What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-06 compared with 2024-08-01 · 121 added, 113 removed, 224 unchanged (51% of the section changed)

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 June 30, 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.

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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.

Our goal is to address the individual needs of people with insulin-dependent diabetes and their care team, 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.

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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.

Throughout the first half of 2024, we scaled the commercial release of Tandem Mobi in the United States, first offering integration with the Dexcom G6 sensor beginning in February followed by the Dexcom G7 beginning in June.

The majority of our customers use their insulin pump with CGM integration.

Since the beginning of 2024, we scaled the commercial release of Tandem Mobi in the United States, first offering integration with the Dexcom G6 sensor beginning in February followed by the Dexcom G7 beginning in June.

The vast majority of our customers use their insulin pump with 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.

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Multiple studies, including three publications in the New England Journal of Medicine, have demonstrated that use of Control-IQ technology provides people across all demographics with improved clinical outcomes that are both immediate and sustained.

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.

The t:slim X2 was the first pump in the industry on which remote software updates were made commercially available in the United States and is now also available in the countries we serve worldwide.

This has allowed our t:slim X2 and Tandem Mobi customers to update their own pump software.

We believe 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 pump software updates to allow Tandem pump users access to integrate with new CGM sensors.

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.

We believe this offering is a competitive advantage that allows us to bring our customers clinical and lifestyle enhancements within their warranty cycle without having to purchase a new pump.

These enhancements include new developments in our AID technology, CGM integrations and mobile app features.

For example, in 2024 we offered pump software updates to allow Tandem pump users access to integrate with new CGM sensors.

For more than a decade we have offered our customers, their caregivers and healthcare providers a data management application to provide a fast, easy and visual way to display diabetes therapy management data from our pumps and integrated CGMs.

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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 late 2023, our Control-IQ technology was cleared with additional features for people with type 1 diabetes age 2 and older.

In the second quarter of 2024, we completed enrollment for a pivotal study to support expanding indications to include people living with type 2 diabetes.

In late 2023, an enhanced version of our Control-IQ technology was cleared with additional features for people with type 1 diabetes age 2 and older.

In the third quarter of 2024, we completed a pivotal study to support expanding indications to include people living with type 2 diabetes.

We are also pursuing the use of different insulins with our Control-IQ technology.

For example, in the second quarter of 2024, Health Canada approved the addition of Trurapi U-100 to the list of compatible insulins that can be used with our t:slim X2 pump with Control-IQ technology in Canada.

For example, in the first half of 2024 we received approval for both the addition of Trurapi U-100 in Canada and Lyumjev in the European Union as compatible insulins that can be used with our t:slim X2 pump with Control-IQ technology.

Pump Reimbursement Cycle

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This also influences the timing in which renewal eligibility begins for existing customers, which may not initially be consistent with trends in the United States market.

We recently began completing a full four-year reimbursement cycle in an increasing number of our markets outside of the United States.

We recently began completing full four-year reimbursement cycles in an increasing number of our markets outside of the United States.

Trends and Uncertainties Impacting Financial Results

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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 adverse event involving 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.

Product - Launches and Reimbursement

Markets, Seasonality, Competition, and Product Launches

• We expect our business to be impacted by the introduction of new diabetes devices and treatments by us or our competitors.

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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.

• 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 second half of the year 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.

• We believe our July 2023 announcement of U.S.

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• 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.

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For example, we began operations of a European distribution center which led to a reduction of inventory levels at our distributors, significantly impacting sales patterns in the second half of 2022 and first half of 2023.

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.

Reimbursement

• Our insulin pump products are generally considered durable medical equipment (DME) and have an expected lifespan of at least four years.

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.

• We generally have had broad insurance coverage for our current products from third-party payors.

Our revenue and results of operations may be impacted by the failure to secure or retain adequate coverage, changes in reimbursement structures or availability of affordable options for our customers.

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.

• Global economic and market uncertainty, such as recessionary concerns, changes in discretionary spending and increased interest rates have impacted our customers’ purchasing decisions and the buying patterns of our distributors.

• High inflation, fluctuations in foreign currency valuations 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.

Components of Results of Operations

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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 sales deferral, incremental fees received and the associated costs of goods sold of providing the new insulin pump, Tandem Mobi, at the time of fulfillment.

