TANDEM DIABETES CARE INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis together with our financial statements and related notes in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 (Quarterly Report). This Quarterly Report contains forward-looking statements within the meaning of the federal securities laws, which statements are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Quarterly Report, other than statements of historical fact, are forward-looking statements. You can identify forward-looking statements by the use of words such as “may,” “will,” “could,” “anticipate,” “expect,” “intend,” “believe,” “continue” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to such statements. In particular, forward-looking statements contained in this Quarterly Report may relate to, among other things, our future or assumed financial condition, results of operations, liquidity, trends impacting our financial results, business forecasts and plans, research and product development plans, product pipelines, development timelines, manufacturing plans, strategic plans and objectives, capital needs and financing plans, product launches, geographic expansion, distribution plans, production capacity, clinical trials, regulatory approvals, competitive position and the impact of changes in the competitive environment, supply chain, and the businesses of our contract manufacturers and suppliers, integration of acquisitions and partner technologies, and the application of accounting guidance. We caution you that the foregoing list may not include all of the forward-looking statements made in this Quarterly Report. Our forward-looking statements are based on our management’s current assumptions and expectations about future events and trends, which affect or may affect our business, strategy, operations or financial performance. Although we believe that these forward-looking statements are based upon reasonable assumptions, they are subject to numerous known and unknown risks and uncertainties and are made in light of information currently available to us. Our actual financial condition and results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below in the section entitled “Risk Factors” in this Quarterly Report, as well as in the other public filings we make with the Securities and Exchange Commission. You should read this Quarterly Report with the understanding that our actual future financial condition and results may be materially different from and worse than what we expect. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements speak only as of the date they were made and, except to the extent required by law or the rules of the Nasdaq Global Market, we undertake no obligation to update or review any forward-looking statement because of new information, future events or other factors. We qualify all of our forward-looking statements by these cautionary statements. Overview We are a medical device company focused on the design, development and commercialization of technology solutions for people living with diabetes. We consider our primary addressable market to be people who live with type 1 diabetes. Through our product development efforts, we are seeking to expand our addressable market to include people living with type 2 diabetes who require intensive insulin therapy. Diabetes management can vary greatly from person-to-person, creating multiple market segments based on clinical needs and personal preferences. Our goal is to address the individual needs of people with insulin-dependent diabetes by offering flexibility and choice in intelligent insulin delivery systems, through an accessible portfolio of market-leading pumps, applications, and insights. From inception in 2012 through June 2018, we derived nearly all of our sales from the shipment of insulin pumps and associated supplies to customers in the United States. Starting in the third quarter of 2018, we began selling in select geographies outside the United States and our technology solutions are now available in approximately 25 countries worldwide. For the four-year period ended December 31, 2023, we shipped approximately 450,000 insulin pumps, which is representative of our in-warranty global installed customer base assuming the typical four-year reimbursement cycle. 22 The t:slim X2 insulin pump has been our flagship technology solution. In February 2024, we expanded our pump portfolio with commercial U.S. availability of the Tandem Mobi insulin pump, which is the world’s smallest durable automated insulin delivery (AID) system. At approximately half the size of our t:slim X2 pump, Tandem Mobi is designed for people who seek even greater discretion and flexibility, and includes features such as expanded pump-control from our iOS mobile application, inductive charging, and an on-pump button that can be used for bolusing and other actions. In the United States, we began a limited release of Tandem Mobi in the fourth quarter of 2023 followed by commercial availability in February 2024 with Dexcom G6 sensor integration. In March 2024, the United States Food and Drug Administration (FDA) cleared our 510(k) application for Tandem Mobi with an expanded pediatric indication for use in individuals two years of age and older. With both the t:slim X2 and Tandem Mobi in our