What changed in this filing

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Item 1. Financial Statements

2023-05-03 compared with 2022-11-02 · 168 added, 317 removed, 440 unchanged (52% of the section changed)

3 unchanged sentences

(In thousands, except par value)

September 30, December 31,

March 31, December 31,

Assets (Unaudited) (Note 1)

27 unchanged sentences

Common stock, $ 0.001 par value;

200,000 shares authorized, 64,265 and 63,833 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively.

200,000 shares authorized, 64,609 and 64,513 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively.

Additional paid-in capital 1,191,843 1,170,888

5 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,

2022 2021 2022 2021

Three Months Ended March 31,

Sales $ 169,383 $ 175,907

6 unchanged sentences

Total operating expenses 210,724 106,431

Operating income (loss) ( 47,493 ) 7,720 ( 75,070 ) 9,915

Operating loss ( 127,817 ) ( 15,338 )

Other income (expense), net:

1 unchanged sentence

Interest expense ( 1,634 ) ( 1,516 )

Change in fair value of common stock warrants 12 ( 392 ) 103 ( 1,354 )

Total other income (expense), net 4,231 ( 1,101 )

Income (loss) before income taxes ( 47,349 ) 5,848 ( 76,738 ) 4,756

Loss before income taxes ( 123,586 ) ( 16,439 )

Income tax expense (benefit) 287 ( 1,724 )

Net income (loss) $ ( 48,970 ) $ 5,794 $ ( 78,741 ) $ 4,758

Net loss $ ( 123,873 ) $ ( 14,715 )

Other comprehensive income (loss):

Unrealized gain (loss) on short-term investments $ 1,749 $ ( 2,517 )

Foreign currency translation loss ( 524 ) ( 23 ) ( 549 ) ( 125 )

Comprehensive income (loss) $ ( 49,752 ) $ 5,779 $ ( 83,189 ) $ 4,552

Net income (loss) per share, basic $ ( 0.76 ) $ 0.09 $ ( 1.23 ) $ 0.08

Net income (loss) per share, diluted $ ( 0.76 ) $ 0.09 $ ( 1.23 ) $ 0.07

Weighted average shares used to compute basic net income (loss) per share 64,236 63,167 64,066 62,780

Weighted average shares used to compute diluted net income (loss) per share 64,237 64,784 64,067 64,198

Foreign currency translation gains (losses) ( 25 ) 72

Comprehensive loss $ ( 122,149 ) $ ( 17,160 )

Net loss per share - basic and diluted $ ( 1.92 ) $ ( 0.23 )

Weighted average shares used to compute basic and diluted net loss per share 64,549 63,880

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended September 30, 2022

Common Stock Additional

Capital Accumulated

Comprehensive

Loss Accumulated

Deficit Total

Stockholders’

Shares Amount

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

Exercise of stock options 26 — 583 — — 583

Vesting of restricted stock units, net of shares withheld for taxes 29 — ( 952 ) — — ( 952 )

Stock-based compensation expense — — 22,359 — — 22,359

Unrealized loss on short-term investments — — — ( 258 ) — ( 258 )

Foreign currency translation adjustments — — — ( 524 ) — ( 524 )

Net loss — — — — ( 48,970 ) ( 48,970 )

Balance at September 30, 2022

64,265 $ 64 $ 1,140,158 $ ( 5,064 ) $ ( 713,336 ) $ 421,822

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Common Stock Additional

1 unchanged sentence

Comprehensive

Loss Accumulated

Income (Loss) Accumulated

Deficit Total

4 unchanged sentences

Vesting of restricted stock units, net of shares withheld for taxes 51 — ( 1,398 ) — — ( 1,398 )

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

Exercise of common stock warrants 6 — 83 — — 83

Stock-based compensation expense — — 21,496 — — 21,496

Unrealized loss on short-term investments — — — ( 3,899 ) — ( 3,899 )

Foreign currency translation adjustments — — — ( 549 ) — ( 549 )

Net loss — — — — ( 78,741 ) ( 78,741 )

Balance at September 30, 2022

64,265 $ 64 $ 1,140,158 $ ( 5,064 ) $ ( 713,336 ) $ 421,822

See accompanying notes to unaudited condensed consolidated financial statements.

Three Months Ended September 30, 2021

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss)

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 — — — 1,749 — 1,749

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

Net income — — — — 5,794 5,794

Balance at September 30, 2021

Foreign currency translation losses — — — ( 25 ) — ( 25 )

Net loss — — — — ( 123,873 ) ( 123,873 )

Balance at March 31, 2023

64,609 $ 65 $ 1,191,843 $ ( 93 ) $ ( 853,062 ) $ 338,753

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 under 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

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

Foreign currency translation adjustments — — — ( 125 ) — ( 125 )

Net income — — — — 4,758 4,758

Balance at September 30, 2021

Foreign currency translation gains — — — 72 — 72

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

Balance at March 31, 2022

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

(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.

2 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating Activities

Net income (loss) $ ( 78,741 ) $ 4,758

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

Net loss $ ( 123,873 ) $ ( 14,715 )

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

Depreciation and amortization expense 3,396 3,628

2 unchanged sentences

Provision for inventory obsolescence 114 346

Change in fair value of common stock warrants ( 103 ) 1,354

Amortization of premium (discount) on short-term investments 3,381 ( 83 )

Amortization of premium on short-term investments 312 562

Stock-based compensation expense 21,194 18,110

11 unchanged sentences

Other long-term liabilities ( 114 ) ( 391 )

Net cash provided by operating activities 44,644 91,724

Net cash provided by (used in) operating activities ( 18,326 ) 13,800

Investing Activities

Purchases of short-term investments ( 109,115 ) ( 110,719 )

Proceeds from maturities of short-term investments 401,062 427,257

Proceeds from sales of short-term investments 21,845 23,288

Proceeds from maturities and redemptions of short-term investments 163,110 118,559

Purchases of property and equipment ( 8,828 ) ( 2,643 )

Acquisition, including in-process research and development, net of cash acquired ( 69,496 ) —

Acquisition of intangible assets and strategic investments ( 8,855 ) ( 9,331 )

Net cash used in investing activities ( 2,609 ) ( 110,058 )

Purchase of strategic investment ( 2,000 ) —

Net cash provided by (used in) investing activities ( 26,329 ) 5,197

Financing Activities

Proceeds from issuance of common stock under Company stock plans, net 11,369 35,453

Proceeds (payments of tax withholdings) related to issuance of common stock under Company stock plans, net ( 541 ) 3,484

Proceeds from exercise of common stock warrants — 16

Other financing activities ( 675 ) —

Net cash provided by financing activities 10,777 36,046

Net cash provided by (used in) financing activities ( 541 ) 3,500

Effect of foreign exchange rate changes on cash 441 3

Net increase in cash and cash equivalents 52,605 17,762

Net increase (decrease) in cash and cash equivalents ( 44,755 ) 22,500

Cash and cash equivalents at beginning of period 172,517 71,181

1 unchanged sentence

Supplemental disclosures of cash flow information

Interest paid $ 2,156 $ 2,156

Income taxes paid $ 369 $ 170

11 unchanged sentences

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 United States, 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.

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.

2 unchanged sentences

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

In addition to insulin pumps, the Company sells disposable products that are used together with the pumps and are replaced every few days, including cartridges for storing and delivering insulin, and infusion sets that connect the insulin pump to a user’s body, as well as other accessories for enhanced usability.

Basis of Presentation and Principles of Consolidation

15 unchanged sentences

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 .

The change in fair value of common stock warrants of $ 34,000 for the three months ended March 31, 2022, which was previously reported separately, is now reported as a component of interest income and other, net on the condensed consolidated statements of operations.

These warrants expired in October 2022 and, therefore, there is no comparable amount for 2023.

In addition, certain prior year balances on the condensed consolidated statements of cash flows 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, 2022, as compared to those disclosed in the Company’s 2021 Annual Report, except for adding the accounting policies related to an asset acquisition and recently launched Tandem Choice technology access program (Tandem Choice), which are included herein.

There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2023, as compared to those disclosed in the Company’s 2022 Annual Report.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes as of the date of the consolidated financial statements.

The preparation of the condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s condensed consolidated financial statements and accompanying notes as of the date of the condensed consolidated financial statements.

Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions.

2 unchanged sentences

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, including credit risks as a result of the coronavirus pandemic, recessionary concerns, changes in discretionary spending, increased interest rates, and other macroeconomic factors.

Provisions for expected credit losses are estimated based on historical experience, assessment of specific customer-related risks, review of outstanding invoices, forecasts about the future, and various other assumptions and estimates that are believed to be reasonable under the circumstances, including changes to credit risks as a result of recessionary concerns, changes in discretionary spending, increased interest rates, and other macroeconomic factors.

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.

2 unchanged sentences

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 September 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 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 $ 257.6 million and $ 430.0 million at September 30, 2022 and December 31, 2021, respectively, based on Level 2 quoted market prices as of those dates .

The Company estimated the fair value of its convertible senior notes to be $ 263.1 million and $ 260.5 million at March 31, 2023 and December 31, 2022, respectively, based on Level 2 quoted market prices as of those dates.

Operating Lease Right-of-Use Assets and Liabilities

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.

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

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

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

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

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 a reduction of the right-of-use leased assets, and are amortized on a straight-line basis as a reduction to operating lease costs.

Strategic Investments

During the third quarter of 2022, the Company made an $ 8.3 million investment in a private 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, 2022.

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 as of the date of investment.

The investment is accounted for 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 .

Capillary Biomedical Acquisition

On July 21, 2022, the Company acquired Capillary Biomedical, Inc.

(Capillary Biomedical) an infusion set developer, for total cash consideration of $ 24.7 million, and the assumption of $ 4.7 million of long-term debt.

The debt becomes due and payable upon the first sale or license of the commercialized product, and is included as a component of other long-term liabilities on the condensed consolidated balance sheet at September 30, 2022.

Capillary Biomedical’s extended-wear infusion set technology is currently in development and is not yet commercially available.

The Company funded the purchase price using existing cash balances.

The transaction was accounted for as an asset acquisition as substantially all the value of the gross assets were concentrated in a single asset.

At the acquisition date, the Company recorded a $ 31.0 million charge representing the value of acquired in-process research and development assets with no alternative future use, and acquisition related expenses, in acquired in-process research and development expenses on its condensed consolidated statements of operations.

Intangible Assets Subject to Amortization

Intangible Assets Subject to Amortizatio n

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

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

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

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

The Company did not recognize any impairment losses during the three months ended March 31, 2023 and 2022.

Strategic Investments

In 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 as of the date of investment.

The investment is carried at 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.

Revenue Recognition

2 unchanged sentences

Revenue Recognition for Arrangements with Multiple Performance Obligations

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

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

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

4 unchanged sentences

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.

Tandem Choice Program

In September 2022, the Company announced and launched a new technology access program, (Tandem Choice) that provides eligible, in-warranty t:slim X2 customers in the United States with the flexibility to obtain the next generation hardware platform when it is commercially available.

Participating customers have the right to purchase the next generation Tandem pump for a fee (the Choice Right).

The Tandem Choice expires on December 31, 2024.

For purposes of evaluating the Tandem Choice, in accordance with ASC 606, the Company has determined that the ability for a customer to upgrade to a new technology, represents a material right because the pricing inherent in such option provides the customer with a discount that is incremental to the range of discounts that would otherwise be granted for the related goods and services to comparable customers.

Revenue Recognition for Tandem Choice Program

In September 2022, the Company launched a new technology access program referred to as Tandem Choice, that provides eligible, in-warranty t:slim X2 customers in the United States with the flexibility to obtain the newest hardware platform when it becomes commercially available.

Participating customers have the right to purchase the alternative Tandem pump for a fee, referred to as Choice Right.

Tandem Choice expires on December 31, 2024.

For purposes of evaluating Tandem Choice in accordance with ASC 606, the Company has determined that the ability for a customer to upgrade to a new technology represents a material right because the pricing inherent in such option provides the customer with a discount that is incremental to the range of discounts that would otherwise be granted for the related goods and services to comparable customers.

The standalone selling price for the Choice Right was estimated based on the adjusted market assessment approach and contemplates the likelihood that the respective option will be exercised.

At September 30, 2022, $ 0.6 million was allocated to the material right and recorded in current deferred revenue on the condensed consolidated balance sheet.

At March 31, 2023 and December 31, 2022, $ 9.1 million and $ 6.8 million, respectively, were allocated to the material right provided to customers and recorded in current deferred revenue on the condensed consolidated balance sheet.

Warranty Reserve

7 unchanged sentences

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 and nine months ended September 30, 2022 and 2021 (in thousands):

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

2022 2021 2022 2021

The Company may make further adjustments to the warranty reserve when deemed appropriate, giving additional consideration to revised future expectations of performance based on enhanced hardware components, or new features and capabilities that may become available through Tandem Device Updater.

Warranty expense is recorded as a component of cost of sales in the condensed consolidated statements of operations.

The following table provides a reconciliation of the changes in product warranty liabilities for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

Balance at beginning of the period $ 36,537 $ 30,401

1 unchanged sentence

Settlements made during the period ( 7,683 ) ( 6,021 )

Increases (decreases) in warranty estimates 110 ( 80 ) ( 1,159 ) ( 1,396 )

Decreases in warranty estimates ( 75 ) ( 1,137 )

Balance at end of the period $ 37,152 $ 30,444

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

September 30, 2022 December 31, 2021

As of March 31, 2023 and December 31, 2022, total product warranty reserves were included in the following condensed consolidated balance sheet accounts (in thousands):

March 31, 2023 December 31, 2022

Other current liabilities $ 18,060 $ 17,280

14 unchanged sentences

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

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

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

For the three and nine months ended September 30, 2022, the net loss used in the calculation of diluted net loss per share was increased by $ 12,000 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 937 shares and 959 shares, respectively, calculated under the treasury stock method.

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, 2021 Nine Months Ended

September 30, 2021

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

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

For the three months ended March 31, 2023 and 2022, 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 each of the periods presented.

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,

2022 2021 2022 2021

Options to purchase common stock 916 4,424

3 unchanged sentences

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

5,454 6,049 5,049 5,838

Recent Accounting Pronouncements

In June 2020, the FASB issued 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.

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

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

The new guidance 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

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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 September 30, 2022 and December 31, 2021 (in thousands):

At September 30, 2022 Amortized

The following represents a summary of the estimated fair value of short-term investments at March 31, 2023 and December 31, 2022 (in thousands):

At March 31, 2023 Amortized

Cost Gross Unrealized

2 unchanged sentences

Available-for-sale securities:

Government-sponsored enterprises $ 145,247 $ 112 $ ( 337 ) $ 145,022

Treasury securities 130,646 14 ( 720 ) 129,940

1 unchanged sentence

Corporate debt securities 13,890 — ( 66 ) 13,824

Government-sponsored enterprises 66,953 — ( 736 ) 66,217

Supranational bonds 2,508 — ( 23 ) 2,485

Total $ 392,934 $ 129 $ ( 1,237 ) $ 391,826

4 unchanged sentences

Available-for-sale securities:

Government-sponsored enterprises $ 100,602 $ 21 $ ( 615 ) $ 100,008

Treasury securities 213,105 3 ( 1,947 ) 211,161

1 unchanged sentence

Corporate debt securities 18,218 — ( 104 ) 18,114

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

Supranational bonds 2,504 — ( 13 ) 2,491

Total $ 447,241 $ 30 $ ( 2,887 ) $ 444,384

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

The contractual maturities of available-for-sale debt securities as of March 31, 2023, were as follows (in thousands):

Years to Maturity

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

At March 31, 2023 Within One Year One to Two Years Estimated Fair Value

Government-sponsored enterprises $ 97,041 $ 47,981 $ 145,022

Treasury securities 121,501 8,439 129,940

1 unchanged sentence

Corporate debt securities 13,824 — 13,824

Government-sponsored enterprises 53,015 13,202 66,217

Supranational bonds 2,485 — 2,485

Total $ 335,406 $ 56,420 $ 391,826

1 unchanged sentence

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 September 30, 2022 were primarily due to the recent increase in market interest rates.

Unrealized losses on available-for-sale debt securities at March 31, 2023 were primarily due to the recent increases 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 record an allowance for credit losses related to its available-for-sale debt securities at September 30, 2022.

Accordingly, the Company did not record an allowance for credit losses related to its available-for-sale debt securities at March 31, 2023.

Composition of Certain Financial Statement Items

Accounts Receivable

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

September 30, 2022 December 31, 2021

Accounts receivable, net consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):

March 31, December 31,

Accounts receivable $ 95,860 $ 119,044

2 unchanged sentences

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 and nine months ended September 30, 2022 and 2021 (in thousands):

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, 2023 and 2022 (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Balance at beginning of the period $ 4,327 $ 4,249

2 unchanged sentences

Balance at end of the period $ 4,467 $ 4,344

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

September 30, 2022 December 31, 2021

Inventories consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):

March 31, December 31,

Raw materials $ 41,444 $ 39,207

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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, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation techniques used 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 March 31, 2023 and December 31, 2022, and indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in thousands):

Fair Value Measurements at

September 30, 2022

March 31, 2023

Total Level 1 Level 2 Level 3

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$ 104,674 $ 104,674 $ — $ —

Government-sponsored enterprises 145,022 — 145,022 —

Treasury securities 129,940 129,940 — —

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Corporate debt securities 13,824 — 13,824 —

Government-sponsored enterprises 66,217 — 66,217 —

Supranational bonds 2,485 — 2,485 —

Total assets $ 496,500 $ 234,614 $ 261,886 $ —

Common stock warrants (2)

$ 44 $ — $ — $ 44

Total liabilities $ 44 $ — $ — $ 44

Fair Value Measurements at

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$ 150,742 $ 150,742 $ — $ —

Government-sponsored enterprises 100,008 — 100,008 —

Treasury securities 211,161 211,161 — —

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Corporate debt securities 18,114 — 18,114 —

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

Supranational bonds 2,491 — 2,491 —

Total assets $ 595,126 $ 361,903 $ 233,223 $ —

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, 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 September 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 using 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, 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, 2022 and December 31, 2021 are presented below:

Series A Warrants

September 30, 2022 December 31, 2021

Risk-free interest rate 2.8 % 0.3 %

Dividend yield 0.0 % 0.0 %

Expected volatility 71.8 % 39.1 %

Expected term (in years) 0.1 0.8

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, 2022 and 2021 (in thousands):

Nine Months Ended

September 30,

Balance at beginning of period $ 147 $ 14,261

(Gain) loss recognized from the change in fair value of common stock warrants ( 103 ) 1,354

Common stock warrants exercised during the period — ( 15,499 )

Balance at end of period $ 44 $ 116

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

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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).

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

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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.

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.

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

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

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

The Company recognized 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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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 commenced 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 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 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 commenced in September 2022 (Phase I Rent Commencement Date).

The Tech Center Lease term expires in April 2035.

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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.

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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 September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Operating lease cost $ 4,475 $ 3,018

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Total lease cost $ 4,571 $ 3,052

Maturities of operating lease liabilities at September 30, 2022 were as follows (in thousands):

Maturities of operating lease liabilities at March 31, 2023 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, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Weighted-average remaining lease term (in years) 10.7 10.8

Weighted-average discount rate used to determine operating lease liabilities 5.4 % 5.3 %

Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows from operating leases, was $ 9.4 million and $ 7.1 million for the nine months ended September 30, 2022 and 2021, respectively .

Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows from operating leases, was $ 1.8 million and $ 3.4 million for the three months ended March 31, 2023 and 2022, respectively.

Lease For Which Accounting Has Not Yet Commenced

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

Accordingly, the condensed consolidated balance sheet at September 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 nine months ended September 30, 2022 do not include any lease costs, related to 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 Phase II of the Tech Center Lease.

As of March 31, 2023, the Phase II Commencement Date for the Tech Center Lease had not yet occurred.

Accordingly, the condensed consolidated balance sheet at March 31, 2023 does not include operating lease right-of-use assets and operating lease liabilities, and the condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022 do not include any lease costs, related to Phase II of the Tech Center Lease.

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

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.

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Principal amount $ 287,500 $ 287,500

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Net carrying amount $ 283,679 $ 283,232

As of September 30, 2022, the unamortized debt issuance costs of $ 4.7 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 2.7 years.

The following table details interest expense related to the Notes recognized for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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, 2023 and December 31, 2022, the if-converted value of the Notes did not exceed the principal amount.

As of March 31, 2023, the unamortized debt issuance costs of $ 3.8 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 2.1 years.

The following table details interest expense related to the Notes recognized for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

Contractual interest expense $ 1,078 $ 1,078

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Total interest expense $ 1,525 $ 1,516

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 September 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.

Capped Call Transactions

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Line of Credit

On May 18, 2022, the Company entered into a three-year Revolving Line of Credit Agreement that provides the Company with a maximum principal borrowing amount of $ 100.0 million (the Line of Credit), reduced by any letters of credit issued and outstanding under a $ 15.0 million letter of credit sub-limit.

On May 18, 2022, the Company entered into a three-year Revolving Line of Credit Agreement that provides the Company with a maximum principal borrowing amount of $ 100.0 million (Line of Credit), reduced by any letters of credit issued and outstanding under a $ 15.0 million letter of credit sub-limit.

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.

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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 September 30, 2022.

The Company was in compliance with the minimum consolidated interest coverage ratio covenant as of March 31, 2023.

On April 28, 2023, the bank waived the testing of the maximum consolidated net leverage ratio for the period ended March 31, 2023.

The Company believes without the waiver it would have been non-compliant with the maximum consolidated net leverage ratio covenant for the trailing twelve month measurement period ended March 31, 2023.

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

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

As of September 30, 2022, the Company’s outstanding borrowings and available balance under the Line of Credit were as follows (in millions):

Available principal amount $ 100.0

As of March 31, 2023, the Company’s outstanding borrowings and available balance under the Line of Credit were as follows (in millions):

Maximum principal borrowing amount $ 100.0

Outstanding borrowings —

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Shares Reserved for Future Issuance

The following shares of the Company's common stock were reserved for future issuance at September 30, 2022 (in thousands):

The following shares of the Company's common stock were reserved for future issuance at March 31, 2023 (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, 2022 were as follows:

Warrants outstanding to purchase shares of the Company's common stock as of March 31, 2023 were as follows:

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

October 2017 $ 3.50 1,000 October 2022

March 2017 $ 23.50 193,788 March 2027

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 zero shares and 5,678 shares of its common stock, respectively, upon the exercise of warrants during the three and nine months ended September 30, 2022, and 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.

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.

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

The Company’s Amended and Restated 2013 Stock Incentive Plan (2013 Plan) was approved by the Company’s board of directors (Board) in October 2013.

Under the 2013 Plan, the Company may grant stock options, stock appreciation rights, restricted stock and restricted stock units to individuals who are then employees, officers, directors or consultants of the Company.

The ESPP was approved by the Board in October 2013.

The ESPP enables eligible employees to purchase shares of the Company’s common stock using their after-tax payroll deductions, subject to certain conditions.

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

There were no shares of common stock purchased under the ESPP during the three months ended March 31, 2023 and 2022.

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 grant date, and have a maximum term of ten years .

Stock Options

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

Nine Months Ended September 30,

Stock options granted 83,008 355,008

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

Risk-free interest rate 2.7 % 1.0 %

Dividend yield 0.0 % 0.0 %

Expected volatility 72.0 % 75.1 %

Expected term (in years) 5.8 6.1

There were no common stock options granted during the three months ended March 31, 2023 and 2022.

Restricted Stock Units

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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 and 25,674 performance-based RSUs, respectively, during the nine months ended September 30, 2022 and 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 September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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

Three Months Ended March 31,

RSUs granted 154,146 187,076

Weighted average grant date fair value (per share) $ 42.81 $ 109.97

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,

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

Risk-free interest rate 2.2 % 0.1 %

Dividend yield 0.0 % 0.0 %

Expected volatility 47.1 % 47.5 %

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,

2022 2021 2022 2021

Three Months Ended March 31,

Cost of sales $ 1,594 $ 1,846

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Total stock-based compensation expense $ 21,194 $ 18,110

The total stock-based compensation expense capitalized as part of the cost of the Company’s inventories was $ 0.9 million at September 30, 2022, and $ 1.0 million at December 31, 2021.

The total stock-based compensation expense capitalized as part of the cost of the Company’s inventories was $ 1.4 million at March 31, 2023, and $ 1.1 million at December 31, 2022.

Employee Benefits

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

For the three and nine months ended September 30, 2022, the Company recognized income tax expense of $ 1.6 million and $ 2.0 million, respectively, on a pre-tax loss of $ 47.3 million and $ 76.7 million.

Income tax expense for the three and nine months ended September 30, 2022 was primarily attributable to federal, 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, 2021, the Company recognized income tax expense of $ 0.1 million on a pre-tax income of $ 5.8 million, and an income tax benefit of $ 2,000 on pre-tax income of $ 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, 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 and nine months ended September 30, 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 September 30, 2022, based on the current assessment that it is not more likely than not these future benefits will be realized before expiration.

Under the terms of the plan, employees may make voluntary contributions as a percent of compensation, and, starting in 2022, the Company matches a discretionary percentage of employee contributions.

For the three months ended March 31, 2023, the Company recognized income tax expense of $ 0.3 million on a pre-tax loss of $ 123.6 million.

Income tax expense for the three months ended March 31, 2023 was primarily attributable to state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

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.

The income tax benefit for the three months ended March 31, 2022, 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 for income taxes for the three months ended March 31, 2023 using a discrete effective tax rate method as the annual effective tax rate method would not provide a reliable estimate.

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

The Company continues to maintain a full valuation allowance against its net deferred tax assets as of March 31, 2023, 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, Saudi Arabia and South Africa.

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

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.

In the United States and Canada, the Company also uses 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 Channel

During the three and nine months ended September 30, 2022 and 2021, no individual country outside the United States generated revenue that represented more than 10% of total revenue.

During the three months ended March 31, 2023, and 2022, 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 September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

United States $ 131,242 $ 131,283

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Total Sales $ 169,383 $ 175,907

Sales to distributors accounted for 66 % and 68 % of the Company’s total United States sales for the three months ended September 30, 2022 and 2021, respectively, and 65 % and 68 % of the Company’s total United States sales for the nine months ended September 30, 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 September 30, 2022 and 2021, respectively, and 96 % and 95 % of the Company’s total sales outside the United States for the nine months ended September 30, 2022 and 2021, respectively.

Sales to distributors accounted for 65 % and 65 % of the Company’s total United States sales for the three months ended March 31, 2023 and 2022, respectively.

Sales to distributors accounted for 94 % and 96 % of the Company’s total sales outside the United States for the three months ended March 31, 2023 and 2022, respectively.

AMF Medical Acquisition

On December 10, 2022, the Company, entered into a Share Purchase Agreement (Purchase Agreement) with AMF Medical SA, a corporation organized and existing under the laws of Switzerland (AMF Medical), and its shareholders to acquire all of the registered shares of AMF Medical (Transaction).

AMF Medical is the developer of the Sigi™ Patch Pump, which is designed to be an ergonomic, rechargeable patch pump that reduces the burden of managing diabetes through its use of pre-filled insulin cartridges.

The Sigi Patch Pump is under development and not commercially available.

On January 19, 2023, the Company completed the acquisition of AMF Medical, pursuant to the terms of the Purchase Agreement.

The total aggregate consideration for the Transaction includes a previous strategic investment of Swiss Francs (CHF) 8.0 million made in the third quarter of 2022, a cash payment of CHF 62.4 million paid at the closing of the Transaction, and additional contingent earnout payments of up to CHF 129.6 million.

The contingent earnout payments become payable upon the achievement of certain milestones, and are comprised of a payment of up to CHF 38.4 million upon the successful completion of key development milestones over the next two years, and a payment of up to CHF 91.2 million upon obtaining regulatory clearance from the United States Food and Drug Administration of an automated controller enabled (ACE) pump.

The contingent consideration will be recognized as each contingency is resolved and the respective consideration is paid or becomes payable.

At March 31, 2023, the contingencies related to the earnout milestones were not yet resolved and, therefore, the related amounts were not included in the fair value of the asset acquired and were not recognized as a liability on the condensed consolidated balance sheet at March 31, 2023.

The Company funded the initial closing payment using existing cash balances.

As of December 31, 2022, the previous strategic investment was included as a component of other long-term assets on the condensed consolidated balance sheet.

The transaction was accounted for as an asset acquisition as substantially all the value of the gross assets were concentrated in a single asset.

The Company recorded a $ 78.8 million charge representing the value of acquired in-process research and development assets with no alternative future use, and acquisition related expenses, on its condensed consolidated statements of operations in acquired in-process research and development expenses.

The Company’s results of operations for the three months ended March 31, 2023 included the operating results of AMF Medical since the date of acquisition.

Capillary Biomedical Acquisition

On July 21, 2022, the Company acquired Capillary Biomedical, Inc.

(Capillary Biomedical) an infusion set developer, for total cash consideration of $ 24.7 million, and the assumption of $ 4.7 million of long-term debt.

Capillary Biomedical’s extended-wear infusion set technology is currently in development and is not yet commercially available.

The Company funded the purchase price using existing cash balances.

The transaction was accounted for as an asset acquisition as substantially all the value of the gross assets was concentrated in a single asset.

The Company recorded a $ 31.0 million charge representing the value of acquired in-process research and development assets with no alternative future use, and acquisition related expenses, on its condensed consolidated statements of operations in acquired in-process research and development expenses.

The Company’s results of operations for the three months ended March 31, 2023 included the operating results of Capillary Biomedical.

Commitments and Contingencies

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In May 2020, the Company was named as a defendant in three California state court class action lawsuits arising from a phishing incident that occurred in January 2020.

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

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

equitable relief, including restitution;

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injunctive relief;

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

and attorney fees, costs, and expenses from us.

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

Tandem Diabetes Care, Inc.

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

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

(i) the demurrer 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 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 and the Company filed a motion for summary adjudication on plaintiffs’ CMIA claim on April 7, 2022.

Both motions are fully briefed.

The Company anticipates the Court will hear argument on both motions in the fourth quarter of 2022 or the first quarter of 2023.

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.

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.

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

The Company filed a demurrer on all claims, which was heard by the Court on October 20, 2020, and the demurrer to the CCPA claim was sustained.

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

On February 8, 2023, the Court granted plaintiffs’ request to dismiss their remaining two claims with prejudice, and dismissed the motion for class certification, thereby terminating the case in the Superior Court.

On March 7, 2023, the plaintiffs filed a notice of appeal of the Court’s order granting the Company’s motion for summary adjudication.

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

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

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 claims incident to the normal course of the Company’s business activities, including actions with respect to intellectual property, data privacy, employment, regulatory, product liability and contractual matters.

Although the results of such legal proceedings and claims cannot be predicted with certainty, as of March 31, 2023 the Company believes it is not currently a party to any 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 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, 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.

In connection with one of the Company’s operating leases (see Note 6, “Leases”), the Company has a $ 4.9 million unsecured irrevocable standby letter of credit arrangement with a bank (see Note 7, “Debt”), 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