TANDEM DIABETES CARE INC 10-K

Item 7A. Quantitative and Qualitative Disclosures about Market Risk. Credit and Interest Rate Risks We invest our excess cash in marketable securities consisting primarily of U.S. Treasury securities, U.S. Government-sponsored enterprise securities, commercial paper and corporate debt securities. Some of the financial instruments in which we invest subject us to market risk, in that a change in prevailing interest rates may cause the principal amount of the instrument to fluctuate. Other financial instruments in which we invest subject us to credit risk, in that the value of the instrument may fluctuate based on the issuer’s ability to pay. Credit rating agencies have, from time to time, issued downgrades or revised outlooks to negative for certain issuers of the debt securities held in our short-term investment portfolio. We review our portfolio of available-for-sale debt securities quarterly to determine if any investment is impaired due to changes in credit risk or other potential valuation concerns. Unrealized losses on available-for-sale debt securities at December 31, 2024 were primarily due to an increase in market interest rates after certain debt securities were purchased. Based on the credit quality of the available-for-sale debt securities in an unrealized loss position, and our current estimates of future cash flows to be collected from those securities, we believe the unrealized losses were not credit losses (see Note 3, “Short-Term Investments”). The primary objectives of our investment activities are to maintain liquidity and preserve principal while maximizing the income we receive from our financial instruments without significantly increasing risk. We have established guidelines regarding approved investments and maturities of investments, which are primarily designed to maintain liquidity and preserve principal. Because of the short-term maturities of our financial instruments, we do not believe that an increase or decrease in market interest rates would have a significant impact on the realized value of our investment portfolio. A hypothetical 100 basis-point (one percentage point) increase or decrease in interest rates compared to actual rates at December 31, 2024, would have affected the estimated fair value of our investments portfolio by approximately $3.4 million. In March 2024, we issued $316.3 million principal amount of Convertible Senior Notes, due in 2029, which bear interest at a fixed rate of 1.50% per year. In May 2020, we issued $287.5 million principal amount of Convertible Senior Notes, which bear interest at a fixed rate of 1.50% per year, of which $40.8 million principal amount remained outstanding as of December 31, 2024. Accordingly, we are not subject to interest rate risk related to the Convertible Senior Notes (see Note 7, “Debt”). Foreign Currency Exchange Rate Risk Our operations are primarily located in the United States. In addition, we have a sales and marketing office in Canada, a distribution center in the Netherlands and, beginning in 2023, a research and development facility in Switzerland associated with the acquisition of AMF Medical. Our sales to customers in the United States are made in U.S. dollars. Sales from our distribution center in the Netherlands are made to independent distributors under agreements denominated in Euros, and our sales in Canada are denominated in Canadian dollars. Approximately 28% of our revenue was denominated in foreign currencies for the year ended December 31, 2024. In addition, we purchase certain inventory from a third-party contract manufacturer located in Mexico. We believe our exposure to foreign currency rate fluctuations is primarily related to our operations in Europe and Canada, and acquisition related contingent earnout payments (see Note 12, “Acquisitions”), where fluctuations in the rate of exchange between the U.S. dollar and the local currency could adversely affect our financial results, including income and losses as well as assets and liabilities. As we expand and further develop our operations in markets outside the United States, particularly in Europe, we will be exposed to additional foreign currency exchange rate risk. In addition, from time to time, we have foreign currency exchange risk related to existing assets and liabilities, certain inventory purchase agreements, other committed transactions and forecasted future cash flows. In certain circumstances, we may seek to manage such foreign currency exchange risk by using derivative instruments such as foreign currency exchange forward contracts to hedge our risk. However, we may choose not to hedge some exposures for a variety of reasons, including prohibitive economic costs. 65 Item 8. Consolidated Financial Statements and Supplementary Data. Our consolidated financial statements as of December 31, 2024 and 2023 and for each of the three years in the period ended December 31, 2024, and the Report of the Independent Registered Public Accounting Firm are included in this report as listed in the index. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 67 Consolidated Balance Sheets as of December 31, 2024 and 2023 69 Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2024 , 2023 and 2022 70 Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2024 , 2023 and 2022 71 Consolidated Statements of Cash Flows for the Years ended December 31, 2024 , 2023 and 2022 72 Notes to Consolidated Financial Statements 73 66 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Tandem Diabetes Care, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Tandem Diabetes Care, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 26, 2025 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 67 Warranty reserve – estimation of expected replacement rates Description of the Matter As discussed in Note 2 to the consolidated financial statements, the Company has a warranty reserve of $51.4 million. The Company accrues for costs related to the warranty reserve liability at the time of shipment. Warranty costs are estimated primarily based on the expected replacement rates utilizing historical experience. Auditing management’s expected replacement rates on pumps was complex as it required a significant level of effort due to the amount of data utilized in determining the expected replacement rates. Management’s estimate considers historical claims experience and the assumption of historical data predictive of future activity and events. It is possible that the future replacement rates may not be reflective of historical product replacement rates and changes in this assumption could have a material impact on the Company’s estimated reserve. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the warranty reserve process. Specifically, we tested controls over management's review and calculation of the expected replacement rates, including controls over the accuracy and completeness of data used. To test the Company’s expected replacement rates, we performed audit procedures that included, among others, testing the completeness and accuracy of the underlying data used in the calculation. We involved our data science professionals to evaluate the methodologies and assumptions and test the calculations used by the Company. We recalculated the warranty expected replacement rates using historical data. We performed sensitivity analyses of the expected replacement rates assumption to evaluate the impact of changes in the warranty reserve. /s/ Ernst & Young LLP We have served as the Company's auditor since 2009. San Diego, California February 26, 2025 68 TANDEM DIABETES CARE, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except par value) December 31, December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 69,234 $ 58,868 Short-term investments 369,095 409,044 Accounts receivable, net 114,585 105,555 Inventories 149,612 157,937 Prepaid and other current assets 21,965 16,585 Total current assets 724,491 747,989 Property and equipment, net 78,150 76,542 Operating lease right-of-use assets 85,306 87,791 Equity method investments 74,545 — Other long-term assets 5,166 40,336 Total assets $ 967,658 $ 952,658 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 44,730 $ 49,586 Accrued expenses 18,170 12,726 Employee-related liabilities 64,128 43,430 Current portion of convertible senior notes, net 40,670 — Operating lease liabilities 18,208 17,060 Deferred revenue 11,831 43,994 Other current liabilities 49,312 28,462 Total current liabilities 247,049 195,258 Convertible senior notes, net - long-term 308,266 285,035 Operating lease liabilities - long-term 106,421 113,572 Deferred revenue - long-term 10,455 13,331 Other long-term liabilities 32,369 31,830 Total liabilities 704,560 639,026 Commitments and contingencies (Note 13) — — Stockholders’ equity: Common stock, $ 0.001 par value; 200,000 shares authorized, 66,264 and 65,552 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively. 66 66 Additional paid-in capital 1,312,804 1,263,997 Accumulated other comprehensive income (loss) ( 1,947 ) 1,369 Accumulated deficit ( 1,047,825 ) ( 951,800 ) Total stockholders’ equity 263,098 313,632 Total liabilities and stockholders’ equity $ 967,658 $ 952,658 The accompanying notes are an integral part of the consolidated financial statements. 69 TANDEM DIABETES CARE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except per share data) Year Ended December 31, 2024 2023 2022 Sales $ 940,203 $ 747,718 $ 801,217 Cost of sales 450,629 380,028 388,231 Gross profit 489,574 367,690 412,986 Operating expenses: Selling, general and administrative 389,824 352,503 335,681 Research and development 198,877 169,667 139,114 Acquired in-process research and development expenses — 78,750 31,039 Total operating expenses 588,701 600,920 505,834 Operating loss ( 99,127 ) ( 233,230 ) ( 92,848 ) Other income (expense), net: Interest income and other, net 17,993 22,858 6,057 Interest expense ( 7,415 ) ( 9,882 ) ( 6,208 ) Loss from equity method investments ( 2,053 ) — — Loss on extinguishment of debt ( 1,268 ) — — Change in fair value of common stock warrants — — 147 Total other income (expense), net 7,257 12,976 ( 4 ) Loss before income taxes ( 91,870 ) ( 220,254 ) ( 92,852 ) Income tax expense 4,155 2,357 1,742 Net loss $ ( 96,025 ) $ ( 222,611 ) $ ( 94,594 ) Other comprehensive income (loss): Unrealized gain (loss) on short-term investments $ ( 311 ) $ 3,606 $ ( 2,233 ) Foreign currency translation gains (losses) ( 3,005 ) ( 420 ) 1,032 Comprehensive loss $ ( 99,341 ) $ ( 219,425 ) $ ( 95,795 ) Net loss per share - basic and diluted $ ( 1.47 ) $ ( 3.43 ) $ ( 1.47 ) Weighted average shares used to compute basic and diluted net loss per share 65,451 64,969 64,146 The accompanying notes are an integral part of the consolidated financial statements. 70 TANDEM DIABETES CARE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) Common Stock Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Balance at December 31, 2021 63,833 $ 64 $ 1,068,259 $ ( 616 ) $ ( 634,595 ) $ 433,112 Exercise of stock options 280 1 9,130 — — 9,131 Vesting of restricted stock units, net of shares withheld for taxes 131 — ( 4,374 ) — — ( 4,374 ) Issuance of common stock under Employee Stock Purchase Plan 263 — 12,713 — — 12,713 Exercise of common stock warrants 6 — 83 — — 83 Stock-based compensation expense — — 85,077 — — 85,077 Unrealized loss on short-term investments — — — ( 2,233 ) — ( 2,233 ) Foreign currency translation gains — — — 1,032 — 1,032 Net loss — — — — ( 94,594 ) ( 94,594 ) Balance at December 31, 2022 64,513 $ 65 $ 1,170,888 $ ( 1,817 ) $ ( 729,189 ) $ 439,947 Exercise of stock options 73 — 1,295 — — 1,295 Vesting of restricted stock units, net of shares withheld for taxes 467 — ( 7,790 ) — — ( 7,790 ) Issuance of common stock under Employee Stock Purchase Plan 499 1 10,678 — — 10,679 Stock-based compensation expense — — 88,926 — — 88,926 Unrealized gain on short-term investments — — — 3,606 — 3,606 Foreign currency translation losses — — — ( 420 ) — ( 420 ) Net loss — — — — ( 222,611 ) ( 222,611 ) Balance at December 31, 2023 65,552 $ 66 $ 1,263,997 $ 1,369 $ ( 951,800 ) $ 313,632 Stock repurchases and retirement of shares ( 1,107 ) ( 1 ) ( 29,999 ) — — ( 30,000 ) Exercise of stock options 112 — 2,233 — — 2,233 Vesting of restricted stock units, net of shares withheld for taxes 937 1 ( 21,160 ) — — ( 21,159 ) Issuance of common stock under Employee Stock Purchase Plan 770 — 12,195 — — 12,195 Stock-based compensation expense 101,167 — — 101,167 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 — — — ( 311 ) — ( 311 ) Foreign currency translation losses — — — ( 3,005 ) — ( 3,005 ) Net loss — — — — ( 96,025 ) ( 96,025 ) Balance at December 31, 2024 66,264 $ 66 $ 1,312,804 $ ( 1,947 ) $ ( 1,047,825 ) $ 263,098 The accompanying notes are an integral part of the consolidated financial statements. 71 TANDEM DIABETES CARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2024 2023 2022 Operating Activities Net loss $ ( 96,025 ) $ ( 222,611 ) $ ( 94,594 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization expense 16,607 15,715 14,330 Amortization of debt issuance costs 2,089 2,204 1,896 Provision for expected credit losses 9,979 5,540 4,782 Operating lease termination and other impairment charges 2,000 14,099 7,567 Accretion (amortization) of discount or premium on short-term investments ( 2,321 ) 3,587 4,187 Losses from equity method investee 2,053 — — Stock-based compensation expense 101,383 88,076 84,918 Loss on extinguishment of debt 1,268 — — Acquired in-process research and development expenses — 78,750 31,039 Other ( 1,027 ) 515 988 Changes in operating assets and liabilities: Accounts receivable, net ( 20,795 ) 4,277 ( 7,830 ) Inventories 5,810 ( 46,053 ) ( 42,452 ) Prepaid and other current assets ( 5,565 ) ( 9,139 ) ( 58 ) Other long-term assets 893 ( 3,187 ) ( 1,207 ) Accounts payable and accrued expenses ( 2,392 ) ( 4,864 ) 24,493 Accrued expenses 5,550 2,537 ( 461 ) Employee-related liabilities 20,859 5,167 ( 12,869 ) Deferred revenue ( 34,736 ) 21,525 8,358 Operating leases and other current liabilities 17,597 4,302 25,445 Other long-term liabilities 998 7,750 1,932 Net cash provided by (used in) operating activities 24,225 ( 31,810 ) 50,464 Investing Activities Purchases of short-term investments ( 264,311 ) ( 510,859 ) ( 467,652 ) Proceeds from maturities and redemptions of short-term investments 306,464 546,218 569,492 Purchases of property and equipment ( 19,231 ) ( 26,804 ) ( 34,097 ) Acquisitions, including in-process research and development, net of cash acquired — ( 69,496 ) ( 25,720 ) Purchases of equity investments, strategic investments, and intangible assets ( 46,404 ) ( 24,799 ) ( 8,855 ) Net cash provided by (used in) investing activities ( 23,482 ) ( 85,740 ) 33,168 Financing Activities Proceeds from issuance of convertible senior notes due 2029, net of $ 9,400 debt issuance costs 306,850 — — 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 ( 15,813 ) — — Repurchase and retirement of common stock ( 30,000 ) — — Proceeds from issuance of common stock under Company stock plans, net of cash used to settle withholding taxes on vested restricted stock ( 6,730 ) 4,184 17,469 Other financing activities 183 ( 71 ) ( 592 ) Net cash provided by financing activities 8,367 4,113 16,877 Effect of foreign exchange rate changes on cash 1,256 ( 212 ) 827 Net increase (decrease) in cash and cash equivalents 10,366 ( 113,649 ) 101,336 Cash and cash equivalents at beginning of period 58,868 172,517 71,181 Cash and cash equivalents at end of period $ 69,234 $ 58,868 $ 172,517 Supplemental disclosures of cash flow information Interest paid $ 3,076 $ 7,565 $ 4,313 Income taxes paid $ 3,098 $ 1,923 $ 411 Supplemental schedule of non-cash investing and financing activities Operating lease right-of-use assets obtained in exchange for operating lease obligations $ 4,370 $ — $ 114,003 Purchases of property and equipment included in accounts payable $ 511 $ 2,946 $ 4,237 The accompanying notes are an integral part of the consolidated financial statements. 72 TANDEM DIABETES CARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation The Company Tandem Diabetes Care, a global insulin delivery and diabetes technology company, manufactures and sells advanced automated insulin delivery systems that reduce the burden of diabetes management, while creating new possibilities for patients, their loved ones and healthcare providers. Tandem Diabetes Care, Inc. is incorporated in the state of Delaware. Unless the context requires otherwise, the terms the “Company” or “Tandem” refer to Tandem Diabetes Care, Inc., together with its wholly-owned subsidiaries. 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 recently expanded its insulin pump portfolio, which now includes both the t:slim X2 and the Tandem Mobi. Both pumps feature Control-IQ technology, which is the Company’s advanced algorithm for managing insulin delivery, using information received from integrated continuous glucose monitoring (CGM) sensors. New software for the insulin pumps may be updated remotely by the individual users as new advancements become available and are compatible with other complementary digital health offerings, such as the mobile application and cloud-based diabetes management applications. The Company’s insulin pump systems 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 single-use components 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 The Company has prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The statements include the accounts of Tandem Diabetes Care, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The functional currency of the Company’s foreign subsidiaries is their respective local currency. The Company translates the financial statements of its foreign subsidiaries into U.S. dollars using period-end exchange rates for assets and liabilities and average exchange rates for each period for revenue, costs and expenses. Translation related adjustments are included in other comprehensive income (loss), and in accumulated other comprehensive income (loss) in the stockholders’ equity section of the Company’s consolidated balance sheets. 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 consolidated statements of operations. 2. Summary of Significant Accounting Policies There have been no material changes to the Company’s significant accounting policies during the year ended December 31, 2024, except for adding the accounting policy for equity method investments, which is included herein. Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP 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 the Company’s consolidated financial statements and accompanying notes as of the date of the consolidated financial statements. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less from the date of purchase and that can be liquidated without prior notice or penalty to be cash equivalents. 73 Short-Term Investments The Company’s short-term investments are classified as available-for-sale securities. Such securities are carried at fair value as determined by prices for identical or similar securities at the balance sheet date. The Company’s short-term investments consist of Level 1 and Level 2 financial instruments in the fair value hierarchy. The net unrealized gains or losses on available-for-sale securities that are not related to credit factors are reported as a component of other comprehensive income (loss) within the statements of operations and accumulated other comprehensive income (loss) as a separate component of stockholders’ equity on the consolidated balance sheets. The Company determines realized gains or losses on the sale of available-for-sale securities using the specific identification method and includes net realized gains and losses as a component of other income or expense within the consolidated statements of operations. The Company reviews its available-for-sale debt securities for credit losses quarterly, considering a variety of factors, including the significance of the decline in value as compared to the amortized cost basis; underlying factors contributing to a decline in the prices of securities in a single asset class; the security’s relative performance versus its peers, sector or asset class; the market and economy in general; views of external investment managers; news or financial information that has been released specific to the investee; and the outlook for the overall industry in which the investee operates. Losses on available-for-sale debt securities as a result of credit factors are recognized by recording an impairment loss as a component of other income or expense within the consolidated statements of operations and a corresponding allowance for credit losses. The Company has not recognized any impairment losses related to its short-term investments during the years ended December 31, 2024, 2023 and 2022. Accounts Receivable The Company grants credit to various customers in the ordinary course of business and is paid directly by customers who use its products, distributors and third-party insurance payors. The Company maintains an allowance for its current estimate of expected credit losses. Provisions for expected credit losses are estimated based on historical experience, assessment of specific customer-related risks, review of outstanding invoices, forecasts about the future, and various other assumptions and estimates that are believed to be reasonable under the circumstances, including changes to credit risks as a result of recessionary concerns, changes in discretionary spending, increased interest rates, and other macroeconomic factors. Uncollectible accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a balance is uncollectible. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments and accounts receivable. The Company maintains deposit accounts in federally insured financial institutions in excess of federally insured limits. The Company also maintains investments in money market funds that are not federally insured. Additionally, the Company has established guidelines regarding investment instruments and their maturities, which are designed to maintain preservation of principal and liquidity. The following table summarizes the percentages of total sales and accounts receivable, net for customers who accounted for 10% or more of the respective amounts for the periods presented: Total Sales Accounts Receivable, net Year Ended December 31, December 31, 2024 2023 2022 2024 2023 Distributor A 11.2 % 12.2 % 11.6 % 11.1 % 10.0 % Distributor B * * * * 10.5 % Distributor C * * * 11.8 % 10.6 % Distributor D 11.5 % 10.8 % 14.4 % 11.2 % 11.5 % * Amount related to the respective customer represented less than 10% for the period presented. 74 Valuation of Inventories Inventories are valued at the lower of cost or net realizable value, determined by the first-in, first-out method. Inventory is recorded using standard cost, including material, labor and overhead costs. The Company periodically reviews inventories for potential impairment and adjusts inventory for potentially excess or obsolete goods to state inventories at their net realizable value. Factors influencing these adjustments include quantities on hand and firm purchase commitments, expectations of future use, judgments based on quality control testing data and assessments of the likelihood of scrapping or obsoleting certain inventories based on future demand for its products and market conditions. Long-Lived Assets Property and Equipment Property and equipment, which primarily consist of office furniture and equipment, manufacturing equipment, scientific equipment, computer equipment, and leasehold improvements, are stated at cost, less accumulated depreciation. Property and equipment are depreciated over the estimated useful lives of the assets, generally three to seven years , using the straight-line method. Leasehold improvements and related equipment are amortized over the lesser of the estimated useful lives of the assets or the remaining lease term, unless there is a transfer of title or purchase option that is reasonably certain to be exercised. Maintenance and repair costs are expensed as incurred. Operating Lease Right-of-Use Assets and Liabilities Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized when the Company takes possession of the leased property (Commencement Date) based on the present value of lease payments over the lease term. 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. The difference between rent expense and rent paid is accounted for as a component of operating lease right-of-use assets on the Company’s consolidated balance sheets. 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 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. Impairment of Long-Lived Assets Long-lived assets, such as property and equipment, right-of-use lease assets, and acquired intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined using unobservable (Level 3) inputs, including discounted cash flow models, future estimated sublease income, and third-party independent appraisals, as considered necessary. There is uncertainty in the projected undiscounted future cash flows used in the Company’s impairment review analysis, which requires the use of estimates and assumptions. If actual performance does not achieve the projections, or if the assumptions used change in the future, the Company may be required to recognize additional impairment charges in future periods. Other than the impairment of operating lease right-of-use assets and related leasehold improvements and furniture and fixtures recognized in 2023 and 2022 (see Note 6, “Leases”), there were no impairments of long-lived assets, including acquired intangible assets, during the years ended December 31, 2024, 2023 and 2022. 75 Strategic Investments The Company measures strategic investments at cost minus impairment, if any, adjusted for changes in observable prices. Strategic investments are reviewed, on an individual basis, for impairment whenever significant events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. The Company held strategic equity investments totaling zero and $ 10.1 million in private investee companies at December 31, 2024 and December 31, 2023, respectively. In November 2024, the Company invested an additional $ 46.4 million cash in one of its private company investees, resulting in a change to equity method accounting, described below. During the year ended December 31, 2024, the Company also recorded an impairment charge of $ 2.0 million related to one of its strategic investments in a private investee company. The Company did no t record any impairment charges related to its strategic investments during the years ended December 31, 2023 and 2022. The strategic investments were included as a component of other long-term assets on the consolidated balance sheet. From November 2023 to June 2024, the company held a strategic investment balance of $ 22.2 million in the form of subordinated convertible notes of one private investee company. The subordinated notes were converted into equity of the private investee company at final maturity, which occurred in June 2024. Equity Method Investments The Company held equity method investments of $ 74.5 million at December 31, 2024. We use the equity method to account for investments in companies if our investment provides us with the ability to exercise significant influence but not control over the operating and financial policies of the investee. The Company assesses significant influence by considering various factors, including the nature and magnitude of the investment, voting rights held and participation in the governance of the investee, if any. The Company may also consider additional relevant factors, such as the presence of other business relationships. In November 2024, the Company invested an additional $ 46.4 million cash in one of its private investee companies that was previously accounted for as a strategic investment at cost. As a result of the additional investment, the Company owned more than 20 % of the private investee company’s outstanding equity and held significant influence but not control over the private investee company’s activities. As a result, the investment was accounted for using the equity method following the November 2024 transaction date. Our consolidated net loss included our Company’s proportionate share of the net loss of our equity method investee, which was a loss of $ 2.1 for the year ended December 31, 2024. For the years ended December 31, 2023 and 2022, the Company did not hold any equity method investments and therefore did not recognize a share of net income or loss from any equity method investments. Revenue Recognition 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. 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 rebates and returns. 76 Revenue Recognition for Arrangements with Multiple 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. The Company allocates the consideration to the individual performance obligations and recognizes the consideration based on when the performance obligation is satisfied, considering whether or not this occurs at a point in time or over time. Generally, insulin pumps, cartridges, infusion sets, and accessories are deemed performance obligations that are satisfied at a point in time when the customer obtains control of the promised good, which typically is upon shipment for our distributor arrangements and upon receipt for sales directly to individual customers. Complementary products, such as the Company’s data management and software update platforms, are considered distinct performance obligations that are satisfied over time, as access and support for these products is provided throughout the typical four-year warranty period of the insulin pumps. Accordingly, revenue related to the complementary products is deferred and recognized over a four-year period. Where there is no standalone value for the complementary product, the Company determines its value by applying the expected cost plus a margin approach and then allocates the residual to the insulin pumps. Revenue Recognition for Tandem Choice Program In September 2022, the Company launched a technology access program referred to as Tandem Choice, that provided eligible, in-warranty t:slim X2 customers in the United States with the flexibility to obtain the newest hardware platform, Tandem Mobi, once commercially available. Participating customers had the right to purchase the alternative Tandem pump for a fee, referred to as a choice right. The Company determined that the program created a material right for which a portion of each t:slim X2 pump sales transaction price was allocated and deferred. 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 provided 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. 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 allocating and deferring 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 had until December 31, 2024 to exercise the option to switch to the Tandem Mobi for a stated fee. The Company recognized the deferred sales when the obligations under the Tandem Choice program were satisfied. If a customer elected to participate in the program, the Company recognized upgrade fees received, and the associated cost of goods sold at the time of fulfillment. Substantially all of the remaining deferrals were recognized at program expiration on December 31, 2024. For the year ended December 31, 2024, the Company recognized net revenue of $ 30.2 million as a result of the Tandem Choice program. 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 consolidated financial statements. As of December 31, 2024 and December 31, 2023, total estimated sales rebates were included in the following consolidated balance sheet accounts (in thousands): December 31, 2024 December 31, 2023 Other current liabilities $ 2,229 $ 505 Other long-term liabilities 7,167 8,042 Total sales rebate $ 9,396 $ 8,547 77 Sales Returns The Company offers a 90-day right of return to customers in the United States and Canada from the date of shipment of its insulin pumps, provided a physician’s confirmation of the medical reason for the return is received. Estimated allowances for sales returns are based on historical returned quantities as compared to pump shipments in those same periods of return, adjusted for known or expected changes in the marketplace when appropriate. The amounts recorded in deferred revenue on the Company’s consolidated balance sheets for allowances for sales returns were not material for the periods presented. Actual product returns have not differed materially from estimated amounts recorded in the accompanying consolidated financial statements. 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. In addition, the Company offers a six-month warranty on single-use insulin cartridges and infusion sets. Estimated warranty costs are recorded at the time of shipment, and the Company reevaluates the estimate of the warranty reserve obligation at each reporting period. Warranty costs are primarily estimated based on the current expected product replacement cost and expected replacement rates using historical experience. Returned insulin pumps may be refurbished and redeployed. Experience has shown that initial data for any new pump version or pump platform may be insufficient. Therefore, the Company relies on long-term historical replacement data from existing platforms until sufficient data is available. As actual experience accumulates, the Company adjusts its warranty reserve estimate accordingly. In addition, the availability of replacement data may differ by country due to local compliance and privacy regulations, which may require the Company to estimate its warranty liability using available information or data from similar markets. The Company may make further adjustments to the warranty reserve when appropriate, considering revised expectations of product performance based on enhanced hardware, or new features and capabilities that may become available through Tandem Device Updater. Warranty expense is recorded as a component of cost of sales in the consolidated statements of operations. The following table provides a reconciliation of the changes in product warranty liabilities for the years ended December 31, 2024, 2023 and 2022 (in thousands): Year Ended December 31, 2024 2023 2022 Balance at beginning of the period $ 37,173 $ 36,537 $ 30,401 Provision for warranties issued during the period 48,938 35,690 32,699 Settlements made during the period ( 36,632 ) ( 32,617 ) ( 25,447 ) Increases (decreases) in warranty estimates 1,929 ( 2,437 ) ( 1,116 ) Balance at end of the period $ 51,408 $ 37,173 $ 36,537 As of December 31, 2024 and December 31, 2023, total product warranty reserves were included in the following consolidated balance sheet accounts (in thousands): December 31, 2024 December 31, 2023 Other current liabilities $ 31,048 $ 18,135 Other long-term liabilities 20,360 19,038 Total warranty reserve $ 51,408 $ 37,173 78 Stock-Based Compensation Stock-based compensation cost is measured at the grant date based on the estimated fair value of the award, and the portion that is ultimately expected to vest is recognized as compensation expense over the requisite service period on a straight-line basis. The Company estimates the fair value of stock options issued under the Company’s stock incentive plans, and the fair value of employee purchase rights under the Company’s Employee Stock Purchase Plan (ESPP) using the Black-Scholes option pricing model on the date of grant. The Black-Scholes option pricing model requires the use of assumptions about a number of variables, including stock price volatility, expected term, dividend yield and risk-free interest rate (see Note 8, “Stockholders’ Equity”). The fair value of restricted stock unit (RSU) awards issued under the Company’s stock incentive plans that vest solely based on service, is estimated based on the fair market value of the underlying stock on the date of grant. The fair value of RSU awards that vest based upon the Company’s actual performance relative to predefined performance metrics and the awardee’s continuing service through the measurement date is generally estimated based on the fair market value of the underlying stock on the date of grant and the probability that the specified performance criteria will be met. At each reporting period, the Company reassesses the probability of the achievement of such performance metrics. Any expense change resulting from an adjustment in the estimated shares to be released is recorded in the period of adjustment. Shipping and Handling Expenses Shipping and handling expenses associated with product delivery are included within cost of sales in the Company’s statements of operations. Amounts billed to a customer for shipping and handling are reported as revenues. Research and Development Costs All research and development costs are charged to expense as incurred. Such costs include personnel-related costs, including stock-based compensation, supplies, license fees, development prototypes, outside design and testing services, depreciation, allocated facilities and information services, clinical trial costs, milestone payments under the Company’s licensing, development and commercialization agreements, and other indirect costs. Acquired In-Process Research and Development Expenses Acquired in-process research and development (IPR&D) expenses reflect the costs of externally developed IPR&D projects acquired directly in a transaction other than a business combination that do not have an alternative future use, including the initial costs of rights to IPR&D projects. The acquired IPR&D is expensed on acquisition date. Future costs to develop these IPR&D projects are recorded in research and development expenses on the consolidated statements of operations as incurred. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets or liabilities are recognized based on the temporary differences between financial statement and income tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Tax law and rate changes are reflected in income in the period such changes are enacted. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis, and includes a review of all available positive and negative evidence. Factors reviewed include projections of pre-tax book income for the foreseeable future, determination of cumulative pre-tax book income after permanent differences, earnings history, and reliability of forecasting. The Company will continue to assess the need for a valuation allowance on its deferred tax assets by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the consolidated statement of operations for the period that the adjustment is determined to be required. 79 The Company’s income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities. In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon settlement. While the Company believes it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential revisions and adjusts the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known. The Company includes interest and penalties related to income taxes, including unrecognized tax benefits, within income tax expense. Comprehensive Loss All components of comprehensive loss, including net loss, are reported in the consolidated financial statements in the period in which they are recognized. Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on marketable securities and foreign currency translation adjustments. Net Loss Per Share Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net 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 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 years ended December 31, 2024, 2023, and 2022, there was no difference in the weighted average number of shares used to calculate basic and diluted net loss per share due to the Company’s net loss position in each period. Potentially dilutive securities outstanding and not included in the calculation of diluted net loss per share (because inclusion would be anti-dilutive) are as follows (in thousands, in common stock equivalent shares): Year Ended December 31, 2024 2023 2022 Options to purchase common stock 124 135 1,138 Unvested restricted stock units 2,858 2,089 1,118 Warrants to purchase common stock 194 194 194 Awards granted under the ESPP 58 14 8 Convertible senior notes (if-converted) 8,202 2,554 2,554 11,436 4,986 5,012 80 Recently Issued Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07 to improve the information that a public entity discloses about reportable segments and to address investor requests for more information about reportable segment expenses. The pronouncement requires a public entity to report a measure of segment profit or loss that the chief operating decision maker (CODM) uses to assess segment performance and make decisions about allocating resources. ASU 2023-07 also requires other specified segment items and amounts, such as depreciation, amortization, and depletion expense, to be disclosed under certain circumstances. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, adopted retrospectively. The Company’s adoption of ASU 2023-07 did not have a material impact on the Company’s consolidated financial statements or disclosures. Accounting Pronouncements Issued and Not Yet Adopted In November 2024, the FASB issued ASU 2024-03 Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (ASU 2024-03), which requires entities to disclose information about purchases of inventory, employee compensation, and intangible asset amortization in each income statement line item that contains those expenses. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating ASU 2024-03 to determine the impact it may have on its consolidated financial statements. In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires the Company to disclose disaggregated jurisdictional and categorical information for the tax rate reconciliation, income taxes paid and other income tax related amounts. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating ASU 2023-09 to determine the impact it may have on its consolidated financial statements. 3. Short-Term Investments The Company invests in marketable securities primarily consisting of debt instruments of the United States Government, United States Government-sponsored enterprises, and financial institutions and corporations with strong credit ratings. The following represents a summary of the estimated fair value of short-term investments at December 31, 2024 and December 31, 2023 (in thousands): At December 31, 2024 Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Estimated Fair Value Available-for-sale securities: United States Government-sponsored enterprises $ 133,139 $ 275 $ ( 134 ) $ 133,280 United States Treasury securities 103,645 197 ( 140 ) 103,702 Commercial paper 23,225 39 — 23,264 Corporate debt securities 105,635 248 ( 47 ) 105,836 Foreign government bonds 3,013 — — 3,013 Total $ 368,657 $ 759 $ ( 321 ) $ 369,095 At December 31, 2023 Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Estimated Fair Value Available-for-sale securities: United States Government-sponsored enterprises $ 181,851 $ 518 $ ( 215 ) $ 182,154 United States Treasury securities 114,714 318 ( 28 ) 115,004 Commercial paper 72,505 33 ( 27 ) 72,511 Corporate debt securities 39,225 156 ( 6 ) 39,375 Total $ 408,295 $ 1,025 $ ( 276 ) $ 409,044 81 The contractual maturities of available-for-sale debt securities as of December 31, 2024, were as follows (in thousands): Years to Maturity At December 31, 2024 Within One Year One to Two Years Two to Three Years Estimated Fair Value United States Government-sponsored enterprises $ 44,717 $ 39,193 $ 49,370 $ 133,280 United States Treasury securities 85,400 17,307 995 103,702 Commercial paper 23,264 — — 23,264 Corporate debt securities 60,514 45,322 — 105,836 Foreign government bonds — — 3,013 3,013 Total $ 213,895 $ 101,822 $ 53,378 $ 369,095 The Company has classified all marketable securities, regardless of maturity, as short-term investments based upon the Company’s ability and intent to use any of those marketable securities to satisfy the Company’s liquidity requirements. The Company reviews the portfolio of available-for-sale debt securities quarterly to determine if any investment is impaired due to changes in credit risk or other potential valuation concerns. Unrealized losses on available-for-sale debt securities at December 31, 2024 were primarily due to an increase in market interest rates after certain debt securities were purchased, and the balance was not material to the Company’s quarterly results. 