TANDEM DIABETES CARE INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis together with our financial statements and related notes in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 (Quarterly Report). This Quarterly Report contains forward-looking statements within the meaning of the federal securities laws, which statements are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Quarterly Report, other than statements of historical fact, are forward-looking statements. You can identify forward-looking statements by the use of words such as “may,” “will,” “could,” “anticipate,” “expect,” “intend,” “believe,” “continue” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to such statements. In particular, forward-looking statements contained in this Quarterly Report may relate to, among other things, our future or assumed financial condition, results of operations, liquidity, trends impacting our financial results, business forecasts and plans, research and product development plans, product pipelines, development timelines, manufacturing plans, strategic plans and objectives, capital needs and financing plans, product launches, geographic expansion, distribution plans, production capacity, clinical trials, regulatory approvals, competitive position and the impact of changes in the competitive environment, supply chain, and the businesses of our contract manufacturers and suppliers, integration of acquisitions and partner technologies, and the application of accounting guidance. We caution you that the foregoing list may not include all of the forward-looking statements made in this Quarterly Report. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Our forward-looking statements are based on our management’s current assumptions and expectations about future events and trends, which affect or may affect our business, strategy, operations or financial performance. Although we believe that these forward-looking statements are based upon reasonable assumptions, they are subject to numerous known and unknown risks and uncertainties and are made in light of information currently available to us. Our actual financial condition and results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below in the section entitled “Risk Factors” in this Quarterly Report, as well as in the other public filings we make with the Securities and Exchange Commission. You should read this Quarterly Report with the understanding that our actual future financial condition and results may be materially different from and worse than what we expect. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements speak only as of the date they were made and, except to the extent required by law or the rules of the Nasdaq Global Market, we undertake no obligation to update or review any forward-looking statement because of new information, future events or other factors. We qualify all of our forward-looking statements by these cautionary statements. Overview We are a global insulin delivery and diabetes technology company focused on the design, development and commercialization of technology solutions that reduce the burden of diabetes management. We consider our primary addressable market to be people who live with type 1 diabetes. We recently expanded our addressable market in the United States following U.S. Food and Drug Administration (FDA) clearance of our products for people living with type 2 diabetes, ages 18 and older who require intensive insulin therapy. Diabetes management can vary greatly from person-to-person, creating multiple market segments based on clinical needs and personal preferences. Our goal is to address the individual needs of people with insulin-dependent diabetes and their care team, by offering flexibility and choice in intelligent insulin delivery systems, through an accessible portfolio of market-leading pumps, applications, and insights. 23 From inception in 2012 through 2018, we derived nearly all of our sales from the shipment of insulin pumps and associated supplies to customers in the United States. Starting in the third quarter of 2018, we began selling in select geographies outside the United States and our technology solutions are now available in 25 countries worldwide. Through our portfolio approach, we offer people living with diabetes a choice in their therapy management system based on their individual needs and preferences. In support of this strategy, our portfolio includes both the t:slim X2 and the Tandem Mobi insulin pumps. The Tandem Mobi insulin pump is the world’s smallest durable automated insulin delivery (AID) system. At approximately half the size of our t:slim X2 pump, Tandem Mobi is designed for people who seek even greater discretion and flexibility, and includes features such as expanded pump-control from our iOS mobile application, inductive charging, and an on-pump button that can be used for bolusing and other actions. Beginning in early 2024, we scaled the commercial release of Tandem Mobi in the United States, first offering CGM integration with the Dexcom G6 sensor beginning in February 2024 followed by the Dexcom G7 beginning in June 2024. The vast majority of our customers use their insulin pump with CGM integration. This allows their insulin pump to receive CGM sensor readings, which can then be used in our AID algorithms, including our Control-IQ technology. Control-IQ is an advanced hybrid-closed loop feature designed to help increase a user’s time in their targeted glycemic range. Multiple studies, including four publications in the New England Journal of Medicine with the most recent in March 2025 , have demonstrated that use of Control-IQ technology provides people across all demographics with improved clinical outcomes that are both immediate and sustained. The t:slim X2 was the first pump in the industry on which remote software updates were made commercially available in the United States and is now also available in the countries we serve worldwide. This feature allows our t:slim X2 and Tandem Mobi customers to update their pump software independently. We believe this offering is a competitive advantage that allows us to bring our customers clinical and lifestyle enhancements within their warranty cycle without having to purchase a new pump. These enhancements include new developments in our AID technology, CGM integrations and mobile app features. For example, we recently offered a pump software update to allow Tandem pump users access to the latest generation of our algorithm, Control-IQ+ technology, offering greater levels of personalization and flexibility within our algorithm. For more than a decade we have offered our customers, their caregivers and healthcare providers a data management application to provide a fast, easy and visual way to display diabetes therapy management data from our pumps and integrated CGMs. In the second quarter of 2023, we expanded our digital technology solutions with the launch of Tandem Source in the United States. In the second quarter of 2024, we began a scaled launch of Tandem Source outside the United States. In addition to displaying diabetes therapy management data, Tandem Source is also designed to serve as a portal for supplies reordering and pump software updates. Our Strategy & Future Technology Diabetes management can vary greatly from person-to-person, creating multiple market segments based on clinical needs and personal preferences. Our goal is to redefine global leadership in insulin delivery with an accessible portfolio of transformational devices, applications and services that reduce the daily burden of living with diabetes. In support of this strategy, our portfolio of future technologies includes enhancing the features and capabilities of our t:slim X2 and Tandem Mobi insulin pump platforms, including adding a tubeless infusion site option for Tandem Mobi users. Our development efforts also include Sigi, our ergonomic and rechargeable patch pump, in addition to extended wear infusion technology and algorithm advancement in pursuit of offering fully closed loop technology. Pump Reimbursement Cycle Insulin pumps in the markets we serve worldwide are generally subject to a four-year reimbursement cycle, imposed by the third-party insurance carrier, government plan or healthcare system that serves as the primary payor. At the end of the typical four-year reimbursement cycle, customers may be eligible to purchase a new insulin pump, subject to the rules and requirements of their primary insurance payor. While warranties generally expire four years from the original pump shipment date, those customers that renew take on average up to one year from date of warranty expiration to purchase a subsequent pump. While the majority of our insulin pump sales from initial commercialization through the current period have been generated by sales to new customers, the opportunity to make subsequent sales of renewal insulin pumps to existing customers increases each period as an escalating number of customer warranties expire. With programs dedicated to customer retention efforts, we expect such renewal purchases to represent an increasing portion of our pump shipments over time. 24 At December 31, 2024, we had over 480,000 users in our in-warranty installed base, approximately one-third of whom live outside the United States. The ordering patterns of, and levels of inventory carried by, our distributors outside the United States for pumps and supplies have historically been highly variable from period to period due to a number of factors, including summer vacations, the timing of product launches, expansion into new geographies and variability due to supply chain logistics, particularly during the global pandemic. This also influences the timing in which renewal eligibility begins for existing customers, which may not initially be consistent with trends in the United States market. We recently began completing full four-year reimbursement cycles in an increasing number of our markets outside of the United States. Trends and Uncertainties Impacting Financial Results Our financial condition and operating results have historically fluctuated on a quarterly or annual basis. We expect these periodic fluctuations will continue to be impacted by a number of trends and uncertainties, including the following: Regulatory Approvals and Actions • Sales of new products are subject to local government regulations. The requirements and timelines to receive regulatory clearance can vary substantially from country to country and delays may impact our ability to expand our worldwide customer base and bring products to market in a competitive timeframe. These delays, or failure to receive regulatory approval could adversely impact our revenue and results of operations. • Any adverse event involving products that we distribute could result in future corrective actions, such as recalls or customer notifications, or regulatory agency action, which could include inspection, mandatory recall or other enforcement action. Any action by regulatory bodies against us, and any regulatory challenges we encounter could have a negative impact on our product sales and harm our reputation. Markets, Seasonality, Competition, and Product Launches • We expect our business to be impacted by the introduction of new diabetes devices and treatments by us or our competitors. The success of our products is variable and we believe it correlates to market acceptance, anticipated product launches and commercial availability. • Seasonality in the United States is associated with annual insurance deductibles and coinsurance requirements of the medical insurance plans used by our customers and the customers of our distributors. In the United States, we typically experience a higher volume of pump shipments in the second half of the year due to the nature of the reimbursement environment. Other factors that may impact sales across the year include the timing of winter, summer and other seasonal holidays, particularly in our markets outside the United States. • Regulatory approval and/or upcoming launches of other new Tandem or competing products could also adversely impact timing of purchasing decisions. • In periods following new product launches, particularly with new hardware platforms, our cost of sales may increase on a per unit basis until the new products achieve manufacturing scale and operating expenses may be elevated by increased sales and marketing spend to support the product launches. Reimbursement • Our insulin pump products are generally considered durable medical equipment (DME) and have an expected lifespan of at least four years. In addition to insulin pumps, we sell single-use products that are used together with our pumps and are replaced every few days, including cartridges for storing and delivering insulin, and infusion sets that connect the insulin pump to a user’s body. Because of the DME classification, our pumps and supplies are typically reimbursed through a medical benefit. As our portfolio expands, we are implementing a multi-channel managed care strategy and have begun serving Mobi customers through the pharmacy channel on a scaled basis in 2025. • We generally have had broad insurance coverage for our current products from third-party payors. Our revenue and results of operations may be impacted by the failure to secure or retain adequate coverage, changes in reimbursement structures or availability of affordable options for our customers. 25 Macroeconomic Factors • Global economic and market uncertainty, such as recessionary concerns, changes in discretionary spending and increased interest rates have impacted our customers’ purchasing decisions and the buying patterns of our distributors. • High inflation, fluctuations in foreign currency valuations, uncertainty regarding tariffs and trade relations, and the effects of other macroeconomic factors and concerns have disrupted and may continue to disrupt our relationships with suppliers, third-party manufacturers, healthcare providers, distributors and our existing or potential customers. Components of Results of Operations Sales We offer products for people with insulin-dependent diabetes, including a portfolio of hardware platforms, single-use insulin cartridges and infusion sets, data management platforms and mobile applications. Our primary customers are the end users of our products, non-exclusive distribution partners whose level of service varies based on geography, the healthcare professionals who prescribe our products and the healthcare systems or payors who provide insurance coverage and access to our products. Our sales may fluctuate from period to period, particularly due to seasonality in the United States associated with the timing of insurance deductible resets, which generally reflect in a significant decline in pump shipments from any fourth quarter to the following first quarter. Therefore, the lowest percentage of sales is typically reported in the first quarter of each calendar year and the highest percentage is typically reported in the fourth quarter. See also “Trends and Uncertainties Impacting Financial Results — Markets, Seasonality, Competition, and Product Launches” above. From September 2022 through February 2024, we offered the Tandem Choice program to eligible t:slim X2 customers to provide a pathway to ownership of Tandem Mobi for a fee once available. 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 accounting treatment for Tandem Choice was complex (see Note 2, “Summary of Significant Accounting Policies”). The program required the deferral of some portion of sales for shipments of eligible pumps between the third quarter of 2022 and the first quarter of 2024. No election was made by the customer at the time of the initial sale, nor did the right offered to the customer impact the economics associated with how or when the initial pump sale was reimbursed. When a customer elected to participate in Tandem Choice, we recognized the existing sales deferral, incremental fees received and the associated costs of goods sold for the new insulin pump, Tandem Mobi, at the time of fulfillment. Qualifying customers were able to elect participation in Tandem Choice starting near the end of the second quarter of 2024. The remaining deferral balance was recognized as revenue when the program ended on December 31, 2024. Cost of Sales Cost of sales includes raw materials, labor costs, manufacturing overhead expenses, product training costs, royalties, freight, reserves for expected warranty costs, costs of supporting our digital health platforms, scrap and charges for excess and obsolete inventories. Manufacturing overhead expenses include expenses relating to quality assurance, manufacturing engineering, material procurement, inventory control, facilities, equipment, information technology and operations supervision and management. When taking into consideration the differences in reimbursement levels and cost structure, pumps have, and are expected to continue to have, a higher gross profit and gross margin percentage than our pump-related supplies on a per unit basis. Therefore, the percentage of pump sales relative to total sales could have a significant impact on our overall gross margin percentage. Selling, General and Administrative Our selling, general and administrative (SG&A) expenses primarily consist of salary, cash-based incentive compensation, fringe benefits and non-cash stock-based compensation for our sales, marketing and administrative functions, which also includes our clinical, customer support, technical services, insurance verification and regulatory affairs personnel. Our sales territories in the United States are generally maintained by sales representatives and field clinical specialists, and supported by managed care liaisons, additional sales management and other customer support personnel. Other significant SG&A expenses typically include those incurred for commercialization activities associated with new product launches, travel, trade shows, outside legal fees, independent auditor fees, outside consultant fees, insurance premiums, facilities costs and information technology costs. 26 Research and Development Our research and development (R&D) activities primarily consist of engineering and research programs associated with our hardware, software and digital health products under development, as well as activities associated with our core technologies and processes. R&D expenses are primarily related to employee compensation, including salary, cash-based incentive compensation, fringe benefits and non-cash stock-based compensation. We also incur R&D expenses for supplies, development prototypes, outside design and testing services, depreciation, allocated facilities and information services, clinical trials, payments under our licensing, development and commercialization agreements and other indirect costs. Acquired In-process Research and Development (IPR&D) Acquired IPR&D reflects costs of external research and development projects acquired directly in a transaction other than a business combination, which do not have an alternative future use. Other Income and Expense Other income and expense primarily consist of interest earned on our cash equivalents and short-term investments, income or loss from equity method investments, foreign currency transaction gains and losses and interest expense which includes the amortization of debt issuance costs related to our convertible senior notes. Income Tax Expense (Benefit) Because the Company maintains a full valuation allowance against its net deferred tax assets, income tax expense is expected to primarily consist of current federal, state and foreign cash tax expense as a result of taxable income anticipated or incurred in those jurisdictions. Results of Operations Three Months Ended March 31, (in thousands, except percentages) 2025 2024 Sales: United States $ 150,632 $ 129,761 Outside the United States 83,790 61,913 Total sales 234,422 191,674 Cost of sales 116,015 97,002 Gross profit 118,407 94,672 Gross margin 51 % 49 % Operating expenses: Selling, general and administrative 113,853 90,106 Research and development 50,215 46,244 Acquired in-process research and development expenses 75,217 — Total operating expenses 239,285 136,350 Operating loss (120,878) (41,678) Other income (expense), net: Interest income and other, net 4,193 5,314 Interest expense (1,862) (1,897) Loss from equity method investments (3,542) — Loss on extinguishment of debt — (1,268) Total other income (expense), net (1,211) 2,149 Loss before income taxes (122,089) (39,529) Income tax expense 8,467 3,186 Net loss $ (130,556) $ (42,715) 27 Comparison of the Three Months Ended March 31, 2025 and 2024 Sales For the three months ended March 31, 2025, we shipped nearly 29,000 pumps worldwide. Sales were $234.4 million, which included $83.8 million of sales outside the United States. Sales were $191.7 million for the three months ended March 31, 2024, which included $61.9 million of sales outside the United States. For the three months ended March 31, 2024, we deferred $1.1 million of pump sales as the result of Tandem Choice. Sales by product in the United States were as follows (in thousands): Three Months Ended March 31, 2025 2024 Pump $ 72,141 $ 61,720 Supplies and other 78,491 69,187 Net revenue deferred for Tandem Choice program — (1,146) Total Sales in the United States $ 150,632 $ 129,761 Pump sales in the United States increased primarily due to growth in pump shipments to over 17,000 in the first quarter of 2025, compared to 15,000 in the first quarter of 2024. Sales of pump-related supplies increased as a result of volume growth, as well as an increase in average selling prices. Sales in the first quarter of 2024 were reduced by $1.1 million from sales deferrals related to Tandem Choice, for which there were no comparable adjustments in 2025. Sales by product outside the United States were as follows (in thousands): Three Months Ended March 31, 2025 2024 Pump $ 29,950 $ 25,567 Supplies and other 53,840 36,346 Total Sales Outside the United States $ 83,790 $ 61,913 For the first quarter of 2025, both pumps and pump-related supply sales increased due to a year-over-year increase in volumes, with pump shipments growing to over 11,000 pumps for the first quarter of 2025, compared to 10,000 in the first quarter of 2024. Cost of Sales and Gross Profit Our cost of sales for the three months ended March 31, 2025 was $116.0 million , resulting in gross profit of $118.4 million, compared to cost of sales of $97.0 million and gross profit of $94.7 million for the same period in 2024. The gross margins for the three-month periods ended March 31, 2025 and 2024 were 51% and 49%, respectively. This increase in gross margin was primarily driven by an improvement in pump manufacturing and non-manufacturing costs per unit. Operating Expenses Our operating expenses for the three months ended March 31, 2025 were $239.3 million, compared to $136.4 million for the three months ended March 31, 2024. The $102.9 million increase was primarily driven by a $75.2 million charge to IPR&D in connection with the revised AMF purchase agreement (see Note 12, “Acquisitions”), as well as costs related to operating lease impairment and restructuring charges related to relocation of certain research and development activities and sales force expansion. 28 Selling, General and Administrative Expenses. SG&A expenses, including one-time charges for non-recurring facility impairment costs of $6.7 million and restructuring costs of $2.2 million, were $113.9 million for the three months ended March 31, 2025, compared to $90.1 million for the same period in 2024. After one-time costs, the remaining increase was largely driven by higher employee-related expenses of $11.0 million due to increased headcount and sales force expansion. Three Months Ended March 31, 2025 2024 Selling, general and administrative $ 104,966 $ 90,106 Non-recurring facility impairment costs 6,697 — Restructuring costs 2,190 — Total SG&A expenses $ 113,853 $ 90,106 Research and Development Expenses . R&D expenses, including one-time charges for non-recurring restructuring costs of $2.3 million, increased to $50.2 million for the three months ended March 31, 2025, from $46.2 million for the same period in 2024. After one-time costs, the remaining increase in R&D expenses was primarily the result of other employee expenses. Three Months Ended March 31, 2025 2024 Research and development 47,935 46,244 Restructuring costs 2,280 — Total R&D expenses $ 50,215 $ 46,244 Acquired In-Process Research and Development (IPR&D) Expenses. Acquired IPR&D expenses were $75.2 million for the three months ended March 31, 2025, which represented costs associated with the revised AMF purchase agreement (see Note 12, “Acquisitions”). We did not incur any IPR&D expenses for the three months ended March 31, 2024. Other Income (Expense), Net Total other income (expense), net for the three months ended March 31, 2025 was a $1.2 million loss, compared to $2.1 million of income for the same period in 2024. Other expense, net for the three months ended March 31, 2025 primarily consisted of $3.5 million loss on equity investment and $1.9 million of interest expense which included the amortization of debt issuance costs related to our convertible senior notes due 2025 and 2029 (the 2025 Notes and the 2029 Notes, respectively), offset by $4.3 million of interest income earned on our cash equivalents and short-term investments. Other income, net for the three months ended March 31, 2024 primarily consisted of $5.3 million of interest income earned on our cash equivalents and short-term investments, partially offset by $1.9 million of interest expense which included the amortization of debt issuance costs related to the 2025 Notes and the 2029 Notes. We also incurred a loss on debt extinguishment of $1.3 million during the three months ended March 31, 2024. Income Tax Expense We recognized income tax expense of $8.5 million on a pre-tax loss of $122.1 million for the three months ended March 31, 2025, compared to income tax expense of $3.2 million on a pre-tax loss of $39.5 million for the three months ended March 31, 2024. Income tax expense for the three months ended March 31, 2025 and 2024 was primarily attributable to federal, state and foreign income tax expense as a result of current taxable income in certain jurisdictions. Liquidity and Capital Resources At March 31, 2025, we had $368.6 million in cash and cash equivalents and short-term investments. We believe that our cash and cash equivalents, short-term investments, and future cash flows from operations will be sufficient to fund our ongoing core business activities for at least the next 12 months. Our historical cash outflows have primarily been associated with cash used for operating activities such as research and development activities, sales, marketing and commercialization of our products worldwide, expansion of clinical and customer support organizations, the acquisition of intellectual property, equity investments and asset acquisitions, capital expenditures and debt service costs. 29 Historically, our principal sources of cash have included cash collected from product sales, private and public offerings of equity securities, exercises of employee stock awards and debt financing. We expect to rely on these sources of cash, primarily from product sales, to fund our material cash requirements in both the short and long term. The following table shows a summary of our cash flows for the three months ended March 31, 2025, and 2024 (in thousands): Three Months Ended March 31, 2025 2024 Net cash provided by (used in): Operating activities $ (18,278) $ (7,996) Investing activities 9,186 (5,056) Financing activities (4,688) 13,586 Effect of foreign exchange rate changes on cash (1,880) (423) Net increase (decrease) in cash and cash equivalents $ (15,660) $ 111 Operating Activities . Net cash used in operating activities was $18.3 million for the three months ended March 31, 2025, compared to $8.0 million used in the same period in 2024. For the three months ended March 31, 2025, net loss was $130.6 million, net non-cash adjustments were $118.1 million, and changes in working capital balances was a decrease of $5.8 million. For the three months ended March 31, 2024, net loss was $42.7 million, net non-cash adjustments were $29.8 million and change in working capital balances was an increase of $4.9 million. Investing Activities . Net cash provided by investing activities was $9.2 million for the three months ended March 31, 2025, which primarily consisted of $65.1 million in proceeds from maturities and redemptions of short-term investments, offset by $43.5 million paid for IPR&D, $9.5 million in purchases of short-term investments, and $3.0 million in purchases of property and equipment. Net cash used in investing activities was $5.1 million for the three months ended March 31, 2024, which primarily consisted of $84.2 million in purchases of short-term investments, and $4.5 million in purchases of property and equipment, offset by $83.7 million in proceeds from maturities and redemptions of short-term investments. Financing Activities. Net cash used in financing activities was $4.7 million for the three months ended March 31, 2025, which consisted of payments for tax withholdings related to the issuance of common stock under our stock plans, partially offset by proceeds received from common stock issuances for the period. Net cash provided by financing activities was $13.6 million for the three months ended March 31, 2024, which primarily consisted of net proceeds of $306.9 million from the issuance of the 2029 Notes, offset by $246.1 million used in the repurchase of the 2025 Notes, $30.0 million used to repurchase and retire common stock and $15.8 million used to purchase Capped Call Options related to the 2029 Notes. In addition, $1.5 million was used in payments for tax withholdings related to the issuance of common stock under our stock plans. Our liquidity position and capital requirements are subject to fluctuation based on a number of factors. In particular, our cash inflows and outflows are principally impacted by the following: • our ability to generate sales, the timing of those sales, the mix of products sold and the collection of receivables from period to period; • contractual debt obligations, including periodic interest payments; • the timing of any additional financings, and the net proceeds raised from such financings; • the timing and amount of proceeds from the issuance of equity awards pursuant to employee stock plans; • fluctuations in costs, gross and operating margins; and • fluctuations in working capital, including changes in accounts receivable, inventories, accounts payable, employee-related liabilities, and operating lease liabilities. Both our primary short-term and long-term capital needs are expected to include expenditures related to: • support of our commercialization efforts related to our current and future products; 30 • expansion of our commercial resources for our growing installed customer base; • research and product development efforts, including clinical trial costs; • acquisitions, including strategic investments, equity method investments and future contingent payments associated with acquisitions; • leasing or licensing of equipment, technology, intellectual property and other assets; • additional facilities leases and related tenant improvements; • investments for the development, improvement and acquisition of manufacturing, testing and packaging equipment to support business growth and increase capacity; • payments under licensing, development and commercialization agreements; and • integration costs related to acquisitions of businesses, products and technologies. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements and accompanying notes as of the date of the financial statements. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about our financial condition and results of operations that are not readily apparent from other sources. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies Involving Management Estimates and Assumptions,” included in our Annual Report on Form 10-K for the year ended December 31, 2024. 31 Item 3. Quantitative and Qualitative Disclosures about Market Risk. There were no material changes to our quantitative and qualitative disclosures about market risk during the three months ended March 31, 2025. See Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 for a detailed discussion of our market risks.