What changed in this filing

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Item 1. Financial Statements

2022-05-04 compared with 2021-11-03 · 255 added, 348 removed, 395 unchanged (60% of the section changed)

3 unchanged sentences

(In thousands, except par value)

September 30, December 31,

(Unaudited) (Note 1)

March 31, December 31,

Assets (Unaudited) (Note 1)

Current assets:

14 unchanged sentences

Employee-related liabilities 38,258 51,556

Deferred revenue 9,022 6,082

Common stock warrants 116 14,261

Operating lease liabilities 8,080 9,279

Deferred revenue 10,881 10,182

Other current liabilities 22,893 23,388

2 unchanged sentences

Operating lease liabilities - long-term 129,195 23,922

Deferred revenue - long-term 17,531 16,940

Other long-term liabilities 17,449 17,840

3 unchanged sentences

Common stock, $ 0.001 par value;

200,000 shares authorized, 63,451 and 62,335 shares issued and outstanding at September 30, 2021 (unaudited) and December 31, 2020, respectively.

200,000 shares authorized, 63,941 and 63,833 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively.

Additional paid-in capital 1,089,689 1,068,259

Accumulated other comprehensive income 14 220

Accumulated other comprehensive loss ( 3,061 ) ( 616 )

Accumulated deficit ( 649,310 ) ( 634,595 )

3 unchanged sentences

TANDEM DIABETES CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share data)

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

2021 2020 2021 2020

Three Months Ended March 31,

Sales $ 175,907 $ 141,037

5 unchanged sentences

Total operating expenses 106,431 76,524

Operating income (loss) 7,720 ( 1,009 ) 9,915 ( 26,619 )

Operating loss ( 15,338 ) ( 3,237 )

Other income (expense), net:

3 unchanged sentences

Total other expense, net ( 1,101 ) ( 1,924 )

Income (loss) before income taxes 5,848 ( 9,369 ) 4,756 ( 53,320 )

Income tax expense (benefit) 54 39 ( 2 ) ( 1,938 )

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

Other comprehensive income (loss):

Unrealized gain (loss) on short-term investments $ 8 $ ( 69 ) $ ( 81 ) $ 78

Loss before income taxes ( 16,439 ) ( 5,161 )

Income tax benefit ( 1,724 ) ( 117 )

Net loss $ ( 14,715 ) $ ( 5,044 )

Other comprehensive loss:

Unrealized loss on short-term investments $ ( 2,517 ) $ ( 38 )

Foreign currency translation gain (loss) 72 ( 76 )

Comprehensive income (loss) $ 5,779 $ ( 9,261 ) $ 4,552 $ ( 51,314 )

Net income (loss) per share, basic $ 0.09 $ ( 0.15 ) $ 0.08 $ ( 0.85 )

Net income (loss) per share, diluted $ 0.09 $ ( 0.15 ) $ 0.07 $ ( 0.85 )

Weighted average shares used to compute basic net income (loss) per share 63,167 61,529 62,780 60,568

Weighted average shares used to compute diluted net income (loss) per share 64,784 61,529 64,198 60,568

Comprehensive loss $ ( 17,160 ) $ ( 5,158 )

Net loss per share, basic and diluted $ ( 0.23 ) $ ( 0.08 )

Weighted average shares used to compute basic and diluted net loss per share 63,880 62,448

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended September 30, 2021

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss) Accumulated

Deficit Total

Stockholders’

Shares Amount

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

Exercise of stock options 464 — 18,992 — — 18,992

Vesting of restricted stock units, net of shares withheld for taxes 5 — ( 297 ) — — ( 297 )

Exercise of common stock warrants 30 — 156 — — 156

Fair value of common stock warrants at time of exercise — — 3,066 — — 3,066

Stock-based compensation expense — — 15,873 — — 15,873

Unrealized gain on short-term investments — — — 8 — 8

Foreign currency translation adjustments — — — ( 23 ) — ( 23 )

Net income — — — — 5,794 5,794

Balance at September 30, 2021 63,451 $ 63 $ 1,034,980 $ 14 $ ( 645,403 ) $ 389,654

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Common Stock Additional

6 unchanged sentences

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

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

— — ( 85,803 ) — 9,049 ( 76,754 )

Exercise of stock options 101 — 3,782 — — 3,782

Vesting of restricted stock units, net of shares withheld for taxes 5 — ( 299 ) — — ( 299 )

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

Exercise of common stock warrants 2 — 16 — — 16

Fair value of common stock warrants at time of exercise — — 15,499 — — 15,499

Stock-based compensation expense — — 17,931 — — 17,931

1 unchanged sentence

Foreign currency translation adjustments — — — 72 — 72

Net income — — — — 4,758 4,758

Balance at September 30, 2021 63,451 $ 63 $ 1,034,980 $ 14 $ ( 645,403 ) $ 389,654

(1) The Company adopted ASU No.

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

See accompanying notes to unaudited condensed consolidated financial statements.

:AccountingStandardsUpdate202006Member

Three Months Ended September 30, 2020

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss)

Deficit Total

Stockholders’

Shares Amount

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

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

Exercise of common stock warrants 257 — 899 — — 899

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

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

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

Foreign currency translation adjustments — — — 216 — 216

Net loss — — — — ( 14,715 ) ( 14,715 )

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

Nine Months Ended September 30, 2020

Balance at March 31, 2022

63,941 $ 64 $ 1,089,689 $ ( 3,061 ) $ ( 649,310 ) $ 437,382

Three Months Ended March 31, 2021

Common Stock Additional

6 unchanged sentences

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

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

— — ( 85,803 ) — 9,049 ( 76,754 )

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

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

Exercise of common stock warrants 125 — 437 — — 437

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

Equity component of convertible 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 — — 13,014 — — 13,014

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

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

Foreign currency translation adjustments — — — ( 76 ) — ( 76 )

Net loss — — — — ( 5,044 ) ( 5,044 )

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

Balance at March 31, 2021

62,571 $ 63 $ 968,450 $ 106 $ ( 655,205 ) $ 313,414

(1) The Company adopted ASU No.

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

See accompanying notes to unaudited condensed consolidated financial statements.

TANDEM DIABETES CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating Activities

Net income (loss) $ 4,758 $ ( 51,382 )

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

Net loss $ ( 14,715 ) $ ( 5,044 )

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

Depreciation and amortization expense 3,628 3,485

Amortization of debt discount and issuance costs 1,292 6,233

Amortization of debt issuance costs 438 428

Provision for expected credit losses 846 143

Provision for (recovery of) inventory obsolescence 279 ( 109 )

Provision for inventory obsolescence 346 64

Change in fair value of common stock warrants ( 34 ) 690

Amortization of discount on short-term investments ( 83 ) ( 1,446 )

Benefit for deferred income taxes — ( 2,126 )

Amortization of premium on short-term investments 562 209

Stock-based compensation expense 18,110 12,947

5 unchanged sentences

Other long-term assets ( 582 ) ( 17 )

Accounts payable and accrued expenses 10,854 1,589

Accounts payable & accrued expenses 13,732 10,815

Employee-related liabilities ( 13,299 ) ( 1,448 )

Deferred revenue 1,290 1,871

Other current liabilities 3,561 5,023

Operating leases and other current liabilities ( 1,106 ) 1,094

Other long-term liabilities ( 391 ) ( 372 )

5 unchanged sentences

Purchases of property and equipment ( 2,643 ) ( 3,524 )

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

Net cash used in investing activities ( 110,058 ) ( 236,430 )

Net cash provided by (used in) investing activities 5,197 ( 6,094 )

Financing Activities

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

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

Proceeds from issuance of common stock under Company stock plans, net 3,484 3,135

9 unchanged sentences

Right-of-use assets obtained in exchange for operating lease obligations $ 107,478 $ 15,087

Property and equipment included in accounts payable $ 945 $ 1,618

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

Purchase of property and equipment included in accounts payable $ 1,553 $ 924

Intangible costs in accounts payable and other long-term liabilities $ 1,029 $ 2,244

See accompanying notes to unaudited condensed consolidated financial statements.

3 unchanged sentences

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.

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.

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., Canada and the Netherlands.

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.

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

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

and its wholly-owned subsidiaries.

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

4 unchanged sentences

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

Reclassifications

Starting with the first quarter of 2022, the Company included the liability related to common stock warrants (see Note 5, “Fair Value Measurements”) as a component of other current liabilities on the Company’s condensed consolidated balance sheet.

In addition, deferred revenue long-term, which was previously reported as a component of other long-term liabilities, is now separately reported on the condensed consolidated balance sheet.

The corresponding balances at December 31, 2021, have been reclassified to conform to the current year presentation .

Summary of Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2021, as compared to those disclosed in the Annual Report, other than the adoption of ASU No.

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

There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2022, as compared to those disclosed in the Company’s 2021 Annual Report.

Use of Estimates

10 unchanged sentences

Short-term investments are carried at fair value.

The Company determined the fair value of its convertible senior notes to be $ 363.0 million at September 30, 2021, and $ 333.5 million at December 31, 2020, based on Level 2 quoted market prices (see Note 7, “Convertible Senior Notes”).

The estimated fair value of certain of the Company’s common stock warrants was determined using the Black-Scholes pricing model as of September 30, 2021 and December 31, 2020 (see Note 5, “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 March 31, 2022 and December 31, 2021 (see Note 5, “Fair Value Measurements”).

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

The Company determined the fair value of its convertible senior notes to be $ 363.3 million and $ 430.0 million at March 31, 2022 and December 31, 2021, respectively, based on Level 2 quoted market prices as of those dates .

Operating Lease Right-of-Use Assets and Liabilities

2 unchanged sentences

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 noncancellable leases containing known future scheduled rent increases is recorded on a straight-line basis over the term of the respective leases beginning on the Commencement Date (see Note 6, “Leases”).

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

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

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

The Company made an $ 8.1 million equity investment in a private company in 2021, 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 sheets.

The Company monitors 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

2 unchanged sentences

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

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

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

The Company did no t recognize any impairment losses during the three months ended March 31, 2022 and 2021.

In 2020, the Company acquired Sugarmate, Inc.

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

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

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

The Sugarmate acquisition was accounted for as an acquisition of assets.

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

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

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

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

Revenue Recognition

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 promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

Revenue Recognition for Arrangements with Multiple Deliverables

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

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

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

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

1 unchanged sentence

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

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

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

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

Deferred revenue related to these performance obligations that are satisfied over time was included in the following consolidated balance sheet accounts in the amounts shown as of September 30, 2021 and December 31, 2020 (in thousands):

September 30, 2021 December 31, 2020

Deferred revenue $ 8,489 $ 5,508

Other long-term liabilities 15,264 10,426

Total $ 23,753 $ 15,934

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.

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 within the warranty period.

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

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.

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.

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 the length of time the pump version has been in the field and future expectations of performance based on new features and capabilities that may become available through Tandem Device Updater.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Balance at beginning of period $ 25,668 $ 17,823 $ 22,075 $ 16,724

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.

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

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

therefore, the Company’s process relies on long-term historical averages until sufficient data are available.

As actual experience becomes available, the Company uses 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 three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

Balance at beginning of the period $ 30,401 $ 22,075

Provision for warranties issued during the period 7,201 5,896

1 unchanged sentence

Decrease in warranty estimates ( 1,137 ) ( 546 )

Balance at end of period $ 27,545 $ 18,193 $ 27,545 $ 18,193

As of September 30, 2021 and December 31, 2020, total product warranty reserves of $ 27.5 million and $ 22.1 million, respectively, were included in the following consolidated balance sheet accounts (in thousands):

September 30, 2021 December 31, 2020

Balance at end of the period $ 30,444 $ 23,169

As of March 31, 2022 and December 31, 2021, total product warranty reserves were included in the following consolidated balance sheet accounts (in thousands):

March 31, 2022 December 31, 2021

Other current liabilities $ 13,509 $ 13,076

5 unchanged sentences

The Black-Scholes option-pricing model requires the use of assumptions about a number of variables, including stock price volatility, expected term, dividend yield and risk-free interest rate (see Note 8, “Stockholders’ Equity”).

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

The fair value of 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.

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

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

Net Income (Loss) Per Share

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

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

At each reporting period, the Company reassesses 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.

Net Loss Per Share

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

Diluted net 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 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;

2 unchanged sentences

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

For the three and nine months ended September 30, 2020, 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 three and nine months ended September 30, 2021, the numerator and denominator of the diluted net income per share computation were calculated as follows (in thousands):

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

Net income - basic and diluted $ 5,794 $ 4,758

Weighted average shares outstanding - basic 63,167 62,780

Dilutive common share equivalents:

Options to purchase common stock 1,297 1,239

Unvested restricted stock units 135 17

Warrants to purchase common stock 159 152

Awards to be granted under the ESPP 26 10

Convertible senior notes (if-converted) — —

Weighted average shares outstanding - diluted 64,784 64,198

For the three months ended March 31, 2022 and 2021, 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.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Options to purchase common stock 4,424 5,068

1 unchanged sentence

Warrants to purchase common stock 211 379

Awards to be granted under the ESPP — 42 — 21

Awards granted under the ESPP 78 78

Convertible senior notes (if-converted) 2,554 2,554

6,049 8,661 5,838 6,879

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (FASB) issued ASU No.

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

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.

1 unchanged sentence

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

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 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

2 unchanged sentences

Government-sponsored enterprises, and financial institutions and corporations with strong credit ratings.

The following represents a summary of the estimated fair value of short-term investments as of September 30, 2021 and December 31, 2020 (in thousands):

At September 30, 2021 Amortized

The following represents a summary of the estimated fair value of short-term investments at March 31, 2022 and December 31, 2021 (in thousands):

At March 31, 2022 Amortized

Cost Gross Unrealized

2 unchanged sentences

Available-for-sale securities:

Commercial paper $ 242,739 $ 8 $ ( 1 ) $ 242,746

Treasury securities $ 296,072 $ 1 $ ( 2,388 ) $ 293,685

Government-sponsored enterprise 56,344 12 ( 6 ) 56,350

Commercial paper 156,913 — ( 202 ) 156,711

Corporate debt securities 51,649 6 ( 196 ) 51,459

Government-sponsored enterprises 37,217 — ( 362 ) 36,855

Supranational bonds 3,000 — — 3,000

5 unchanged sentences

Available-for-sale securities:

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

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

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

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

The contractual maturities of available-for-sale debt securities as of September 30, 2021, were as follows (in thousands):

The contractual maturities of available-for-sale debt securities as of March 31, 2022, were as follows (in thousands):

Years to Maturity

At September 30, 2021 Within One Year One to Two Years Estimated Fair Value

Commercial paper $ 242,746 $ — $ 242,746

At March 31, 2022 Within One Year One to Two Years Estimated Fair Value

Treasury securities $ 223,643 $ 70,042 $ 293,685

Government-sponsored enterprise 30,869 25,481 56,350

Commercial paper 156,711 — 156,711

Corporate debt securities 43,906 7,553 51,459

Government-sponsored enterprises 23,612 13,243 36,855

Supranational bonds 3,000 — 3,000

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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 impaired due to changes in credit risk or other potential valuation concerns.

Unrealized losses on available-for-sale debt securities at September 30, 2021 were not significant and were primarily due to changes in market interest rates.

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 March 31, 2022 were primarily due to the recent increase 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 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 September 30, 2021.

Accounts Receivable and Inventories

Accordingly, the Company did not recognize any impairment losses related to its available-for-sale debt securities at March 31, 2022.

Composition of Certain Financial Statement Items

Accounts Receivable

Accounts receivable consisted of the following (in thousands):

September 30,

2021 December 31,

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

March 31, 2022 December 31, 2021

Accounts receivable $ 98,477 $ 114,974

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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 for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

The following table provides a reconciliation of the changes in the allowance for estimated accounts receivable credit losses for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

Balance at beginning of the period $ 4,249 $ 3,857

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Balance at end of the period $ 4,344 $ 3,559

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

September 30,

2021 December 31,

Inventories consisted of the following at (in thousands):

March 31, 2022 December 31, 2021

Raw materials $ 28,223 $ 26,911

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

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

Fair Value Measurements at September 30, 2021

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

Fair Value Measurements at

March 31, 2022

Total Level 1 Level 2 Level 3

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$ 44,905 $ 44,905 $ — $ —

Commercial paper 242,746 — 242,746 —

Treasury securities 293,685 293,685 — —

Government-sponsored enterprise 56,350 — 56,350 —

Commercial paper 156,711 — 156,711 —

Corporate debt securities 51,459 — 51,459 —

Government-sponsored enterprises 36,855 — 36,855 —

Supranational bonds 3,000 — 3,000 —

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Common stock warrants (2)

$ 113 $ — $ — $ 113

Total liabilities $ 113 $ — $ — $ 113

Fair Value Measurements at December 31, 2020

Fair Value Measurements at

December 31, 2021

Total Level 1 Level 2 Level 3

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$ 48,286 $ 48,286 $ — $ —

Commercial paper 108,896 — 108,896 —

Treasury securities 221,724 221,724 — —

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

Commercial paper 218,381 — 218,381 —

Corporate debt securities 58,836 — 58,836 —

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

Supranational bonds 3,003 — 3,003 —

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

Common stock warrants (2)

$ 147 $ — $ — $ 147

Total liabilities $ 147 $ — $ — $ 147

(1) Generally, cash equivalents include money market funds and investments with a maturity of three months or less from the date of purchase.

(2) Included in other current liabilities on the Company’s condensed consolidated balance sheets.

The Company’s Level 2 financial instruments are valued using market prices on less active markets with observable valuation inputs such as interest rates and yield curves.

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

The Company’s Level 3 liabilities at September 30, 2021 and December 31, 2020 include the remaining Series A warrants issued by the Company in connection with the public offering of common stock in October 2017, and which expire in October 2022.

As of September 30, 2021 and 2020, there were Series A warrants outstanding to purchase 1,000 shares and 158,200 shares, respectively, of the Company’s common stock (see Note 8, “Stockholders’ Equity”).

The Company's Level 3 liabilities at March 31, 2022 and December 31, 2021 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, provide holders the right to purchase shares of the Company’s common stock at an exercise price of $ 3.50 per share.

As of March 31, 2022 and December 31, 2021, there were Series A warrants outstanding to purchase 1,000 shares 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, remaining 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 .

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

The assumptions used to estimate the fair values of the outstanding Series A warrants at March 31, 2022 and December 31, 2021 are presented below:

Series A Warrants

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Risk-free interest rate 1.1 % 0.3 %

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Expected volatility 44.4 % 39.1 %

Remaining term (in years) 1.1 1.8

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

Nine Months Ended September 30,

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

Loss recognized from the change in fair value of common stock warrants 1,354 19,906

Expected term (in years) 0.6 0.8

The following table presents a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

Balance at beginning of period $ 147 $ 14,261

(Gain) loss recognized from the change in fair value of common stock warrants ( 34 ) 690

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

Balance at end of the period $ 116 $ 17,404

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

The corresponding amount for the nine months ended September 30, 2021 was negligible.

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

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

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

Balance at end of period $ 113 $ 2,517

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

These noncancellable operating leases have initial lease terms from two years to thirteen years .

Leases with an initial term of 12 months or less (Short-term Lease) are expensed as incurred and are not recorded as right-of-use assets on the Company’s condensed 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.

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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 these leases on a straight-line basis over the lease term.

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

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

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

Vista Sorrento Lease

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.

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

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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.

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 occupying 77,458 square feet of leased space, located on Roselle Street in San Diego, California, that is scheduled to expire in May 2023.

The initial lease term Phase I Commencement Date occurred in March 2022 when the Company was tendered possession of the Phase I portion of the Premises, and rent payments commence in September 2022 (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 Tech Center Lease term expires in April 2035.

The Company has two options to extend the term of the lease, with each option providing for an additional period of five years .

The Tech Center Lease term was determined assuming the renewal options would not be exercised.

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 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 following the Phase I Rent Commencement Date, and for the Phase II portion of the Premises for months two through five following the Phase II Rent Commencement Date.

The Company recognized right-of-use leased assets and corresponding operating lease liabilities of $ 107.5 million on the consolidated balance sheet on the Phase I Commencement Date in the first quarter of 2022.

Supplemental Lease Disclosure Information

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

Three Months Ended March 31,

Operating lease cost $ 3,018 $ 2,006

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Total lease cost $ 3,052 $ 2,028

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

Maturities of operating lease liabilities at March 31, 2022 were as follows (in thousands):

Years Ending December 31,

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

September 30,

2021 December 31,

March 31, 2022 December 31, 2021

Weighted-average remaining lease term (in years) 11.2 5.0

Weighted-average discount rate used to determine operating lease liabilities 5.4 % 5.6 %

Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows used for operating leases, was $ 7.1 million and $ 5.4 million for the nine months ended September 30, 2021 and 2020, respectively.

Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows from operating leases, was $ 3.4 million and $ 2.3 million for the three months ended March 31, 2022 and 2021, respectively .

Leases For Which Accounting Has Not Yet Commenced

As of March 31, 2022, the Commencement Date for the High Bluff Lease described below, and Phase II of the Tech Center Lease, had not yet occurred.

Accordingly, the condensed consolidated balance sheet at March 31, 2022 does not include operating lease right-of-use assets and operating lease liabilities, and the condensed consolidated statement of operations for the three months ended March 31, 2022 does not include any lease costs, related to the High Bluff Lease and Phase II of 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 Lease and Phase II of the Tech Center Lease.

High Bluff Lease

The Company intends to use Phase I of the High Bluff Lease for operations currently located at four separate leased buildings on Roselle Street in San Diego, California that comprise 77,458 square feet in the aggregate, and that have lease terms which are expected to expire in May 2023.

As of September 30, 2021, the Commencement Date for the High Bluff Lease, which is the date upon which the Company will recognize operating lease right-of-use assets and liabilities, and begin recording lease expense, had not yet occurred.

Accordingly, the operating lease right-of-use assets and operating lease liabilities recorded on the condensed consolidated balance sheet at September 30, 2021, and the disclosures of lease cost, maturities of operating lease liabilities, and the weighted-average remaining lease term and weighted-average discount rate above, do not include any amounts related to the High Bluff Lease.

The initial lease term Phase I Commencement Date is expected to occur upon the earlier of (i) the date upon which the Company first commences business in the Phase I portion of the Premises, and (ii) the date on which the Company is tendered possession of the Phase I portion of the Premises (which date is currently anticipated to be March 1, 2022).

The Phase I Rent Commencement Date is expected to be the date which is six months following the Phase I Commencement Date (the Phase I Rent Commencement Date).

The lease will expire approximately 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 High Bluff Lease.

The High Bluff 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 initial base rent for the High Bluff 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 initial lease term, 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,

2021 (remaining) $ —

2026 through 2035 160,764

(1) 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.

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 - Phase II

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

Future minimum payments for monthly base rent due under Phase II of the Tech Center Lease, are currently estimated to total $ 34.7 million from 2025 through 2035, subject to a number of factors, including the actual Commencement Date of Phase II.

Because the incremental borrowing rate will not be available until the Phase II Commencement Date, we are not yet able to determine the Phase II operating lease right-of-use assets and liabilities.

Convertible Senior Notes

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

September 30, 2021 December 31, 2020

The net carrying amount of the Notes on the condensed consolidated balance sheets consisted of the following (in thousands):

March 31, 2022 December 31, 2021

Principal amount $ 287,500 $ 287,500

Unamortized debt issuance costs ( 5,595 ) ( 6,033 )

Unamortized debt discount — ( 79,070 )

Net carrying amount $ 281,905 $ 281,467

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

As of September 30, 2021, the unamortized debt issuance costs of $ 6.5 million associated with the Notes will be amortized to interest expense, at an effective interest rate of 2.2 %, over the remaining term of the Notes of approximately 3.6 years.

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

As of March 31, 2022, the unamortized debt issuance costs of $ 5.6 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 three years .

The following table details interest expense recognized related to the Notes for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

March 31, 2022 March 31, 2021

Contractual interest expense $ 1,078 $ 1,078

Amortization of debt issuance costs 438 428

Amortization of debt discount N/A 3,533 N/A 5,830

Total interest expense $ 1,516 $ 1,506

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

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

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

As of March 31, 2022, the if-converted value of the Notes exceeded the principal amount by $ 9.5 million.

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

Capped Call Transactions

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

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 Call Transactions are separate transactions, and not part of the terms of the Notes.

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.

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Shares Reserved for Future Issuance

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

The following shares of the Company's common stock were reserved for future issuance at March 31, 2022 (in thousands):

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

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Common Stock Warrants

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

Warrants outstanding to purchase shares of the Company's common stock as of March 31, 2022 were as follows:

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

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March 2017 $ 23.50 193,788 March 2027

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

August 2011 - August 2012 $ 73.73 16,212 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 29,985 and 155,517 shares of its common stock, respectively, upon the exercise of warrants during the three and nine months ended September 30, 2021, and 257,000 and 291,894 shares of its common stock, respectively, upon the exercise of warrants during the three and nine months ended September 30, 2020.

The Company issued 1,835 and 125,000 shares of its common stock upon the exercise of warrants during the three months ended March 31, 2022 and 2021, respectively.

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.

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

There were no shares of common stock purchased under the ESPP during the three months ended March 31, 2022 and 2021.

Stock-Based Compensation

Common Stock Options

The Company did no t grant any options to purchase shares of common stock during the three months ended September 30, 2021.

The Company granted options to purchase 355,008 shares of common stock during the nine months ended September 30, 2021, and options to purchase 162,886 and 1,010,996 shares of common stock, respectively, during the three and nine months ended September 30, 2020.

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

Common stock options have an exercise price equal to the closing price of the Company's common stock on the applicable award date, and have a maximum term of ten years .

Stock options granted generally vest over a four year period as to 25 % of the underlying shares on the first anniversary of the award, with the balance of the options vesting monthly over the following three years .

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

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

Stock Options

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

The number of common stock options granted and the respective assumptions used in the Black-Scholes option-pricing model were as follows:

Three Months Ended March 31,

Stock options granted — 115,400

Weighted average grant date fair value (per share) N/A $ 60.98

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Restricted Stock Units

The Company granted 94,746 and 437,340 restricted stock units (RSUs), respectively, during the three and nine months ended September 30, 2021.

During the three and nine months ended September 30, 2020, the Company granted 2,846 and 134,694 RSUs, respectively.

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

In addition, the Company granted 25,674 performance-based RSUs during the nine months ended September 30, 2021.

The Company did no t grant any performance-based RSUs during the three months ended September 30, 2021.

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

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

Restricted Stock Units

Restricted stock units (RSUs) have a grant price equal to the closing price of the Company’s common stock on the award date.

RSUs granted prior to March 2022, 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 .

RSUs granted in March 2022 vest over a three year period based only on service as to 33 % of the underlying shares on the first anniversary of the award, with the balance of the RSUs vesting quarterly over the following two years .

The number of RSUs granted and the respective weighted average grant date fair value were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Weighted average grant date fair value (per share) $ 109.63 $ 105.41 $ 87.98 $ 82.82

Employee Stock Purchase Plan

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

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

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

Nine Months Ended

September 30,

RSUs granted 187,076 3,208

Weighted average grant date fair value (per share) $ 109.97 $ 93.49

Risk-free interest rate 0.1 % 0.2 %

Expected dividend yield 0.0 % 0.0 %

Expected volatility 47.5 % 65.7 %

Expected term (in years) 1.3 1.3

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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):

Three Months Ended March 31,

Cost of sales $ 1,846 $ 1,476

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Total stock-based compensation expense $ 18,110 $ 12,947

The total stock-based compensation expense capitalized as part of the cost of the Company’s inventories was $ 1.0 million at September 30, 2021, and $ 0.6 million at December 31, 2020.

For the three and nine months ended September 30, 2021, the Company recognized income tax expense of $ 0.1 million and an income tax benefit of $ 2,000 , respectively, on pre-tax income of $ 5.8 million and $ 4.8 million, respectively.

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

For the three and nine months ended September 30, 2020, the Company recognized income tax expense of $ 39,000 on a pre-tax loss of $ 9.4 million, and an income tax benefit of $ 1.9 million on a pre-tax loss of $ 53.3 million, respectively.

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

The Company calculated the provision for income taxes for the three and nine months ended September 30, 2021 by applying an estimate of the annual effective tax rate for the full year to ordinary income adjusted by the tax impact of discrete items.

For the three and nine months ended September 30, 2020, the Company calculated the provision (benefit) for income taxes using a discrete effective tax rate method as the annual effective tax rate method would not provide a reliable estimate.

The Company continues to maintain a full valuation allowance against its net deferred tax assets as of September 30, 2021, based on the current assessment that it is not more likely than not these future benefits will be realized before expiration.

The total stock-based compensation capitalized as part of the cost of the Company’s inventories was $ 0.8 million and $ 1.0 million at March 31, 2022 and December 31, 2021, respectively.

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 prior to 2022, but began making a discretionary match in the first quarter of 2022.

For the three months ended March 31, 2022, the Company recognized an income tax benefit of $ 1.7 million on a pre-tax loss of $ 16.4 million, compared to an income tax benefit of $ 0.1 million on a pre-tax loss of $ 5.2 million for the three months ended March 31, 2021.

The income tax benefit for the three months ended March 31, 2022 and 2021, was primarily attributable to the Company’s pre-tax loss position, offset by state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

The Company calculated the provision (benefit) for income taxes for the three months ended March 31, 2022 and 2021, by applying an estimate of the annual effective tax rate for the full year to ordinary income (loss) adjusted by the tax impact of discrete items.

The Company continues to maintain a full valuation allowance against its net deferred tax assets as of March 31, 2022, based on the current assessment that it is not more likely than not these future benefits will be realized before expiration.

Business Segment and Geographic Information

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Disaggregation of Revenue

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

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

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

Revenues by Geographic Region and Customer Sales Channels

During the three and nine months ended September 30, 2021 and 2020, no individual country outside the United States generated revenue that represented more than 10% of total revenue.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Revenues by Geographic Region and Customer Sales Channel

During the three months ended March 31, 2022 and 2021, no individual country outside the United States generated revenue that represented more than 10% of total revenue.

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

Three Months Ended March 31,

United States $ 131,283 $ 103,339

International 46,521 16,086 128,778 54,425

Outside the United States 44,624 37,698

Total Sales $ 175,907 $ 141,037

Sales to distributors accounted for 68 % and 74 % of the Company’s total domestic sales for the three months ended September 30, 2021 and 2020, respectively, and 68 % and 72 % of total domestic sales for the nine months ended September 30, 2021 and 2020, respectively.

Sales to distributors accounted for 96 % and 91 % of the Company’s total international sales for the three months ended September 30, 2021 and 2020, respectively, and 95 % and 93 % of the Company’s total international sales for the nine months ended September 30, 2021 and 2020, respectively.

Sales to distributors accounted for 65 % and 68 % of the Company’s total United States sales for the three months ended March 31, 2022 and 2021, respectively.

Sales to distributors accounted for 96 % and 96 % of the Company’s total sales outside the United States for the three months ended March 31, 2022 and 2021, respectively.

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.

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;

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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.

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

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

and (iii) the demurrer to 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.

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

and (ii) the demurrer to the UCL and contract claims was sustained without leave to amend as to three of the named plaintiffs.

The plaintiffs filed a motion for class certification on January 7, 2021 to which the Company filed its opposition on April 11, 2022.

The Company filed a motion for summary adjudication on the CMIA claim on April 7, 2021, which is still pending.

Although the Company continues 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.

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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 October 2021.

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

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.

The material terms of the settlement are set forth in a binding Memorandum of Agreement dated as of July 1, 2021, which was approved by the independent arbitrator on April 18, 2022.

Subsequent to this filing, the Company anticipates receipt of the final settlement amount from the settlement administrator.

This lawsuit will be resolved and closed upon disbursement of the settlement amount.

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 its 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 other 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 September 30, 2021 and December 31, 2020, there were no legal proceedings, regulatory matters, or other disputes or claims for which a material loss was considered probable or for which the amount (or range) of loss was reasonably estimable.

Except as set forth above, as of March 31, 2022, 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, research and development, manufacturing and warehouse facilities, and equipment under noncancelable operating leases for use in its 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 expires in April 2035.

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

What changed 10-Q

Item 1. Financial Statements