product portfolio, we are offering people living with diabetes a choice between insulin pump platforms based on their individual needs and preferences in insulin delivery. The majority of our customers use their insulin pump with continuous glucose monitoring (CGM) integration. This allows their insulin pump to receive CGM sensor readings, which can then be used in our AID algorithms, including our Control-IQ technology. Control-IQ is an advanced hybrid-closed loop feature designed to help increase a user’s time in their targeted glycemic range. Multiple studies have demonstrated that use of Control-IQ technology provides people across all demographics with improved clinical outcomes that are both immediate and sustained. It was the first system cleared by the FDA to deliver automatic correction boluses in addition to adjusting insulin to help prevent high and low blood sugar. The t:slim X2 was the first pump on which remote software updates were made commercially available in the United States and is now also available in the countries we serve worldwide. Our Tandem Device Updater (TDU) has allowed our t:slim X2 customers to update their pump software from a personal computer. Tandem Mobi offers the same update capability with wireless, remote updates. This offering is a competitive advantage that allows us to bring our customers clinical and lifestyle enhancements, such as new developments in our AID technology, CGM integrations and mobile app features. As an example, we recently launched a pump software update through TDU to allow all t:slim X2 pump users in the United States access to integration with two new CGM sensor offerings. Our insulin pump products are generally considered durable medical equipment (DME) and have an expected lifespan of at least four years. In addition to insulin pumps, we sell single-use products that are used together with our 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. Because of the DME classification, our pumps and supplies are typically reimbursed through a medical benefit. As our portfolio expands, we are pursuing a multi-channel managed care strategy and are in discussions to begin serving Mobi customers through the pharmacy channel. In the United States, we also offer a data management web application that provides users, their caregivers and their healthcare providers with a fast, easy and visual way to display diabetes therapy management data from our pumps, integrated CGMs and supported blood glucose meters. Our first-generation data management application, t:connect, was commercially introduced in the United States in 2013. In the second quarter of 2023, we began a scaled global launch, starting with the United States, of our second-generation data management application, Tandem Source. Our Strategy & Future Technology Diabetes management can vary greatly from person-to-person, creating multiple market segments based on clinical needs and personal preferences. Our goal is to address the individual needs of people with insulin-dependent diabetes and their care team flexibility and choice in intelligent insulin delivery systems, through an accessible portfolio of market-leading pumps, applications, and insights. In support of this strategy, our portfolio of future technologies includes: t:slim X3 Advancing our flagship t:slim platform, the t:slim X3 is planned to include enhanced technology, such as greater processing power and capacity to support our advanced algorithms, as well as increased battery life and improved durability. Mobi: Tubeless This offering is intended to provide an alternative tubeless infusion site option for Tandem Mobi pump users. It will allow a Tandem Mobi pump to be worn completely on the user’s body with no tubing, while still providing the benefit of detachability. A goal of this design is to allow people living with diabetes to customize the way they wear their pump with each cartridge change, switching between tubed and tubeless wear configurations, to best suit their personal preferences and lifestyle . 23 Sigi The ergonomic, rechargeable and detachable Sigi Patch Pump is intended to reduce the burden of managing diabetes through its use of pre-filled insulin cartridges and compatibility with AID technology. Extended Wear Infusion Sets Infusion sets provide additional choice and flexibility to people living with diabetes. Our goals for infusion set innovations focus on solutions that extend wear time and enhance user experience, while reducing occlusions, body burden and waste. In support of this effort, unique extended wear infusion set technology is expected to be part of our future portfolio. Control-IQ Advancements We are continuing to drive innovation in our algorithms, emphasizing automation, personalization and simplification to continue to improve therapeutic outcomes and provide a positive patient experience. In 2023, we began a pivotal study to support expanding indications to include people living with type 2 diabetes. In late 2023, our Control-IQ technology was cleared with additional features for people with type 1 diabetes age 2 and older. We are also researching the use of different insulins with our Control-IQ technology. Pump Reimbursement Cycle Insulin pumps in the markets we serve worldwide are generally subject to a four-year reimbursement cycle, imposed by the third-party insurance carrier, government plan or healthcare system that serves as the primary payor. At the end of the typical four-year reimbursement cycle, customers may be eligible to purchase a new insulin pump, subject to the rules and requirements of their primary insurance payor. While warranties generally expire four years from the original pump shipment date, those customers that renew typically take up to one year from date of warranty expiration to purchase a subsequent pump. While the majority of our insulin pump sales from initial commercialization through the current period have been generated by sales to new customers, the opportunity to make subsequent sales of renewal insulin pumps to existing customers increases each period as an escalating number of customer warranties expire. With programs dedicated to customer retention efforts, we expect such renewal purchases to represent an increasing portion of our pump shipments over time. For the four-year period ended December 31, 2023, we shipped approximately 450,000 insulin pumps worldwide, which is representative of our global in-warranty installed customer base. In this period, more than 310,000 pumps were shipped to customers in the United States and approximately 140,000 pumps in approximately 25 countries outside the United States. The ordering patterns of, and levels of inventory carried by, our distributors outside the United States for pumps and supplies have historically been highly variable from period to period due to a number of factors, including summer vacations, the timing of product launches into new geographies and variability due to supply chain logistics, particularly during the global pandemic. This also influences the timing in which renewal eligibility begins for existing customers, which may not initially be consistent with trends in the U.S. market. We recently began completing a full four-year reimbursement cycle in an increasing number of our markets outside of the United States. Trends and Uncertainties Impacting Financial Results Our financial condition and operating results have historically fluctuated on a quarterly or annual basis. We expect these periodic fluctuations will continue to be impacted by a number of trends and uncertainties, including the following: Regulatory Approvals and Actions • Sales of new products are subject to local government regulations. The requirements and timelines to receive regulatory clearance can vary substantially from country to country and delays may impact our ability to expand our worldwide customer base and bring products to market in a competitive timeframe. These delays, or failure to receive regulatory approval could adversely impact our revenue and results of operations. • Any adverse event involving any products that we distribute could result in future corrective actions, such as recalls or customer notifications, or regulatory agency action, which could include inspection, mandatory recall or other enforcement action. Any action by regulatory bodies against us, and any regulatory challenges we encounter could have a negative impact on our product sales and harm our reputation. 24 Product - Launches and Reimbursement • We expect our business to be impacted by the introduction of new diabetes devices and treatments by us or our competitors. The success of our products is variable and we believe it correlates to market acceptance, anticipated product launches and commercial availability. We anticipate that our Tandem Choice program, and its related financial and accounting impact, may continue to materially impact our business until the conclusion of the program. • We have historically experienced higher net sales in our third and fourth quarters compared to the first half of the year. We believe our July 2023 announcement of FDA clearance of Tandem Mobi and its anticipated launch impacted the timing of purchasing decisions by our current and prospective customers in the second half of 2023 up through the U.S. commercial availability of Tandem Mobi in February 2024, resulting in delays that were unlike historical seasonal patterns or purchasing behaviors. Regulatory approval and/or upcoming launches of other new Tandem or competitor products could also adversely impact timing of purchasing decisions. • In periods following new product launches, particularly with new hardware platforms, our cost of sales may increase on a per unit basis until the new products achieve manufacturing scale and operating expenses may be elevated by increased sales and marketing spend to support the product launches. • Our revenue and results of operations may be impacted by the failure to secure or retain adequate coverage or reimbursement for our current and future products from third-party payors, as well as changes in reimbursement structures. Foreign Markets • We have expanded our business and launched new products in select geographies outside the United States. The ordering patterns of our distributors outside the United States has been highly variable from period to period. For example, we began operations of a European distribution center beginning in the third quarter of 2022, which led to downward adjustments of inventory levels at our distributors starting in late 2022 and continuing through the first half of 2023. Seasonality • Seasonality in the United States is associated with annual insurance deductibles and coinsurance requirements of the medical insurance plans used by our customers and the customers of our distributors. In the United States, we typically experience a higher volume of pump shipments in the third and fourth quarters due to the nature of the reimbursement environment. Other factors that may impact sales across the year include the timing of winter, summer and other seasonal holidays, particularly in our markets outside the United States. Macroeconomic Factors • Global economic and market uncertainty, such as recessionary concerns, inflation, changes in discretionary spending and increased interest rates have impacted our customers’ purchasing decisions and the buying patterns of our distributors. • High inflation and the effects of other macroeconomic factors and concerns has disrupted and may continue to disrupt our relationships with suppliers, third-party manufacturers, healthcare providers, distributors and our existing or potential customers. 25 Components of Results of Operations Sales We offer products for people with insulin-dependent diabetes, including a portfolio of hardware platforms, single-use insulin cartridges and infusion sets, data management platforms and mobile applications. Our primary customers are the end users of our products, non-exclusive distribution partners whose level of service varies based on geography, the healthcare professionals who prescribe our products and the healthcare systems or payors who provide insurance coverage and access to our products. Our sales may fluctuate from period to period, particularly due to seasonality in the United States associated with the timing of insurance deductible resets, which generally reflect in a significant decline in pump shipments from any fourth quarter to the following first quarter. Therefore, the lowest percentage of sales is typically reported in the first quarter of each calendar year and the highest percentage is typically reported in the fourth quarter. See also “Trends and Uncertainties Impacting Financial Results—Seasonality” above. In September 2022, we began offering the Tandem Choice program to eligible t:slim X2 customers to provide a pathway to ownership of our newest hardware platform, Tandem Mobi, for a fee when available. We began selling Tandem Mobi insulin pumps in the first quarter of 2024 and eligibility for the Tandem Choice program ended in February 2024. 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. The accounting treatment for Tandem Choice is complex (see Note 2, “Summary of Significant Accounting Policies”). The program required the deferral of some portion of sales for shipments of eligible pumps between the third quarter of 2022 and the first quarter of 2024. No election was made by the customer at the time of the initial sale, nor did the right offered to the customer impact the economics associated with how or when the initial pump sale was reimbursed. If a customer elects to participate in Tandem Choice, we will recognize the existing deferral, incremental fees received and the associated costs of providing the new insulin pump, Tandem Mobi, at the time of fulfillment. Any remaining deferrals will be recognized at program expiration. The total Tandem Choice deferral was $31.5 million as of March 31, 2024. Cost of Sales Cost of sales includes raw materials, labor costs, manufacturing overhead expenses, product training costs, royalties, freight, reserves for expected warranty costs, costs of supporting our digital health platforms, scrap and charges for excess and obsolete inventories. Manufacturing overhead expenses include expenses relating to quality assurance, manufacturing engineering, material procurement, inventory control, facilities, equipment, information technology and operations supervision and management. When taking into consideration the differences in reimbursement levels and cost structure, pumps have, and are expected to continue to have, a higher gross profit and gross margin percentage than our pump-related supplies on a per unit basis. Therefore, the percentage of pump sales relative to total sales could have a significant impact on our overall gross margin percentage. Selling, General and Administrative Our selling, general and administrative (SG&A) expenses primarily consist of salary, cash-based incentive compensation, fringe benefits and non-cash stock-based compensation for our sales, marketing and administrative functions, which also includes our clinical, customer support, technical services, insurance verification and regulatory affairs personnel. Our sales territories in the United States are generally maintained by sales representatives and field clinical specialists, and supported by managed care liaisons, additional sales management and other customer support personnel. Other significant SG&A expenses typically include those incurred for commercialization activities associated with new product launches, travel, trade shows, outside legal fees, independent auditor fees, outside consultant fees, insurance premiums, facilities costs and information technology costs. Research and Development Our research and development (R&D) activities primarily consist of engineering and research programs associated with our hardware, software and digital health products under development, as well as activities associated with our core technologies and processes. R&D expenses are primarily related to employee compensation, including salary, cash-based incentive compensation, fringe benefits and non-cash stock-based compensation. We also incur R&D expenses for supplies, development prototypes, outside design and testing services, depreciation, allocated facilities and information services, clinical trials, payments under our licensing, development and commercialization agreements and other indirect costs. 26 Acquired In-process Research and Development (IPR&D) Acquired IPR&D reflects costs of external research and development projects acquired directly in a transaction other than a business combination, that do not have an alternative future use. Other Income and Expense Other income and expense primarily consists of interest earned on our cash equivalents and short-term investments, foreign currency transaction gains and losses, and interest expense which includes the amortization of debt issuance costs related to our convertible senior notes. Income Tax Expense (Benefit) Because the Company maintains a full valuation allowance against its net deferred tax assets, income tax expense is expected to primarily consist of current federal, state and foreign cash tax expense as a result of taxable income anticipated or incurred in those jurisdictions. Results of Operations Three Months Ended March 31, (in thousands, except percentages) 2024 2023 Sales: United States $ 129,761 $ 131,242 Outside the United States 61,913 38,141 Total sales 191,674 169,383 Cost of sales 97,002 86,476 Gross profit 94,672 82,907 Gross margin 49 % 49 % Operating expenses: Selling, general and administrative 90,106 89,814 Research and development 46,244 42,160 Acquired in-process research and development — 78,750 Total operating expenses 136,350 210,724 Operating loss (41,678) (127,817) Other income (expense), net: Interest income and other, net 5,314 5,865 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 $ (42,715) $ (123,873) Comparison of the Three Months Ended March 31, 2024 and 2023 Sales For the three months ended March 31, 2024, sales were $191.7 million, which included $61.9 million of sales outside the United States. For the three months ended March 31, 2024, we deferred $1.1 million of pump sales as the result of Tandem Choice, which launched in the United States in September of 2022 and for which eligibility to participate ended in February 2024 in conjunction with the launch of Tandem Mobi. Sales were $169.4 million for the same period in 2023, which included $38.1 million of sales outside the United States. For the three months ended March 31, 2023, we deferred $2.0 million of pump sales as the result of Tandem Choice. 27 Sales by product in the United States were as follows (in thousands): Three Months Ended March 31, 2024 2023 Approximate pump shipments 15,000 17,000 Sales: Pump $ 61,720 $ 66,457 Supplies and other 69,187 66,808 Deferral for Tandem Choice program (1,146) (2,023) Total Sales in the United States $ 129,761 $ 131,242 Pump sales in the United States were $61.7 million for the first quarter of 2024, compared to $66.5 million in the first quarter of 2023 as pump shipments decreased in the first quarter of 2024 compared to the same period in 2023. In February 2024, Tandem Mobi became commercially available in the U.S. through a staged launch, initially available with Dexcom G6 sensor integration. We believe anticipation of our newest technology, such as Tandem Mobi integration with the Dexcom G7 sensor, affected the timing of purchasing decisions, resulting in some customers delaying purchases to future periods. Sales of pump-related supplies increased primarily due to a year-over-year increase in our installed base of customers in the United States. Sales to distributors accounted for 61% and 65% of our total sales in the United States for the three months ended March 31, 2024 and 2023, respectively. Sales in the United States for the three months ended March 31, 2024 and 2023 were reduced by a deferral as the result of our Tandem Choice program which launched in September of 2022, for which eligibility to participate ended in February 2024, resulting in a reduction in the deferral compared to the prior year. Sales by product outside the United States were as follows (in thousands): Three Months Ended March 31, 2024 2023 Approximate pump shipments 10,000 6,000 Sales: Pump $ 25,567 $ 18,247 Supplies and other 36,346 19,894 Total Sales Outside the United States $ 61,913 $ 38,141 Pump sales outside the United States were $25.6 million for the first quarter of 2024, compared to $18.2 million in the first quarter of 2023. Pump sales and shipments increased due to an operational transition to a centralized European distribution center in the first half of 2023. Distributor ordering patterns were significantly disrupted during that transition period, which negatively affected pump and supply shipments and sales. The transition was completed by the second half of 2023. The increase in pump shipments was partially offset by a decrease in average selling prices due primarily to geographical mix. Sales of pump-related supplies increased due to a year-over-year increase in our installed base of customers outside the United States. Cost of Sales and Gross Profit Our cost of sales for the three months ended March 31, 2024 was $97.0 million , resulting in gross profit of $94.7 million, compared to cost of sales of $86.5 million and gross profit of $82.9 million for the same period in 2023. The gross margin for each of the three-month periods ended March 31, 2024 and 2023 was 49%. Gross profit for the three months ended March 31, 2024 and 2023 was reduced by $1.1 million and $2.0 million, respectively, from sales deferrals related to Tandem Choice. The effect of these sales deferrals was a gross margin reduction of one percentage point for both periods presented. The impact on gross margin from our Tandem Choice program will fluctuate through the end of the program based on the number of eligible customers who ultimately elect to participate. Excluding the impact of Tandem Choice, gross margin was consistent with the prior year. Gross margin benefited from pricing improvement and lower materials cost, offset by higher overhead on a per-unit basis as we scale volumes of Tandem Mobi in this initial launch phase. Gross margin was also impacted by product and geographical mix. Pump sales, which have the highest gross margin, were 45% of total worldwide sales, excluding the impact of Tandem Choice, in the first quarter of 2024, compared to 49% in the first quarter of 2023. 28 Operating Expenses Our operating expenses for the three months ended March 31, 2024 were $136.4 million, compared to $210.7 million for the three months ended March 31, 2023. The $74.4 million decrease was primarily driven by $78.8 million of acquired in-process research and development expenses incurred in 2023 in connection with our acquisition of AMF Medical, for which there was no comparable expense in the first quarter of 2024. Selling, General and Administrative Expenses. SG&A expenses were flat at $90.1 million for the three months ended March 31, 2024, compared to $89.8 million for the same period in 2023. Due to cost reduction efforts in 2023, our facilities expense decreased by $3.9 million and our headcount and employee-related spending was in line with the first quarter of the prior year. This improvement was offset by an increase in consulting, travel, and supplies expenses largely related to the launch of multiple new products, as well as IT software and services. Research and Development Expenses . R&D expenses increased to $46.2 million for the three months ended March 31, 2024, from $42.2 million for the same period in 2023. The increase in R&D expenses was primarily the result of a $2.4 million increase in employee benefits and salaries due to our acquisitions and an increase in personnel to support our product development efforts. We also experienced a $1.7 million increase in other non-employee discretionary spending, including clinical trial expenses, outside services and equipment costs. Acquired In-Process Research and Development Expenses. Acquired IPR&D expenses of $78.8 million for the three months ended March 31, 2023 represented the value of assets acquired, and acquisition related expenses, in connection with our acquisition of AMF Medical (see Note 12, “Acquisitions”). Other Income (Expense), Net Total other income (expense), net for the three months ended March 31, 2024 was $2.1 million income, compared to $4.2 million income in the same period in 2023. Other income, net for the three months ended March 31, 2024 primarily consisted of $5.3 million of interest income earned on our cash equivalents and short-term investments, partially offset by $1.9 million of interest expense which included the amortization of debt issuance costs related to our convertible senior notes due 2025 and 2029 (the 2025 Notes and the 2029 Notes, respectively). We also incurred a loss on debt extinguishment of $1.3 million during the quarter. Other income, net for the three months ended March 31, 2023 primarily consisted of $4.2 million of interest income earned on our cash equivalents and short-term investments and $1.6 million in foreign currency transaction gains, partially offset by $1.6 million of interest expense which included the amortization of debt issuance costs related to the 2025 Notes. Income Tax Expense We recognized income tax expense of $3.2 million on a pre-tax loss of $39.5 million for the three months ended March 31, 2024, compared to income tax expense of $0.3 million on a pre-tax loss of $123.6 million for the three months ended March 31, 2023. 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. Liquidity and Capital Resources At March 31, 2024, we had $467.8 million in cash and cash equivalents and short-term investments. We believe that our cash and cash equivalents, short-term investments, and future cash flows from operations will be sufficient to fund our ongoing core business activities for at least the next 12 months. Our historical cash outflows have primarily been associated with cash used for operating activities such as research and development activities, sales, marketing and commercialization of our products worldwide, expansion of clinical and customer support organizations, the acquisition of intellectual property, equity investments and acquired assets, capital expenditures and debt service costs. Historically, our principal sources of cash have included cash collected from product sales, private and public offerings of equity securities, exercises of employee stock awards, and debt financing. We expect to rely on these sources of cash, primarily from product sales, to fund our material cash requirements in both the short and long term. 29 The following table shows a summary of our cash flows for the three months ended March 31, 2024, and 2023 (in thousands): Three Months Ended March 31, 2024 2023 Net cash provided by (used in): Operating activities $ (7,996) $ (18,326) Investing activities (5,056) (26,329) 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) Operating Activities . Net cash used in operating activities was $8.0 million for the three months ended March 31, 2024, compared to $18.3 million cash used in the same period in 2023. For the three months ended March 31, 2024, net loss was $43.3 million, net non-cash adjustments were $29.8 million, and change in working capital balances was an increase of $5.5 million. For the three months ended March 31, 2023, net loss was $123.9 million, net non-cash adjustments were $105.5 million and change in working capital balances was a $0.1 million decrease. For the three months ended March 31, 2023, net non-cash adjustments included $78.8 million of acquired in-process research and development expenses related to our acquisition of AMF Medical. Investing Activities . Net cash used in investing activities was $5.1 million for the three months ended March 31, 2024, which primarily consisted of $84.2 million of purchases of short-term investments, and $4.5 million in purchases of property and equipment, offset by $83.7 million in proceeds from maturities and redemptions of short-term investments. Net cash used in investing activities was $26.3 million for the three months ended March 31, 2023, which was primarily related to $109.1 million of purchases of short-term investments, $69.5 million for the acquisition of AMF Medical, including transaction costs (see Note 12, “Acquisitions”), and $8.8 million in purchases of property and equipment, offset by $163.1 million in proceeds from maturities and redemptions of short-term investments. Financing Activities. Net cash provided by financing activities was $13.6 million for the three months ended March 31, 2024, which primarily consisted of net proceeds of $306.9 million from the issuance of the 2029 Notes which was partially offset by $246.1 million used in the repurchase of the 2025 Notes, $30.0 million used in the repurchase and retirement of common stock and $15.8 million used to purchase Capped Call Options related to the 2029 Notes. In addition, $1.5 million was used in payments for tax withholdings related to the issuance of common stock under our stock plans. Net cash used in financing activities was $0.5 million for the three months ended March 31, 2023, which primarily consisted of payments for tax withholdings related to the issuance of common stock under our stock plans. Our liquidity position and capital requirements are subject to fluctuation based on a number of factors. In particular, our cash inflows and outflows are principally impacted by the following: • our ability to generate sales, the timing of those sales, the mix of products sold and the collection of receivables from period to period; • contractual debt obligations, including periodic interest payments; • the timing of any additional financings, and the net proceeds raised from such financings; • the timing and amount of proceeds from the issuance of equity awards pursuant to employee stock plans; • fluctuations in gross and operating margins; and • fluctuations in working capital, including changes in accounts receivable, inventories, accounts payable, employee-related liabilities, and operating lease liabilities. Both our primary short-term and long-term capital needs are expected to include expenditures related to: • support of our commercialization efforts related to our current and future products; • expansion of our customer support resources for our growing installed customer base; 30 • research and product development efforts, including clinical trial costs; • acquisitions, including contingent earnout payments that become payable upon the achievement of certain milestones; • leasing or licensing of equipment, technology, intellectual property and other assets; • additional facilities leases and related tenant improvements; • investments for the development, improvement and acquisition of manufacturing, testing and packaging equipment to support business growth and increase capacity; • payments under licensing, development and commercialization agreements; and • integration costs related to acquisitions of businesses, products and technologies. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements and accompanying notes as of the date of the financial statements. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about our financial condition and results of operations that are not readily apparent from other sources. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies Involving Management Estimates and Assumptions,” included in our Annual Report on Form 10-K for the year ended December 31, 2023. 31