What changed in this filing

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Item 1. Financial Statements

2023-08-03 compared with 2023-05-03 · 202 added, 120 removed, 488 unchanged (40% 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, 64,609 and 64,513 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively.

200,000 shares authorized, 65,062 and 64,513 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively.

Additional paid-in capital 1,219,199 1,170,888

7 unchanged sentences

(In thousands, except per share data)

Three Months Ended March 31,

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

2023 2022 2023 2022

Sales $ 195,917 $ 200,262 $ 365,300 $ 376,169

12 unchanged sentences

Loss before income taxes ( 34,629 ) ( 12,950 ) ( 158,215 ) ( 29,389 )

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

Income tax expense 1,146 2,106 1,433 382

Net loss $ ( 35,775 ) $ ( 15,056 ) $ ( 159,648 ) $ ( 29,771 )

1 unchanged sentence

Unrealized gain (loss) on short-term investments $ ( 298 ) $ ( 1,124 ) $ 1,451 $ ( 3,641 )

Foreign currency translation gains (losses) ( 25 ) 72

Foreign currency translation losses ( 802 ) ( 97 ) ( 827 ) ( 25 )

Comprehensive loss $ ( 36,875 ) $ ( 16,277 ) $ ( 159,024 ) $ ( 33,437 )

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

Net loss per share - basic $ ( 0.55 ) $ ( 0.23 ) $ ( 2.47 ) $ ( 0.47 )

Net loss per share - diluted $ ( 0.55 ) $ ( 0.24 ) $ ( 2.47 ) $ ( 0.47 )

Weighted average shares used to compute basic net loss per share 64,830 64,077 64,690 63,979

Weighted average shares used to compute diluted net loss per share 64,830 64,078 64,690 63,980

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Common Stock Additional

5 unchanged sentences

Shares Amount

Balance at March 31, 2023 64,609 $ 65 $ 1,191,843 $ ( 93 ) $ ( 853,062 ) $ 338,753

Exercise of stock options 18 — 305 — — 305

Vesting of restricted stock units, net of shares withheld for taxes 186 — ( 3,163 ) — — ( 3,163 )

Issuance of common stock for Employee Stock Purchase Plan 249 — 6,804 — — 6,804

Stock-based compensation expense — — 23,410 — — 23,410

Unrealized loss on short-term investments — — — ( 298 ) — ( 298 )

Foreign currency translation losses — — — ( 802 ) — ( 802 )

Net loss — — — — ( 35,775 ) ( 35,775 )

Balance at June 30, 2023

65,062 $ 65 $ 1,219,199 $ ( 1,193 ) $ ( 888,837 ) $ 329,234

Six Months Ended June 30, 2023

Common Stock Additional

Capital Accumulated

Comprehensive

Loss Accumulated

Deficit Total

Stockholders’

Shares Amount

Balance at December 31, 2022 64,513 $ 65 $ 1,170,888 $ ( 1,817 ) $ ( 729,189 ) $ 439,947

1 unchanged sentence

Vesting of restricted stock units, net of shares withheld for taxes 237 — ( 4,561 ) — — ( 4,561 )

Issuance of common stock under Employee Stock Purchase Plan 249 — 6,804 — — 6,804

Stock-based compensation expense — — 44,906 — — 44,906

2 unchanged sentences

Net loss — — — — ( 159,648 ) ( 159,648 )

Balance at June 30, 2023

65,062 $ 65 $ 1,219,199 $ ( 1,193 ) $ ( 888,837 ) $ 329,234

See accompanying notes to unaudited condensed consolidated financial statements.

Three Months Ended June 30, 2022

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss)

Deficit Total

Stockholders’

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 losses — — — ( 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

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

Common Stock Additional

8 unchanged sentences

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

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

Exercise of common stock warrants 6 — 83 — — 83

1 unchanged sentence

Unrealized loss on short-term investments — — — ( 3,641 ) — ( 3,641 )

Foreign currency translation gains — — — 72 — 72

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

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

Balance at March 31, 2022

Balance at June 30, 2022

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

3 unchanged sentences

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Operating Activities

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Provision for inventory obsolescence 136 641

Operating lease impairment charge 14,099 —

Amortization of premium on short-term investments 1,755 1,799

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

Purchase of strategic investment ( 2,000 ) —

Purchases of intangible assets and strategic investments ( 2,515 ) ( 515 )

Net cash provided by (used in) investing activities ( 20,631 ) 11,554

Financing Activities

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

Proceeds from issuance of common stock under Company stock plans, net 3,407 11,738

Proceeds from exercise of common stock warrants — 83

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

Other financing activities — ( 270 )

Net cash provided by financing activities 3,407 11,551

Effect of foreign exchange rate changes on cash 107 ( 21 )

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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 compatible with other complementary digital health offerings, such as the t:connect mobile app, cloud-based diabetes management applications and the Tandem Device Updater, a Mac- and PC-compatible tool that 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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GAAP for complete financial statements.

In the opinion of management, all adjustments which are of a normal and recurring nature, considered necessary for a fair presentation of the financial information contained herein, have been included.

In the opinion of management, all adjustments which are of a normal and recurring nature and considered necessary for a fair presentation of the financial information contained herein, have been included.

Interim financial results are not necessarily indicative of results anticipated for the full year or any other period(s).

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Reclassifications

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.

The change in fair value of common stock warrants for the three and six months ended June 30, 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.

In addition, certain prior year balances on the condensed consolidated statement 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 three months ended March 31, 2023, as compared to those disclosed in the Company’s 2022 Annual Report.

There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2023, as compared to those disclosed in the Company’s 2022 Annual Report.

Use of Estimates

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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 $ 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.

The Company estimated the fair value of its convertible senior notes to be $ 265.9 million and $ 260.5 million at June 30, 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

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

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

The Company did not recognize any intangible asset impairment losses during the six months ended June 30, 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.

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.

The Company holds equity investments totaling $ 10.1 million in two separate private companies, each of which represented less than 5 % of the outstanding equity of the respective company as of the date of investment.

The investments are carried at cost minus impairment, if any, adjusted for changes in observable prices.

The investments were included as a component of other long-term assets on the condensed consolidated balance sheets.

The Company monitors these investments to evaluate whether a decline in value has occurred based on the implied value of recent company financings, public market prices of comparable companies and general market conditions.

Revenue Recognition

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

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

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

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

1 unchanged sentence

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.

1 unchanged sentence

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 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.

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

At June 30, 2023 and December 31, 2022, $ 10.5 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 sheets.

Warranty Reserve

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

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

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

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

4 unchanged sentences

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,

The following table provides a reconciliation of the changes in product warranty liabilities for the three and six months ended June 30, 2023 and 2022 (in thousands):

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

2023 2022 2023 2022

Balance at beginning of the period $ 37,152 $ 30,444 $ 36,537 $ 30,401

1 unchanged sentence

Settlements made during the period ( 7,385 ) ( 5,687 ) ( 15,068 ) ( 11,708 )

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

Increases (decreases) in warranty estimates 235 ( 132 ) 160 ( 1,269 )

Balance at end of the period $ 38,917 $ 31,904 $ 38,917 $ 31,904

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

As of June 30, 2023 and December 31, 2022, total product warranty reserves were included in the following condensed consolidated balance sheet accounts (in thousands):

June 30, 2023 December 31, 2022

Other current liabilities $ 18,695 $ 17,280

3 unchanged sentences

Stock-based compensation cost is measured at the grant date based on the estimated fair value of the award, and the portion that is ultimately expected to vest is recognized as compensation expense over the requisite service period on a straight-line basis.

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

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

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

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

The fair value of 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.

The fair value of restricted stock unit (RSU) awards issued under the Company’s stock incentive plans 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 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 Income (Loss) Per Share

N et 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.

2 unchanged sentences

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

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.

For the three and six months ended June 30, 2023, 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.

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 $ 57,000 and $ 91,000 , 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.

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 June 30,

2023 2022 2023 2022

Options to purchase common stock 138 1,235 138 1,327

3 unchanged sentences

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

4,950 4,975 4,579 4,847

Short-Term Investments

2 unchanged sentences

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

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

At March 31, 2023 Amortized

The following represents a summary of the estimated fair value of short-term investments at June 30, 2023 and December 31, 2022 (in thousands):

At June 30, 2023 Amortized

Cost Gross Unrealized

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

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

The contractual maturities of available-for-sale debt securities as of June 30, 2023, were as follows (in thousands):

Years to Maturity

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

At June 30, 2023 Within One Year One to Two Years Estimated Fair Value

Government-sponsored enterprises $ 102,060 $ 50,556 $ 152,616

5 unchanged sentences

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, 2023 were primarily due to the recent increases in market interest rates.

Unrealized losses on available-for-sale debt securities at June 30, 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 March 31, 2023.

Accordingly, the Company did not record an allowance for credit losses related to its available-for-sale debt securities at June 30, 2023.

Composition of Certain Financial Statement Items

Accounts Receivable

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

March 31, December 31,

Accounts receivable, net consisted of the following at June 30, 2023 and December 31, 2022 (in thousands):

June 30, December 31,

Accounts receivable $ 103,556 $ 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 months ended March 31, 2023 and 2022 (in thousands):

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, 2023 and 2022 (in thousands):

Three Months Ended

June 30, Six Months Ended June 30,

2023 2022 2023 2022

Balance at beginning of the period $ 4,467 $ 4,344 $ 4,327 $ 4,249

2 unchanged sentences

Balance at end of the period $ 4,842 $ 4,600 $ 4,842 $ 4,600

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

March 31, December 31,

Inventories consisted of the following at June 30, 2023 and December 31, 2022 (in thousands):

June 30, December 31,

Raw materials $ 41,834 $ 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 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):

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, 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

March 31, 2023

June 30, 2023

Total Level 1 Level 2 Level 3

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

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

Certain leases include an option to renew, with renewal terms that can extend the lease term for additional periods.

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For renewal options that are reasonably certain at the lease Commencement Date of being exercised, the Company includes the renewal option period in the lease term.

Tech Center Lease

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

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

The Company intends to use Phase I of the Tech Center Lease for operations currently occupying 77,458 square feet of leased space, located on Roselle Street in San Diego, California, that is scheduled to expire in May 2023.

The 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.

Headquarters Lease

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

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

The Headquarters 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 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 (Phase II Rent Commencement Date).

The Tech Center Lease term expires in April 2035.

The Headquarters Lease term expires in April 2035.

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

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

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

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

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

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

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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.

In the second quarter of 2023, the Company began using Phase I of the Headquarters Lease for operations that previously occupied 77,458 square feet of leased space located on Roselle Street (Roselle leases) in San Diego, California.

The Roselle leases expired in May 2023.

Also in the second quarter of 2023, the Company relocated operations that occupied 73,929 square feet of leased space on Vista Sorrento Parkway in San Diego, California (Vista Sorrento Lease) to the new Headquarters Lease location.

Operating Lease Impairment Charge

During the second quarter of 2023, the Company consolidated facilities by moving the administrative functions and other operations from the Vista Sorrento Lease facility to the new Headquarters Lease location.

In connection with permanently ceasing use of the Vista Sorrento facility, the Company recorded a $ 14.1 million impairment charge as the carrying amount of the assets related to the Vista Sorrento Lease exceeded its fair value based on the Company’s estimate of future discounted cash flows related to the leased facility.

Estimates used to determine the present value of future cash flows over the remaining lease term included projected sublease income and a discount rate.

The $ 14.1 million charge was comprised of an $ 11.2 million impairment of operating lease right-of-use assets and a $ 2.9 million write-off of fixed assets consisting primarily of leasehold improvements, and was recorded as a component of selling, general and administrative expenses in the condensed consolidated statements of operations.

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,

2023 2022 2023 2022

Operating lease cost $ 4,299 $ 5,061 $ 8,774 $ 8,189

Short-term lease cost 124 37 220 71

Right-of-use asset impairment charge 11,224 — 11,224 —

Total lease cost $ 15,647 $ 5,098 $ 20,218 $ 8,260

Maturities of operating lease liabilities at March 31, 2023 were as follows (in thousands):

Maturities of operating lease liabilities at June 30, 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:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Weighted-average remaining lease term (in years) 10.6 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 $ 1.8 million and $ 3.4 million for the three months ended March 31, 2023 and 2022, respectively.

Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows from operating leases, was $ 4.4 million and $ 5.9 million for the six months ended June 30, 2023 and 2022, respectively.

Lease For Which Accounting Has Not Yet Commenced

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.

As of June 30, 2023, the Phase II Commencement Date for the Headquarters Lease had not yet occurred.

Accordingly, the condensed consolidated balance sheet at June 30, 2023 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, 2023 and 2022 do not include any lease costs, related to Phase II of the Headquarters 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 Headquarters 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 Phase II Commencement Date.

Future minimum payments for monthly base rent due under Phase II of the Headquarters Lease, are currently estimated to be $ 34.7 million in total from 2025 through 2035, subject to the actual Phase II Commencement Date.

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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Interest is payable in cash semi-annually in arrears beginning on November 1, 2020 at a rate of 1.50 % per year.

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

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

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

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

The Company has the option to redeem for cash all or any portion of the Notes on or after May 6, 2023 if the last reported sale price of the Company’s common stock has been at least 130 % of the Conversion Price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period, at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest.

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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, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Principal amount $ 287,500 $ 287,500

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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, 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,

As of June 30, 2023 and December 31, 2022, the if-converted value of the Notes did not exceed the principal amount.

As of June 30, 2023, the unamortized debt issuance costs of $ 3.4 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 1.8 years.

The following table details interest expense related to the Notes recognized for the three and six months ended June 30, 2023 and 2022 (in thousands):

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

2023 2022 2023 2022

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

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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.

The Springing Maturity Date is any date during the 91 days before 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 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 Company was in compliance with the minimum consolidated interest coverage ratio covenant as of June 30, 2023.

On August 2, 2023, the Revolving Line of Credit Agreement was amended to lower the maximum principal borrowing amount to $ 50.0 million for the remainder of the term and provide that the maximum consolidated net leverage ratio will not be tested, and the borrowing base will be limited to a percentage of eligible accounts receivable for the second and third quarters of 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 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 —

Outstanding letters of credit 4.9

Total available balance $ 95.1

As of June 30, 2023, the Company had no outstanding borrowings under the Line of Credit, and a $ 4.9 million outstanding standby letter 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, 2023 (in thousands):

The following shares of the Company's common stock were reserved for future issuance at June 30, 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 March 31, 2023 were as follows:

Warrants outstanding to purchase shares of the Company's common stock as of June 30, 2023 were as follows:

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

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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.

In May 2023, the Company’s stockholders approved the 2023 Long-Term Incentive Plan (2023 Plan), under which 2,602,184 shares of common stock were initially reserved for issuance.

Under the 2023 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 2023 Plan replaced the Company’s Amended and Restated 2013 Stock Incentive Plan (2013 Plan), and no further equity awards will be granted under the 2013 Plan.

The Company’s Employee Stock Purchase Plan (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.

The purchase price of common stock under the ESPP is the lesser of:

(a) 85 % of the fair market value of a share of the Company’s common stock on the first date of an offering or (b) 85 % of the fair market value of a share of the Company’s common stock on the date of purchase.

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

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 .

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 .

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

Three Months Ended March 31,

In addition, the Company granted 110,074 performance-based RSUs during the three and six months ended June 30, 2023, and 53,662 performance-based RSUs during the three and six months ended June 30, 2022.

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 respective December 31, 2024 and 2025 measurement dates.

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,

2023 2022 2023 2022

RSUs granted 1,635,679 820,173 1,789,825 1,007,249

Weighted average grant date fair value (per share) $ 27.61 $ 66.88 $ 28.92 $ 74.88

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 .

There were no common stock options granted during the three and six months ended June 30, 2023.

The total number of common stock options granted during the three and six months ended June 30, 2022, along with the assumptions used in the Black-Scholes option-pricing model were as follows:

Stock Options

Three and Six Months Ended

June 30, 2022

Stock options granted 83,008

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

Risk-free interest rate 2.7 %

Dividend yield 0.00 %

Expected volatility 72.0 %

Expected term (in years) 5.8

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 June 30,

2023 2022 2023 2022

Weighted average grant date fair value (per share) $ 12.52 $ 26.57 $ 12.52 $ 26.57

Risk-free interest rate 4.7 % 2.2 % 4.7 % 2.2 %

Dividend yield 0.0 % 0.0 % 0.0 % 0.0 %

Expected volatility 60.9 % 47.1 % 60.9 % 47.1 %

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 March 31,

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

2023 2022 2023 2022

Cost of sales $ 1,749 $ 1,900 $ 3,343 $ 3,747

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Total stock-based compensation expense $ 23,401 $ 20,130 $ 44,594 $ 38,241

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.

The total stock-based compensation expense capitalized as part of the cost of the Company’s inventories was $ 1.4 million at June 30, 2023, and $ 1.1 million at December 31, 2022.

Employee Benefits

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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.

For the three and six months ended June 30, 2023, the Company recognized income tax expense of $ 1.1 million and $ 1.4 million, respectively, on a pre-tax loss of $ 34.6 million and $ 158.2 million, respectively.

The Company calculated the provision for income taxes for the three and six months ended June 30, 2023 using a discrete effective tax rate method as the annual effective tax rate method would not provide a reliable estimate.

Income tax expense for the three and six months ended June 30, 2023 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 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.

The Company continues to maintain a full valuation allowance against its net deferred tax assets as of June 30, 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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Revenues by Geographic Region and Customer Sales Channel

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.

During the three and six months ended June 30, 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 March 31,

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

2023 2022 2023 2022

United States $ 142,501 $ 145,667 $ 273,743 $ 276,950

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Total Sales $ 195,917 $ 200,262 $ 365,300 $ 376,169

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.

Sales to distributors accounted for 64 % and 65 % of the Company’s United States sales for the three months ended June 30, 2023 and 2022, respectively, and 65 % of the Company’s United States sales for each of the six-month periods ended June 30, 2023 and 2022.

Sales to distributors accounted for 94 % and 96 % of the Company’s sales outside the United States for the three and six-month periods ended June 30, 2023 and 2022, respectively.

AMF Medical Acquisition

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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.

On January 19, 2023, the Company completed the acquisition of AMF Medical under 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.

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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.

As of June 30, 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 June 30, 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 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 $ 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.

The Company’s results of operations for the three and six months ended June 30, 2023 included the operating results of AMF Medical since the date of acquisition.

Capillary Biomedical Acquisition

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(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 sheets at March 31, 2023 and December 31, 2022.

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

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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.

The Company’s results of operations for the three and six months ended June 30, 2023 included the operating results of Capillary Biomedical.

Commitments and Contingencies

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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.

Although the results of such legal proceedings and claims cannot be predicted with certainty, as of June 30, 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.

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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