If a customer elects to participate in Tandem Choice, we will recognize the existing sales deferral, incremental fees received and the associated costs of goods sold for the new insulin pump, Tandem Mobi, at the time of fulfillment.

Qualifying customers were able to elect participation in Tandem Choice starting near the end of the second quarter of 2024.

Any remaining deferrals will be recognized when the program ends on December 31, 2024.

The balance of the Tandem Choice deferral was $31.0 million as of June 30, 2024.

Any remaining deferrals will be recognized when the program ends on December 31, 2024, provided all obligation under the Tandem Choice program are satisfied.

The balance of the Tandem Choice deferral was $ 30.1 million as of September 30, 2024.

Cost of Sales

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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.

In October 2023, we were notified that $3.1 million of additional interest beyond the 1.50% per annum had been accruing on the 2025 Notes since May 2021, pursuant to the terms of the indenture (see Note 7, “Debt”).

Income Tax Expense (Benefit)

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Three Months Ended

June 30, Six Months Ended June 30,

September 30, Nine Months Ended September 30,

(in thousands, except percentages) 2024 2023 2024 2023

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Net loss $ (23,251) $ (32,961) $ (96,780) $ (192,609)

Comparison of the Three Months Ended June 30, 2024 and 2023

For the three months ended June 30, 2024, we shipped more than 30,000 pumps worldwide.

Comparison of the Three Months Ended September 30, 2024 and 2023

For the three months ended September 30, 2024, we shipped more than 31,000 pumps worldwide.

Sales were $244.0 million, which included $72.3 million of sales outside the United States.

Sales were $195.9 million for the three months ended June 30, 2023, which included $53.4 million of sales outside the United States.

For the three months ended June 30, 2024, we recognized incremental pump sales of $0.2 million as a result of Tandem Choice fulfillment.

For the three months ended June 30, 2023, our revenues were reduced by $2.3 million for pump sales as a result of sales deferrals related to Tandem Choice.

The Tandem Choice program launched in the United States in September of 2022 and eligibility to participate in the program ended in February 2024 in conjunction with the launch of Tandem Mobi.

Sales were $185.6 million for the three months ended September 30, 2023, which included $55.4 million of sales outside the United States.

For the three months ended September 30, 2024, we recognized incremental pump sales of $1.0 million as a result of Tandem Choice fulfillments.

For the three months ended September 30, 2023, our revenues were reduced by $8.2 million for pump sales as a result of deferrals related to Tandem Choice.

The Tandem Choice program launched in the United States in September of 2022 and eligibility to participate in the program (and our associated sales deferrals) ended in February 2024 in conjunction with the launch of Tandem Mobi.

Sales by product in the United States were as follows (in thousands):

Three Months Ended

September 30,

Pump $ 86,722 $ 66,365

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Net revenue recognized (deferred) for Tandem Choice program

1,039 (8,236)

Total Sales in the United States $ 171,650 $ 130,222

Our pump shipments in the United States increased by 8% to more than 20,000 pumps in the second quarter of 2024 compared to the second quarter of 2023.

Pump sales in the United States were $81.7 million for the second quarter of 2024, compared to $74.4 million in the second quarter of 2023.

We also benefited from an increase in average selling prices.

The scaled launch of Tandem Mobi has impacted, and may continue to impact, the timing of customer purchases.

For example, Tandem Mobi became commercially available in the United States in February 2024 initially with Dexcom G6 sensor integration, followed by Dexcom G7 sensor integration in June 2024.

Pump sales in the United States were $86.7 million for the third quarter of 2024, compared to $66.4 million in the third quarter of 2023.

Our pump shipments in the United States increased more than 20% to nearly 21,000 pumps in the third quarter of 2024 compared to the third quarter of 2023.

We also benefited from an increase in average selling prices across all product lines due to price increases, customer mix and a continued shift to a higher percent of direct sales versus in our distribution channel.

Sales to distributors accounted for 61% and 64% of the Company’s United States sales for the three months ended September 30, 2024 and 2023, respectively.

Sales of pump-related supplies increased primarily due to a year-over-year increase in our installed base of customers in the United States, as well as an increase in average selling prices.

Sales in the United States for the three months ended June 30, 2023 were reduced by deferrals related to Tandem Choice for which eligibility to participate ended in February 2024.

The associated sales deferrals also ended in February 2024.

We began Tandem Choice fulfillment in the second quarter of 2024, resulting in incremental sales of $0.2 million.

Tandem Choice fulfillments in the third quarter of 2024 resulted in incremental sales of $1.0 million.

Sales in the United States for the three months ended September 30, 2023 were reduced by $8.2 million in sales deferrals related to Tandem Choice.

Sales by product outside the United States were as follows (in thousands):

Three Months Ended

September 30,

Pump $ 28,077 $ 21,672

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Total Sales Outside the United States $ 72,321 $ 55,400

Our pump shipments outside the United States decreased by 6% to nearly 10,000 pumps for the second quarter of 2024 compared to the second quarter of 2023.

Pump sales outside the United States were $26.1 million for the second quarter of 2024, compared to $27.3 million in the second quarter of 2023.

Pump sales and shipments decreased slightly due to variable pump ordering and stocking patterns, partially offset by an increase 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, as well as modest disruption related to an operational transition to a centralized European distribution center impacting orders in 2023.

Pump sales outside the United States were $28.1 million for the third quarter of 2024, compared to $21.7 million in the third quarter of 2023.

Our pump shipments outside the United States increased by over 30% to nearly 11,000 pumps for the third quarter of 2024 compared to the third quarter of 2023.

We also benefited from an increase 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 June 30, 2024 was $109.1 million , resulting in gross profit of $112.8 million, compared to cost of sales of $94.2 million and gross profit of $101.7 million for the same period in 2023.

The gross margin for the three-month periods ended June 30, 2024 and 2023 was 51% and 52%, respectively.

Gross profit for the three months ended June 30, 2023 was reduced by $2.3 million, or approximately one percentage point of gross margin due to Tandem Choice.

The effect of our Tandem Choice program on gross profit and gross margin was negligible for the three months ended June 30, 2024.

Our cost of sales for the three months ended September 30, 2024 was $119.3 million , resulting in gross profit of $124.7 million, compared to cost of sales of $95.9 million and gross profit of $89.8 million for the same period in 2023.

Cost of sales for the three months ended September 30, 2024 included a charge of $0.7 million for Tandem Choice fulfillments.

There was no comparable charge during the same period in 2023.

The gross margin for the three-month periods ended September 30, 2024 and 2023 was 51% and 48%, respectively.

The effect of our Tandem Choice program on gross profit and gross margin was negligible for the three months ended September 30, 2024.

Gross profit for the three months ended September 30, 2023 was reduced by $8.2 million, or approximately two percentage points of gross margin due to Tandem Choice.

The impact on gross margin from Tandem Choice will continue to 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 decreased compared to the prior year period.

Gross margin benefited from pricing improvement and lower materials cost, offset by higher labor and 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 49% of total worldwide sales, excluding the impact of Tandem Choice, in the second quarter of 2024, compared to 51% in the second quarter of 2023.

Excluding the impact of Tandem Choice, gross margin was flat compared to the prior year period.

Gross margin benefited from pricing improvement across all product lines and lower pump materials cost, offset by higher labor and overhead on a per-unit basis as we continued to scale the launch of Tandem Mobi.

Gross margin was positively impacted by product mix.

Pump sales, which have the highest gross margin, were 47% of total worldwide sales in the third quarter of 2024, compared to 43% in the third quarter of 2023.

Excluding the impact of Tandem Choice, pump sales for the third quarter of 2024 were 47% of worldwide sales and 45% of worldwide sales for the third quarter of 2023.

Operating Expenses

Our operating expenses for the three months ended June 30, 2024 were $143.6 million, compared to $140.5 million for the three months ended June 30, 2023.

Our operating expenses for the three months ended September 30, 2024 were $150.7 million, compared to $121.3 million for the three months ended September 30, 2023.

The $29.4 million increase was primarily driven by increased development efforts for pipeline products as well as the ramp up of sales and marketing for Mobi.

Selling, General and Administrative Expenses.

SG&A expenses were $94.2 million for the three months ended June 30, 2024, compared to $97.6 million for the same period in 2023, which included a one-time lease impairment charge of $14.1 million.

Due to cost reduction efforts in 2023, our facilities and IT equipment expenses decreased $1.8 million compared to the prior period.

This was offset by a $7.6 million increase in employee-related spending.

We also experienced an $4.9 million increase in outside services, supplies, and travel expenses largely related to the launch of multiple new products, as well as IT software and services.

SG&A expenses were $99.6 million for the three months ended September 30, 2024, compared to $79.3 million for the same period in 2023.

The $20.3 million increase was largely driven by higher employee-related expenses of $12.7 million due to increased headcount and overall higher cost of salaries and benefits.

We also experienced a $7.6 million increase in outside consulting and services largely to support business growth.

Research and Development Expenses .

R&D expenses increased to $49.3 million for the three months ended June 30, 2024, from $42.9 million for the same period in 2023.

R&D expenses increased to $51.1 million for the three months ended September 30, 2024, from $42.0 million for the same period in 2023.

The increase in R&D expenses was primarily the result of an increase of $6.0 million in employee benefits and salaries due to an increase in personnel to support our product development efforts.

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Other Income (Expense), Net

Total other income (expense), net for the three months ended June 30, 2024 was $1.0 million income, compared to $4.2 million income in the same period in 2023.

Other income, net for the three months ended June 30, 2024 primarily consisted of $5.3 million of interest income earned on our cash equivalents and short-term investments, partially offset by a $2.0 million impairment on a strategic investment in a private company, and $1.8 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).

Other income, net for the three months ended June 30, 2023 primarily consisted of $5.1 million of interest income earned on our cash equivalents and short-term investments and $0.7 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.

Total other income (expense), net for the three months ended September 30, 2024 was $3.5 million income, compared to $0.8 million income in the same period in 2023.

Other income, net for the three months ended September 30, 2024 primarily consisted of $5.6 million of interest income earned on our cash equivalents and short-term investments, and $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).

Other income, net for the three months ended September 30, 2023 primarily consisted of $5.9 million of interest income earned on our cash equivalents and short-term investments partially offset by $4.8 million of interest expense which included $3.1 million of additional accrued interest as discussed above, as well as the amortization of debt issuance costs related to the 2025 Notes.

Income Tax Expense

We recognized income tax expense of $1.1 million on a pre-tax loss of $29.7 million for the three months ended June 30, 2024, compared to income tax expense of $1.1 million on a pre-tax loss of $34.6 million for the three months ended June 30, 2023.

Income tax expense for the three months ended June 30, 2024 and 2023 was primarily attributable to federal, state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

Comparison of the Six Months Ended June 30, 2024 and 2023

For the six months ended June 30, 2024, we shipped more than 55,000 pumps worldwide.

We recognized income tax expense of $0.6 million on a pre-tax loss of $22.6 million for the three months ended September 30, 2024, compared to income tax expense of $2.2 million on a pre-tax loss of $30.7 million for the three months ended September 30, 2023.

Income tax expense for the three months ended September 30, 2024 and 2023 was primarily attributable to state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

Comparison of the Nine Months Ended September 30, 2024 and 2023

For the nine months ended September 30, 2024, we shipped nearly 87,000 pumps worldwide.

Sales were $657.6 million, which included $199.4 million of sales outside the United States.

For the six months ended June 30, 2024, our revenues were reduced by $1.0 million of pump sales as a result of sales deferrals related to our Tandem Choice program.

Pump sales after February 2024 were not eligible for Tandem Choice.

For the nine months ended September 30, 2024, there was negligible net impact to our revenues as a result of sales deferrals and fulfillments related to our Tandem Choice program.

Pump sales that occurred after February 2024 were not eligible for Tandem Choice.

Sales were $550.9 million for the same period in 2023, which included $147.0 million of sales outside the United States.

For the six months ended June 30, 2023, we deferred $4.3 million of pump sales as the result of Tandem Choice.

For the nine months ended September 30, 2023, we deferred $12.6 million of pump sales as the result of Tandem Choice.

Sales by product in the United States were as follows (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Pump $ 230,187 $ 207,180

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Net revenue recognized (deferred) for Tandem Choice program

(992) (4,332)

Total Sales in the United States $ 458,122 $ 403,964

Our pump shipments in the United States decreased by 1% to nearly 36,000 pumps for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Pump sales in the United States were $143.5 million for the six months ended June 30, 2024, compared to $140.8 million for the same period in 2023.

We also benefited from an increase in average selling prices.

Pump sales in the United States were $230.2 million for the nine months ended September 30, 2024 compared to $207.2 million for the same period in 2023.

Our pump shipments in the United States increased by nearly 10% to more than 56,000 pumps for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

The scaled launch of Tandem Mobi has impacted, and may continue to impact, the timing of customer purchases across the quarters.

For example, Tandem Mobi became commercially available in the United States in February 2024 initially with Dexcom G6 sensor integration, followed by Dexcom G7 sensor integration in June 2024.

Sales of pump-related supplies increased primarily due to a year-over-year increase in our ending estimated installed base of customers in the United States, as well as increase in average selling prices.

Sales in the United States for the six months ended June 30, 2024 and 2023 were reduced by $1.0 million and $4.3 million, respectively, as the result of net sales deferrals related to our Tandem Choice program.

The net sales impact from revenue deferrals and fulfillments of our Tandem Choice program in the United States for the nine months ended September 30, 2024 was negligible.

For the nine months ended September 30, 2023, revenues were reduced by $12.6 million as the result of sales deferrals related to Tandem Choice.

The decrease in the net revenue deferral for Tandem Choice in 2024 as compared to 2023 was primarily due to the cessation of the sales deferral period in February 2024, which coincided with the launch of Tandem Mobi.

Pump sales that occurred after February 2024 were not eligible for Tandem Choice, nor subject to a sales deferral.

We began Tandem Choice fulfillment in the second quarter of 2024 resulting in incremental sales of $0.2 million for the six months ended June 30, 2024.

Sales by product outside the United States were as follows (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Pump $ 79,774 $ 67,235

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Total Sales Outside the United States $ 199,433 $ 146,958

Our pump shipments outside the United States increased by 17% to more than 19,000 pumps for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Pump sales outside the United States were $51.7 million for the six months ended June 30, 2024, compared to $45.6 million for the same period in 2023.

Pump sales and shipments increased due primarily 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.

Our pump shipments outside the United States increased by over 20% to more than 30,000 pumps for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Pump sales outside the United States were $79.8 million for the nine months ended September 30, 2024, compared to $67.2 million for the same period in 2023.

Throughout 2024, we have seen increased customer demand for our products.

In the first half of 2023, pump and supply shipments were impacted by an operational transition to a centralized European distribution center which resulted in significant disruption in distributor ordering patterns.

The transition was completed by the second half of 2023.

The increase in pump sales was offset by a slight decrease in average selling prices due primarily to geographical mix.

The increase in pump sales was offset by a slight decrease in pump average selling prices due primarily to geographical mix.

In addition to the distribution center transition, sales of pump-related supplies outside the United States increased due to growth in our installed base of customers.

Sales to distributors accounted for the overwhelming majority of our total sales outside the United States for the six-month periods ended June 30, 2024, and 2023.

Sales to distributors accounted for the overwhelming majority of our total sales outside the United States for the nine-month periods ended September 30, 2024, and 2023.

Cost of Sales and Gross Profit

Our cost of sales for the six months ended June 30, 2024 was $206.1 million resulting in gross profit of $207.5 million, compared to cost of sales of $180.7 million and gross profit of $184.6 million for the same period in 2023.

The gross margin for the six months ended June 30, 2024 was 50% compared to 51% in the same period in 2023.

The effect of Tandem Choice was negligible for the six months ended June 30, 2024 compared to a gross margin reduction of approximately 1 percentage point for the six months ended June 30, 2023.

Our cost of sales for the nine months ended September 30, 2024 was $325.4 million resulting in gross profit of $332.1 million, compared to cost of sales of $276.5 million and gross profit of $274.4 million for the same period in 2023.

The gross margin for the nine months ended September 30, 2024 was 51% compared to 50% in the same period in 2023.

The effect of Tandem Choice was negligible for the nine months ended September 30, 2024 compared to a gross margin reduction of approximately 1 percentage point for the nine months ended September 30, 2023.

The impact on gross margin from our Tandem Choice program will fluctuate through the expiration of the program based on the number and timing of eligible customers who ultimately elect to participate.

Excluding the impact of Tandem Choice, gross margin for the six months ended June 30, 2024 was 50 percent compared to 51 percent in the same period of the prior year.

Gross margin benefited from pricing improvement and lower materials cost, offset by higher labor and overhead costs on a per-unit basis as we scale volumes of Tandem Mobi in our initial launch phase.

Gross margin was also impacted by product and geographical mix.

Pump sales, which have the highest gross margin, were 47% of total worldwide sales, excluding the impact of Tandem Choice, in the first six months of 2024, compared to 50% in the first six months of 2023.

Gross margin benefited from pricing improvement and lower materials cost, offset by higher labor and overhead costs on a per-unit basis as we continue to scale the launch of Tandem Mobi.

Gross margin was negatively impacted by product mix.

Pump sales, which have the highest gross margin, were 47% of total worldwide sales for the nine months ended September 30, 2024, compared to 48% of worldwide sales for the first nine months of 2023.

Excluding the impact of Tandem Choice, pump sales for the nine months ended September 30, 2024 were 47% of total worldwide sales compared to 49% in the first nine months of 2023.

Operating Expenses

Our operating expenses for the six months ended June 30, 2024 were $279.9 million, compared to $351.3 million for the six months ended June 30, 2023.

Our operating expenses for the nine months ended September 30, 2024 were $430.7 million, compared to $472.6 million for the nine months ended September 30, 2023.

The $41.9 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 2024.

In 2023, we also incurred a non-recurring operating lease impairment charge in SG&A of $14.1 million as a result of a facilities consolidation (see Note 6, “Leases”), and employee severance costs of $2.7 million.

These non-recurring expenses from 2023 were partially offset by higher operating expenses in 2024 related to development efforts for pipeline products as well as the ramp up of sales and marketing for Tandem Mobi.

Selling, General and Administrative Expenses.

SG&A expenses decreased 2% to $184.3 million for the six months ended June 30, 2024, from $187.4 million for the same period in 2023.

Expenses decreased due to non-recurring expenses of $14.1 million related to lease impairment charges and $2.1 million in severance costs in 2023, offset by current year increases of $12.9 million in employee-related and marketing and consulting expenses which related to new product launches.

SG&A expenses increased 6% to $284.0 million for the nine months ended September 30, 2024, from $266.8 million for the same period in 2023.

Expenses for the nine months ended September 30, 2023 included non-recurring expenses of $14.1 million related to lease impairment charges and $2.1 million in severance costs in 2023.

Expenses for the nine months ended September 30, 2024 increased mainly due to higher employee-related, marketing and consulting expenses which related to new product launches.

Research and Development Expenses .

R&D expenses increased 12% to $95.6 million for the six months ended June 30, 2024, from $85.1 million for the same period in 2023.

R&D expenses increased 15% to $146.7 million for the nine months ended September 30, 2024, from $127.1 million for the same period in 2023.

The increase in R&D expenses was primarily the result of an increase in salaries and related benefits from our acquisitions and an increase in personnel to support our product development efforts.

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Acquired In-Process Research and Development Expenses.

Acquired IPR&D expenses of $78.8 million for the six months ended June 30, 2023 represented the value of assets acquired, and acquisition related expenses, in connection with our acquisition of AMF Medical (see Note 12, “Acquisitions”).

Acquired IPR&D expenses of $78.8 million for the nine months ended September 30, 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 six months ended June 30, 2024 was $3.2 million income, compared to $8.4 million expense in the same period in 2023.

Other income, net for the six months ended June 30, 2024 primarily consisted of $10.8 million of interest income earned on our cash equivalents and short-term investments, partially offset by $3.7 million of interest expense which included the amortization of debt issuance costs related to our 2025 Notes and 2029 Notes.

Other income, net for the six months ended June 30, 2023 primarily consisted of $9.3 million of interest income earned on our cash equivalents and short-term investments, and $2.3 million in foreign currency transaction gains, partially offset by $3.2 million of interest expense which included the amortization of debt issuance costs related to our 2025 Notes.

Total other income (expense), net for the nine months ended September 30, 2024 was $6.7 million income, compared to $9.2 million income in the same period in 2023.

Other income, net for the nine months ended September 30, 2024 primarily consisted of $16.7 million of interest income earned on our cash equivalents and short-term investments, partially offset by $5.6 million of interest expense which included the amortization of debt issuance costs related to our 2025 Notes and 2029 Notes.

Other income, net for the nine months ended September 30, 2023 primarily consisted of $15.2 million of interest income earned on our cash equivalents and short-term investments, and $2.0 million in foreign currency transaction gains, partially offset by $8.1 million of interest expense which included $3.1 million of additional interest as discussed above and the amortization of debt issuance costs related to our 2025 Notes.

Income Tax Expense

We recognized income tax expense of $4.3 million on a pre-tax loss of $69.3 million for the six months ended June 30, 2024, compared to income tax expense of $1.4 million on a pre-tax loss of $158.2 million for the six months ended June 30, 2023.

Income tax expense for the six months ended June 30, 2024 and 2023 was primarily attributable to federal, state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

We recognized income tax expense of $4.9 million on a pre-tax loss of $91.9 million for the nine months ended September 30, 2024, compared to income tax expense of $3.7 million on a pre-tax loss of $188.9 million for the nine months ended September 30, 2023.

Income tax expense for the nine months ended September 30, 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 June 30, 2024, we had $452.4 million in cash and cash equivalents and short-term investments.

At September 30, 2024, we had $473.3 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.

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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.

The following table shows a summary of our cash flows for the six months ended June 30, 2024, and 2023 (in thousands):

Six Months Ended June 30,

The following table shows a summary of our cash flows for the nine months ended September 30, 2024, and 2023 (in thousands):

Nine Months Ended September 30,

Net cash provided by (used in):

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Operating Activities .

Net cash used in operating activities was $13.3 million for the six months ended June 30, 2024, compared to $24.6 million cash used in the same period in 2023.

For the six months ended June 30, 2024, net loss was $73.5 million, net non-cash adjustments were $63.8 million, and change in working capital balances was an increase of $3.6 million.

For the six months ended June 30, 2023, net loss was $159.6 million, net non-cash adjustments were $150.3 million and change in working capital balances was a $15.3 million decrease.

For the six months ended June 30, 2023, net non-cash adjustments included $78.8 million of acquired in-process research and development expenses related to our acquisition of AMF Medical.

Net cash provided by operating activities was $13.5 million for the nine months ended September 30, 2024, compared to $24.6 million cash used in the same period in 2023.

For the nine months ended September 30, 2024, net loss was $96.8 million, net non-cash adjustments were $98.8 million, and change in working capital balances was an increase of $11.5 million.

For the nine months ended September 30, 2023, net loss was $192.6 million, net non-cash adjustments were $177.4 million and change in working capital balances was a decrease of $9.4 million.

For the nine months ended September 30, 2023, net non-cash adjustments included $78.8 million of acquired in-process research and development expenses related to our acquisition of AMF Medical, and a $14.1 million operating lease impairment charge.

Investing Activities .

Net cash used in investing activities was $8.6 million for the six months ended June 30, 2024, which primarily consisted of $177.7 million of purchases of short-term investments, and $10.9 million in purchases of property and equipment, offset by $180.1 million in proceeds from maturities and redemptions of short-term investments.

Net cash used in investing activities was $20.6 million for the six months ended June 30, 2023, which was primarily related to $235.5 million of purchases of short-term investments, $69.5 million for the acquisition of AMF Medical, including transaction costs (see Note 12, “Acquisitions”), and $16.2 million in purchases of property and equipment, offset by $303.1 million in proceeds from maturities and redemptions of short-term investments.

Net cash used in investing activities was $28.5 million for the nine months ended September 30, 2024, which primarily consisted of $251.4 million of purchases of short-term investments, and $16.2 million in purchases of property and equipment, offset by $239.0 million in proceeds from maturities and redemptions of short-term investments.

Net cash used in investing activities was 69.2 million for the nine months ended September 30, 2023, which was primarily related to $391.0 million of purchases of short-term investments, $69.5 million for the acquisition of AMF Medical, including transaction costs (see Note 12, “Acquisitions”), and $21.6 million in purchases of property and equipment, of which $8.7 million was associated with improvements to the new headquarters lease facility, completed in 2023, offset by $415.5 million in proceeds from maturities and redemptions of short-term investments.

Financing Activities.

Net cash provided by financing activities was $10.6 million for the six months ended June 30, 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 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.

Net cash provided by financing activities was $6.1 million for the nine months ended September 30, 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 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, $9.0 million was used in payments for tax withholdings related to the issuance of common stock under our stock plans, net of proceeds received from common stock issuances for the period.

Net cash provided by financing activities was $3.4 million for the six months ended June 30, 2023, which primarily consisted of proceeds from the issuance of common stock under our stock plans, net of payments for related tax withholdings.

Net cash provided by financing activities was $1.5 million for the nine months ended September 30, 2023, which primarily consisted of proceeds from the issuance of common stock under our stock plans, net of payments for related tax withholdings.

Our liquidity position and capital requirements are subject to fluctuation based on a number of factors.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis