What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-02-21 compared with 2023-02-22 · 290 added, 291 removed, 768 unchanged (43% of the section changed)

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

Credit rating agencies have, from time to time, issued downgrades or revised outlooks to negative for certain issuers of the debt securities held in our short-term investments portfolio.

Unrealized losses on available-for-sale debt securities at December 31, 2022 were primarily due to the recent increase in market interest rates.

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

Credit rating agencies have, from time to time, issued downgrades or revised outlooks to negative for certain issuers of the debt securities held in our short-term investment portfolio.

We review our portfolio of available-for-sale debt securities quarterly to determine if any investment is impaired due to changes in credit risk or other potential valuation concerns.

Unrealized losses on available-for-sale debt securities at December 31, 2023 were primarily due to an increase in market interest rates after certain debt securities were purchased.

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

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

We have established guidelines regarding approved investments and maturities of investments, which are primarily designed to maintain liquidity and preserve principal.

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

If a 10% change in interest rates were to have occurred on December 31, 2022, it would not have had a material effect on the fair value of our investment portfolio as of that date.

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

A hypothetical 100 basis-point (one percentage point) increase or decrease in interest rates compared to actual rates at December 31, 2023, would have affected the estimated fair value of our investments portfolio by approximately $3.6 million.

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

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

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

Foreign Currency Exchange Rate Risk

Our operations are primarily located in the United States.

In addition, we have a sales and marketing office in Canada and, beginning in 2022, a distribution center in the Netherlands.

In addition, we have a sales and marketing office in Canada, a distribution center in the Netherlands and, beginning in 2023, a research and development facility in Switzerland associated with the acquisition of AMF Medical.

Our sales to customers in the United States are made in U.S.

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

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

dollar and the local currency could adversely affect our financial results.

Sales from our distribution center in the Netherlands are made to independent distributors under agreements denominated in Euros, and our sales in Canada are denominated in Canadian dollars.

Approximately 20% of our revenue was denominated in foreign currencies for the year ended December 31, 2023.

In addition, we purchase certain inventory from a third-party contract manufacturer located in Mexico.

We believe our exposure to foreign currency rate fluctuations is primarily related to our operations in Europe and Canada, and acquisition related contingent earnout payments (see Note 12, “Acquisitions”), where fluctuations in the rate of exchange between the U.S.

dollar and the local currency could adversely affect our financial results, including income and losses as well as assets and liabilities.

As we expand and further develop our operations in markets outside the United States, particularly in Europe, we will be exposed to additional foreign currency exchange rate risk.

In addition, from time to time, we may have foreign currency exchange risk related to existing assets and liabilities, committed transactions and forecasted future cash flows.

In addition, from time to time, we have foreign currency exchange risk related to existing assets and liabilities, certain inventory purchase agreements, other committed transactions and forecasted future cash flows.

In certain circumstances, we may seek to manage such foreign currency exchange risk by using derivative instruments such as foreign currency exchange forward contracts to hedge our risk.

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

Warranty reserve – Estimation of Product Replacement Reserve

Warranty reserve – Estimation of Expected Replacement Rates

Description of the Matter As discussed in Note 2 to the consolidated financial statements, the Company has a warranty reserve of $37.2 million.

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

Warranty costs are estimated at the time of shipment.

Management applies significant judgment to determine the expected warranty replacement rates.

Auditing management’s estimate of warranty reserve on pumps was complex and judgmental due to the significant estimation required by management in estimating the value of the warranty reserve.

In particular, the warranty reserve estimate is sensitive due to the significant assumption of replacement rates, especially as it relates to recently released pump versions for which replacement rates specific to that version are not yet known.

As such, replacement rates of recently released pumps are based primarily upon historical rates of prior versions which ultimately may not be predictive of the experience of new pumps, due to new features and capabilities of the more recent releases.

This assumption is affected by actual customer experience and changes in this assumption could have a material impact on the Company’s estimated reserve.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to this determination and management’s significant assumption for the warranty reserve.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the warranty reserve estimation process.

For example, we tested controls over management's review and calculation of the significant assumption underlying the warranty reserve, and tested controls over the accuracy and completeness of data used.

To test the Company’s warranty reserve, we performed audit procedures that included, among others, testing the completeness and accuracy of the underlying data used in the estimation calculation and evaluated the appropriateness of management’s methodology to calculate the warranty reserve.

We also evaluated the reasonableness of management’s significant assumption related to replacement rates, including review for contrary evidence.

Evaluating management’s significant assumption involved evaluating the historical claims data utilized by management in estimating the replacement rates.

We involved our valuation professionals to assist in the assessment of the estimation methodology and the significant assumption used in determining the warranty reserve.

We tested the mathematical accuracy of the warranty reserve calculation and obtained documentation and performed inquiries of Company management to evaluate the completeness of the Company’s estimate.

We performed sensitivity analyses of the significant assumption to evaluate the impact of changes in the warranty reserve that would result from changes in the assumption.

The Company accrues for costs related to the warranty reserve liability at the time of shipment.

Warranty costs are estimated primarily based on the expected replacement rates utilizing historical experience.

Auditing management’s expected replacement rates on pumps was complex as it required a significant level of effort due to the amount of data utilized in determining the expected replacement rates.

Management’s estimate considers historical claims experience and the assumption of historical data predictive of future activity and events, in particular, the number of historical periods used and the weighing of historical data.

It is possible that the future replacement rates may not be reflective of historical product replacement rates and changes in this assumption could have a material impact on the Company’s estimated reserve.

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

Specifically, we tested controls over management's review and calculation of the expected replacement rates, including controls over the accuracy and completeness of data used.

To test the Company’s expected replacement rates we performed audit procedures that included, among others, testing the completeness and accuracy of the underlying data used in the calculation.

We involved our data science professionals to evaluate the methodologies and assumptions and test the calculations used by the Company.

We recalculated the warranty expected replacement rates using historical data.

We performed sensitivity analyses of the expected replacement rates assumption to evaluate the impact of changes in the warranty reserve.

/s/ Ernst & Young LLP

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Common stock, $ 0.001 par value;

200,000 shares authorized, 64,513 and 63,833 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively.

200,000 shares authorized, 65,552 and 64,513 shares issued and outstanding at December 31, 2023 and 2022, respectively.

Additional paid-in capital 1,263,997 1,170,888

Accumulated other comprehensive loss ( 1,817 ) ( 616 )

Accumulated other comprehensive income (loss)

1,369 ( 1,817 )

Accumulated deficit ( 951,800 ) ( 729,189 )

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Operating income (loss)

( 233,230 ) ( 92,848 ) 22,653

Other income (expense), net:

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Change in fair value of common stock warrants — 147 ( 1,386 )

Total other expense, net ( 4 ) ( 6,752 ) ( 28,325 )

Total other income (expense), net 12,976 ( 4 ) ( 6,752 )

Income (loss) before income taxes

Income tax expense (benefit) 1,742 335 ( 1,900 )

( 220,254 ) ( 92,852 ) 15,901

Income tax expense 2,357 1,742 335

Net income (loss)

$ ( 222,611 ) $ ( 94,594 ) $ 15,566

Other comprehensive income (loss):

Unrealized loss on short-term investments $ ( 2,233 ) $ ( 693 ) $ ( 20 )

Unrealized gain (loss) on short-term investments $ 3,606 $ ( 2,233 ) $ ( 693 )

Foreign currency translation gains (losses)

( 420 ) 1,032 ( 143 )

Comprehensive income (loss)

$ ( 219,425 ) $ ( 95,795 ) $ 14,730

Net income (loss) per share - basic

$ ( 3.43 ) $ ( 1.47 ) $ 0.25

Net income (loss) per share - diluted

$ ( 3.43 ) $ ( 1.47 ) $ 0.24

Weighted average shares used to compute basic net income (loss) per share

64,969 64,146 63,000

Weighted average shares used to compute diluted net income (loss) per share

64,969 64,146 64,349

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

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

Exercise of stock options 2,341 2 57,748 — — 57,750

Issuance of common stock under Employee Stock Purchase Plan 303 1 9,115 — — 9,116

Exercise of common stock warrants 295 — 2,950 — — 2,950

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

Equity component of convertible senior notes issuance, net of issuance costs — — 85,803 — — 85,803

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

Stock-based compensation expense — — 57,725 — — 57,725

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

Foreign currency translation gains — — — 118 — 118

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

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

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

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

Exercise of stock options 73 — 1,295 — — 1,295

Vesting of restricted stock units, net of shares withheld for taxes 467 — ( 7,790 ) — — ( 7,790 )

Issuance of common stock under Employee Stock Purchase Plan 499 1 10,678 — — 10,679

Stock-based compensation expense — — 88,926 — — 88,926

Unrealized gain on short-term investments

— — — 3,606 — 3,606

Foreign currency translation losses

— — — ( 420 ) — ( 420 )

Net loss — — — — ( 222,611 ) ( 222,611 )

Balance at December 31, 2023 65,552 $ 66 $ 1,263,997 $ 1,369 $ ( 951,800 ) $ 313,632

(1) The Company adopted ASU No.

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Net income (loss)

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

$ ( 222,611 ) $ ( 94,594 ) $ 15,566

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

Depreciation and amortization expense 15,715 14,330 13,845

Amortization of debt discount and issuance costs 1,896 1,727 10,096

Amortization of debt issuance costs 2,204 1,896 1,727

Provision for expected credit losses 5,540 4,782 2,333

Lease termination and impairment charges 7,567 — —

Change in fair value of common stock warrants ( 147 ) 1,386 17,087

Amortization of premium (discount) on short-term investments 4,187 365 ( 1,296 )

Benefit for deferred income taxes — — ( 2,126 )

Operating lease termination and impairment charges

14,099 7,567 —

Amortization of premium on short-term investments 3,587 4,187 365

Stock-based compensation expense 88,076 84,918 60,752

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Accounts payable

( 4,864 ) 24,493 10,275

Accrued expenses

2,537 ( 461 ) 4,640

Employee-related liabilities 5,167 ( 12,869 ) 17,399

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Other long-term liabilities 7,750 1,932 1,421

Net cash provided by operating activities 50,464 111,359 24,669

Net cash provided by (used in) operating activities ( 31,810 ) 50,464 111,359

Investing Activities

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Purchases of property and equipment ( 26,804 ) ( 34,097 ) ( 14,180 )

Acquisition, including in-process research and development, net of cash acquired ( 25,720 ) — —

Acquisitions, including in-process research and development, net of cash acquired

( 69,496 ) ( 25,720 ) —

Purchases of intangible assets and strategic investments ( 24,799 ) ( 8,855 ) ( 9,331 )

Net cash provided by (used in) investing activities 33,168 ( 186,876 ) ( 296,056 )

Net cash used in investing activities

( 85,740 ) 33,168 ( 186,876 )

Financing Activities

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

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

Proceeds from issuance of common stock under Company stock plans, net 4,184 17,469 51,340

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Operating lease right-of-use assets obtained in exchange for operating lease obligations $ — $ 114,003 $ 15,191

Purchase of property and equipment included in accounts payable $ 4,237 $ 1,034 $ 1,082

Intangible costs in accounts payable and other long-term liabilities $ 515 $ 1,029 $ 2,244

Purchases of property and equipment included in accounts payable

$ 2,946 $ 4,237 $ 1,034

Intangible costs in accounts payable

$ — $ 515 $ 1,029

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

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is incorporated in the state of Delaware.

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

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 manufacturing, sales and support activities have been principally focused on the t:slim X2 Insulin Delivery System (t:slim X2), which has been the Company’s flagship pump platform and 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.

In February 2024, the Company expanded its pump portfolio with the U.S.

launch of Tandem Mobi.

The Company’s insulin pump products are compatible with other complementary digital health offerings, such as the mobile application, 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 .

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.

In addition to insulin pumps, the Company sells single-use 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.

Basis of Presentation and Principles of Consolidation

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

and its wholly-owned subsidiaries in the United States, Canada, and the Netherlands.

and its wholly-owned subsidiaries in the United States, Canada, Netherlands, and Switzerland.

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

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Reclassifications

Deferred revenue long-term, which was reported as a component of other long-term liabilities in 2021, is now separately reported on the consolidated balance sheet.

The Company also reclassified the 2021 liability of $ 0.1 million related to common stock warrants (see Note 5, “Fair Value Measurements”), which was previously reported separately, to other current liabilities on the Company’s consolidated balance sheet.

In addition, certain prior year balances on the consolidated statements of cash flows have been reclassified to conform to the current year presentation.

Certain prior year balances on the 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 year ended December 31, 2022, except for adding the accounting policies related to an asset acquisition and the 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 year ended December 31, 2023, except for adding the accounting policy for sales rebates, which is included herein.

Use of Estimates

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

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and employee-related liabilities are reasonable estimates of their fair values because of the short-term nature of these assets and liabilities.

Short-term investments are carried at fair value.

The Company’s convertible senior notes are carried at amortized cost on the 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 $ 271.7 million and $ 260.5 million at December 31, 2023 and 2022, respectively, based on Level 2 quoted market prices as of those dates.

Cash Equivalents

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

Provisions for expected credit losses are estimated based on historical experience, assessment of specific risk, review of outstanding invoices, forecasts about the future, and various assumptions and estimates that are believed to be reasonable under the circumstances, 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.

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Distributor D * * * 10.6 % 10.4 %

Distributor E

10.8 % 14.4 % 14.0 % 11.5 % 16.2 %

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

Fair Value of Financial Instruments

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 December 31, 2021 (see Note 5, “Fair Value Measurements”).

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

The Company 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 $ 260.5 million and $ 430.0 million at December 31, 2022 and December 31, 2021, respectively, based on Level 2 quoted market prices as of those dates .

Valuation of Inventories

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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.

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Intangible Assets Subject to Amortization

Finite-lived intangible assets (see Note 4, “Composition of Certain Financial Statement Items”) are recorded at cost, net of accumulated amortization and, if applicable, impairment charges.

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 did not recognize any intangible asset impairment losses during the years ended December 31, 2023, 2022 and 2021.

Impairment of Long-Lived Assets

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If actual performance does not achieve the projections, or if the assumptions used change in the future, the Company may be required to recognize additional impairment charges in future periods.

Other than the impairment of operating lease right-of-use assets recognized in the fourth quarter of 2022 (see Note 6, “Leases”), there were no impairments of long-lived assets, including acquired intangible assets, during the years ended December 31, 2022 and 2021.

Other than the impairment of operating lease right-of-use assets and related leasehold improvements and furniture and fixtures recognized in 2023 and 2022 (see Note 6, “Leases”), there were no impairments of long-lived assets, including acquired intangible assets, during the years ended December 31, 2023, 2022 and 2021.

Strategic Investments

During the third quarter of 2022, the Company made an investment of Swiss Francs (“CHF”) 8.0 million, or $ 8.3 million, in AMF Medical SA (“AMF Medical”), a privately held company.

The investment is included as a component of other long-term assets on the consolidated balance sheet at December 31, 2022.

On January 19, 2023, the Company completed the acquisition of AMF Medical, pursuant to the terms of the Purchase Agreement entered into on December 13, 2022 (see Note 15, “Subsequent Event”).

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 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 held equity investments totaling $ 10.1 million and $ 16.4 million in two separate private companies at December 31, 2023 and 2022, respectively, 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 Company monitors these investments 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 investments were included as a component of other long-term assets on the consolidated balance sheets at December 31, 2023 and 2022.

In November 2023, the Company made an additional investment of approximately $ 22.3 million in subordinated convertible notes of one of its private investee companies.

The subordinated notes are convertible into equity of the private company upon certain qualifying events, including at their final maturity in 2024.

The subordinated convertible notes are non-interest bearing, and are only repayable before conversion into equity upon a change in control of the private company.

At December 31, 2023, the $ 22.3 million subordinated convertible notes investment was included as a component of other long-term assets on the consolidated balance sheet.

Revenue Recognition

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

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

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

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.

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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.

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 newest hardware platform when it is commercially available.

Participating customers have the right to purchase the alternative 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.

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 December 31, 2022, $ 6.8 million was allocated to the material right and recorded in current deferred revenue on the consolidated balance sheet.

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, Tandem Mobi, 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.

The program was determined to create a material right for which a portion of each t:slim X2 pump transaction price was allocated and deferred.

During the third and fourth quarters of 2023, the Company reduced the fee for the Tandem Choice program.

The change in the program resulted in an increase to the amount of the transaction price allocated to the material right as the Company expects more customers to exercise the right as compared to the prior existing program price.

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 contemplated the likelihood that the respective option will be exercised.

At December 31, 2023 and 2022, $ 30.6 million and $ 6.8 million, respectively, were allocated to the material right provided to customers and recorded in current deferred revenue on the consolidated balance sheets.

Sales Rebates

The Company is subject to certain rebates on pricing programs with managed care organizations, such as governmental and third-party commercial payors.

The Company estimates provisions for rebates based on contractual arrangements, estimates of products sold subject to rebate, known events or trends and channel inventory data.

At December 31, 2023, estimated sales rebates of $ 8.5 million were recorded on the consolidated balance sheet, of which $ 8.0 million was included in other long-term liabilities as the estimated payment due date was beyond twelve months from the balance sheet date.

Accordingly, actual rebates paid may differ from estimated amounts recorded in the accompanying consolidated financial statements.

The Company did not provide sales rebates before the fourth quarter of 2023.

Sales Returns

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

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

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

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

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

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.

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

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

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

2 unchanged sentences

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

The following table provides a reconciliation of the changes in product warranty liabilities for the years ended months ended December 31, 2022 and 2021 (in thousands):

The following table provides a reconciliation of the changes in product warranty liabilities for the years ended December 31, 2023, 2022 and 2021 (in thousands):

Year Ended December 31,

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Decreases in warranty estimates

( 2,437 ) ( 1,116 ) ( 510 )

Balance at end of the period $ 37,173 $ 36,537 $ 30,401

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

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

December 31, 2023 December 31, 2022

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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 generally 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.

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

Dilutive common share equivalents are comprised of stock options and unvested RSUs outstanding under the Company’s stock plans, potential awards to be granted pursuant to the ESPP, and common stock warrants, each calculated using the treasury stock method;

Dilutive common share equivalents are comprised of stock options and unvested RSUs outstanding under the Company’s stock incentive plans, potential awards to be granted pursuant to the ESPP, and common stock warrants, each calculated using the treasury stock method;

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

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Weighted average shares outstanding - diluted 64,969 64,146 64,349

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

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):

Year Ended December 31,

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

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

At December 31, 2023 Amortized

3 unchanged sentences

Available-for-sale securities:

Government-sponsored enterprises $ 181,851 $ 518 $ ( 215 ) $ 182,154

Treasury securities 114,714 318 ( 28 ) 115,004

Commercial paper 72,505 33 ( 27 ) 72,511

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

Corporate debt securities 39,225 156 ( 6 ) 39,375

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

Total $ 408,295 $ 1,025 $ ( 276 ) $ 409,044

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Available-for-sale securities:

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

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

Commercial paper 112,812 6 ( 208 ) 112,610

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

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

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Years to Maturity

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

At December 31, 2023 Within One Year One to Two Years Two to Three Years

Estimated Fair Value

Government-sponsored enterprises $ 86,875 $ 56,647 $ 38,632 $ 182,154

Treasury securities 74,214 40,790 — 115,004

Commercial paper 72,511 — — 72,511

Government-sponsored enterprises 73,292 26,716 100,008

Corporate debt securities 12,620 26,755 — 39,375

Supranational bonds 2,491 — 2,491

Total $ 246,220 $ 124,192 $ 38,632 $ 409,044

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

Unrealized losses on available-for-sale debt securities at December 31, 2022 were primarily due to the recent increase in market interest rates.

Unrealized losses on available-for-sale debt securities at December 31, 2023 were primarily due to an increase in market interest rates after certain debt securities were purchased.

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 December 31, 2022.

Accordingly, the Company did not record an allowance for credit losses related to its available-for-sale debt securities at December 31, 2023 and 2022.

Composition of Certain Financial Statement Items

Accounts Receivable

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

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

December 31, December 31,

Accounts receivable $ 110,453 $ 119,044

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Balance at end of the period $ 4,898 $ 4,327 $ 4,249

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

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

Raw materials $ 42,783 $ 39,207

3 unchanged sentences

Property and Equipment

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

Property and equipment, net consisted of the following at December 31, 2023 and 2022 (in thousands):

Leasehold improvements $ 37,565 $ 35,828

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

The estimated aggregate amortization expense for each of the three succeeding years is $ 1.9 million for 2023, $ 1.9 million for 2024, and the remaining $ 0.9 million in 2025, all of which will be recorded in selling, general and administrative expense in the consolidated statement of operations .

The estimated aggregate future amortization expense is $ 1.9 million for 2024, and the remaining $ 0.9 million in 2025, all of which will be recorded in selling, general and administrative expense in the consolidated statement of operations .

Fair Value Measurements

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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 December 31, 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 December 31, 2023 and 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

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$ 48,033 $ 48,033 $ — $ —

Government-sponsored enterprises 182,154 — 182,154 —

Treasury securities 115,004 115,004 — —

Commercial paper 72,511 — 72,511 —

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

Corporate debt securities 39,375 — 39,375 —

Supranational bonds 2,491 — 2,491 —

Total assets $ 457,077 $ 163,037 $ 294,040 $ —

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$ 150,742 $ 150,742 $ — $ —

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

Treasury securities 211,161 211,161 — —

Commercial paper 112,610 — 112,610 —

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

Corporate debt securities 18,114 — 18,114 —

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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 consolidated balance sheet.

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 December 31, 2021 included outstanding Series A warrants to purchase 1,000 shares of the Company’s common stock, issued by the Company in connection with the public offering of common stock in October 2017 and which expired in October 2022.

The fair value of the outstanding Series A common stock warrants was remeasured at each financial reporting date using a Black-Scholes pricing model with any changes in fair value being recognized as a component of other income (expense) in the consolidated statements of operations and comprehensive income (loss) .

The assumptions used to estimate the fair values of the outstanding Series A warrants at December 31, 2021 were as follows:

December 31, 2021

Risk-free interest rate 0.3 %

Dividend yield 0.0 %

Expected volatility 39.1 %

Expected term (in years) 0.8

The following table presents a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the years ended December 31, 2022, 2021 and 2020 (in thousands):

Year Ended December 31,

2022 2021 2020

Balance at beginning of period $ 147 $ 14,261 $ 23,509

(Gain) loss recognized from the change in fair value of common stock warrants ( 147 ) 1,386 17,087

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

Balance at end of period $ — $ 147 $ 14,261

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

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

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

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

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 and lease liabilities on the Company’s consolidated balance sheets.

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

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

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

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

Tech Center Lease

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

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

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

The 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 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 term expires in April 2035.

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).

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 16,154 rentable square feet of general office space at December 31, 2023, 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 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.

2 unchanged sentences

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

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 consolidated balance sheet on the Commencement Date in the second quarter of 2022.

Barnes Canyon Lease

In November 2022, the Company exercised its one-time option to extend the term of the lease covering 48,880 square feet of general office, manufacturing and warehouse space located on Barnes Canyon Road in San Diego, California (Barnes Canyon Lease) for an additional five years from November 2023 to November 2028.

The Company recognized operating lease right-of-use assets and corresponding operating lease liabilities of $ 3.0 million on the consolidated balance sheet in the fourth quarter of 2022 related to the Barnes Canyon Lease term extension.

Lease Termination and Impairment Charges

During the fourth quarter of 2022, the Company recorded $ 12.4 million of lease termination and impairment charges primarily related to our customer and technical support office space in Boise, Idaho.

The $ 12.4 million charge consisted of a $ 6.7 million loss on disposal of fixed assets, including leasehold improvements, furniture and fixtures, $ 3.8 million net loss on lease termination, and $ 1.9 million impairment of operating lease right-of-use assets, and is recorded as a component of selling, general and administrative expenses in the consolidated statement of operations.

Supplemental Lease Disclosure Information

In December 2023, the Company entered into an agreement to sublease the Phase II portion of the Premises under its Headquarters Lease from January 2025 through March 2029.

Future minimum payments for base rent due under Phase II of the Headquarters Lease, net of sublease rent, are estimated to be $ 2.2 million in total for 2025 through 2028, and $ 23.2 million in total for 2029 through 2035.

Operating Lease Termination and Impairment Charges

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.

During the second quarter of 2023, 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 consolidated statement of operations.

During the fourth quarter of 2022, the Company recorded $ 12.4 million of lease termination and impairment charges primarily related to its customer and technical support office space in Boise, Idaho.

The $ 12.4 million charge consisted of a $ 6.7 million loss on disposal of fixed assets, including leasehold improvements, furniture and fixtures, $ 3.8 million net loss on lease termination, and $ 1.9 million impairment of operating lease right-of-use assets, and was recorded as a component of selling, general and administrative expenses in the consolidated statement of operations.

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

2 unchanged sentences

Operating lease cost $ 15,971 $ 18,432 $ 8,627

Loss on lease termination and right-of-use asset impairment charge 5,699 — —

Short-term lease cost 108 142 90

Loss on lease termination and right-of-use asset impairment charges

11,224 5,699 —

Total lease cost $ 27,303 $ 24,273 $ 8,717

Lease Liabilities

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

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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 $ 16.7 million, which included a $ 4.8 million lease termination payment, $ 9.5 million, and $ 8.2 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Lease For Which Accounting Has Not Yet Commenced

As of December 31, 2022, the Commencement Date for Phase II of the Tech Center Lease had not yet occurred.

Accordingly, the consolidated balance sheet at December 31, 2022 does not include operating lease right-of-use assets and operating lease liabilities, and the consolidated statement of operations for the year ended December 31, 2022 does 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.

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.

Lease Payments

Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows, were as follows (in thousands):

Year Ended December 31,

2023 2022 2021

Operating lease payments

$ 13,864 $ 11,960 $ 9,462

Operating lease termination payments

Total cash payments

$ 13,864 $ 16,729 $ 9,462

Leases For Which Accounting Has Not Yet Commenced

As of December 31, 2023, the Phase II Commencement Date for the Headquarters Lease had not yet occurred.

Accordingly, the consolidated balance sheet at December 31, 2023 does not include operating lease right-of-use assets and operating lease liabilities, and the consolidated statements of operations for the years ended December 31, 2023, 2022 and 2021 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.

Because the incremental borrowing rate will not be available until the Phase II Commencement Date, which is currently estimated to occur in the first quarter of 2025, we are not yet able to determine the Phase II operating lease right-of-use assets and liabilities.

Convertible Senior Notes

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

In May 2020, the Company completed an offering of $ 287.5 million aggregate principal amount of unsecured Convertible Senior Notes with a stated interest rate of 1.50 % and a maturity date of May 1, 2025 (Notes).

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

The Notes are the Company’s senior unsecured obligations.

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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• during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each day of that five consecutive trading day period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate of the Notes on such trading day;

• if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date;

• if the Company calls any or all of the Notes for redemption, at any time before the close of business on the scheduled trading day immediately preceding the redemption date;

• on the occurrence of specified corporate events.

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The Company adopted the new standard 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.

As of January 1, 2021, the Notes are accounted for as a single liability measured at amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

Beginning January 1, 2021, the Notes have been accounted for as a single liability measured at amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

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

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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 December 31, 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.

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

As of December 31, 2023, the unamortized debt issuance costs of $ 2.5 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 1.3 years.

In October 2023, the Company was notified that additional interest beyond the 1.50 % per annum had been accruing on the Notes since May 2021, pursuant to the terms of the indenture.

This additional interest continued to accrue at a rate of 0.50 % per annum on the outstanding principal amount of the Notes until November 2, 2023.

The overdue unpaid interest itself accrued interest at a rate of 2.50 % per annum.

The Company paid all overdue amounts related to this matter in November 2023.

The following table details interest expense related to the Notes recognized for the years ended December 31, 2023, 2022 and 2021 (in thousands):

2 unchanged sentences

Contractual interest expense (1)

$ 7,565 $ 4,313 $ 4,313

Amortization of debt issuance costs 1,803 1,896 1,727

Amortization of debt discount (1) N/A N/A 9,446

Total interest expense $ 9,368 $ 6,209 $ 6,040

(1) The debt discount was reversed upon the adoption of ASU No.

(1) Contractual interest expense for the year ended December 31, 2023 includes $ 3.3 million of additional interest as discussed above.

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.

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

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

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

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

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

The Company was in compliance with these financial maintenance covenants as of December 31, 2022.

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

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

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

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

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

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

As of December 31, 2022, 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

In the second quarter of 2022, the Company entered into a three-year Revolving Line of Credit Agreement that provided 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.

On August 2, 2023, the Revolving Line of Credit Agreement was amended to reduce the maximum principal borrowing amount to $ 50.0 million for the remainder of the term, limited to a percentage of eligible accounts receivable during the third quarter of 2023.

The Company terminated the Revolving Line of Credit Agreement in January 2024, with no borrowings made thereunder.

Promissory Note Payable

In connection with the acquisition of Capillary Biomedical, Inc.

(see Note 12, “Acquisitions”), the Company assumed a $ 4.7 million promissory note payable.

The promissory note accrues interest at the rate of 5.0 % per year, and becomes due and payable upon the first sale or license of the commercialized product.

At December 31, 2023 and 2022, the loan balance of $ 4.7 million was included as a component of other long-term liabilities on the consolidated balance sheets.

Stockholders’ Equity

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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 warrant.

The Company issued 5,678 shares and 155,517 shares of its common stock, respectively, upon the exercise of warrants during the years ended December 31, 2022, and 2021, respectively.

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

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

Stock Incentive Plans

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.

Common Stock Options

The maximum term of stock options granted under the 2006 Plan and 2013 Plan is ten years .

Common stock options have an exercise price equal to the closing price of the Company's common stock on the applicable award date.

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.

Stock Options

The maximum term of stock options granted under the Company’s active plans is ten years .

Stock options have an exercise price equal to the closing price of the Company's common stock on the applicable award date.

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 following table summarizes stock option activities for the 2006 Plan and 2013 Plan:

Options Weighted-

The following table summarizes stock option activities under the Company’s stock incentive plans:

Share Weighted-

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

RSUs granted before March 2022 generally vest over a four-year period based only on service as to 25 % of the underlying shares on the first anniversary of the award, with the balance of the RSUs vesting quarterly over the following three years .

RSUs granted in March 2022 and thereafter generally 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 .

RSUs granted before March 2022 generally vest over a four-year period based only on continuous service as to 25 % of the underlying shares on the first anniversary of the award, with the balance of the RSUs vesting quarterly over the following three years .

RSUs granted in March 2022 and thereafter generally vest over a three-year period based on continuous 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 110,074 , 53,662 and 25,674 performance-based RSUs during the years ended December 31, 2023, 2022 and 2021, respectively.

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 following table summarizes RSU activities, which includes performance-based RSUs, for the 2013 Plan:

The Company estimated the fair value of performance-based RSUs at the date of grant using the intrinsic value method and the probability that the specified performance metrics will be met.

These awards vest upon the Company’s actual performance relative to predefined performance metrics and subject to the awardee’s continuous service through the respective December 31, 2024 and 2025 measurement dates as defined in the award agreements.

For certain performance-based RSUs with market-based criteria, the Company used a Monte Carlo methodology to estimate the fair value at the date of grant.

The following table summarizes RSU activities, which includes performance-based RSUs, for the Company’s stock incentive plans:

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

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Unvested awards outstanding at December 31, 2020

132,802 $ 82.82 $ 12,706

Granted 564,034 $ 96.37

Vested ( 53,957 ) $ 82.74

Canceled/forfeited ( 32,148 ) $ 87.21

Unvested awards outstanding at December 31, 2021

610,731 $ 95.08 $ 91,927

Granted 1,542,859 $ 67.09

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Unvested awards outstanding at December 31, 2022

1,833,832 $ 72.57 $ 82,431

Granted 2,359,907 $ 28.13

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Awards expected to vest at December 31, 2023

3,088,745 $ 40.50 $ 91,365

The aggregate fair value of RSUs that vested during the years ended December 31, 2023, 2022 and 2021 was $ 21.2 million, $ 12.7 million, and $ 5.1 million, respectively, which represents the market value of the Company’s common stock on the date the RSUs vested.

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Employee Stock Purchase Plan

In October 2013, the Company adopted the ESPP, which enables eligible employees to purchase shares of the Company’s common stock using their after-tax payroll deductions, subject to certain conditions.

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 ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code.

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

During the years ended December 31, 2022 and 2021, 262,936 shares and 172,694 shares of our common stock, respectively, were purchased under the ESPP for proceeds of $ 12.7 million and $ 11.1 million, respectively.

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.

During the years ended December 31, 2023, 2022 and 2021, 499,431 , 262,936 and 172,694 shares of our common stock, respectively, were purchased under the ESPP for proceeds of $ 10.7 million, $ 12.7 million and $ 11.1 million, respectively.

Stock-Based Compensation

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2023 2022 2021

Weighted average grant date fair value (per share) $ 42.16 $ 56.89 $ 54.20

Risk-free interest rate 2.7 % 1.0 % 0.6 %

Dividend yield 0.0 % 0.0 % 0.0 %

Expected volatility 72.0 % 75.1 % 74.6 %

Expected term (in years) 5.8 6.1 6.1

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

Risk-free interest rate N/A 2.7 % 1.0 %

Dividend yield N/A 0.0 % 0.0 %

Expected volatility N/A 72.0 % 75.1 %

Expected term (in years) N/A 5.8 6.1

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

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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 total amount contributed by the Company to the 401(k) plan was $ 4.2 million for the year ended December 31, 2022.

The total cost recognized by the Company for the 401(k) plan was $ 4.2 million and $ 4.2 million, respectively, for the years ended December 31, 2023 and 2022.

The Company did not provide a matching contribution prior to 2022.

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Income (loss) before provision for income taxes $ ( 220,254 ) $ ( 92,852 ) $ 15,901

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

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

Year Ended December 31,

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Federal — — —

State — — ( 366 )

Foreign — — —

Total deferred income tax benefit — — —

Income tax expense (benefit) $ 1,742 $ 335 $ ( 1,900 )

The expense (benefit) for income taxes reconciles to the amount computed by applying the federal statutory rate to loss before taxes as follows (in thousands):

Income tax expense

$ 2,357 $ 1,742 $ 335

The expense for income taxes reconciles to the amount computed by applying the federal statutory rate to loss before taxes as follows (in thousands):

Year Ended December 31,

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Officers' compensation 1,547 2,931 4,024

Recognition of acquired deferred tax assets

( 5,048 ) — —

Acquired IPR&D expenses 14,938 6,518 —

1 unchanged sentence

Change in valuation allowance 28,796 15,768 6,155

Income tax expense (benefit) $ 1,742 $ 335 $ ( 1,900 )

Income tax expense

$ 2,357 $ 1,742 $ 335

(1) For the years ended December 31, 2023, 2022 and 2021, the federal statutory tax rate was 21%.

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Net deferred tax assets $ — $ —

As of December 31, 2022, the Company had accumulated federal and state NOL carryforwards of approximately $ 193.1 million, and $ 255.9 million, respectively, Of the total federal net operating loss carryforwards, approximately $ 95.6 million were generated after January 1, 2018, and therefore do not expire.

As of December 31, 2023, the Company had accumulated federal and state NOL carryforwards of approximately $ 168.0 million, and $ 262.4 million, respectively.

Of the total federal net operating loss carryforwards, approximately $ 78.4 million were generated after January 1, 2018, and therefore do not expire.

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

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The remaining California NOL carryforwards of $ 177.6 million will begin expiring in 2031.

The Company had no foreign tax loss carryforwards as of December 31, 2022.

The Company had approximately $ 19.9 million of foreign tax loss carryforwards as of December 31, 2023.

The foreign tax loss carryforwards begin to expire in 2024, unless previously utilized.

The Company also has federal and California research credit carryforwards of approximately $ 24.2 million and $ 24.2 million, respectively, as of December 31, 2023.

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The Company has completed analyses through December 31, 2022 to determine whether its net operating losses and credits are likely to be limited by Section 382.

Based on the 2018 study completed in 2019, the Company determined that an ownership change, as defined under Section 382, occurred in 2018 and the resulting limitation significantly reduced the Company’s ability to utilize its net operating loss and credit carryovers before they expire.

Based on this study, the Company determined that an ownership change, as defined under Section 382, occurred in 2018 and the resulting limitation significantly reduced the Company’s ability to utilize its net operating loss and credit carryovers before they expire.

As a result, in 2019 the Company reduced its deferred tax assets for the net operating loss and research credit carryforwards that were projected to expire unused with a corresponding offset to the valuation allowance recorded against such assets.

Additionally, future ownership changes under Section 382 may also limit the Company's ability to fully utilize any remaining tax benefits.

In 2022, as part of the Capillary Biomedical, Inc.

transaction, the Company acquired deferred tax assets consisting of federal and state net operation loss carryovers, research tax credit carryovers, and other tax attributes of approximately $ 7.8 million.

These deferred tax assets are subject to limitations on future use under Section 382 and some of the attributes may expire unused.

The Company completed an analysis under Section 382.

As a result, the Company recognized deferred tax assets, net of contra reserve, of approximately $ 5.0 million in 2023.

The Company included these deferred tax assets in its components of deferred tax assets in the table above, to the extent that such deferred tax assets are available for future utilization, and the balances are fully offset by valuation allowance as of December 31, 2023.

The evaluation of uncertainty in a tax position is a two-step process.

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Gross unrecognized tax benefits at the end of the year $ 21,527 $ 16,986 $ 13,589

As of December 31, 2022, the Company had $ 15.0 million of unrecognized tax benefits that, if recognized and realized would impact the effective tax rate, subject to the valuation allowance.

As of December 31, 2023 and December 31, 2022, the Company had $ 19.2 million and $ 15.0 million of unrecognized tax benefits, respectively, that, if recognized and realized would impact the effective tax rate, subject to the valuation allowance.

The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense.

2 unchanged sentences

The Company is subject to taxation in the United States and various foreign and state jurisdictions.

Prior to 2018, the losses were all attributable to the United States.

Before 2018, the losses were all attributable to the United States.

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

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

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

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

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

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Sales to distributors accounted for 99 %, 96 %, and 95 % of the Company’s total sales outside the United States for the years ended December 31, 2023, 2022 and 2021, 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 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.

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 two years following the closing date of the Transaction, 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.

As of December 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 consolidated balance sheet at December 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 consolidated balance sheet (see Note 2, “Summary of Significant Accounting Policies”).

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 in 2023 representing the value of acquired in-process research and development assets with no alternative future use, and acquisition related expenses, on its consolidated statements of operations in acquired in-process research and development expenses.

The Company’s results of operations for the year ended December 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.

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 consolidated balance sheet at December 31, 2022.

(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 (see Note 7, “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 were 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 consolidated statements of operations in acquired in-process research and development expenses.

The Company’s results of operations for the year ended December 31, 2022 included the operating results of Capillary Biomedical since the date of acquisition, the amounts of which were not material.

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 in 2022 representing the value of acquired in-process research and development assets with no alternative future use, and acquisition related expenses, on its consolidated statements of operations in acquired in-process research and development expenses.

Commitments and Contingencies

Legal and Regulatory Matters

In May 2020, we were 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 sought statutory, compensatory, actual, and punitive damages;

equitable relief, including restitution;

pre- and post-judgment interest;

injunctive relief;

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

We filed a demurrer on all claims, which was heard by the Court on October 20, 2020, and our 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, terminating the case in the Superior Court.

The plaintiffs have to decide whether to appeal the Court’s decision granting our motion for summary adjudication.

Although we intend to vigorously defend against these claims, there is no guarantee that we will prevail.

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

From time to time, we are 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 our 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, we believe we are not currently a party to any legal proceeding(s) which, if determined adversely to us, would, individually or taken together, have a material adverse effect on our business, operating results, financial condition or cash flows.

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

On September 8, 2023, a purported stockholder of the Company filed a putative securities class action complaint (captioned Lowe v.

Tandem Diabetes Care, Inc., et al, Case No.

23-cv-1657) in the United States District Court for the Southern District of California against the Company and certain of the Company’s current executive officers.

The complaint generally alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, by failing to properly account for and disclose the full impact that COVID-19, inflation, and the sales of competitors’ products were having on the Company’s sales and revenue.

The complaint seeks unspecified monetary damages and other relief.

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 December 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.

Letters of Credit

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.

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, 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.

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Operating expenses $ 128,355 $ 133,300

Operating income (loss) $ ( 17,777 ) $ 12,738

Net income (loss) $ ( 15,852 ) $ 10,808

Basic net income (loss) per share $ ( 0.25 ) $ 0.17

Diluted net income (loss) per share $ ( 0.25 ) $ 0.16

The numerator and denominator of the basic and diluted net income per share computations are calculated as follows for the three months ended December 31, 2022 and 2021 (in thousands):

For the Quarter Ended

December 31, 2022 December 31, 2021

Net income (loss) - basic $ ( 15,853 ) $ 10,808

change in fair value of common stock warrants — 32

Net income (loss) - diluted $ ( 15,853 ) $ 10,840

Weighted average shares outstanding - basic 64,384 63,650

Dilutive common share equivalents:

Options to purchase common stock — 1,877

Unvested restricted stock units — 227

Warrants to purchase common stock — 170

Awards to be granted under the ESPP — 3

Weighted average shares outstanding - diluted 64,384 65,927

Subsequent Event

AMF Medical Acquisition

On December 10, 2022, the Company, entered into a Share Purchase Agreement (the “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 (the “Transaction”), the privately held Swiss developer of the Sigi Patch Pump.

The Sigi Patch Pump, designed to be an ergonomic, rechargeable patch pump that reduces the burden of managing diabetes through its use of pre-filled insulin cartridges, 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 paid in the third quarter of 2022 (see Note 2, “Strategic Investments”), a cash payment of CHF 62.4 million paid at the closing of the Transaction, and additional contingent earnout payments.

The additional earnout payments of up to CHF 129.6 million, in aggregate, 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 of an automated controller enabled (ACE) pump by the United States Food and Drug Administration.

The Company funded the initial closing payment using existing cash balances, and is in the process of determining the accounting treatment for the acquisition.

Operating loss

$ ( 35,060 ) $ ( 17,777 )

$ ( 30,002 ) $ ( 15,852 )

Net loss per share, basic and diluted

$ ( 0.46 ) $ ( 0.25 )

Weighted average shares used to compute basic and diluted net loss per share

65,369 64,384

For the three months ended December 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.

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

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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-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk