, U.S.

Government-sponsored enterprise securities and U.S.

Treasury securities.

Credit and Interest Rate Risks

We invest our excess cash in marketable securities consisting primarily of commercial paper, corporate debt securities, U.S.

Treasury securities and U.S.

Government-sponsored enterprise securities.

Some of the financial instruments in which we invest subject us to market risk, in that a change in prevailing interest rates may cause the principal amount of the instrument to fluctuate.

Other financial instruments in which we invest subject us to credit risk, in that the value of the instrument may fluctuate based on the issuer’s ability to pay.

As a result of the COVID-19 global pandemic and the perceived increased credit risks associated with certain securities, credit rating agencies have, from time to time, issued downgrades or revised outlooks to negative for certain issuers of the debt securities held in our short-term investments portfolio.

Unrealized losses on available-for-sale debt securities at December 31, 2021 were not significant.

Based on the credit quality of the available-for-sale debt securities that are in an unrealized loss position, and our current estimates of future cash flows to be collected from those securities, we believe the unrealized losses were not credit losses (see Note 3, “Short-Term Investments”).

The primary objectives of our investment activities are to maintain liquidity and preserve principal while maximizing the income we receive from our financial instruments without significantly increasing risk.

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Because of the short-term maturities of our financial instruments, we do not believe that an increase or decrease in market interest rates would have any significant impact on the realized value of our investment portfolio.

If a 10% change in interest rates were to have occurred on December 31, 2020, this change would not have had a material effect on the fair value of our investment portfolio as of that date.

If a 10% change in interest rates were to have occurred on December 31, 2021, it would not have had a material effect on the fair value of our investment portfolio as of that date.

In May 2020, we issued $287.5 million principal amount of Convertible Senior Notes, which bear interest at a fixed rate of 1.50% per year.

Accordingly, we are not subject to interest rate risk as a result of the Convertible Senior Notes (see Note 7, “Debt”).

Foreign Currency Exchange Rate Risk

Our operations are primarily located in the United States, and nearly all of our sales since inception have been made in U.S.

With the exception of a portion of our sales in Canada, our sales outside of the United States are currently made to independent distributors under agreements denominated in U.S.

Accordingly, we believe we do not currently have any material exposure to foreign currency rate fluctuations.

As our business in markets outside of the United States increases, we may be exposed to foreign currency exchange risk.

We believe this is currently limited to our operations in Canada, where fluctuations in the rate of exchange between the U.S.

As we expand our operations in markets outside the United States, we may be exposed to further foreign currency exchange rate risk.

We believe our exposure to foreign currency rate fluctuations is currently limited to our operations in Canada, where fluctuations in the rate of exchange between the U.S.

dollar and the Canadian dollar could adversely affect our financial results.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2020, 2019 and 2018

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

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

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the Years ended December 31, 2021, 2020 and 2019

Notes to Consolidated Financial Statements

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We have audited the accompanying consolidated balance sheets of Tandem Diabetes Care, Inc.

(the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2020 and the related notes (collectively referred to as the “consolidated financial statements”).

(the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2021 and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 22, 2022 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for convertible instruments in 2021 due to the adoption of ASU No.

2020-06, Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

Basis for Opinion

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

Critical Audit Matters

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

Critical Audit Matter

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

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

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

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

Warranty reserve – Estimation of Product Replacement Reserve

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

Valuation of Convertible Notes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

/s/ Ernst & Young LLP

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Additional paid-in capital 1,068,259 1,025,233

Accumulated other comprehensive income 220 122

Accumulated other comprehensive income (loss) ( 616 ) 220

Accumulated deficit ( 634,595 ) ( 659,210 )

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TANDEM DIABETES CARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

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Total operating expenses 353,562 268,477 210,934

Operating loss ( 7,957 ) ( 16,722 ) ( 44,631 )

Operating income (loss) 22,653 ( 7,957 ) ( 16,722 )

Other income (expense), net:

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Interest expense ( 6,040 ) ( 12,805 ) —

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

Change in fair value of common stock warrants ( 1,386 ) ( 17,087 ) ( 11,075 )

Total other expense, net ( 6,752 ) ( 28,325 ) ( 7,882 )

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

Income (loss) before income taxes 15,901 ( 36,282 ) ( 24,604 )

Income tax expense (benefit) 335 ( 1,900 ) 149

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

Net income (loss) $ 15,566 $ ( 34,382 ) $ ( 24,753 )

Other comprehensive income (loss):

Unrealized gain (loss) on short-term investments $ ( 693 ) $ ( 20 ) $ 77

Foreign currency translation gain 118 58 —

Comprehensive loss $ ( 34,284 ) $ ( 24,618 ) $ ( 122,624 )

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

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

Foreign currency translation gain (loss) ( 143 ) 118 58

Comprehensive income (loss) $ 14,730 $ ( 34,284 ) $ ( 24,618 )

Net income (loss) per share - basic $ 0.25 $ ( 0.56 ) $ ( 0.42 )

Net income (loss) per share - diluted $ 0.24 $ ( 0.56 ) $ ( 0.42 )

Weighted average shares used to compute basic net income (loss) per share 63,000 60,990 58,507

Weighted average shares used to compute diluted net income (loss) per share 64,349 60,990 58,507

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

TANDEM DIABETES CARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

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Stockholders’

Equity (Deficit)

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

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

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

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

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

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

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

Foreign currency translation adjustments — — — 58 — 58

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

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

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 — — 57,725 — — 57,725

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

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

Foreign currency translation adjustments — — — 118 — 118

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

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

Effect of change in accounting for convertible senior notes (1) — — ( 85,803 ) — 9,049 ( 76,754 )

Exercise of stock options 1,129 2 41,821 — — 41,823

Vesting of restricted stock units, net of shares withheld for taxes 38 — ( 1,551 ) — — ( 1,551 )

Issuance of common stock for Employee Stock Purchase Plan 173 — 11,069 — — 11,069

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Fair value of common stock warrants at time of exercise — — 15,500 — — 15,500

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

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

Stock-based compensation expense — — 61,091 — — 61,091

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Foreign currency translation adjustments — — — ( 143 ) — ( 143 )

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

Net income — — — — 15,566 15,566

Balance at December 31, 2021 63,833 $ 64 $ 1,068,259 $ ( 616 ) $ ( 634,595 ) $ 433,112

(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”).

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

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Operating Activities

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

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

Net income (loss) $ 15,566 $ ( 34,382 ) $ ( 24,753 )

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

Depreciation and amortization expense 13,845 10,451 6,072

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

Amortization of debt discount and issuance costs 1,727 10,096 —

Provision for expected credit losses 2,333 3,016 2,322

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Stock-based compensation expense 60,752 58,431 58,071

Loss on extinguishment of debt — — 5,313

Other 546 38 ( 295 )

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Deferred revenue 10,611 7,029 4,589

Other current liabilities 5,789 4,216 2,434

Operating leases and other current liabilities 6,217 5,789 4,216

Other long-term liabilities 1,421 3,888 7,412

Net cash provided by (used in) operating activities 24,669 41,906 ( 8,319 )

Net cash provided by operating activities 111,359 24,669 41,906

Investing Activities

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Purchases of property and equipment ( 14,180 ) ( 27,408 ) ( 19,541 )

Acquisition of intangible assets ( 4,886 ) — —

Acquisition of intangible assets and equity investments ( 9,331 ) ( 4,886 ) —

Net cash used in investing activities ( 186,876 ) ( 296,056 ) ( 56,955 )

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

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

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

Proceeds from public offerings, net of offering costs — — 172,929

Proceeds from issuance of common stock under Company stock plans 66,866 23,880 2,391

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

Proceeds from issuance of common stock under Company stock plans, net 51,340 66,866 23,880

Proceeds from exercise of common stock warrants 592 2,950 327

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Effect of foreign exchange rate changes on cash 153 387 191

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

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

Net increase (decrease) in cash and cash equivalents ( 23,432 ) 43,438 9,349

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

Cash and cash equivalents at end of period $ 71,181 $ 94,613 $ 51,175

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Tandem Diabetes Care, Inc.

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

The Company is incorporated in the state of Delaware.

is a medical device company focused on the design, development and commercialization of technology solutions for people living with diabetes.

Tandem Diabetes Care, Inc.

is incorporated in the state of Delaware.

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

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

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

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

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

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

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

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dollars using period-end exchange rates for assets and liabilities and average exchange rates for each period for revenue, costs and expenses.

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

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

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

Reclassifications

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

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

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

Summary of Significant Accounting Policies

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

There have been no material changes to the Company’s significant accounting policies during the year ended December 31, 2021, 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, “Debt”).

Use of Estimates

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

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

The net unrealized gains or losses on available-for-sale securities that are not related to credit factors are reported as a component of other comprehensive income (loss) within the statements of operations and accumulated other comprehensive income (loss) as a separate component of stockholders’ equity on the consolidated balance sheets.

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

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

To date, the Company has not identified any other than temporary declines in fair value of its short-term investments.

The Company reviews its available-for-sale debt securities for credit losses quarterly, considering a variety of factors, including the significance of the decline in value as compared to the amortized cost basis;

underlying factors contributing to a decline in the prices of securities in a single asset class;

the security’s relative performance versus its peers, sector or asset class;

the market and economy in general;

views of external investment managers;

news or financial information that has been released specific to the investee;

and the outlook for the overall industry in which the investee operates.

Losses on available-for-sale debt securities as a result of credit factors are recognized by recording an impairment loss as a component of other income or expense within the consolidated statements of operations and a corresponding allowance for credit losses.

The Company has not recognized any impairment losses related to its short-term investments during the years ended December 31, 2021, 2020 and 2019.

Accounts Receivable

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

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

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

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

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

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

Customer A 12.7 % N/A

Customer B 12.3 % N/A

Customer C N/A 20.4 %

Customer D N/A 10.1 %

Customer A * 12.7 %

Customer B 11.2 % 12.3 %

* Amount related to the respective customer represented less than 10% for the period presented.

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

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Customer C * 12.9 % 15.4 %

* Amount related to the respective customer represented less than 10% for the period presented.

Fair Value of Financial Instruments

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Short-term investments are carried at fair value.

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

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

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

The Company’s convertible senior notes are carried at amortized cost on the consolidated balance sheets (see Note 7, “Debt”).

The Company determined the fair value of its convertible senior notes to be $ 430.0 million and $ 333.5 million at December 31, 2021 and 2020, respectively, based on Level 2 quoted market prices as of that date .

Valuation of Inventories

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Operating Lease Right-of-Use Assets and Liabilities

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

2016-02, Leases .

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

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

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

The Company did not restate prior periods.

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

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

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

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

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

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

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

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 sheets.

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

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 recorded using the cost minus impairment adjusted for changes in observable prices and is included as a component of other long-term assets on the consolidated balance sheet at December 31, 2021.

We monitor this investment to evaluate whether any increase or decline in its value has occurred, based on the implied value of recent company financings, public market prices of comparable companies and general market conditions.

Intangible Assets Subject to Amortization

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

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

The Company reviews its finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company has no t recognized any impairment losses during the years ended December 31, 2021, 2020 and 2019.

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

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

(Sugarmate), the developer of a mobile app designed to help people visualize diabetes therapy data in innovative ways.

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

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

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

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

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

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

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

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

Research and Development Costs

All research and development costs are charged to expense as incurred.

Such costs include personnel-related costs, including stock-based compensation, supplies, license fees, development prototypes, outside design and testing services, depreciation, allocated facilities and information services, clinical trial costs, milestone payments under the Company’s development and commercialization agreements and other indirect costs.

The Company uses the asset and liability method of accounting for income taxes.

Deferred income tax assets or liabilities are recognized based on the temporary differences between financial statement and income tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse.

Tax law and rate changes are reflected in income in the period such changes are enacted.

A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.

The Company includes interest and penalties related to income taxes, including unrecognized tax benefits, within income tax expense.

The Company’s income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities.

In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations.

The Company recognizes liabilities for uncertain tax positions based on a two-step process.

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.

The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

While the Company believes it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of its provision for income taxes.

The Company continually assesses the likelihood and amount of potential revisions and adjusts the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.

Significant judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets.

Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized.

A valuation allowance is established when it is more likely than not the future realization of all or some of the deferred tax assets will not be achieved.

The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis, and includes a review of all available positive and negative evidence.

Factors reviewed include projections of pre-tax book income for the foreseeable future, determination of cumulative pre-tax book income after permanent differences, earnings history, and reliability of forecasting.

The Company will continue to assess the need for a valuation allowance on its deferred tax assets by evaluating both positive and negative evidence that may exist.

Any adjustment to the net deferred tax asset valuation allowance would be recorded in the statement of operations for the period that the adjustment is determined to be required.

The Company is required to file federal and state income tax returns in the United States and various other state jurisdictions and, starting with 2018, a corporation income tax return in Canada.

The preparation of these income tax returns requires the Company to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the Company.

An amount is accrued for the estimate of additional tax liability, including interest and penalties, for any uncertain tax positions taken or expected to be taken in an income tax return.

The Company reviews and updates the accrual for uncertain tax positions as more definitive information becomes available.

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

Convertible Senior Notes

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

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

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

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

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

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

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

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

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

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

Revenue Recognition

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

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

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

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

Revenue Recognition for Arrangements with Multiple Performance Obligations

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

Generally, insulin pumps, cartridges, infusion sets and accessories are deemed performance obligations that are satisfied at a point in time when the customer obtains control of the promised good, which is upon delivery for our distributor arrangements and upon receipt for sales directly to individual customers.

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

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

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

Generally, insulin pumps, cartridges, infusion sets and accessories are deemed performance obligations that are satisfied at a point in time when the customer obtains control of the promised good, which typically is upon shipment for our distributor arrangements and upon receipt for sales directly to individual customers.

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

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

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

Deferred revenue related to these performance obligations that are satisfied over time was included in the following consolidated balance sheet accounts in the amounts shown as of December 31, 2021 and 2020 (in thousands):

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Warranty Reserve

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

The Company generally provides a four-year warranty on its insulin pumps to end user customers and may replace any pumps that do not function as intended in accordance with the product specifications within the warranty period.

Insulin pumps returned to the Company may be refurbished and redeployed.

Additionally, the Company offers a six-month warranty on disposable cartridges and infusion sets.

Estimated warranty costs are recorded at the time of shipment.

The Company evaluates the reserve quarterly.

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

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

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

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

Additionally, the Company offers a six-month warranty on disposable insulin cartridges and infusion sets.

Estimated warranty costs are recorded at the time of shipment, and the Company reevaluates the estimate of the warranty reserve obligation at each reporting period.

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

Experience has shown that initial data for any given pump version may be insufficient;

therefore, our process relies on long-term historical averages until sufficient data are available.

As actual experience becomes available, we use the data to update the historical averages.

The Company may make further adjustments to the warranty reserve when deemed appropriate, giving additional consideration to the length of time each pump version has been in the field and revised 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 years ended December 31, 2021, 2020 and 2019 (in thousands):

Year Ended December 31,

(in thousands) 2020 2019 2018

2021 2020 2019

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

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Settlements made during the period ( 18,768 ) ( 13,736 ) ( 10,167 )

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

Decrease in warranty estimates ( 510 ) ( 2,048 ) ( 582 )

Balance at end of the year $ 30,401 $ 22,075 $ 16,724

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

(in thousands) 2020 2019

As of December 31, 2021 and December 31, 2020, total product warranty reserves of $ 30.4 million and $ 22.1 million, respectively, were included in the following consolidated balance sheet accounts (in thousands):

Other current liabilities $ 13,076 $ 8,409

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Total warranty reserve $ 30,401 $ 22,075

Common Stock Warrant Liabilities

The Company accounts for certain stock warrants as a liability in the consolidated financial statements when they contain a provision within the warrant contracts that could require cash settlement in the event the Company did not have an active registration statement.

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

Stock-Based Compensation

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The Company estimates the fair value of stock options issued under the Company’s Amended and Restated 2013 Stock Incentive Plan (2013 Plan) and the fair value of the employees’ purchase rights under the Company’s 2013 Employee Stock Purchase Plan (ESPP) using the Black-Scholes option-pricing model on the date of grant.

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.

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.

Common Stock Warrant Liabilities

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.

At each reporting period, we reassess the probability of the achievement of such performance metrics.

Any expense change resulting from an adjustment in the estimated shares to be released is recorded in the period of adjustment.

Shipping and Handling Expenses

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Amounts billed to a customer for shipping and handling are reported as revenues.

Comprehensive Loss

All components of comprehensive loss, including net loss, are reported in the consolidated financial statements in the period in which they are recognized.

Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on marketable securities and foreign currency translation adjustments.

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.

Research and Development Costs

All research and development costs are charged to expense as incurred.

The Company uses the asset and liability method of accounting for income taxes.

Deferred tax assets or liabilities are recognized based on the temporary differences between financial statement and income tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse.

Tax law and rate changes are reflected in income in the period such changes are enacted.

A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.

The Company includes interest and penalties related to income taxes, including unrecognized tax benefits, within income tax expense.

The Company’s income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities.

In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations.

The Company recognizes liabilities for uncertain tax positions using a two-step approach.

The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

Significant judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets.

Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized.

A valuation allowance is established when it is more likely than not the future realization of all or some of the deferred tax assets will not be achieved.

The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis, and includes a review of all available positive and negative evidence.

The Company will continue to assess the need for a valuation allowance on its deferred tax assets by evaluating both positive and negative evidence that may exist.

Any adjustment to the net deferred tax asset valuation allowance would be recorded in the statement of operations for the period that the adjustment is determined to be required.

The Company is required to file federal and state income tax returns in the United States and various other state jurisdictions, and a corporation income tax return in Canada.

An amount is accrued for the estimate of additional tax liability, including interest and penalties, for any uncertain tax positions taken or expected to be taken in an income tax return.

The Company reviews and updates the accrual for uncertain tax positions as more definitive information becomes available (see Note 10, “Income Taxes.” for further information).

Comprehensive Income (Loss)

All components of comprehensive income (loss), including net income (loss), are reported in the consolidated financial statements in the period in which they are recognized.

Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on marketable securities and foreign currency translation adjustments.

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

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

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

For the years ended December 31, 2020 and 2019, there was 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 year ended December 31, 2021, the numerator and denominator of the diluted net income per share computation were calculated as follows (in thousands):

Year Ended December 31,

Net income - basic and diluted $ 15,566

Weighted average shares outstanding - basic 63,000

Dilutive common share equivalents:

Options to purchase common stock 1,129

Unvested restricted stock units 62

Warrants to purchase common stock 157

Awards to be granted under the ESPP 1

Weighted average shares outstanding - diluted 64,349

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):

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2021 2020 2019

Warrants to purchase common stock 379 611 705

Options to purchase common stock 3,124 5,021 5,619

Unvested restricted stock units 78 N/A N/A

Unvested restricted stock units — 78 N/A

Warrants to purchase common stock 1 379 611

Awards granted under the ESPP — 3 5

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

Convertible senior notes (if-converted) 2,554 1,605 N/A

5,679 7,086 6,235

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 August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement:

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

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

However, public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income.

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

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

In December 2019, the FASB issued ASU No.

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

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

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

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

In June 2020, the FASB issued ASU No.

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

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

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

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

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

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

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

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

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

Financial Statement Information

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

Short-Term Investments

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

Government, financial institutions and corporations with strong credit ratings.

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

At December 31, 2020 Maturity

(in years) Amortized

At December 31, 2021 Amortized

Cost Gross Unrealized

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Available-for-sale securities:

Commercial paper Less than 1

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

Government-sponsored enterprise Less than 2

52,330 21 ( 1 ) 52,350

Treasury securities Less than 2

143,244 12 ( 2 ) 143,254

Corporate debt securities Less than 2

85,788 48 ( 13 ) 85,823

Treasury securities $ 222,206 $ — $ ( 482 ) $ 221,724

Commercial paper 218,391 14 ( 24 ) 218,381

Corporate debt securities 58,881 — ( 45 ) 58,836

Government-sponsored enterprises 50,773 1 ( 88 ) 50,686

Supranational bonds 3,003 — — 3,003

Total $ 553,254 $ 15 $ ( 639 ) $ 552,630

At December 31, 2019 Maturity

(in years) Amortized

At December 31, 2020 Amortized

Cost Gross Unrealized

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Available-for-sale securities:

Commercial paper Less than 1

$ 24,147 $ 10 $ — $ 24,157

Government-sponsored enterprise Less than 2

33,073 26 — 33,099

Treasury securities Less than 2

17,963 17 ( 1 ) 17,979

Corporate debt securities Less than 2

50,011 42 ( 5 ) 50,048

Treasury securities $ 143,244 $ 12 $ ( 2 ) $ 143,254

Commercial paper 108,892 5 ( 1 ) 108,896

Corporate debt securities 85,788 48 ( 13 ) 85,823

Government-sponsored enterprises 52,330 21 ( 1 ) 52,350

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

The contractual maturities of available-for-sale debt securities as of December 31, 2021, were as follows (in thousands):

Years to Maturity

At December 31, 2021 Within One Year One to Two Years Estimated Fair Value

Treasury securities $ 105,231 $ 116,493 $ 221,724

Commercial paper 218,381 — 218,381

Corporate debt securities 58,836 — 58,836

Government-sponsored enterprises 32,282 18,404 50,686

Supranational bonds 3,003 — 3,003

Total $ 417,733 $ 134,897 $ 552,630

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

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

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

The Company reviews the portfolio of available-for-sale debt securities quarterly 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 December 31, 2021 were not significant and were primarily due to changes in market interest rates.

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

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

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

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 December 31, 2021.

Composition of Certain Financial Statement Items

Accounts Receivable

Accounts receivable consisted of the following (in thousands):

Accounts receivable, net consisted of the following at (in thousands):

Accounts receivable $ 114,974 $ 86,052

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Allowance for Credit Losses

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

The following table provides a reconciliation of the changes in the allowance for estimated accounts receivable credit losses for the years ended December 31, 2021, 2020 and 2019 (in thousands):

Year Ended December 31,

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Property and Equipment

Property and equipment consisted of the following at (in thousands):

Property and equipment, net consisted of the following at (in thousands):

Leasehold improvements $ 25,245 $ 22,834

Computer equipment and software 12,219 9,899

Office furniture and equipment 9,943 9,876

Computer equipment and software 11,544 12,219

Manufacturing and scientific equipment 52,823 44,026

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

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

Intangible assets at December 31, 2021 and 2020, which were included in other long-term assets on the consolidated balance sheets, were as follows (in thousands):

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

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

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

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

Fair Value Measurements

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

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

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

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

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December 31, 2021

December 31, 2020 Level 1 Level 2 Level 3

Total Level 1 Level 2 Level 3

Cash equivalents (1)

$ 48,286 $ 48,286 $ — $ —

Commercial paper 108,896 — 108,896 —

Government-sponsored enterprise 52,350 — 52,350 —

Treasury securities 221,724 221,724 — —

Commercial paper 218,381 — 218,381 —

Government-sponsored enterprises 50,686 — 50,686 —

Corporate debt securities 58,836 — 58,836 —

Supranational bonds 3,003 — 3,003 —

Total assets $ 600,916 $ 270,010 $ 330,906 $ —

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December 31, 2020

December 31, 2019 Level 1 Level 2 Level 3

Total Level 1 Level 2 Level 3

Cash equivalents (1)

$ 87,300 $ 87,300 $ — $ —

Commercial paper 24,157 — 24,157 —

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

Treasury securities 143,254 143,254 — —

Commercial paper 108,896 — 108,896 —

Government-sponsored enterprises 52,350 — 52,350 —

Corporate debt securities 85,823 — 85,823 —

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The Company's Level 3 liabilities at December 31, 2021 and 2020 included the remaining Series A warrants issued by the Company in connection with the public offering of common stock in October 2017.

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

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

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

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

As of December 31, 2021 and 2020, there were Series A warrants outstanding to purchase 1,000 shares and 154,700 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.

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

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 .

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Expected term (in years) 0.8 1.8

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

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

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

Loss recognized from the change in fair value of common stock warrants 1,386 17,087

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

Common stock warrants exercised during the period ( 15,500 ) ( 26,335 )

Balance at end of year $ 147 $ 14,261

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

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

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

These noncancellable operating leases have initial lease terms from two years to twelve years, eight months .

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 consolidated balance sheets.

The Company is required to recognize operating lease right-of-use assets and liabilities, and begin recording lease expense when the Company takes possession of the leased property (the Commencement Date).

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

Because the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the lease Commencement Date to determine the operating lease right-of-use assets and liabilities based on the present value of future lease payments over the lease term.

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The lease term began in July 2020, and expires in June 2027.

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

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

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

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

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

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

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

In September 2020, the Company amended certain leases covering four separate buildings that comprise in aggregate 77,458 square feet of general office and laboratory space located on Roselle Street in San Diego, California (Roselle Street Leases).

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

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

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

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

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

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

The Company has two options to extend the term of the Vista Sorrento Lease, covering both the Existing Premises and the Expansion Space, 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 consolidated balance sheet in the first quarter of 2021 related to the Second Amendment.

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

Year Ended December 31,

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

Year Ending December 31,

Years Ending December 31,

Thereafter 5,144

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Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows from operating leases, was $ 9.5 million and $ 8.2 million for the years ended December 31, 2021 and 2020, respectively .

Leases For Which Accounting Has Not Yet Commenced

As of December 31, 2021, the Commencement Date for the High Bluff and Tech Center Leases described below, had not yet occurred.

Accordingly, the consolidated balance sheet at December 31, 2021 does not include operating lease right-of-use assets and operating lease liabilities, and the consolidated statement of operations for the year ended December 31, 2021 does not include any lease costs, related to the High Bluff Lease and the Tech Center Lease.

In addition, the above disclosures of the Company’s lease costs, maturities of operating lease liabilities, and the weighted-average remaining lease term and weighted-average discount rate, do not include any amounts related to the High Bluff and Tech Center Leases.

High Bluff Lease

In May 2021, the Company entered into a lease agreement for approximately 31,372 square feet of general office space located on High Bluff Drive, in San Diego, California (High Bluff Lease).

The High Bluff Lease is a direct lease agreement for the same property subject to the High Bluff Sublease.

The lease term begins in April 2022 following the termination of the High Bluff Sublease in March 2022, and is scheduled to expire in March 2024.

The Company expects to recognize right-of-use leased assets and corresponding operating lease liabilities of approximately $ 3.0 million on the consolidated balance sheet on the Commencement Date in the second quarter of 2022.

Tech Center Lease

In September 2021, the Company entered into a lease agreement for 181,949 square feet of additional general administrative, laboratory, and research and development office space (the Premises) located on High Bluff Drive in San Diego, California (Tech Center Lease).

Possession of the Premises is expected to be tendered to the Company by the landlord in two phases, with Phase I consisting of 143,850 rentable square feet, and Phase II consisting of 38,099 rentable square feet.

The Company intends to use Phase I of the Tech Center Lease for operations currently located at the Roselle Street Leases.

The initial lease term Phase I Commencement Date will occur on the date the Company is tendered possession of the Phase I portion of the Premises (which is currently expected to be in March 2022), and rent payments commence six months thereafter (the Phase I Rent Commencement Date).

The Phase II Commencement Date is expected to occur upon the earlier of (i) the date upon which the Company first commences business in the Phase II portion of the Premises, and (ii) May 1, 2025 (the Phase II Rent Commencement Date).

The lease will expire twelve years, eight months from the first day of the first full month following the Phase I Rent Commencement Date.

The Company has two options to extend the term of the lease, with each option providing for an additional period of five years , by delivering written notice to the landlord in accordance with the terms of the Tech Center Lease.

The Tech Center Lease also includes a first right of offer with respect to an additional 34,569 rentable square feet of general office space should the space become available.

The lease term and associated base rent for the additional space will not be known until the Company is notified that the additional space has become available, and the Company elects to lease the space on terms mutually satisfactory to the Company and the landlord.

The initial base rent for the Tech Center Lease is approximately $ 906,000 per month beginning on the Phase I Rent Commencement Date, and the base rent increases by approximately $ 255,000 per month on the Phase II Rent Commencement Date.

The monthly base rent will increase annually by 3.0 % on each annual anniversary of the respective Rent Commencement Date.

In addition to the monthly base rent, the Company is required to pay its proportionate share of certain ongoing operating expenses throughout the duration of the lease.

No base rent, other than the proportionate share of operating expenses, will be due for the Phase I portion of the Premises for months two through nine of the initial lease term, and for the Phase II portion of the Premises for months two through five following the Phase II Rent Commencement Date.

Future minimum payments for monthly base rent due under the respective High Bluff Lease and Tech Center Lease terms, are currently estimated to be as follows (in thousands), subject to a number of factors, including the actual Commencement Date of the lease:

Years Ending December 31, High Bluff Lease (1)

Tech Center Lease (2)

2022 $ 1,029 $ — $ 1,029

2023 1,594 6,453 8,047

2024 403 11,313 11,716

2025 — 12,694 12,694

2026 — 15,181 15,181

2027 through 2035 — 145,583 145,583

Total $ 3,026 $ 191,224 $ 194,250

(1) The Company currently estimates that the Commencement Date will occur in the second quarter of 2022, at which time the operating lease right-of-use assets and liabilities will be recorded.

(2) The Company currently estimates that the Phase I Commencement Date will occur in the first quarter of 2022, and the Phase II Commencement Date will occur in the first quarter of 2025, at which time the respective operating lease right-of-use assets and liabilities will be recorded.

Convertible Senior Notes

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

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

Bank National Association, as trustee (Indenture).

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

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 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.

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

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

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

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

The Company expects to settle conversions through a combination settlement, which involves payment in cash equal to the principal portion and delivery of shares of common stock for the excess of the conversion value over the principal portion.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On January 1, 2021, the Company early adopted ASU No.

2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which is intended to simplify the accounting for convertible instruments.

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

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

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

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

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

December 31, 2020

Principal $ 287,500

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

December 31, 2021 December 31, 2020

Principal amount $ 287,500 $ 287,500

Unamortized debt issuance costs ( 6,033 ) ( 5,446 )

Unamortized debt discount — $ ( 79,070 )

Net carrying amount $ 281,467 $ 202,984

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

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

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

December 31, 2020

As of December 31, 2021, the unamortized debt issuance costs of $ 6.0 million associated with the Notes will be amortized to interest expense, at an effective interest rate of 2.2 % over the remaining period of approximately 3.3 years.

The following table details interest expense recognized related to the Notes for the years ended December 31, 2021 and 2020 (in thousands):

December 31, 2021 December 31, 2020

Contractual interest expense $ 4,313 $ 2,707

Amortization of debt issuance costs 1,727 652

Amortization of debt discount 9,446

Amortization of debt discount N/A 9,446

Total interest expense $ 6,040 $ 12,805

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

As of December 31, 2021, the if-converted value of the Notes exceeded the principal amount by $ 96.9 million.

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

Capped Call Transactions

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

In connection with the issuance of the Notes, the Company entered into Capped Call Transactions in May 2020 with certain counterparties at a net cost of $ 34.1 million.

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

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

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

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

For accounting purposes, the Capped Call Transactions are separate transactions, and not part of the terms of the Notes, while they are integrated for federal tax purposes.

As these transactions met certain criteria under the applicable accounting guidance, the Capped Call Transactions were recorded in stockholders' equity and were not accounted for as derivatives.

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

Term Loan Agreement

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

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

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

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

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

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

Stockholders’ Equity (Deficit)

Public Offerings

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

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

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

The gross proceeds to the Company from the offering were $ 115.0 million, before deducting underwriting discounts and commissions and other offering expenses payable by the Company.

Stockholders’ Equity

Shares Reserved for Future Issuance

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

Issue Date Exercise Price Per Share Warrants Outstanding Expiration Date

Issue Date Exercise Price Per Share Warrants Outstanding Expiration Date of Warrants Outstanding

October 2017 $ 3.50 1,000 October 2022

March 2017 $ 23.50 193,788 March 2027

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

August 2011 - August 2012 $ 73.73 19,722 May 2022 - August 2022

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

The Company issued 155,517 and 295,526 shares of its common stock upon the exercise of warrants during the years ended December 31, 2021 and 2020, respectively.

In September 2006, the Company adopted the Company’s 2006 Stock Incentive Plan (2006 Plan), under which, as amended, 268,561 shares of common stock were reserved for issuance to employees, non-employee directors and consultants of the Company.

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

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.

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

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

The Company issued 1,128,791 and 2,339,467 shares of its common stock, respectively, upon the exercise of stock options during the years ended December 31, 2021 and 2020.

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

During the years ended December 31, 2021 and 2020, the Company issued 38,156 and 1,892 shares of its common stock, respectively, upon the vesting of RSUs.

Common Stock Options

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Exercisable at December 31, 2021 3,013,030 $ 49.28 6.50 $ 307,235

Restricted Stock Units (RSUs)

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

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

Restricted Stock Units

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

In addition, the Company granted 25,674 performance-based RSUs during the year ended December 31, 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.

A summary of RSU activity for the years ended December 31, 2021 and 2020 is as follows:

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

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Unvested awards outstanding at December 31, 2020 132,802 $ 82.82 $ 12,706

Granted 564,034 $ 96.37

Vested ( 53,957 ) $ 82.74

Canceled/forfeited ( 30,705 ) $ 87.21

Unvested awards outstanding at December 31, 2021

612,174 $ 95.11 $ 92,144

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

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

During the years ended December 31, 2021 and 2020, 172,694 shares and 302,509 shares of our common stock, respectively, were purchased under the ESPP for proceeds of $ 11.1 million and $ 9.1 million, respectively.

Stock-Based Compensation

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

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

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

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

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

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Expected Volatility .

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

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

The expected volatility for 2021 was estimated based on a weighted-average of the Company’s actual historical volatility of its common stock measured over the expected term.

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

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

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

Expected Term .

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

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

Employee Benefits

Employee 401(k) Plan

The Company has a defined contribution 401(k) plan for employees in the United States who are at least 18 years of age.

Employees are eligible to participate in the plan beginning on the first day of the calendar month following their date of hire.

Unless they affirmatively elect otherwise, employees are automatically enrolled in the plan following 30 days from date of rehire or entry date.

Under the terms of the plan, employees may make voluntary contributions as a percent of compensation, and the Company may elect to match a discretionary percentage of employee contributions.

The Company did not provide a matching contribution during the three years ended December 31, 2021, but approved a discretionary match to begin in 2022.

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

Year Ended December 31,

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Foreign 690 385 284

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

Income (loss) before provision for income taxes $ 15,901 $ ( 36,282 ) $ ( 24,604 )

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

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2021 2020 2019

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

Income tax expense (benefit) at federal statutory rate (1)

$ 3,339 $ ( 7,619 ) $ ( 5,167 )

State income tax, net of federal benefit ( 254 ) ( 2,792 ) ( 1,174 )

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Deferred tax liabilities:

Convertible debt ( 11,224 ) —

Convertible senior notes — ( 11,224 )

Fixed assets ( 3,847 ) ( 7,675 )

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NOL generated after January 1, 2018, is subject to 80% limitation in accordance with the Tax Cuts and Jobs Act of 2017.

The remaining federal net operating loss carryforwards of $ 208.5 million will begin to expire in 2026, and state tax loss carryforwards begin to expire in 2021, unless previously utilized.

The remaining federal net operating loss carryforwards of $ 189.1 million will begin to expire in 2026, and state tax loss carryforwards continue to expire in 2022, unless previously utilized.

The remaining California NOL carryforwards of $ 171.8 million will begin expiring in 2028.

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

Employee Benefits

Employee 401(k) Plan

The Company has a defined contribution 401(k) plan for employees in the United States who are at least 18 years of age.

Employees are eligible to participate in the plan beginning on the first day of the calendar month following their date of hire.

Unless they affirmatively elect otherwise, employees are automatically enrolled in the plan following 30 days from date of rehire or entry date.

Under the terms of the plan, employees may make voluntary contributions as a percent of compensation.

The Company does not provide a matching contribution program.

Commitments and Contingencies

Legal and Regulatory Matters

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

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

equitable relief, including restitution;

pre- and post-judgment interest;

injunctive relief;

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

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

Tandem Diabetes Care, Inc.

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

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

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

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

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

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

Tandem Diabetes Care, Inc.

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

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

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

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

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

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

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

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

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

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

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

Operating Leases

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

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

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

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

Purchase Obligations

The Company has agreements with suppliers and other parties to purchase inventory, other goods and services and long-lived assets.

Product inventory obligations primarily consist of purchase commitments for raw materials used in the production of insulin pumps and cartridges, and finished goods infusion sets.

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

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

Business Segment and Geographic Information

1 unchanged sentence

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

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

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

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

Disaggregation of Revenue

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

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

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During the years ended December 31, 2021, 2020 and 2019, no individual country outside the United States generated revenue that represented more than 10% of total revenue.

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

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 (in thousands).

For the Year Ended December 31,

(in thousands) 2020 2019 2018

2021 2020 2019

United States $ 524,907 $ 415,680 $ 302,084

3 unchanged sentences

Sales to distributors accounted for 95 %, 94 %, and 92 % of the Company’s total international sales for the years ended December 31, 2021, 2020 and 2019, respectively.

Selected Quarterly Financial Data (Unaudited)

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

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

Commitments and Contingencies

Legal and Regulatory Matters

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

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

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

equitable relief, including restitution;

pre- and post-judgment interest;

injunctive relief;

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

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

Tandem Diabetes Care, Inc .

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

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

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

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

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

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

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

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

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.

Tandem Diabetes Care, Inc., which was filed in the Superior Court of the State of California in the County of San Diego.

The case was brought as a class action and was later amended to also include a representative action under the California Private Attorney General Act, or PAGA.

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 all claims in the lawsuit.

The settlement of claims covered by the PAGA matter were approved by the Superior Court of the State of California in the County of San Diego on September 21, 2021 and settlement amounts were disbursed in 2021.

In October 2021, a settlement of the class action related claims was preliminarily approved by an independent arbitrator mutually acceptable to both parties.

The class action 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 independent arbitrator.

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

If the final class settlement is not approved, 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.

Although the results of legal proceedings, disputes and other claims cannot be predicted with certainty, the Company believes it is not currently a party to any legal proceeding(s) which, if determined adversely to the Company, would, individually or taken together, have a material adverse effect on the Company’s business, operating results, financial condition or cash flows.

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

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

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

Letters of Credit

The Company leases general office space, laboratory, manufacturing and warehouse facilities, and equipment under noncancelable operating leases for use in our operations (see Note 6, “Leases”).

In connection with one of the operating leases, the Company has a $ 4.9 million unsecured irrevocable standby letter of credit arrangement with a bank, under which the landlord of the building is the beneficiary.

The Company is required to maintain the standby letter of credit throughout the term of the lease, which is currently expected to expire in April 2035.

Purchase Obligations

The Company has agreements with suppliers and other parties to purchase inventory, other goods and services and long-lived assets.

Product inventory obligations consist primarily of purchase order commitments for raw materials used in the production of insulin pumps and cartridges, and finished goods infusion sets.

Cancellation of outstanding purchase orders is generally allowed under the standard terms of our purchase order agreements, but may require payment of costs incurred through the date of cancellation.

At December 31, 2021, obligations under our purchase agreements totaled approximately $ 255 million, of which approximately $ 251 million is scheduled to be received and become payable within one-year.

Fourth Quarter Financial Data (Unaudited)

The financial information for the three months ended December 31, 2021 and 2020 presented in the following table reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the results of the interim periods (in thousands, except per share data):

For the Quarter Ended

March 31 June 30 September 30 December 31

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

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

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

Operating income (loss) $ ( 13,573 ) $ ( 12,037 ) $ ( 1,009 ) $ 18,662

Net income (loss) $ ( 14,867 ) $ ( 27,107 ) $ ( 9,408 ) $ 17,000

Basic net income (loss) per share (1)

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

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

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

December 31, 2021 December 31, 2020

Sales $ 209,996 $ 168,065

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Operating expenses $ 100,991 $ 71,894

Operating income (loss) $ ( 10,997 ) $ ( 1,865 ) $ ( 6,004 ) $ 2,144

Net income (loss) $ ( 22,992 ) $ ( 1,512 ) $ ( 2,901 ) $ 2,652

Basic net income (loss) per share (1)

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

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

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

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

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

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

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

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

Operating income $ 12,738 $ 18,662

Net income $ 10,808 $ 17,000

Basic net income per share $ 0.17 $ 0.27

Diluted net income per share $ 0.16 $ 0.22

The numerator and denominator of the basic and diluted net income per share computations are calculated as follows for the three months ended December 31, 2021 and 2020:

For the Quarter Ended

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

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

(in thousands) December 31, 2021 December 31, 2020

Net income $ 10,808 $ 17,000

change in fair value of common stock warrants 32 ( 2,819 )

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

Net income - diluted $ 10,840 $ 14,181

Weighted average shares outstanding - basic 63,650 62,249

Dilutive common share equivalents:

Warrants to purchase common stock 308 514 394

Options to purchase common stock 1,877 2,984

Unvested restricted stock units 133 N/A N/A

Awards granted under the ESPP 4 11 —

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

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

Unvested restricted stock units 227 133

Warrants to purchase common stock 170 308

Awards to be granted under the ESPP 3 4

Convertible senior notes (if-converted) — —

Weighted average shares outstanding - diluted 65,927 65,678

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

1 unchanged sentence

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

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk