What changed in this filing

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Item 1. Financial Statements

2022-08-03 compared with 2022-05-04 · 226 added, 132 removed, 518 unchanged (41% of the section changed)

3 unchanged sentences

(In thousands, except par value)

March 31, December 31,

June 30, December 31,

Assets (Unaudited) (Note 1)

27 unchanged sentences

Common stock, $ 0.001 par value;

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

200,000 shares authorized, 64,210 and 63,833 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively.

Additional paid-in capital 1,118,168 1,068,259

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TANDEM DIABETES CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

Three Months Ended March 31,

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

2022 2021 2022 2021

Sales $ 200,262 $ 172,139 $ 376,169 $ 313,176

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Total operating expenses 114,185 87,022 220,616 163,546

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

Operating income (loss) ( 12,239 ) 5,432 ( 27,577 ) 2,195

Other income (expense), net:

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Total other expense, net ( 711 ) ( 1,363 ) ( 1,812 ) ( 3,287 )

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

Income tax benefit ( 1,724 ) ( 117 )

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

Other comprehensive loss:

Income (loss) before income taxes ( 12,950 ) 4,069 ( 29,389 ) ( 1,092 )

Income tax expense (benefit) 2,106 61 382 ( 56 )

Net income (loss) $ ( 15,056 ) $ 4,008 $ ( 29,771 ) $ ( 1,036 )

Other comprehensive income (loss):

Unrealized loss on short-term investments $ ( 1,124 ) $ ( 51 ) $ ( 3,641 ) $ ( 89 )

Foreign currency translation gain (loss) 72 ( 76 )

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

Foreign currency translation loss ( 97 ) ( 26 ) ( 25 ) ( 102 )

Comprehensive income (loss) $ ( 16,277 ) $ 3,931 $ ( 33,437 ) $ ( 1,227 )

Net income (loss) per share, basic $ ( 0.23 ) $ 0.06 $ ( 0.47 ) $ ( 0.02 )

Net income (loss) per share, diluted $ ( 0.24 ) $ 0.06 $ ( 0.47 ) $ ( 0.02 )

Weighted average shares used to compute basic net income (loss) per share 64,077 62,717 63,979 62,583

Weighted average shares used to compute diluted net income (loss) per share 64,078 65,663 63,980 62,583

See accompanying notes to unaudited condensed consolidated financial statements.

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(In thousands)

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Common Stock Additional

1 unchanged sentence

Comprehensive

Income (Loss) Accumulated

Loss Accumulated

Deficit Total

1 unchanged sentence

Shares Amount

Balance at March 31, 2022 63,941 $ 64 $ 1,089,689 $ ( 3,061 ) $ ( 649,310 ) $ 437,382

Exercise of stock options 70 — 2,615 — — 2,615

Vesting of restricted stock units, net of shares withheld for taxes 66 — ( 2,276 ) — — ( 2,276 )

Issuance of common stock for Employee Stock Purchase Plan 129 — 7,915 — — 7,915

Exercise of common stock warrants 4 — 68 — — 68

Stock-based compensation expense — — 20,157 — — 20,157

Unrealized loss on short-term investments — — — ( 1,124 ) — ( 1,124 )

Foreign currency translation adjustments — — — ( 97 ) — ( 97 )

Net loss — — — — ( 15,056 ) ( 15,056 )

Balance at June 30, 2022

64,210 $ 64 $ 1,118,168 $ ( 4,282 ) $ ( 664,366 ) $ 449,584

Six Months Ended June 30, 2022

Common Stock Additional

Capital Accumulated

Comprehensive

Loss Accumulated

Deficit Total

Stockholders’

Shares Amount

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

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Vesting of restricted stock units, net of shares withheld for taxes 70 — ( 2,575 ) — — ( 2,575 )

Issuance of common stock for Employee Stock Purchase Plan 129 — 7,915 — — 7,915

Exercise of common stock warrants 6 — 83 — — 83

3 unchanged sentences

Net loss — — — — ( 29,771 ) ( 29,771 )

Balance at June 30, 2022 64,210 $ 64 $ 1,118,168 $ ( 4,282 ) $ ( 664,366 ) $ 449,584

See accompanying notes to unaudited condensed consolidated financial statements.

Three Months Ended June 30, 2021

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss)

Deficit Total

Stockholders’

Shares Amount

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

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

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

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

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

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

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

Net income — — — — 4,008 4,008

Balance at June 30, 2021

62,952 $ 63 $ 997,190 $ 29 $ ( 651,197 ) $ 346,085

Three Months Ended March 31, 2021

Six Months Ended June 30, 2021

Common Stock Additional

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

— — ( 85,803 ) — 9,049 ( 76,754 )

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

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

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

Exercise of common stock warrants 125 — 437 — — 437

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Net loss — — — — ( 1,036 ) ( 1,036 )

Balance at March 31, 2021

Balance at June 30, 2021

62,952 $ 63 $ 997,190 $ 29 $ ( 651,197 ) $ 346,085

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TANDEM DIABETES CARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Operating Activities

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Change in fair value of common stock warrants ( 91 ) 962

Amortization of premium on short-term investments 562 209

Amortization of premium (discount) on short-term investments 1,799 ( 306 )

Stock-based compensation expense 38,241 27,924

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Deferred revenue 2,934 5,288

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

Operating leases & Other current liabilities 7,443 1,170

Other long-term liabilities ( 84 ) 2,207

5 unchanged sentences

Purchases of property and equipment ( 14,760 ) ( 5,339 )

Acquisition of intangible assets and equity investments ( 515 ) ( 9,331 )

Net cash provided by (used in) investing activities 11,554 ( 70,855 )

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Proceeds from exercise of common stock warrants 83 438

Other financing activities ( 270 ) —

Net cash provided by financing activities 11,551 17,196

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Supplemental schedule of non-cash investing and financing activities

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

Operating lease right-of-use assets obtained in exchange for operating lease obligations $ 110,515 $ 15,087

Purchase of property and equipment included in accounts payable $ 1,255 $ 452

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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., Canada and the Netherlands.

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 United States, 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.

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 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 has an advanced algorithm for managing insulin delivery, 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 mobile app and cloud-based diabetes management application (t:connect), and the Tandem Device Updater, a Mac and PC-compatible tool which offers and supports remote 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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All significant intercompany balances and transactions have been eliminated in consolidation.

The functional currency of the Company’s foreign subsidiary is the local currency.

The Company translates the financial statements of its foreign subsidiary into U.S.

The functional currency of the Company’s foreign subsidiaries is their respective local currency.

The Company translates the financial statements of its foreign subsidiaries into U.S.

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 other comprehensive loss, and in accumulated other comprehensive income in the stockholders’ equity section of the Company’s condensed 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 condensed consolidated balance sheets.

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

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Summary of Significant Accounting Policies

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

There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2022, as compared to those disclosed in the Company’s 2021 Annual Report.

Use of Estimates

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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 coronavirus pandemic (COVID-19 global pandemic).

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, including credit risks as a result of the 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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Short-term investments are carried at fair value.

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 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 June 30, 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 .

The Company measures the fair value of its convertible senior notes for disclosure purposes.

The Company estimated the fair value of its convertible senior notes to be $ 269.5 million and $ 430.0 million at June 30, 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

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 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.

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Cost Basis Equity Investment

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

The investment is recorded using the cost minus impairment, if any, 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.

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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 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.

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

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

The Company did no t recognize any impairment losses during the six months ended June 30, 2022 and 2021.

Revenue Recognition

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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,

The following table provides a reconciliation of the changes in product warranty liabilities for the three and six months ended June 30, 2022 and 2021 (in thousands):

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

2022 2021 2022 2021

Balance at beginning of the period $ 30,444 $ 23,169 $ 30,401 $ 22,075

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Balance at end of the period $ 31,904 $ 25,668 $ 31,904 $ 25,668

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

As of June 30, 2022 and December 31, 2021, total product warranty reserves were included in the following consolidated balance sheet accounts (in thousands):

June 30, 2022 December 31, 2021

Other current liabilities $ 14,663 $ 13,076

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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.

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.

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

The fair value of RSU awards issued under the 2013 Plan that vest based upon the Company’s actual performance relative to predefined performance metrics, and the awardee’s continuing service through the measurement date, 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.

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.

Net Income (Loss) Per Share

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

Diluted net income (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;

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

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.

For the three and six months ended June 30, 2022, the net loss used in the calculation of diluted net loss per share was increased by $ 0.1 million and $ 0.1 million, respectively, to remove the gain recognized from the change in fair value of certain common stock warrants based on the dilutive effect of assumed exercise, and the denominator was increased by 958 shares and 965 shares, respectively, calculated under the treasury stock method.

For the six months ended June 30, 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.

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

Three Months Ended June 30, 2021

Net income - basic and diluted $ 4,008

Weighted average shares outstanding - basic 62,717

Dilutive common share equivalents:

Options to purchase common stock 2,550

Unvested restricted stock units 246

Warrants to purchase common stock 148

Awards to be granted under the ESPP 2

Weighted average shares outstanding - diluted 65,663

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

June 30, Six Months Ended

2022 2021 2022 2021

Options to purchase common stock 1,235 — 1,327 5,136

3 unchanged sentences

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

4,975 2,584 4,847 8,115

Recent Accounting Pronouncements

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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 March 31, 2022 and December 31, 2021 (in thousands):

At March 31, 2022 Amortized

The following represents a summary of the estimated fair value of short-term investments at June 30, 2022 and December 31, 2021 (in thousands):

At June 30, 2022 Amortized

Cost Gross Unrealized

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

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

The contractual maturities of available-for-sale debt securities as of June 30, 2022, were as follows (in thousands):

Years to Maturity

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

At June 30, 2022 Within One Year One to Two Years Estimated Fair Value

Treasury securities $ 256,417 $ 22,006 $ 278,423

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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.

Unrealized losses on available-for-sale debt securities at June 30, 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 March 31, 2022.

Accordingly, the Company did not recognize any impairment losses related to its available-for-sale debt securities at June 30, 2022.

Composition of Certain Financial Statement Items

Accounts Receivable

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

March 31, 2022 December 31, 2021

Accounts receivable, net consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):

June 30, 2022 December 31, 2021

Accounts receivable $ 108,363 $ 114,974

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Allowance for Credit Losses

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,

The following table provides a reconciliation of the changes in the allowance for estimated accounts receivable credit losses for the three and six months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Balance at beginning of the period $ 4,344 $ 3,559 $ 4,249 $ 3,857

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Balance at end of the period $ 4,600 $ 3,673 $ 4,600 $ 3,673

Inventories consisted of the following at (in thousands):

March 31, 2022 December 31, 2021

Inventories consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):

June 30, 2022 December 31, 2021

Raw materials $ 34,786 $ 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 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):

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

June 30, 2022

Total Level 1 Level 2 Level 3

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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 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 Company's Level 3 liabilities at June 30, 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”).

As of June 30, 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.

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A significant increase (decrease) in any of these inputs in isolation, particularly the market price of the Company’s common stock, would have resulted in a significantly higher (lower) fair value measurement .

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

The assumptions used to estimate the fair values of the outstanding Series A warrants at June 30, 2022 and December 31, 2021 are presented below:

Series A Warrants

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Risk-free interest rate 1.9 % 0.3 %

Expected dividend yield 0.0 % 0.0 %

Dividend yield 0.0 % 0.0 %

Expected volatility 63.3 % 39.1 %

Expected term (in years) 0.3 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,

The following table presents a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the six months ended June 30, 2022 and 2021 (in thousands):

Six Months Ended

Balance at beginning of period $ 147 $ 14,261

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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.

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 leased 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).

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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 consolidated balance sheet in the first quarter of 2021 related to the Second Amendment.

The Company recognized operating lease right-of-use 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.

Tech Center Lease

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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.

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

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 property the Company previously occupied subject to a sublease agreement.

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

The Company recognized operating lease right-of-use assets and corresponding operating lease liabilities of $ 3.0 million on the condensed consolidated balance sheet on the Commencement Date in the second 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,

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

2022 2021 2022 2021

Operating lease cost $ 5,061 $ 2,197 $ 8,189 $ 4,203

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Total lease cost $ 5,098 $ 2,219 $ 8,260 $ 4,247

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

Maturities of operating lease liabilities at June 30, 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:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Weighted-average remaining lease term (in years) 11.0 5.0

Weighted-average discount rate used to determine operating lease liabilities 5.3 % 5.6 %

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 .

Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows from operating leases, was $ 5.9 million and $ 4.7 million for the six months ended June 30, 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

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

As of June 30, 2022, the Commencement Date for Phase II of the Tech Center Lease had not yet occurred.

Accordingly, the condensed consolidated balance sheet at June 30, 2022 does not include operating lease right-of-use assets and operating lease liabilities, and the condensed consolidated statements of operations for the three and six months ended June 30, 2022 do not include any lease costs, related to Phase II of the Tech Center Lease.

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.

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

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.

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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

June 30, 2022 December 31, 2021

Principal amount $ 287,500 $ 287,500

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Net carrying amount $ 282,345 $ 281,467

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

March 31, 2022 March 31, 2021

As of June 30, 2022, the unamortized debt issuance costs of $ 5.2 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 related to the Notes recognized for the three and six months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended June 30, Six Months Ended

2022 2021 2022 2021

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

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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 June 30, 2022, the if-converted value of the Notes did not exceed the principal amount.

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

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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.

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

Line of Credit

On May 18, 2022, the Company entered into a three-year Revolving Line of Credit Agreement, that provides the Company with an available principal borrowing amount of $ 100.0 million (the Line of Credit).

The Line of Credit allows the Company to request advances thereunder, and to use the proceeds of such advances for general corporate purposes, including working capital and capital expenditures.

The Line of Credit matures on the earlier of (i) May 18, 2025 or (ii) the Springing Maturity Date, unless renewed at maturity upon approval by the Company’s board of directors and the lender.

The Springing Maturity Date is any date during the 91 days prior to the May 1, 2025 maturity date of the Company’s Convertible Senior Notes, that the Company does not satisfy a predefined liquidity threshold.

During the term of the Line of Credit, the Company is required to maintain compliance with two financial maintenance covenants:

a minimum consolidated interest coverage ratio and a maximum consolidated net leverage ratio.

The Company was in compliance with these financial maintenance covenants as of June 30, 2022.

The Line of Credit is secured by a first priority security interest in substantially all of the assets of the Company and its subsidiaries.

Advances drawn under the Line of Credit bear interest at an annual rate of (1) the SOFR Rate (as defined in the Line of Credit);

plus (2) an applicable credit spread adjustment ranging from 0.10 % to 0.25 %;

plus (3) an applicable margin ranging from 1.25 % to 2.00 %, and each advance will be payable on the Maturity Date with the interest on outstanding advances payable quarterly.

The Credit Agreement also includes a commitment fee ranging from 0.20 % to 0.35 % per annum on the average daily unused amount of the Line of Credit, payable quarterly.

The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to the maturity date, without premium or penalty.

As of June 30, 2022, the Company had no outstanding borrowings under the Line of Credit.

Stockholders’ Equity

Shares Reserved for Future Issuance

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

The following shares of the Company's common stock were reserved for future issuance at June 30, 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 March 31, 2022 were as follows:

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

August 2011 - August 2012 $ 73.73 16,212 May 2022 - August 2022

July 2012 - August 2012 $ 73.73 1,359 July 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 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 issued 3,843 and 5,678 shares of its common stock, respectively, upon the exercise of warrants during the three and six months ended June 30, 2022, and 522 and 125,522 shares of its common stock, respectively, upon the exercise of warrants during the three and six months ended June 30, 2021.

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

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 .

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

Stock options granted prior to the second quarter of 2022, generally vest over a four-year period as to 25 % of the underlying shares on the first anniversary of the grant date, with the balance of the options vesting monthly over the following three years .

Stock options granted during the second quarter of 2022 and thereafter vest over a three-year period as to 33 % of the underlying shares on the first anniversary of the grant date, with the balance of the options vesting monthly over the following two years .

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

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,

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

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

2022 2021 2022 2021

Stock options granted 83,008 239,608 83,008 355,008

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

Risk-free interest rate N/A 0.9 %

Expected dividend yield N/A 0.0 %

Expected volatility N/A 75.6 %

Expected term (in years) N/A 6.1

Weighted average grant date fair value (per share) $ 42.16 $ 54.92 $ 42.16 $ 56.89

Risk-free interest rate 2.7 % 1.1 % 2.7 % 1.0 %

Dividend yield 0.0 % 0.0 % 0.0 % 0.0 %

Expected volatility 72.0 % 74.9 % 72.0 % 75.1 %

Expected term (in years) 5.8 6.1 5.8 6.1

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

Restricted stock units (RSUs) have a grant value 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 on continued service to the Company 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 and thereafter vest over a three-year period based on continued service to the Company 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 .

In addition, the Company granted 53,662 performance-based RSUs, during the three and six month periods ended June 30, 2022 and 25,674 performance-based RSUs, during the three and six month periods ended June 30, 2021.

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

The total number of RSUs granted, which includes performance-based RSUs, and the respective weighted average grant date fair value were as follows:

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

2022 2021 2022 2021

RSUs granted 820,173 339,386 1,007,249 342,594

Weighted average grant date fair value (per share) $ 66.88 $ 82.31 $ 74.88 $ 82.41

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,

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:

Three Months Ended June 30, Six Months Ended

2022 2021 2022 2021

Weighted average grant date fair value (per share) $ 26.57 $ 29.24 $ 26.57 $ 29.24

Risk-free interest rate 2.2 % 0.1 % 2.2 % 0.1 %

Dividend yield 0.0 % 0.0 % 0.0 % 0.0 %

Expected volatility 47.1 % 47.5 % 47.1 % 47.5 %

Expected term (in years) 1.3 1.3 1.3 1.3

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

Three Months Ended June 30, Six Months Ended

2022 2021 2022 2021

Cost of sales $ 1,900 $ 1,591 $ 3,747 $ 3,067

Selling, general & administrative 11,854 9,409

Selling, general and administrative 13,732 10,881 25,586 20,292

Research and development 4,498 2,505 8,908 4,565

Total stock-based compensation expense $ 20,130 $ 14,977 $ 38,241 $ 27,924

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.

The total stock-based compensation expense capitalized as part of the cost of the Company’s inventories was $ 0.8 million at June 30, 2022, and $ 1.0 million at December 31, 2021.

Employee Benefits

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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.

For the three and six months ended June 30, 2022, the Company recognized income tax expense of $ 2.1 million and $ 0.4 million, respectively, on a pre-tax loss of $ 13.0 million and $ 29.4 million, respectively.

The Company calculated the provision for income taxes for the three and six months ended June 30, 2022, using the discrete effective tax rate method as the annual effective tax rate method would not provide a reliable estimate.

Income tax expense for the three months ended June 30, 2022 was primarily attributable to the change from the annual effective tax rate method used in the first quarter of 2022 to the discrete effective tax rate method, and state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

Income tax expense for the six months ended June 30, 2022 was primarily attributable to state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

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

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

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

The Company continues to maintain a full valuation allowance against its net deferred tax assets as of June 30, 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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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.

During the three and six months ended June 30, 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,

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

2022 2021 2022 2021

United States $ 145,667 $ 127,580 $ 276,950 $ 230,919

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Total Sales $ 200,262 $ 172,139 $ 376,169 $ 313,176

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.

Sales to distributors accounted for 65 % and 68 % of the Company’s total United States sales for the three months ended June 30, 2022 and 2021, respectively, and 65 % and 68 % of the Company’s total United States sales for the six months ended June 30, 2022 and 2021, respectively.

Sales to distributors accounted for 96 % and 95 % of the Company’s total sales outside the United States for the three months ended June 30, 2022 and 2021, respectively, and 96 % and 95 % of the Company’s total sales outside the United States for the six months ended June 30, 2022 and 2021, respectively.

Commitments and Contingencies

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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.

The plaintiffs filed a motion for class certification on January 7, 2021 and the Company filed a motion for summary adjudication on plaintiffs’ CMIA claim on April 7, 2022.

Both motions are fully briefed, and the Court’s order on each motion is pending.

The Company anticipates the Court will hear argument on both motions in the third quarter of 2022, though not yet scheduled.

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

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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.

This lawsuit was resolved and closed upon disbursement of the settlement amount in May 2022.

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.

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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 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.

Except as set forth above, as of June 30, 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.

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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