4. Composition of Certain Financial Statement Items Accounts Receivable Accounts receivable, net consisted of the following at December 31, 2024 and December 31, 2023 (in thousands): December 31, December 31, 2024 2023 Accounts receivable $ 121,836 $ 110,453 Less: allowance for credit losses ( 7,251 ) ( 4,898 ) Accounts receivable, net $ 114,585 $ 105,555 Allowance for Credit Losses The following table provides a reconciliation of the changes in the allowance for estimated accounts receivable credit losses for the years ended December 31, 2024 and 2023 (in thousands): Year Ended December 31, 2024 2023 2022 Balance at beginning of the period $ 4,898 $ 4,327 $ 4,249 Provision for expected credit losses 9,979 5,540 4,782 Write-offs and adjustments, net of recoveries ( 7,626 ) ( 4,969 ) ( 4,704 ) Balance at end of the period $ 7,251 $ 4,898 $ 4,327 82 Inventories Inventories consisted of the following at December 31, 2024 and December 31, 2023 (in thousands): December 31, December 31, 2024 2023 Raw materials $ 32,602 $ 42,783 Work-in-process 33,517 44,026 Finished goods 83,493 71,128 Total inventories $ 149,612 $ 157,937 Property and Equipment Property and equipment, net consisted of the following at December 31, 2024 and 2023 (in thousands): December 31, 2024 2023 Leasehold improvements $ 37,106 $ 37,565 Office furniture and equipment 11,813 11,842 Computer equipment and software 9,811 10,340 Manufacturing and scientific equipment 82,248 69,589 Total cost 140,978 129,336 Less: accumulated depreciation and amortization ( 62,828 ) ( 52,794 ) Total property and equipment, net $ 78,150 $ 76,542 Depreciation and amortization expense related to property and equipment was $ 14.7 million, $ 13.8 million, and $ 12.3 million for the years ended December 31, 2024, 2023 and 2022, respectively. Intangible Assets Subject to Amortization Intangible assets subject to amortization consist of technology-based intangibles related to the Company’s acquisition of Sugarmate, as well as patents purchased or licensed that are related to the Company’s commercialized products. Intangible assets at December 31, 2024 and 2023, which were included in other long-term assets on the consolidated balance sheets, were as follows (in thousands): December 31, 2024 2023 Intangible assets, gross amount $ 12,502 $ 12,502 Accumulated amortization ( 11,577 ) ( 9,726 ) Intangible assets, net $ 925 $ 2,776 Weighted average remaining amortization period (in months) 6 18 Amortization expense related to intangible assets subject to amortization amounted to $ 1.9 million, $ 1.9 million and $ 2.0 million for the years ended December 31, 2024, 2023 and 2022, respectively. The amortization expense is recorded in selling, general and administrative expense in the consolidated statement of operations. The estimated aggregate future amortization expense is $ 0.9 million in 2025, all of which will be recorded in selling, general and administrative expense in the consolidated statement of operations. 5. Fair Value Measurements The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 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): 83 Fair Value Measurements at December 31, 2024 Total Level 1 Level 2 Level 3 Assets Cash equivalents (1) $ 56,234 $ 56,234 $ — $ — United States Government-sponsored enterprises 133,280 — 133,280 — United States Treasury securities 103,702 103,702 — — Commercial paper 23,264 — 23,264 — Corporate debt securities 105,836 — 105,836 — Foreign government bonds 3,013 — 3,013 — Total assets $ 425,329 $ 159,936 $ 265,393 $ — Fair Value Measurements at December 31, 2023 Total Level 1 Level 2 Level 3 Assets Cash equivalents (1) $ 48,033 $ 48,033 $ — $ — United States Government-sponsored enterprises 182,154 — 182,154 — United States Treasury securities 115,004 115,004 — — Commercial paper 72,511 — 72,511 — Corporate debt securities 39,375 — 39,375 — Total assets $ 457,077 $ 163,037 $ 294,040 $ — (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. The Company obtains the fair value of Level 2 financial instruments from quoted market prices, calculated prices or quotes from third-party pricing services. 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 December 31, 2024 and 2023, respectively. 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. In March 2024, the Company issued $ 316.3 million aggregate principal amount of the Company’s Convertible Senior Notes Due 2029, and repurchased $ 246.7 million of principal of the Company’s Convertible Senior Notes due 2025 (see Note 7, “Debt”). The Company’s Convertible Senior Notes are carried at amortized cost on the 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): 84 Fair Value Measurements at December 31, 2024 December 31, 2023 Convertible Senior Notes due 2025 $ 39,130 $ 271,688 Convertible Senior Notes due 2029 407,752 * Total fair value of outstanding convertible senior notes $ 446,882 $ 271,688 * Not applicable as no notes were outstanding at this date. 6. Leases 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 . 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. Headquarters Lease In September 2021, the Company entered into a lease agreement for 181,949 square feet of general administrative, laboratory, and research and development office space (the Premises) located on High Bluff Drive in San Diego, California (Headquarters Lease). Possession of the Premises was to be tendered to the Company 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 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. In December 2023, the Company entered into an agreement to sublease the Phase II portion of the leased premises under the Headquarters Lease, from January 2025 through March 2029. Future minimum payments for base rent due under Phase II of the Headquarters Lease, net of sublease rent, are estimated to be $ 2.2 million in total for 2025 through 2028, and $ 23.2 million in total for 2029 through 2035. Operating Lease Impairment Charge In 2023, the Company consolidated facilities by moving the administrative functions and other operations from the leased space on Vista Sorrento Parkway in San Diego, California (Vista Sorrento Lease) to the Company’s new headquarters, located on High Bluff Drive in San Diego, California. In connection with permanently ceasing use of the Vista Sorrento Lease, 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. 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, and was recorded as a component of selling, general and administrative expenses in the consolidated statement of operations. Supplemental Lease Disclosure Information The Company’s lease costs recorded in the consolidated statements of operations were as follows (in thousands): Year Ended December 31, 2024 2023 2022 Operating lease cost $ 14,276 $ 15,971 $ 18,432 Short-term lease cost 87 108 142 Loss on lease termination and right-of-use asset impairment charges — 11,224 5,699 Total lease cost $ 14,363 $ 27,303 $ 24,273 85 Maturities of operating lease liabilities at December 31, 2024 were as follows (in thousands): Years Ending December 31, 2025 $ 18,208 2026 18,102 2027 18,406 2028 14,890 2029 13,413 Thereafter 76,891 Total undiscounted lease payments 159,910 Less: amount representing interest ( 35,281 ) Present value of operating lease liabilities 124,629 Less: current portion of operating lease liabilities ( 18,208 ) Operating lease liabilities - long-term $ 106,421 The weighted-average remaining lease term and weighted-average discount rate for operating leases were as follows: December 31, 2024 December 31, 2023 Weighted-average remaining lease term (in years) 9.2 10.2 Weighted-average discount rate used to determine operating lease liabilities 5.3 % 5.4 % Cash amounts paid included in the measurement of lease liabilities, representing operating cash flows, were as follows: Year Ended December 31, 2024 2023 2022 Operating lease payments 17,941 13,864 11,960 Operating lease termination payments — — 4,769 Total cash payments $ 17,941 $ 13,864 $ 16,729 Leases For Which Accounting Has Not Yet Commenced As of December 31, 2024, the Phase II commencement date for the Headquarters Lease had not yet occurred. Accordingly, the consolidated balance sheets at December 31, 2024 and December 31, 2023 did not include operating lease right-of-use assets and operating lease liabilities, and the consolidated statements of operations for the twelve months ended December 31, 2024, and 2023 did 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. 7. Debt 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. 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 consolidated statement of operations for the year ended December 31, 2024. The loss on extinguishment of debt included the unamortized debt issuance costs related to the portion of the 2025 Notes repurchased. 86 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 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 before 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 before 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; or • 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 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. Interest is payable in cash semi-annually in arrears beginning on November 1, 2020 at a rate of 1.50 % per year. The 2025 Notes mature on May 1, 2025 unless repurchased, redeemed, or converted in accordance with their terms before the maturity date. As of December 31, 2024 the outstanding balance of the 2025 Notes was classified in current liabilities on the Company’s consolidated balance sheet. 87 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 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. Holders of the 2025 Notes had the right to convert all or a portion of their 2025 Notes at their option before November 1, 2024, in multiples of $1,000 principal amounts, under certain circumstances outlined in the offering agreement. From 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. 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 2025 Notes. 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 Company’s convertible senior notes on the consolidated balance sheets consisted of the following (in thousands): December 31, 2024 December 31, 2023 Principal amount: Convertible Senior Notes Due 2025 $ 40,760 $ 287,500 Convertible Senior Notes Due 2029 316,250 * Total principal amount 357,010 287,500 Unamortized debt issuance costs ( 8,074 ) ( 2,465 ) Total debt, net $ 348,936 $ 285,035 Less: current portion ( 40,670 ) — Long-term senior convertible notes $ 308,266 $ 285,035 * Not applicable as no notes were outstanding at this date. As of December 31, 2024 and December 31, 2023, the if-converted value of the 2025 Notes did not exceed the principal amount. As of December 31, 2024, the if-converted value of the 2029 Notes exceeded the principal amount by $ 13.4 million. In October 2023, the Company was notified that additional interest beyond the 1.50 % per annum had been accruing on the 2025 Notes since May 2021, under the terms of the indenture. This additional interest accrued at a rate of 0.50 % per annum on the outstanding principal amount of the Notes to approximately $ 3.3 million. The additional accrued interest was fully paid during the fourth quarter of 2023. The following table summarizes the effective interest rates for each of our convertible senior notes for the periods shown: 88 Year Ended December 31, 2024 2023 2022 Effective interest rate: Convertible Senior Notes Due 2025 2.1 % 2.2 % 2.2 % Convertible Senior Notes Due 2029 2.1 % * * * Not applicable as no notes were outstanding at this date. The following table details interest expense related to the Notes recognized for the years ended December 31, 2024, and 2023 (in thousands): Year Ended December 31, 2024 2023 2022 Contractual interest expense (1) $ 5,161 $ 7,565 $ 4,313 Amortization of debt issuance costs 1,906 1,803 1,896 Total interest expense $ 7,067 $ 9,368 $ 6,209 (1) Contractual interest expense for the year ended December 31, 2023 included $ 3.3 million of additional interest as discussed above. 2029 Capped Call Transactions 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 consolidated balance sheet and will not be remeasured. 89 Promissory Note Payable In connection with the acquisition of Capillary Biomedical, Inc. (see Note 12, “Acquisitions”), the Company assumed a $ 4.7 million promissory note payable. The promissory note accrues interest at the rate of 5.0 % per year, and becomes due and payable upon the first sale or license of the commercialized product. At December 31, 2024 and 2023, the loan balance of $ 4.8 million and $ 4.7 million, respectively, was included as a component of other long-term liabilities on the consolidated balance sheets. 8. Stockholders’ Equity Shares Reserved for Future Issuance The following shares of the Company's common stock were reserved for future issuance at December 31, 2024 (in thousands): Shares reserved for issuance upon conversion of Convertible Senior Notes 8,202 Shares underlying outstanding warrants 194 Shares underlying outstanding stock options 3,527 Shares underlying unvested restricted stock units 3,739 Shares authorized for issuance pursuant to awards granted under the ESPP 2,684 Shares authorized for future equity award grants 1,862 Total 20,208 Common Stock Warrants Warrants outstanding to purchase shares of the Company's common stock as of December 31, 2024 were as follows: Issue Date Exercise Price Per Share Warrants Outstanding Expiration Date of Warrants Outstanding March 2017 $ 23.50 193,788 March 2027 Each warrant allows the holder to purchase one share of common stock at the per share exercise price of the warrant. Stock Incentive Plans In May 2023, the Company’s stockholders approved the 2023 Long-Term Incentive Plan (2023 Plan), under which 2,602,184 shares of common stock were initially reserved for issuance. Under the 2023 Plan, the Company may grant stock options, stock appreciation rights, restricted stock and restricted stock units to individuals who are employees, officers, directors or consultants of the Company at the time of grant. 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. In May 2024, the Company’s stockholders approved the 2023 Long-Term Incentive Plan, as amended, to increase the number of shares authorized for issuance under the plan by 3,000,000 shares. Stock Options The maximum term of stock options granted under the Company’s active plans is ten years . Stock options have an exercise price equal to the closing price of the Company's common stock on the applicable award date. Stock options granted before 2022 generally vested 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 in 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 . 90 The following table summarizes stock option activities under the Company’s stock incentive plans: Total Stock Options Weighted- Average Exercise Price Per Share Weighted- Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2021 4,814,846 $ 57.08 7.07 $ 452,081 Granted 83,008 $ 65.28 Exercised ( 280,275 ) $ 32.58 $ 13,473 Canceled/forfeited/expired ( 175,266 ) $ 77.93 $ 2,143 Outstanding at December 31, 2022 4,442,313 $ 57.95 6.12 $ 30,236 Granted — $ — Exercised ( 72,536 ) $ 17.86 $ 1,400 Canceled/forfeited/expired ( 473,773 ) $ 90.14 $ 95 Outstanding at December 31, 2023 3,896,004 $ 54.79 5.30 $ 11,703 Granted — $ — Exercised ( 112,171 ) $ 19.90 $ 2,483 Canceled/forfeited/expired ( 257,277 ) $ 85.51 $ — Outstanding at December 31, 2024 3,526,556 $ 53.65 4.32 $ 16,147 Vested and expected to vest at December 31, 2024 3,525,815 $ 53.65 4.32 $ 16,147 Exercisable at December 31, 2024 3,496,909 $ 53.44 4.30 $ 16,147 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 continuous service as to 25 % of the underlying shares on the first anniversary of the award, with the balance of the RSUs vesting quarterly over the following three years . RSUs granted in March 2022 and thereafter generally vest over a three-year period based on continuous service to the Company as to 33 % of the underlying shares on the first anniversary of the award, with the balance of the RSUs vesting quarterly over the following two years . In addition, the Company granted 151,660 , 110,074 and 53,662 performance-based RSUs during the years ended December 31, 2024, 2023 and 2022, respectively, of which 151,660 , 92,308 and 48,139 units remained outstanding at December 31, 2024. The Company estimated the fair value of performance-based RSUs at the date of grant using the closing price of the Company’s common stock on the date of grant, and the probability that the specified performance metrics of the performance-based RSU would be met. These awards vest upon the Company’s actual performance relative to predefined performance metrics and subject to the awardee’s continuous service through the respective measurement dates as defined in the award agreements. For certain performance-based RSUs with market-based criteria, the Company used a Monte Carlo methodology to estimate the fair value at the date of grant. The following table summarizes RSU activities, which includes performance-based RSUs, for the Company’s stock incentive plans: 91 Total RSUs Weighted-Average Grant Date Fair Value Aggregate Intrinsic Value (in thousands) Unvested awards outstanding at December 31, 2021 610,731 $ 95.08 $ 91,927 Granted 1,542,859 $ 67.09 Vested ( 202,215 ) $ 91.99 Canceled/forfeited ( 117,543 ) $ 84.20 Unvested awards outstanding at December 31, 2022 1,833,832 $ 72.57 $ 82,431 Granted 2,359,907 $ 28.13 Vested ( 735,155 ) $ 73.17 Canceled/forfeited ( 282,425 ) $ 59.17 Unvested awards outstanding at December 31, 2023 3,176,159 $ 40.61 $ 93,951 Granted 2,332,553 $ 44.52 Vested ( 1,475,409 ) $ 42.76 Canceled/forfeited ( 294,533 ) $ 41.05 Unvested awards outstanding at December 31, 2024 3,738,770 $ 42.17 $ 134,670 Awards expected to vest at December 31, 2024 3,571,843 $ 42.35 $ 128,658 The aggregate fair value of RSUs that vested during the years ended December 31, 2024, 2023 and 2022 was $ 58.5 million, $ 21.2 million, and $ 12.7 million, respectively, which represents the market value of the Company’s common stock on the date the RSUs vested. The number of RSUs vested includes shares of common stock the Company withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements. RSUs that are expected to vest are net of estimated future forfeitures. Employee Stock Purchase 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 ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. Eligible employees may contribute, through payroll deductions, up to 15 % of their earnings for the purchase of common stock under the ESPP. 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. During the years ended December 31, 2024, 2023 and 2022, 770,362 , 499,431 and 262,936 shares of our common stock, respectively, were purchased under the ESPP for proceeds of $ 12.2 million, $ 10.7 million and $ 12.7 million, respectively. Stock-Based Compensation The following table summarizes the allocation of stock-based compensation expense included in the consolidated statements of operations for all stock-based compensation arrangements (in thousands): Year Ended December 31, 2024 2023 2022 Cost of sales $ 7,361 $ 6,212 $ 7,685 Selling, general and administrative 62,794 56,303 57,196 Research and development 31,228 25,561 20,037 Total stock-based compensation expense $ 101,383 $ 88,076 $ 84,918 The total stock-based compensation expense capitalized as part of the cost of the Company’s inventories was $ 1.8 million at December 31, 2024, and $ 2.0 million at December 31, 2023. 92 At December 31, 2024, the total unamortized stock-based compensation expense of approximately $ 121.0 million will be recognized over the remaining weighted average vesting term of approximately 1.9 years. The Company estimates the fair value of stock options using the Black-Scholes option pricing model on the grant date. No stock options were granted in 2024 or 2023. For the year ended December 31, 2022, the Company’s assumptions used in the Black-Scholes model were as follows: weighted average grant date fair value of $ 42.16 per share, risk-free interest rate of 2.7 %, dividend yield of 0.0 %, expected volatility of 72.0 %, and expected term of 5.8 years. 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: ESPP Year Ended December 31, 2024 2023 2022 Weighted average grant date fair value (per share) $ 17.01 $ 10.35 $ 21.89 Risk-free interest rate 4.7 % 4.9 % 3.4 % Dividend yield 0.0 % 0.0 % 0.0 % Expected volatility 67.5 % 63.9 % 56.9 % Expected term (in years) 1.3 1.3 1.3 Risk-free Interest Rate . The risk-free interest rate assumption was based on the United States Treasury’s rates for United States Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. Expected Dividend Yield . The dividend yield is zero because the Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future. Expected Volatility . The expected volatility was estimated based on a weighted-average of the Company’s actual historical volatility of its common stock measured over the expected term. Expected Term . The Company utilized the simplified method for estimating the expected term of stock option grants. Under this approach, the weighted-average expected term is presumed to be the average of the vesting term and the contractual term of the option. The Company estimates the expected term of the ESPP using expected life for each tranche during the two-year offering period. The Company also estimates forfeitures at the time of grant, and revises those estimates in subsequent periods if actual forfeitures differ from its estimates. Historical data was used to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. 9. Employee Benefits Defined Contribution Plans The Company has defined contribution plans for its employees. The Company’s largest defined contribution plan is the 401(k) plan for employees in the United States who are at least 18 years of age. 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 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. The total cost recognized by the Company for the 401(k) plan was $ 4.6 million, $ 4.2 million and $ 4.2 million, respectively, for the years ended December 31, 2024, 2023 and 2022. The Company’s contributions for its defined contribution plans for employees outside the United States were not material for each of the years ended December 31, 2024, 2023 and 2022 . 93 10. Income Taxes The income (loss) before provision for income taxes for the Company’s operations was as follows (in thousands): Year Ended December 31, 2024 2023 2022 United States $ ( 78,156 ) $ ( 135,411 ) $ ( 94,033 ) Foreign ( 13,714 ) ( 84,843 ) 1,181 Income (loss) before provision for income taxes $ ( 91,870 ) $ ( 220,254 ) $ ( 92,852 ) The components of income tax expense were as follows (in thousands): Year Ended December 31, 2024 2023 2022 Current: Federal $ 636 $ 308 $ 216 State 1,143 345 1,228 Foreign 2,376 1,704 298 Total current tax expense 4,155 2,357 1,742 Deferred: Federal — — — State — — — Foreign — — — Total deferred income tax benefit — — — Income tax expense $ 4,155 $ 2,357 $ 1,742 The expense for income taxes reconciles to the amount computed by applying the federal statutory rate to loss before taxes as follows (in thousands): Year Ended December 31, 2024 2023 2022 Income tax expense (benefit) at federal statutory rate (1) $ ( 19,293 ) $ ( 46,253 ) $ ( 19,499 ) State income tax, net of federal benefit ( 1,444 ) ( 1,313 ) ( 926 ) Convertible debt leg-out 1,658 — — Warrants revaluation — — ( 31 ) Research and development credits ( 7,865 ) ( 6,283 ) ( 6,263 ) Section 382 limitation — ( 5 ) — Stock-based compensation 5,772 14,904 2,282 Officers' compensation 1,043 1,547 2,931 Recognition of acquired deferred tax assets — ( 5,048 ) — Acquired IPR&D expenses — 14,938 6,518 Cross-border tax impacts ( 1,422 ) ( 307 ) 31 Foreign rate differential 2,075 7 37 Other 1,159 1,374 894 Change in valuation allowance 22,472 28,796 15,768 Income tax expense $ 4,155 $ 2,357 $ 1,742 (1) For the years ended December 31, 2024, 2023 and 2022, the federal statutory tax rate was 21%. 94 Significant components of the Company’s net deferred income tax assets at December 31, 2024 and 2023 are shown in the table below (in thousands). The Company assesses all available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative book loss incurred over the three-year period ended December 31, 2024. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth. On the basis of this analysis, a valuation allowance of $ 210.4 million and $ 190.7 million at December 31, 2024 and 2023, respectively, was recorded to offset the net deferred tax asset as realization of such asset is uncertain. However, the amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as the Company’s projections for future growth. December 31, 2024 2023 Deferred tax assets: Net operating loss (NOL) carryforwards $ 40,536 $ 54,802 Research and development tax credits carryforwards 32,298 27,516 Capitalized research and development expenses 74,974 52,875 Accrued compensation 38,053 32,097 Lease liabilities 29,165 31,037 Warranty reserve 12,222 8,786 Other 8,610 11,992 Total deferred tax assets 235,858 219,105 Deferred tax liabilities: Operating lease right-of-use assets ( 19,792 ) ( 20,869 ) Fixed assets ( 5,485 ) ( 6,916 ) Other ( 218 ) ( 656 ) Total deferred tax liabilities ( 25,495 ) ( 28,441 ) Less valuation allowance ( 210,363 ) ( 190,664 ) Net deferred tax assets $ — $ — As of December 31, 2024, the Company had accumulated federal and state NOL carryforwards of approximately $ 96.5 million, and $ 248.0 million, respectively. Of the total federal net operating loss carryforwards, approximately $ 13.2 million were generated after January 1, 2018, and therefore do not expire. NOL generated after January 1, 2018, is subject to 80% limitation in accordance with the Tax Cuts and Jobs Act of 2017. The remaining federal net operating loss carryforwards of $ 83.2 million will begin to expire in 2033, and state tax loss carryforwards continue to expire. The remaining California NOL carryforwards of $ 182.4 million will begin expiring in 2029. The Company had approximately $ 43.3 million of foreign tax loss carryforwards as of December 31, 2024. The foreign tax loss carryforwards begin to expire in 2025, unless previously utilized. The Company also has federal and California research credit carryforwards of approximately $ 30.7 million and $ 29.3 million, respectively, as of December 31, 2024. The federal research credit carryforwards will begin expiring in 2040, unless previously utilized. The California research credit will carry forward indefinitely. Utilization of the Company's net operating loss and research credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitations may result in the expiration of net operating loss carryforwards before utilization. The Company has completed analyses through December 31, 2023 to determine whether its net operating losses and credits are likely to be limited by Section 382. Based on this study, the Company determined that an ownership change, as defined under Section 382, occurred in 2018 and the resulting limitation significantly reduced the Company’s ability to utilize its net operating loss and credit carryovers before they expire. As a result, in 2019 the Company reduced its deferred tax assets for the net operating loss and research credit carryforwards that were projected to expire unused with a corresponding offset to the valuation allowance recorded against such assets. Additionally, future ownership changes under Section 382 may also limit the Company's ability to fully utilize any remaining tax benefits. 95 In 2022, as part of the Capillary Biomedical, Inc. transaction, the Company acquired deferred tax assets consisting of federal and state net operation loss carryovers, research tax credit carryovers, and other tax attributes of approximately $ 7.8 million. These deferred tax assets are subject to limitations on future use under Section 382 and some of the attributes may expire unused. The Company completed an analysis under Section 382. As a result, the Company recognized deferred tax assets, net of contra reserve, of approximately $ 5.0 million in 2023. The Company included these deferred tax assets in its components of deferred tax assets in the table above, to the extent that such deferred tax assets are available for future utilization, and the balances are fully offset by valuation allowance as of December 31, 2024 and 2023. The evaluation of uncertainty in a tax position is a two-step process. The first step involves recognition. The Company determines whether it is more likely than not that a tax position will be sustained upon tax examination, including resolution of any related appeals or litigation, based on only the technical merits of the position. The technical merits of a tax position are derived from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax position. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50 % likely of being realized upon ultimate resolution with a taxing authority. The following table summarizes the activity related to the Company’s gross unrecognized tax benefits at the beginning and end of the years ended December 31, 2024, 2023 and 2022 (in thousands): Year Ended December 31, 2024 2023 2022 Gross unrecognized tax benefits at the beginning of the year $ 21,527 $ 16,986 $ 13,589 Increases related to current year positions 5,947 3,961 3,403 Increases (decreases) related to prior year positions — 580 ( 6 ) Gross unrecognized tax benefits at the end of the year $ 27,474 $ 21,527 $ 16,986 As of December 31, 2024 and December 31, 2023, the Company had $ 24.9 million and $ 19.2 million of unrecognized tax benefits, respectively, that, if recognized and realized would impact the effective tax rate, subject to the valuation allowance. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company had no accrual for interest and penalties on the Company’s consolidated balance sheets and has not recognized interest and penalties in the consolidated statements of operations for the years ended December 31, 2024, 2023 and 2022. The Company does not expect any significant increases or decreases, other than the potential reduction as a result of the Section 382 limitation, to its unrecognized tax benefits within the next 12 months. The Company is subject to taxation in the United States and various foreign and state jurisdictions. Before 2018, the losses were all attributable to the United States. The Company’s tax years from 2006 (inception) are subject to examination by the United States and state authorities due to the carry forward of unutilized NOLs and research and development credits. In 2021 the OECD announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued. Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024, including the European Union Member States, with the adoption of additional components in later years or announced their plans to enact legislation in future years. We are continuing to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions we operate in. Undistributed earnings of the foreign subsidiaries are indefinitely reinvested. Thus, the Company has not recognized any deferred taxes on foreign unremitted earnings. 96 11. Business Segment and Geographic Information Segment Reporting 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, 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 reporting segment because key operating decisions and resource allocations are made by the CODM using consolidated financial data. Accordingly, the Company is organized as a single operating segment and therefore a single reportable segment: Insulin Pumps and Supplies. The Company’s CODM is the Chief Executive Officer (CEO), who evaluates segment performance based on segment net income (loss) on a consolidated basis. Segment net income (loss) was consistent with the net loss amounts reported in the Company’s consolidated statement of operations and comprehensive loss for the years ended December 31, 2024, 2023, and 2022. There were no significant segment expenses that are regularly provided to the CODM other than those reported in the Company’s consolidated statement of operations and comprehensive loss for the years ended December 31, 2024, 2023, and 2022. The Company’s CODM is provided segment assets information on a consolidated basis for the evaluation of company performance. Total segment assets were consistent with total assets reported in the Company’s consolidated balance sheets for December 31, 2024 and 2023, respectively. Disaggregation of Revenue Segment revenues were consistent with revenue reported in the Company’s consolidated statement of operations and comprehensive loss for the years ended December 31, 2024, 2023, and 2022. The Company primarily sells its products through national and regional distributors in the United States on a non-exclusive basis, and through distribution partners outside the United States. In the United States and Canada, the Company also uses a direct sales force. 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 years ended December 31, 2024, 2023 and 2022, no individual country outside the United States generated revenue that represented more than 10% of total revenue. The table below sets forth revenues for the Company’s two primary geographical markets, based on the geographic location to which its products are shipped (in thousands): Year Ended December 31, 2024 2023 2022 United States $ 672,685 $ 554,878 $ 588,765 Outside the United States 267,518 192,840 212,452 Total Sales $ 940,203 $ 747,718 $ 801,217 Revenues by Product During the years ended December 31, 2024, 2023 and 2022, sales by product were as follows (in thousands): Year Ended December 31, 2024 2023 2022 Pump $ 434,169 $ 365,842 $ 431,907 Supplies and other 475,785 406,983 372,859 Net revenue recognized (deferred) for Tandem Choice program 30,249 ( 25,107 ) ( 3,549 ) Total Sales 940,203 747,718 801,217 Sales to distributors accounted for 61 %, 64 %, and 65 % of the Company’s total United States sales for the years ended December 31, 2024, 2023 and 2022, respectively. Sales to distributors accounted for 96 %, 99 %, and 96 % of the Company’s total sales outside the United States for the years ended December 31, 2024, 2023 and 2022, respectively. 97 12. Acquisitions AMF Medical Acquisition On December 10, 2022, the Company entered into a Share Purchase Agreement (Purchase Agreement) to acquire all of the registered shares of AMF Medical (Original Transaction). AMF Medical is the original developer of the Sigi Patch Pump, which continued to be under development and was not yet commercially available as of December 31, 2024. On January 19, 2023, the Company completed the acquisition of AMF Medical under the terms of the Purchase Agreement. The total aggregate consideration for the Original Transaction included 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 were to become payable upon the achievement of certain milestones, and were comprised 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 up to CHF 91.2 million upon obtaining regulatory clearance from the FDA of an automated controller enabled (ACE) pump. The contingent consideration was to be recognized as each contingency was resolved and the respective consideration was paid or became payable. The transaction was accounted for as an asset acquisition as substantially all the value of the gross assets was concentrated in a single asset. The Company recorded a $ 78.8 million charge in 2023 representing the value of acquired in-process research and development assets with no alternative future use, and acquisition related expenses, on its consolidated statements of operations in acquired in-process research and development expenses. In January 2025, the Company entered into a revised agreement that removed contingent liabilities previously outlined in the Original Transaction. The Company agreed to pay CHF 40 million in January 2025 and a final payment of CHF 28 million in October 2025. All other payments outlined in the Original Transaction were removed based on the revised agreement. The amounts due to be paid were recorded as a short-term accrued liability in the first quarter of 2025. 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 (see Note 7, “Debt”). Capillary Biomedical’s extended-wear infusion set technology is currently in development and is not yet commercially available. The transaction was accounted for as an asset acquisition as substantially all the value of the gross assets was concentrated in a single asset. The Company recorded a $ 31.0 million charge in 2022 representing the value of acquired in-process research and development assets with no alternative future use, and acquisition related expenses, on its consolidated statements of operations in acquired in-process research and development expenses. 13. Commitments and Contingencies Legal and Regulatory Matters In November 2023, at the Unified Patent Court (UPC), Paris Central Division (UPC Paris), we filed a revocation action and an action for a declaration of non-infringement of EP Patent No. 2 196 231 B1 (the ’231 patent) against Roche Diabetes Care GmbH. While Roche contends that Tandem’s t:slim X2 pump infringes the ‘231 patent, we contend that our t:slim X2 pump does not infringe the ‘231 patent. Furthermore, we contend that the claims of the ‘231 patent are invalid over the prior art and should be revoked. In February 2024, Roche filed an infringement action against Tandem and its distributor in Germany at the UPC, Hamburg Local Division (UPC Hamburg) contending that Tandem’s t:slim X2 pump, and the offering, marketing, using, importing, possessing, and supplying of such devices infringes certain claims of the ‘231 patent. Roche seeks, among other things, damages and other monetary relief, costs and expenses of the legal proceedings, and an order to cease and desist the allegedly infringing activities. At the UPC Hamburg, Tandem has asserted that the t:slim X2 pump does not infringe the claims of the ‘231 patent and Tandem’s distributor has asserted that the t:slim X2 pump does not infringe the claims of the ‘231 patent and that the claims of the ‘231 patent are invalid and should be revoked. On November 6, 2024, the UPC Paris held a hearing on Tandem’s action to revoke the claims of the ‘231 patent. On December 18, 2024, the UPC Paris upheld the patent. The hearing in Hamburg on invalidity and non-infringement is scheduled for June 12, 2025. 98 In December 2023, F. Hoffman-La Roche AG and Roche Diabetes Care GmbH (collectively, Roche), filed an infringement action at the UPC, Dusseldorf Division (UPC Dusseldorf) against Tandem Diabetes Care, Inc. and Tandem Diabetes Care Europe B.V. and Tandem’s distributors in Germany, France, the Netherlands and Denmark. Roche alleges our t:slim X2 insulin pump, and the offering, marketing, using, importing, possessing, and supplying of such devices infringe EP Patent No. 1 970 677 B1 (the ‘677 patent). While Roche contends that Tandem’s t:slim X2 pump infringes the ‘677 patent, we contend that our t:slim X2 pump does not infringe the ‘677 patent. Furthermore, we contend that the claims of the ‘677 patent are invalid over the prior art and should be revoked. Roche seeks, among other things, damages and other monetary relief, costs and expenses of the legal proceedings, and an order to cease and desist the allegedly infringing activities. On April 9, 2025, the UPC Dusseldorf will hold a hearing on Roche’s action asserting infringement of the ‘677 patent, Tandem and its distributors’ counterclaims that the t:slim X2 pump does not infringe the ‘677 patent, and Tandem and its distributors’ actions to revoke the claims of the ‘677 patent. The action seeks unspecified monetary damages and other relief. 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 this lawsuit or determine the amount or range of potential losses associated with the lawsuit. From time to time, the Company is involved in various other legal proceedings, regulatory matters, and other disputes or claims arising from or related to claims incident to the normal course of the Company’s business activities, including actions with respect to intellectual property, data privacy, employment, regulatory, product liability and contractual matters. Although the results of such legal proceedings and claims cannot be predicted with certainty, as of December 31, 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 As of December 31, 2024, in connection with one of the Company’s operating leases (see Note 6, “Leases”), the Company had 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. Purchase Obligations The Company has agreements with suppliers and other parties to purchase inventory, other goods and services and long-lived assets. Product inventory obligations consist primarily of purchase order commitments for raw materials used in the production of insulin pumps and cartridges, and finished goods infusion sets. Cancellation of outstanding purchase orders is generally allowed under the standard terms of our purchase order agreements, but may require payment of costs incurred through the date of cancellation. At December 31, 2024, obligations under our purchase agreements totaled approximately $ 197.1 million, of which approximately $ 192.7 million is scheduled to be received and become payable within one-year. 14. Fourth Quarter Financial Data (Unaudited) The financial information for the three months ended December 31, 2024 and 2023 presented in the following table reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the results of the interim periods (in thousands, except per share data): For the Quarter Ended December 31, 2024 December 31, 2023 Sales (1) $ 282,648 $ 196,796 Gross profit (1)(2) $ 157,455 $ 93,295 Operating expenses $ 158,036 $ 128,355 Operating loss $ ( 581 ) $ ( 35,060 ) Net income (loss) $ 755 $ ( 30,002 ) Basic net income (loss) per share $ 0.01 $ ( 0.46 ) Weighted average shares used to compute basic net income (loss) per share 65,939 65,369 Diluted net income (loss) per share $ 0.01 $ ( 0.46 ) Weighted average shares used to compute diluted net income (loss) per share 66,157 65,369 99 (1) The Company recognized revenue of $ 30.2 million and deferred revenue of $ 25.1 million for the quarters ended December 31, 2024 and 2023, respectively, as a result of the Tandem Choice program (see Note 2, “Summary of Significant Accounting Policies”) . (2) For the quarter ended December 31, 2024, the Company recognized charges to cost of sales of $ 0.6 million for Tandem Choice fulfillments in 2024, with no corresponding charge in 2023. The numerator and denominator of the basic and diluted net income per share computations are calculated as follows for the three months ended December 31, 2024 (in thousands). For the Quarter Ended December 31, 2024 Net income - basic and diluted $ 754 Weighted average shares outstanding - basic 65,939 Dilutive common share equivalents: Options to purchase common stock 112 Warrants to purchase common stock 59 Awards to be granted under the ESPP 47 Weighted average shares outstanding - diluted 66,157 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable.