What changed in this filing

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Item 1. Financial Statements

2024-05-02 compared with 2023-11-01 · 254 added, 313 removed, 392 unchanged (59% of the section changed)

3 unchanged sentences

(In thousands, except par value)

September 30, December 31,

Assets (Unaudited) (Note 1)

March 31, December 31,

Assets (Unaudited)

Current assets:

26 unchanged sentences

Common stock, $ 0.001 par value;

200,000 shares authorized, 65,191 and 64,513 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively.

200,000 shares authorized, 64,563 and 65,552 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively.

Additional paid-in capital 1,238,449 1,263,997

Accumulated other comprehensive loss ( 2,206 ) ( 1,817 )

Accumulated other comprehensive income (loss)

( 935 ) 1,369

Accumulated deficit ( 994,515 ) ( 951,800 )

3 unchanged sentences

TANDEM DIABETES CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

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

2023 2022 2023 2022

Three Months Ended March 31,

Sales $ 191,674 $ 169,383

7 unchanged sentences

Operating loss

( 41,678 ) ( 127,817 )

Other income (expense), net:

1 unchanged sentence

Interest expense ( 1,897 ) ( 1,634 )

Loss on extinguishment of debt ( 1,268 ) —

Total other income (expense), net 2,149 4,231

Loss before income taxes

( 39,529 ) ( 123,586 )

Income tax expense 3,186 287

Net loss $ ( 32,961 ) $ ( 48,970 ) $ ( 192,609 ) $ ( 78,741 )

$ ( 42,715 ) $ ( 123,873 )

Other comprehensive income (loss):

Unrealized gain (loss) on short-term investments

$ ( 1,296 ) $ 1,749

Foreign currency translation losses

( 1,008 ) ( 25 )

Comprehensive loss

Net loss per share - basic $ ( 0.51 ) $ ( 0.76 ) $ ( 2.97 ) $ ( 1.23 )

Net loss per share - diluted $ ( 0.51 ) $ ( 0.76 ) $ ( 2.97 ) $ ( 1.23 )

Weighted average shares used to compute basic net loss per share 65,117 64,236 64,834 64,066

Weighted average shares used to compute diluted net loss per share 65,117 64,237 64,834 64,067

$ ( 45,019 ) $ ( 122,149 )

Net loss per share - basic and diluted

$ ( 0.65 ) $ ( 1.92 )

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

65,326 64,549

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended September 30, 2023

Three Months Ended March 31, 2024

Common Stock Additional

5 unchanged sentences

Shares Amount

Balance at June 30, 2023 65,062 $ 65 $ 1,219,199 $ ( 1,193 ) $ ( 888,837 ) $ 329,234

Exercise of stock options 8 — 106 — — 106

Vesting of restricted stock units, net of shares withheld for taxes 121 — ( 1,945 ) — — ( 1,945 )

Stock-based compensation expense — — 20,579 — — 20,579

Unrealized gain on short-term investments

— — — 349 — 349

Foreign currency translation losses — — — ( 1,362 ) — ( 1,362 )

Net loss — — — — ( 32,961 ) ( 32,961 )

Balance at September 30, 2023

65,191 $ 65 $ 1,237,939 $ ( 2,206 ) $ ( 921,798 ) $ 314,000

Nine Months Ended September 30, 2023

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss)

Deficit Total

Stockholders’

Shares Amount

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

Exercise of stock options 71 — 1,267 — — 1,267

Vesting of restricted stock units, net of shares withheld for taxes 358 — ( 6,505 ) — — ( 6,505 )

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

Stock-based compensation expense — — 65,485 — — 65,485

Unrealized gain on short-term investments — — — 1,800 — 1,800

Foreign currency translation losses — — — ( 2,189 ) — ( 2,189 )

Net loss — — — — ( 192,609 ) ( 192,609 )

Balance at September 30, 2023

Stock repurchase and retirement of shares

( 1,107 ) ( 1 ) ( 29,999 ) — — ( 30,000 )

See accompanying notes to unaudited condensed consolidated financial statements.

Three Months Ended September 30, 2022

Common Stock Additional

Capital Accumulated

Comprehensive

Deficit Total

Stockholders’

Shares Amount

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

Exercise of stock options 14 — 248 — — 248

1 unchanged sentence

Stock-based compensation expense — — 21,591 — — 21,591

Purchase of capped call options related to convertible notes due 2029

— — ( 15,813 ) — — ( 15,813 )

Unwind of capped call options related to convertible notes due 2025

— — 184 — — 184

Unrealized loss on short-term investments

— — — ( 1,296 ) — ( 1,296 )

Foreign currency translation losses — — — ( 1,008 ) — ( 1,008 )

Net loss — — — — ( 42,715 ) ( 42,715 )

Balance at September 30, 2022

Balance at March 31, 2024

64,563 $ 65 $ 1,238,449 $ ( 935 ) $ ( 994,515 ) $ 243,064

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Common Stock Additional

7 unchanged sentences

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

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

Exercise of common stock warrants 6 — 83 — — 83

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

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

Unrealized gain on short-term investments

— — — 1,749 — 1,749

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

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

Balance at September 30, 2022

Balance at March 31, 2023

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

3 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating Activities

Net loss $ ( 192,609 ) $ ( 78,741 )

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

$ ( 42,715 ) $ ( 123,873 )

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

Depreciation and amortization expense 4,043 3,396

1 unchanged sentence

Provision for expected credit losses 2,198 1,386

Provision for inventory obsolescence 332 775

Operating lease impairment charge 14,099 —

Amortization of premium on short-term investments 3,177 3,381

Accretion (amortization) of discount or premium on short-term investments

Stock-based compensation expense 22,039 21,194

Loss on extinguishment of debt

Acquired in-process research and development expenses — 78,750

Other ( 1,769 ) ( 647 )

Changes in operating assets and liabilities:

4 unchanged sentences

Accounts payable and accrued expenses

( 3,369 ) ( 919 )

Employee-related liabilities ( 1,654 ) ( 210 )

2 unchanged sentences

Other long-term liabilities 833 ( 114 )

Net cash provided by (used in) operating activities ( 24,594 ) 44,644

Net cash used in operating activities

( 7,996 ) ( 18,326 )

Investing Activities

3 unchanged sentences

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

( 69,496 ) ( 25,697 )

Purchases of intangible assets and strategic investments — ( 2,000 )

2 unchanged sentences

Financing Activities

Proceeds from issuance of common stock under Company stock plans, net 1,567 11,369

Proceeds from exercise of common stock warrants — 83

Proceeds from issuance of convertible senior notes due 2029, net of $ 9,400 debt issuance costs

Repurchase of $ 246,740 principal amount of convertible senior notes due 2025

( 246,123 ) —

Payment for capped call transactions related to convertible senior notes due 2029

Repurchase and retirement of common stock

Proceeds from issuance of common stock under Company stock plans, net of cash used to settle withholding taxes on vested restricted stock

( 1,511 ) ( 541 )

Other financing activities 183 —

Net cash provided by financing activities 1,496 10,777

Net cash provided by (used in) financing activities

13,586 ( 541 )

Effect of foreign exchange rate changes on cash ( 423 ) 441

Net increase (decrease) in cash and cash equivalents

111 ( 44,755 )

Cash and cash equivalents at beginning of period 58,868 172,517

17 unchanged sentences

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 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

14 unchanged sentences

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

Reclassifications

The change in fair value of common stock warrants for the three and nine months ended September 30, 2022, which was previously reported separately, is now reported as a component of interest income and other, net on the condensed consolidated statements of operations.

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

Summary of Significant Accounting Policies

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

There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2024, as compared to those disclosed in the Company’s 2023 Annual Report.

Use of Estimates

7 unchanged sentences

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.

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 condensed consolidated balance sheets (see Note 7, “Debt”).

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

The Company estimated the fair value of its convertible senior notes to be $ 273.9 million and $ 260.5 million at September 30, 2023 and December 31, 2022, respectively, based on Level 2 quoted market prices as of those dates.

Operating Lease Right-of-Use Assets and Liabilities

1 unchanged sentence

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.

For lease agreements that contain lease and non-lease components, the Company accounts for both of those components as a single lease component.

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

1 unchanged sentence

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

Intangible Assets Subject to Amortizatio n

Intangible Assets Subject to Amortization

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 nine months ended September 30, 2023 and 2022.

The Company did not recognize any intangible asset impairment losses during the three months ended March 31, 2024 and 2023.

Strategic Investments

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

The Company held equity investments totaling $ 10.1 million in two separate private companies at each of March 31, 2024 and December 31, 2023, each of which represented less than 5 % of the outstanding equity of the respective company as of the date of investment.

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

The investments were included as a component of other long-term assets on the condensed consolidated balance sheets at September 30, 2023.

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

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 condensed consolidated balance sheets at March 31, 2024 and December 31, 2023.

The Company also held a $ 22.3 million investment 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 March 31, 2024, the $ 22.3 million subordinated convertible notes investment was included as a component of other long-term assets on the condensed 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 to be separate performance obligations.

The Company considers the individual deliverables in its product offerings 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.

7 unchanged sentences

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.

In the third quarter of 2023, the Company announced a reduction in the price of the Tandem Choice program whereby purchasers of the X2 pump can obtain the Tandem Mobi.

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.

The amount of revenue deferred in the third quarter of 2023 related to the Choice program was $ 8.2 million.

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 Company 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 September 30, 2023 and December 31, 2022, $ 18.4 million and $ 6.8 million, respectively, were allocated to the material right provided to customers and recorded in current deferred revenue on the condensed consolidated balance sheets.

From July 1, 2023 to December 31, 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 during the limited-time offer period as the Company expected more customers to exercise the right with the lower program fee.

The Company began selling Tandem Mobi insulin pumps in the first quarter of 2024 and eligibility for the Tandem Choice program ended in February 2024.

Consequently, the Company ceased to allocate and defer a portion of the transaction price for the material right for pumps sold after that date.

Eligible customers who purchased a t:slim X2 insulin pump during the program period will have until December 31, 2024 to exercise the option to switch to the Tandem Mobi for a stated fee.

At March 31, 2024 and December 31, 2023, $ 31.5 million and $ 30.6 million, respectively, were allocated to the material right provided to customers who purchased a pump during the Tandem Choice program period.

The Company recorded the amounts in current deferred revenue on the condensed 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.

Estimated sales rebates included in other long-term liabilities have an estimated payment due date beyond twelve months from the balance sheet date.

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

As of March 31, 2024 and December 31, 2023, total estimated sales rebates were included in the following condensed consolidated balance sheet accounts (in thousands):

March 31, 2024 December 31, 2023

Other current liabilities

Other long-term liabilities

Total sales rebate

$ 8,753 $ 8,547

Warranty Reserve

The Company generally provides a four-year warranty on its insulin pumps to end-user customers and may replace any pumps that do not function 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.

1 unchanged sentence

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

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

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

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 of existing platforms until sufficient data are available.

As actual experience becomes available, the Company uses the data to update the historical averages.

1 unchanged sentence

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

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

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

2023 2022 2023 2022

The following table provides a reconciliation of the changes in product warranty liabilities for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended March 31,

Balance at beginning of the period $ 37,173 $ 36,537

1 unchanged sentence

Settlements made during the period ( 9,037 ) ( 7,683 )

Increases (decreases) in warranty estimates ( 1,775 ) 110 ( 1,615 ) ( 1,159 )

Decreases in warranty estimates

( 907 ) ( 75 )

Balance at end of the period $ 37,638 $ 37,152

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

September 30, 2023 December 31, 2022

As of March 31, 2024 and December 31, 2023, total product warranty reserves were included in the following condensed consolidated balance sheet accounts (in thousands):

March 31, 2024 December 31, 2023

Other current liabilities $ 18,166 $ 18,135

6 unchanged sentences

The fair value of restricted stock unit (RSU) awards issued under the Company’s stock incentive plans that vest solely based on service, is estimated based on the fair market value of the underlying stock on the date of grant.

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

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.

3 unchanged sentences

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;

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

For the three and nine months ended September 30, 2023, there was no difference in the weighted average number of shares used to calculate basic and diluted net loss per share due to the Company’s net loss position for each of the periods presented.

For the three and nine months ended September 30, 2022, the net loss used in the calculation of diluted net loss per share was increased by $ 12,000 and $ 103,000 , respectively, to remove the gain recognized from the change in fair value of certain common stock warrants based on the dilutive effect of assumed exercise, and the denominator was increased by 937 shares and 959 shares, respectively, calculated under 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.

For the three months ended March 31, 2024 and 2023, there was no difference in the weighted average number of shares used to calculate basic and diluted net loss per share due to the Company’s net loss position for each of the periods presented.

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

Three Months Ended

September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Options to purchase common stock 133 916

3 unchanged sentences

Convertible senior notes (if-converted) 4,241 2,554

5,986 5,454 4,974 5,049

Short-Term Investments

2 unchanged sentences

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

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

At September 30, 2023 Amortized

The following represents a summary of the estimated fair value of short-term investments at March 31, 2024 and December 31, 2023 (in thousands):

At March 31, 2024 Amortized

Cost Gross Unrealized

16 unchanged sentences

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

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

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

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

The contractual maturities of available-for-sale debt securities as of March 31, 2024, were as follows (in thousands):

Years to Maturity

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

At March 31, 2024 Within One Year One to Two Years Two to Three Years

Estimated Fair Value

Government-sponsored enterprises $ 75,500 $ 39,171 $ 66,029 $ 180,700

5 unchanged sentences

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

Unrealized losses on available-for-sale debt securities at September 30, 2023 were primarily due to an increase in market interest rates after certain debt securities were purchased.

Unrealized losses on available-for-sale debt securities at March 31, 2024 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 September 30, 2023.

Accordingly, the Company did not record an allowance for credit losses related to its available-for-sale debt securities at March 31, 2024 and December 31, 2023.

Composition of Certain Financial Statement Items

Accounts Receivable

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

September 30, December 31,

Accounts receivable, net consisted of the following at March 31, 2024 and December 31, 2023 (in thousands):

March 31, December 31,

Accounts receivable $ 97,888 $ 110,453

2 unchanged sentences

Allowance for Credit Losses

The following table provides a reconciliation of the changes in the allowance for estimated accounts receivable credit losses for the three and nine months ended September 30, 2023 and 2022 (in thousands):

The following table provides a reconciliation of the changes in the allowance for estimated accounts receivable credit losses for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended

September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Balance at beginning of the period $ 4,898 $ 4,327

2 unchanged sentences

Balance at end of the period $ 4,923 $ 4,467

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

September 30, December 31,

Inventories consisted of the following at March 31, 2024 and December 31, 2023 (in thousands):

March 31, December 31,

Raw materials $ 52,850 $ 42,783

3 unchanged sentences

Fair Value Measurements

Authoritative guidance on fair value measurements defines fair value, and provides a consistent framework for measuring fair value and for disclosures of each major asset and liability category measured at fair value on either a recurring or a nonrecurring basis.

Fair value is intended to reflect an assumed exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

As a basis for considering such assumptions, the authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Observable inputs such as unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Inputs, other than quoted prices in active markets, that are observable either directly or indirectly for substantially the full term of the asset or liability.

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

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022, and indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in thousands):

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023, and indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in thousands):

Fair Value Measurements at

September 30, 2023

March 31, 2024

Total Level 1 Level 2 Level 3

18 unchanged sentences

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

The Company’s Level 1 financial instruments, which are in active markets, are valued using unadjusted quoted market prices for identical instruments.

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.

1 unchanged sentence

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

There were no transfers into or out of Level 3 assets during the three months ended March 31, 2024 and 2023, respectively.

Fair Value of Financial Instruments

Short-term investments are carried at fair value.

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

The Company estimated the fair value of its convertible senior notes based on Level 2 quoted market prices as follows (in thousands):

Fair Value Measurements at

March 31, 2024 December 31, 2023

Convertible Senior Notes due 2025

$ 39,130 $ 271,688

Convertible Senior Notes due 2029

Total fair value of outstanding convertible senior notes

$ 436,422 $ 271,688

* Not applicable as no notes were outstanding at this date.

In March 2024, the Company repurchased $ 246.7 million of principal of the Company’s Convertible Senior Notes due 2025 (see Note 7, “Debt”).

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 condensed consolidated balance sheets.

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

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

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

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

The exercise of lease renewal options is at the Company’s sole discretion.

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.

Headquarters Lease

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

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

The Headquarters Lease also includes a first right of offer with respect to an additional 34,569 rentable square feet of general office space should the space become available.

The Phase I Commencement Date occurred in March 2022 when the Company was tendered possession of the Phase I portion of the Premises, and rent payments commenced in September 2022 (Phase I Rent Commencement Date).

The Phase II Commencement Date is expected to occur upon the earlier of (i) the date upon which the Company first commences business in the Phase II portion of the Premises, and (ii) May 1, 2025 (Phase II Rent Commencement Date).

The 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 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.

In addition to the monthly base rent, the Company is required to pay its proportionate share of certain ongoing operating expenses throughout the duration of the lease.

No base rent, other than the proportionate share of operating expenses, will be due for the Phase I portion of the Premises for months two through nine following the Phase I Rent Commencement Date, and for the Phase II portion of the Premises for months two through five following the Phase II Rent Commencement Date.

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

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

The Roselle leases expired in May 2023.

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

Operating Lease Impairment Charge

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

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

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

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

Certain leases include an option to renew, with renewal terms that can extend the lease term for additional periods at the Company’s sole discretion.

The Company includes the renewal option period in the lease term for those leases reasonably expected to be extended at the time of lease commencement.

Supplemental Lease Disclosure Information

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Operating lease cost $ 4,051 $ 4,475

Short-term lease cost 21 96

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

Total lease cost $ 4,072 $ 4,571

Maturities of operating lease liabilities at September 30, 2023 were as follows (in thousands):

Maturities of operating lease liabilities at March 31, 2024 were as follows (in thousands):

Years Ending December 31,

2023 (remaining) $ 4,641

2024 $ 12,943

Thereafter 90,004

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Weighted-average remaining lease term (in years) 9.9 10.2

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

Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows from operating leases, was $ 9.2 million and $ 9.4 million for the nine months ended September 30, 2023 and 2022, respectively.

Lease For Which Accounting Has Not Yet Commenced

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

Accordingly, the condensed consolidated balance sheet at September 30, 2023 does not include operating lease right-of-use assets and operating lease liabilities, and the condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022 do not include any lease costs, related to Phase II of the Headquarters Lease.

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

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

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

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

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.

Cash amounts paid included in the measurement of lease liabilities, representing operating cash flows, were $ 4.7 million and $ 1.8 million for the three months ended March 31, 2024 and 2023, respectively.

Convertible Senior Notes Due 2029

On March 8, 2024, the Company completed an offering of $ 316.3 million aggregate principal amount of 1.50 % Convertible Senior Notes due 2029 (the 2029 Notes).

The proceeds from the issuance of the 2029 Notes were $ 306.8 million, net of debt issuance costs.

The Company used approximately $ 246.1 million of the net proceeds to repurchase approximately $ 246.7 million in aggregate principal amount of its Convertible Senior Notes Due 2025 (the 2025 Notes) concurrently with the pricing of the 2029 Notes in privately negotiated transactions.

Concurrently, the Company also paid $ 1.3 million of accrued interest due at time of the note repurchase.

As a result of the repurchase, the Company recognized a $ 1.3 million loss on extinguishment of debt in the condensed consolidated statement of operations for the three months ended March 31, 2024.

The loss on extinguishment of debt included the unamortized debt issuance costs related to the portion of the 2025 Notes repurchased.

The Company used $ 30.0 million of the net proceeds to repurchase shares of the Company’s common stock from certain purchasers of the 2029 Notes at a purchase price equal to the last reported sale price per share of the Company’s common stock on March 5, 2024, which was $ 27.105 per share.

In addition, the Company used $ 15.8 million of the net proceeds to pay the cost of the capped call transactions (2029 Capped Call Transactions) discussed below.

The Company intends to use the remainder of the net proceeds for general corporate purposes, which may include additional repurchases of the 2025 Notes from time to time, or the repayment at maturity, of the 2025 Notes.

The 2029 Notes are the Company’s senior unsecured obligations.

Interest is payable in cash semi-annually in arrears on March 15 and September 15 of each year beginning on September 15, 2024, at a rate of 1.50 % per year.

The 2029 Notes mature on March 15, 2029 unless repurchased, redeemed, or converted in accordance with their terms prior to the maturity date.

The initial conversion rate for the 2029 Notes is 28.9361 shares of common stock per $1,000 principal amount of the 2029 Notes, which is equivalent to an initial conversion price of approximately $ 34.56 per share of the Company’s common stock (2029 Notes Conversion Price).

The conversion rate is subject to customary adjustments for certain events as described in the indenture governing the 2029 Notes.

The Company may not redeem the 2029 Notes prior to March 22, 2027.

The Company has the option to redeem for cash all or any portion of the 2029 Notes on or after March 22, 2027 if the last reported sale price of the Company’s common stock has been at least 130 % of the 2029 Notes 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 2029 Notes to be redeemed, plus accrued and unpaid interest.

No sinking fund is provided for the 2029 Notes.

Holders of the 2029 Notes may convert all or a portion of their 2029 Notes at their option prior to December 15, 2028, in multiples of $1,000 principal amounts, only under the following circumstances:

• during any calendar quarter commencing after the quarter ending on June 30, 2024 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the 2029 Notes Conversion Price on each applicable trading day;

• during the five business day period after any ten consecutive trading day period (the measurement period) in which the trading price per $1,000 principal amount of the 2029 Notes for each trading day of the measurement 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 2029 Notes on such trading day;

• if the Company calls such 2029 Notes for redemption, at any time before the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the 2029 Notes called (or deemed called) for redemption;

• on the occurrence of specified corporate events.

On or after December 15, 2028, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2029 Notes, in integral multiples of $1,000 principal amount, at any time, regardless of the foregoing circumstances.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the indenture governing the 2029 Notes.

Convertible Senior Notes Due 2025

In May 2020, the Company completed an offering of $ 287.5 million aggregate principal amount of 1.50 % Convertible Senior Notes due 2025 (the 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.

In March 2024, the Company repurchased for cash $ 246.7 million in aggregate principal amount of the 2025 Notes, concurrently with the pricing of the 2029 Notes in privately negotiated transactions.

The 2025 Notes are the Company’s senior unsecured obligations.

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The 2025 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 2025 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 2025 Notes, which is equivalent to an initial conversion price of $ 112.57 (2025 Notes 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 2025 Notes.

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.

The Company has the option to redeem for cash all or any portion of the 2025 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 2025 Notes 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 2025 Notes to be redeemed, plus accrued and unpaid interest.

No sinking fund is provided for the 2025 Notes.

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On or after November 1, 2024, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the foregoing circumstances.

Holders of the 2025 Notes who convert in connection with a make-whole fundamental change or in connection with a redemption are entitled to an increase in the conversion rate.

Additionally, in the event of a fundamental change, holders of the 2025 Notes may require us to repurchase all or a portion of the 2025 Notes at a price equal to 100 % of the principal amount of the Notes, plus any accrued and unpaid interest.

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

September 30, 2023 December 31, 2022

The net carrying amount of the Company’s convertible senior notes on the condensed consolidated balance sheets consisted of the following (in thousands):

March 31, 2024 December 31, 2023

Principal amount:

Convertible Senior Notes Due 2025

$ 40,760 $ 287,500

Convertible Senior Notes Due 2029

Total principal amount

357,010 287,500

Unamortized debt issuance costs ( 9,513 ) ( 2,465 )

Net carrying amount $ 347,497 $ 285,035

* Not applicable as no notes were outstanding at this date.

The 2025 Notes will have a dilutive effect to the extent the average market price per share of common stock for a given reporting period exceeds the conversion price of $ 112.57 .

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

As of September 30, 2023, the unamortized debt issuance costs of $ 2.9 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 1.6 years.

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

This additional interest continues to accrue at a rate of 0.50 % per annum on the outstanding principal amount of the Notes, and as of September 30, 2023 amounts to approximately $ 3.1 million in the aggregate.

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

The Company has deposited the full amount for these payments with the trustee for the Notes and are coordinating with the trustee for the payments to be completed as soon as reasonably practicable in the fourth quarter of 2023.

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

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

2023 2022 2023 2022

The 2029 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 $ 34.56 per share.

As of March 31, 2024 and December 31, 2023, the if-converted value of the 2025 Notes did not exceed the principal amount.

As of March 31, 2024, the if-converted value of the 2029 Notes exceeded the principal amount by $ 7.8 million.

The following table summarizes the effective interest rates for each of our convertible senior notes for the periods shown:

March 31, 2024 March 31, 2023

Effective interest rate:

Convertible Senior Notes Due 2025

Convertible Senior Notes Due 2029

* Not applicable as no notes were outstanding at this date.

The following table details interest expense related to the Notes recognized for the three March 31, 2024, and 2023 (in thousands):

Three Months Ended March 31,

Contractual interest expense

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Total interest expense $ 1,612 $ 1,525

(1) Contractual interest expense for the three and nine months ended September 30, 2023 includes $ 3.1 million of additional interest as discussed above.

2029 Capped Call Transactions

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

The Capped Call Transactions are intended to reduce potential dilution to holders of the Company’s common stock beyond the conversion price of $ 112.57 , up to a conversion price of $ 173.18 on any conversion of the Notes, or to offset any cash payments the Company is required to make in excess of the principal amount of such converted Notes, as the case may be, with such reduction or offset subject to a cap.

The cap price of the Capped Call Transactions is initially $ 173.18 per share of the Company’s common stock, representing a premium of 100 % above the last reported sale price of $ 86.59 per share of the Company’s common stock on May 12, 2020, and is subject to certain adjustments under the terms of the Capped Call Transactions.

Conditions that cause adjustments to the initial strike price of the Capped Call Transactions mirror conditions that result in corresponding adjustments for the Notes.

For accounting purposes, the Capped Call Transactions are separate transactions, and not part of the terms of the Notes, while they are integrated for federal tax purposes.

As these transactions met certain criteria under the applicable accounting guidance, the Capped Call Transactions were recorded in stockholders' equity and were not accounted for as derivatives.

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

Line of Credit

On May 18, 2022, the Company entered into a three-year Revolving Line of Credit Agreement that 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 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 before the May 1, 2025 maturity date of the Company’s Convertible Senior Notes, that the Company does not satisfy a predefined liquidity threshold.

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

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

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

The Company was in compliance with the minimum consolidated interest coverage ratio covenant as of September 30, 2023.

The maximum consolidated net leverage ratio will not be tested as of September 30, 2023, in accordance with the August 2, 2023 amendment to the Revolving Line of Credit Agreement.

Without the amendment, the Company would have been non-compliant with the maximum consolidated net leverage ratio covenant for the trailing twelve month measurement period ended September 30, 2023.

The Company is currently not entitled to borrow any amounts under the Line of Credit as a result of its inadvertent failure to timely pay additional interest under the Notes.

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 September 30, 2023, the Company had no outstanding borrowings under the Line of Credit, and a $ 4.9 million outstanding standby letter of credit.

In connection with the issuance of the 2029 Notes, the Company entered into Capped Call Transactions in March 2024 with certain counterparties at a net cost of $ 15.8 million (2029 Capped Call Transactions).

The 2029 Capped Call Transactions are expected generally to reduce potential dilution to the Common Stock upon any conversion of the 2029 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2029 Notes, as the case may be, with such reduction and/or offset subject to a cap based on a cap price initially equal to $ 42.0128 per share, and is subject to certain adjustments under the terms of the 2029 Capped Call Transactions.

2025 Capped Call Transactions

In connection with the issuance of the 2025 Notes, the Company entered into Capped Call Transactions in May 2020 with certain counterparties at a net cost of $ 34.1 million (2025 Capped Call Transactions).

The 2025 Capped Call Transactions are expected generally to reduce potential dilution to the Common Stock upon any conversion of the 2025 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2025 Notes, as the case may be, with such reduction or offset subject to a cap.

The cap price of the 2025 Capped Call Transactions is initially $ 173.18 per share of the Company’s common stock, and is subject to certain adjustments under the terms of the 2025 Capped Call Transactions.

In connection with the repurchase of certain 2025 Notes, the Company entered into unwind agreements with the existing option counterparties on March 5, 2024 to terminate a portion of the existing 2025 Capped Call Transactions in a notional amount corresponding to the amount of 2025 Notes repurchased (the Unwind Transactions).

In connection with the Unwind Transactions, the Company received $ 0.2 million in cash as a termination payment in respect of the portion of the existing 2025 Capped Call Transactions that were unwound.

The amount received was based generally on the termination values of the unwound portions of the existing 2025 Capped Call Transactions.

For accounting purposes, each of the capped call transactions described above are separate transactions, and not part of the terms of the 2029 Notes or the 2025 Notes.

As these transactions met certain criteria under the applicable accounting guidance, each of the capped call transactions were recorded in stockholders' equity and were not accounted for as derivatives.

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

Stockholders’ Equity

Shares Reserved for Future Issuance

The following shares of the Company's common stock were reserved for future issuance at September 30, 2023 (in thousands):

The following shares of the Company's common stock were reserved for future issuance at March 31, 2024 (in thousands):

Shares reserved for issuance upon conversion of Convertible Senior Notes 9,513

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Common Stock Warrants

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

Warrants outstanding to purchase shares of the Company's common stock as of March 31, 2024 were as follows:

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

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

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.

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

The Company’s Employee Stock Purchase Plan (ESPP) was approved by the Board in October 2013.

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

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

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

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

Stock-Based Compensation

Restricted Stock Units

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 on continued service to the Company as to 25 % of the underlying shares on the first anniversary of the award, with the balance of the RSUs vesting quarterly over the following three years .

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

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

The performance-based RSUs have a grant value equal to the closing price of the Company’s common stock on the award date, and vest upon the Company’s actual performance relative to predefined performance metrics and subject to the awardee’s continuing service through the respective December 31, 2024 and 2025 measurement dates.

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

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

2023 2022 2023 2022

RSUs granted 208,082 330,807 1,997,907 1,338,056

Weighted average grant date fair value (per share) $ 29.19 $ 56.49 $ 28.94 $ 70.33

Stock Options

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

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

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

There have been no common stock options granted since the second quarter of 2022.

Common stock options granted during the nine months ended September 30, 2022, along with the assumptions used in the Black-Scholes option pricing model were as follows:

Nine Months Ended

September 30, 2022

Stock options granted 83,008

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

Risk-free interest rate 2.7 %

Dividend yield 0.00 %

Expected volatility 72.0 %

Expected term (in years) 5.8

Employee Stock Purchase Plan

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

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

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

Nine Months Ended September 30,

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

Risk-free interest rate 4.7 % 2.2 %

Dividend yield 0.0 % 0.0 %

Expected volatility 60.9 % 47.1 %

Expected term (in years) 1.3 1.3

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Cost of sales $ 2,070 $ 1,594

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Total stock-based compensation expense $ 22,039 $ 21,194

The total stock-based compensation expense capitalized as part of the cost of the Company’s inventories was $ 1.3 million at September 30, 2023, and $ 1.1 million at December 31, 2022.

The total stock-based compensation expense capitalized as part of the cost of the Company’s inventories was $ 1.5 million at March 31, 2024, and $ 2.0 million at December 31, 2023.

Restricted Stock Units

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

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

Three Months Ended March 31,

RSUs granted 358,059 154,146

Weighted average grant date fair value (per share) $ 25.36 $ 42.81

Employee Benefits

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Employees are eligible to participate in the plan beginning on the first day of the calendar month following their date of hire.

Unless they affirmatively elect otherwise, employees are automatically enrolled in the plan following 30 days from date of rehire or entry date.

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

For the three and nine months ended September 30, 2023, the Company recognized income tax expense of $ 2.2 million and $ 3.7 million, respectively, on a pre-tax loss of $ 30.7 million and $ 188.9 million, respectively.

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

Income tax expense for the three and nine months ended September 30, 2023 and 2022, was primarily attributable to federal, state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

For the three and nine months ended September 30, 2023, the Company calculated the provision for income taxes by applying an estimate of the annual effective tax rate for the full year to ordinary income (loss) adjusted by the tax impact of discrete items.

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

The Company continues to maintain a full valuation allowance against its net deferred tax assets as of September 30, 2023, based on the current assessment that it is not more likely than not these future benefits will be realized before expiration.

Unless they affirmatively elect otherwise, employees are automatically enrolled in the plan following 30 days from date of hire or entry date.

Under the terms of the plan, employees may make voluntary contributions as a percent of compensation and the Company may elect to match a discretionary percentage of employee contributions .

For the three months ended March 31, 2024, the Company recognized income tax expense of $ 3.2 million on a pre-tax loss of $ 39.5 million.

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

Income tax expense for the three months ended March 31, 2024 and 2023, was primarily attributable to federal, state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

For the three months ended March 31, 2024, the Company calculated the provision for income taxes by applying an estimate of the annual effective tax rate for the full year to ordinary income (loss) adjusted by the tax impact of discrete items.

For the three months ended March 31, 2023, the Company calculated the provision for income taxes using a discrete effective tax rate method as the annual effective tax rate method would not provide a reliable estimate.

The Company continues to maintain a full valuation allowance against its net deferred tax assets as of March 31, 2024, based on the current assessment that it is not more likely than not these future benefits will be realized before expiration.

Business Segment and Geographic Information

1 unchanged sentence

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.

2 unchanged sentences

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

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

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

Revenues by Geographic Region and Customer Sales Channel

During the three and nine months ended September 30, 2023 and 2022, no individual country outside the United States generated revenue that represented more than 10% of total revenue.

During the three months ended March 31, 2024 and 2023, no individual country outside the United States generated revenue that represented more than 10% of total revenue.

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

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

2023 2022 2023 2022

Three Months Ended March 31,

United States $ 129,761 $ 131,242

1 unchanged sentence

Total Sales $ 191,674 $ 169,383

Sales to distributors accounted for 64 % and 66 % of the Company’s United States sales for the three months ended September 30, 2023 and 2022, respectively, and 64 % and 65 % of the Company’s United States sales for the nine-month periods ended September 30, 2023 and 2022, respectively.

Sales to distributors accounted for 95 % and 96 % of the Company’s sales outside the United States for the three and nine-month periods ended September 30, 2023 and 2022, respectively.

Sales to distributors accounted for 61 % and 65 % of the Company’s United States sales for the three months ended March 31, 2024 and 2023, respectively.

Sales to distributors accounted for the vast majority of the Company’s sales outside the United States for the three-month periods ended March 31, 2024 and 2023.

Revenues by Product

During the three months ended March 31, 2024 and 2023, sales by product were as follows (in thousands):

Three Months Ended March 31,

$ 87,287 $ 84,704

Supplies and other

105,533 86,702

Deferral for Tandem Choice program

( 1,146 ) ( 2,023 )

$ 191,674 $ 169,383

AMF Medical Acquisition

4 unchanged sentences

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

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

The contingent 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 FDA 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 September 30, 2023, the contingencies related to the earnout milestones were not yet resolved and, therefore, the related amounts were not included in the fair value of the asset acquired and were not recognized as a liability on the condensed consolidated balance sheet at September 30, 2023.

As of March 31, 2024, 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 March 31, 2024.

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

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

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

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

The Company’s results of operations for the three and nine months ended September 30, 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 condensed consolidated balance sheets at September 30, 2023 and December 31, 2022.

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

The Company funded the purchase price using existing cash balances.

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

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

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

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 condensed consolidated statements of operations in acquired in-process research and development expenses.

The Company’s results of operations included the operating results of AMF Medical since the date of acquisition.

Commitments and Contingencies

Legal and Regulatory Matters

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

Collectively, these lawsuits 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.

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

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

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

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

On August 15, 2023, the parties reached a settlement and on August 21, 2023, the Court issued an order dismissing the appeal.

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.

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

On December 6, 2023, the court appointed Mason Raines, Thomas O.

Martel, and Linna Rae Martel to serve as co-lead plaintiffs (“plaintiffs”).

On February 1, 2024, the plaintiffs filed their amended complaint.

In the amended complaint, the plaintiffs allege violations of the Securities Exchange Act of 1934, as amended, based on alleged materially false and misleading statements relating to our sales trends and financial forecasts.

The plaintiffs seek to represent a class of persons who purchased or otherwise acquired Tandem common stock during the period between August 3, 2022, and November 2, 2022, inclusive.

The plaintiffs also seek unspecified monetary damages, pre- and post-judgment interest, costs and fees, including attorneys’ fees and expert fees, and other relief.

The defendants filed their motion to dismiss the amended complaint on March 11, 2024.

The plaintiffs filed a response in opposition to defendants’ motion to dismiss on March 27, 2024, and on April 10, 2024, defendants filed their reply.

On April 29, 2024, the court granted defendants’ motion to dismiss with leave to file a second amended complaint within 30 days.

Two shareholder derivative cases were filed in the United States District Court for the Southern District of California on March 29, 2024 (captioned Bushansky v.

Sheridan et al.

24-cv-608) and on April 23, 2024 (captioned Amersi v.

Sheridan et al.

24-cv-726) against the individual members of Tandem’s Board of Directors and the Company.

These lawsuits piggyback on the Lowe case, and allege that Tandem’s Board breached its fiduciary duties by failing to properly oversee and monitor the risks affecting the Company’s business, which resulted in reduced guidance, an associated stock drop, and the Lowe case.

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

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

From time to time, the Company is involved in various other legal proceedings, regulatory matters, and other disputes or claims arising from or related to 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 September 30, 2023 the Company believes it is not currently a party to any legal proceedings, regulatory matters, or other disputes or claims for which a material loss was considered probable or for which the amount (or range) of loss was reasonably estimable.

Although the results of such legal proceedings and claims cannot be predicted with certainty, as of March 31, 2024 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.

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

What changed 10-Q

Item 1. Financial Statements