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TANDEM DIABETES CARE INC - Quarter Report: 2023 June (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________________________
FORM 10-Q
_____________________________________________________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from              to                 
Commission File Number 001-36189
_____________________________________________________________________________________________
Tandem Diabetes Care, Inc.
(Exact name of registrant as specified in its charter)
_____________________________________________________________________________________________
Delaware20-4327508
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
12400 High Bluff Drive92130
San Diego, California
(Zip Code)
(Address of principal executive offices)
(858) 366-6900
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Exchange on Which Registered
Common Stock, par value $0.001 per shareTNDMNasdaq Global Market
_____________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  
As of July 28, 2023, there were 65,077,705 shares of the registrant’s Common Stock outstanding.



TABLE OF CONTENTS
Part IFinancial Information
Item 1Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2023 (Unaudited) and December 31, 2022
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 (Unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3Quantitative and Qualitative Disclosures About Market Risk
Item 4Controls and Procedures
Part IIOther Information
Item 1Legal Proceedings
Item 1ARisk Factors
Item 5Other Information
Item 6Exhibits






PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.

TANDEM DIABETES CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)

June 30,December 31,
20232022
Assets(Unaudited)(Note 1)
Current assets:
Cash and cash equivalents$130,751 $172,517 
Short-term investments376,495 444,384 
Accounts receivable, net98,714 114,717 
Inventories147,599 111,117 
Prepaid and other current assets10,745 7,241 
Total current assets764,304 849,976 
Property and equipment, net73,752 68,552 
Operating lease right-of-use assets91,054 110,626 
Other long-term assets17,566 23,631 
Total assets$946,676 $1,052,785 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$57,080 $55,730 
Accrued expenses13,120 9,595 
Employee-related liabilities35,473 38,682 
Operating lease liabilities17,757 13,121 
Deferred revenue23,401 18,837 
Other current liabilities27,824 29,325 
Total current liabilities174,655 165,290 
Convertible senior notes, net - long-term284,128 283,232 
Operating lease liabilities - long-term118,400 123,524 
Deferred revenue - long-term15,305 16,874 
Other long-term liabilities24,954 23,918 
Total liabilities617,442 612,838 
Commitments and contingencies (Note 13)— — 
Stockholders’ equity:
Common stock, $0.001 par value; 200,000 shares authorized, 65,062 and 64,513 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively.
65 65 
Additional paid-in capital1,219,199 1,170,888 
Accumulated other comprehensive loss(1,193)(1,817)
Accumulated deficit(888,837)(729,189)
Total stockholders’ equity329,234 439,947 
Total liabilities and stockholders’ equity$946,676 $1,052,785 
See accompanying notes to unaudited condensed consolidated financial statements.
1


TANDEM DIABETES CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except per share data)

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Sales$195,917 $200,262 $365,300 $376,169 
Cost of sales94,182 98,316 180,658 183,130 
Gross profit101,735 101,946 184,642 193,039 
Operating expenses:
Selling, general and administrative97,610 80,614 187,424 153,885 
Research and development42,933 33,571 85,093 66,731 
Acquired in-process research and development expenses— — 78,750 — 
Total operating expenses140,543 114,185 351,267 220,616 
Operating loss(38,808)(12,239)(166,625)(27,577)
Other income (expense), net:
Interest income and other, net5,784 826 11,649 1,241 
Interest expense(1,605)(1,537)(3,239)(3,053)
Total other income (expense), net4,179 (711)8,410 (1,812)
Loss before income taxes(34,629)(12,950)(158,215)(29,389)
Income tax expense1,146 2,106 1,433 382 
Net loss$(35,775)$(15,056)$(159,648)$(29,771)
Other comprehensive income (loss):
Unrealized gain (loss) on short-term investments$(298)$(1,124)$1,451 $(3,641)
Foreign currency translation losses(802)(97)(827)(25)
Comprehensive loss $(36,875)$(16,277)$(159,024)$(33,437)
Net loss per share - basic$(0.55)$(0.23)$(2.47)$(0.47)
Net loss per share - diluted$(0.55)$(0.24)$(2.47)$(0.47)
Weighted average shares used to compute basic net loss per share64,830 64,077 64,690 63,979 
Weighted average shares used to compute diluted net loss per share64,830 64,078 64,690 63,980 
See accompanying notes to unaudited condensed consolidated financial statements.
2



TANDEM DIABETES CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands)

Three Months Ended June 30, 2023
Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at March 31, 202364,609 $65 $1,191,843 $(93)$(853,062)$338,753 
Exercise of stock options18 — 305 — — 305 
Vesting of restricted stock units, net of shares withheld for taxes186 — (3,163)— — (3,163)
Issuance of common stock for Employee Stock Purchase Plan249 — 6,804 — — 6,804 
Stock-based compensation expense— — 23,410 — — 23,410 
Unrealized loss on short-term investments— — — (298)— (298)
Foreign currency translation losses— — — (802)— (802)
Net loss— — — — (35,775)(35,775)
Balance at June 30, 2023
65,062 $65 $1,219,199 $(1,193)$(888,837)$329,234 

Six Months Ended June 30, 2023
Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 202264,513 $65 $1,170,888 $(1,817)$(729,189)$439,947 
Exercise of stock options63 — 1,162 — — 1,162 
Vesting of restricted stock units, net of shares withheld for taxes237 — (4,561)— — (4,561)
Issuance of common stock under Employee Stock Purchase Plan249 — 6,804 — — 6,804 
Stock-based compensation expense— — 44,906 — — 44,906 
Unrealized gain on short-term investments— — — 1,451 — 1,451 
Foreign currency translation losses— — — (827)— (827)
Net loss— — — — (159,648)(159,648)
Balance at June 30, 2023
65,062 $65 $1,219,199 $(1,193)$(888,837)$329,234 
See accompanying notes to unaudited condensed consolidated financial statements.
3




Three Months Ended June 30, 2022
Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at March 31, 202263,941 $64 $1,089,689 $(3,061)$(649,310)$437,382 
Exercise of stock options70 — 2,615 — — 2,615 
Vesting of restricted stock units, net of shares withheld for taxes66 — (2,276)— — (2,276)
Issuance of common stock for Employee Stock Purchase Plan129 — 7,915 — — 7,915 
Exercise of common stock warrants— 68 — — 68 
Stock-based compensation expense— — 20,157 — — 20,157 
Unrealized loss on short-term investments— — — (1,124)— (1,124)
Foreign currency translation losses— — — (97)— (97)
Net loss— — — — (15,056)(15,056)
Balance at June 30, 2022
64,210 $64 $1,118,168 $(4,282)$(664,366)$449,584 

Six Months Ended June 30, 2022
Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 202163,833 $64 $1,068,259 $(616)$(634,595)$433,112 
Exercise of stock options172 — 6,398 — — 6,398 
Vesting of restricted stock units, net of shares withheld for taxes70 — (2,575)— — (2,575)
Issuance of common stock under Employee Stock Purchase Plan129 — 7,915 — — 7,915 
Exercise of common stock warrants— 83 — — 83 
Stock-based compensation expense— — 38,088 — — 38,088 
Unrealized loss on short-term investments— — — (3,641)— (3,641)
Foreign currency translation losses— — — (25)— (25)
Net loss— — — — (29,771)(29,771)
Balance at June 30, 2022
64,210 $64 $1,118,168 $(4,282)$(664,366)$449,584 
See accompanying notes to unaudited condensed consolidated financial statements.
4


TANDEM DIABETES CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended June 30,
20232022
Operating Activities
Net loss$(159,648)$(29,771)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense7,661 7,181 
Amortization of debt issuance costs1,009 896 
Provision for expected credit losses2,758 1,990 
Provision for inventory obsolescence136 641 
Operating lease impairment charge14,099 — 
Amortization of premium on short-term investments1,755 1,799 
Stock-based compensation expense44,594 38,241 
Acquired in-process research and development expenses78,750 — 
Other(416)171 
Changes in operating assets and liabilities:
Accounts receivable, net13,553 4,922 
Inventories(35,945)(20,352)
Prepaid and other current assets(3,147)1,524 
Other long-term assets(1,659)(901)
Accounts payable and accrued expenses5,557 20,193 
Employee-related liabilities(2,711)(16,126)
Deferred revenue2,946 2,934 
Operating leases and other current liabilities5,023 7,443 
Other long-term liabilities1,036 (84)
Net cash provided by (used in) operating activities(24,649)20,701 
Investing Activities
Purchases of short-term investments(235,525)(229,719)
Proceeds from maturities and redemptions of short-term investments303,110 256,548 
Purchases of property and equipment(16,205)(14,760)
Acquisition, including in-process research and development, net of cash acquired(69,496)— 
Purchases of intangible assets and strategic investments(2,515)(515)
Net cash provided by (used in) investing activities(20,631)11,554 
Financing Activities
Proceeds from issuance of common stock under Company stock plans, net3,407 11,738 
Proceeds from exercise of common stock warrants— 83 
Other financing activities— (270)
Net cash provided by financing activities3,407 11,551 
Effect of foreign exchange rate changes on cash107 (21)
Net increase (decrease) in cash and cash equivalents(41,766)43,785 
Cash and cash equivalents at beginning of period172,517 71,181 
Cash and cash equivalents at end of period$130,751 $114,966 
Supplemental disclosures of cash flow information
Income taxes paid$1,771 $162 
Supplemental schedule of non-cash investing and financing activities
Operating lease right-of-use assets obtained in exchange for operating lease obligations$— $110,515 
Purchase of property and equipment included in accounts payable $3,027 $1,255 
Intangible costs in accounts payable and other long-term liabilities$— $515 
See accompanying notes to unaudited condensed consolidated financial statements.
5



TANDEM DIABETES CARE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
The Company
Tandem Diabetes Care, Inc. is a medical device company focused on the design, development and commercialization of technology solutions for people living with diabetes. 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’s manufacturing, sales and support activities principally focus on the t:slim X2 Insulin Delivery System (t:slim X2), the Company’s flagship pump platform which has an advanced algorithm for managing insulin delivery, and is designed to display continuous glucose monitoring (CGM) sensor information directly on the pump home screen. The Company’s insulin pump products are compatible with other complementary digital health offerings, such as the t:connect mobile app, cloud-based diabetes management applications and the Tandem Device Updater, a Mac- and PC-compatible tool that offers and supports remote updates of the Company’s insulin pump software from a personal computer. The Company’s insulin pump products are generally considered durable medical equipment and have an expected lifespan of at least four years. In addition to insulin pumps, the Company sells disposable products that are used together with the pumps and are replaced every few days, including cartridges for storing and delivering insulin, and infusion sets that connect the insulin pump to a user’s body.
Basis of Presentation and Principles of Consolidation
The Company has prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments which are of a normal and recurring nature and considered necessary for a fair presentation of the financial information contained herein, have been included.
Interim financial results are not necessarily indicative of results anticipated for the full year or any other period(s). These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (Annual Report), from which the balance sheet information herein was derived. The condensed consolidated financial 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) in the condensed consolidated statements of operations, and in accumulated other comprehensive income (loss) in the stockholders’ equity section of the Company’s condensed 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 condensed consolidated statements of operations.
Reclassifications
The change in fair value of common stock warrants for the three and six months ended June 30, 2022, which was previously reported separately, is now reported as a component of interest income and other, net on the condensed consolidated statements of operations. In addition, certain prior year balances on the condensed consolidated statement of cash flows have been reclassified to conform to the current year presentation.
6


2. Summary of Significant Accounting Policies
There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2023, as compared to those disclosed in the Company’s 2022 Annual Report.

Use of Estimates
The preparation of the condensed 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 condensed consolidated financial statements and accompanying notes as of the date of the condensed 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.
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.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and employee-related liabilities are reasonable estimates of their fair values because of the short-term nature of these assets and liabilities. Short-term investments are carried at fair value.
The Company’s convertible senior notes are carried at amortized cost on the condensed consolidated balance sheets (see Note 7, “Debt”). The Company measures the fair value of its convertible senior notes for disclosure purposes. The Company estimated the fair value of its convertible senior notes to be $265.9 million and $260.5 million at June 30, 2023 and December 31, 2022, respectively, based on Level 2 quoted market prices as of those dates.
Operating Lease Right-of-Use Assets and Liabilities
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 entered into or reassessed after the adoption of ASC 842 Leases, the Company combines lease and non-lease components. 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 condensed 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. The Company did not recognize any intangible asset impairment losses during the six months ended June 30, 2023 and 2022.
7


Strategic Investments
The Company holds equity investments totaling $10.1 million in two separate private companies, each of which represented less than 5% of the outstanding equity of the respective company as of the date of investment. The investments are carried at cost minus impairment, if any, adjusted for changes in observable prices. The investments were included as a component of other long-term assets on the condensed consolidated balance sheets. The Company monitors these investments to evaluate whether a decline in value has occurred based on the implied value of recent company financings, public market prices of comparable companies and general market conditions.

Revenue Recognition
Revenue is generated primarily from sales of insulin pumps, disposable insulin cartridges and infusion sets to individual customers with third-party insurance coverage and through a network of distributors that resell the products to insulin-dependent diabetes customers. The Company recognizes revenue when it transfers control of the promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services, net of estimated returns.
Revenue Recognition for Arrangements with Multiple Performance Obligations
The Company considers the individual deliverables in its product offering 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 t:connect, Tandem Source and the Tandem Device Updater, 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 new technology access program referred to as Tandem Choice, that provides eligible, in-warranty t:slim X2 customers in the United States with the flexibility to obtain the newest hardware platform, Tandem Mobi, when it becomes commercially available. Participating customers have the right to purchase the alternative Tandem pump for a fee, referred to as Choice Right. Tandem Choice expires on December 31, 2024.
For purposes of evaluating Tandem Choice in accordance with ASC 606, the Company has determined that the ability for a customer to upgrade to a new technology represents a material right because the pricing inherent in such option provides the customer with a discount that is incremental to the range of discounts that would otherwise be granted for the related goods and services to comparable customers. The standalone selling price for the Choice Right was estimated based on the adjusted market assessment approach and contemplated the likelihood that the respective option will be exercised. At June 30, 2023 and December 31, 2022, $10.5 million and $6.8 million, respectively, were allocated to the material right provided to customers and recorded in current deferred revenue on the condensed consolidated balance sheets.
8


Warranty Reserve
The Company generally provides a four-year warranty on its insulin pumps to end-user customers and may replace any pumps that do not function as intended in accordance with the product specifications within the warranty period. Additionally, the Company offers a six-month warranty on disposable insulin cartridges and infusion sets. 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 estimated primarily based on the current expected product replacement cost and expected replacement rates using historical experience. Insulin pumps returned to the Company may be refurbished and redeployed. Experience has shown that initial data for any given pump version may be insufficient; therefore, the Company’s process relies on long-term historical averages until sufficient data are available. As actual experience becomes available, the Company uses the data to update the historical averages. The Company may make further adjustments to the warranty reserve when deemed appropriate, giving additional consideration to revised future expectations of performance based on enhanced hardware components, 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 condensed consolidated statements of operations.
The following table provides a reconciliation of the changes in product warranty liabilities for the three and six months ended June 30, 2023 and 2022 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Balance at beginning of the period$37,152 $30,444 $36,537 $30,401 
Provision for warranties issued during the period8,915 7,279 17,288 14,480 
Settlements made during the period(7,385)(5,687)(15,068)(11,708)
Increases (decreases) in warranty estimates235 (132)160 (1,269)
Balance at end of the period$38,917 $31,904 $38,917 $31,904 
As of June 30, 2023 and December 31, 2022, total product warranty reserves were included in the following condensed consolidated balance sheet accounts (in thousands):
June 30, 2023December 31, 2022
Other current liabilities$18,695 $17,280 
Other long-term liabilities20,222 19,257 
Total warranty reserve$38,917 $36,537 

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 the employees’ 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 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.
9


Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing the net income or loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net income (loss) per share reflects the potential dilution that would occur if securities exercisable for or convertible into common stock were exercised for or converted into common stock. Dilutive common share equivalents are comprised of stock options and unvested RSUs outstanding under the Company’s stock plans, potential awards to be granted pursuant to the ESPP, and common stock warrants, each calculated using the treasury stock method; and shares issuable upon conversion of the convertible senior notes calculated using the if-converted method.
For the three and six months ended June 30, 2023, there was no difference in the weighted average number of shares used to calculate basic and diluted net loss per share due to the Company’s net loss position for each of the periods presented. For the three and six months ended June 30, 2022, the net loss used in the calculation of diluted net loss per share was increased by $57,000 and $91,000, respectively, to remove the gain recognized from the change in fair value of certain common stock warrants based on the dilutive effect of assumed exercise, and the denominator was increased by 958 shares and 965 shares, respectively, calculated under the treasury stock method.
Potentially dilutive securities outstanding and not included in the calculation of diluted net loss per share (because inclusion would be anti-dilutive) are as follows (in thousands, in common stock equivalent shares):
Three Months Ended
June 30,
Six Months Ended June 30,
2023202220232022
Options to purchase common stock138 1,235 138 1,327 
Unvested restricted stock units2,032 980 1,677 765 
Warrants to purchase common stock194 195 194 195 
Awards granted under the ESPP32 11 16 
Convertible senior notes (if-converted)2,554 2,554 2,554 2,554 
4,950 4,975 4,579 4,847 

3. Short-Term Investments
The Company invests in marketable securities primarily consisting of debt instruments of the U.S. Government, U.S. 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 June 30, 2023 and December 31, 2022 (in thousands):
At June 30, 2023Amortized
Cost
Gross Unrealized
Gain
Gross Unrealized
Loss
Estimated
Fair Value
Available-for-sale securities:
U.S. Government-sponsored enterprises$153,474 $$(866)$152,616 
U.S. Treasury securities98,672 (326)98,347 
Commercial paper115,246 — (198)115,048 
Corporate debt securities10,509 — (25)10,484 
Total$377,901 $$(1,415)$376,495 

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At December 31, 2022Amortized
Cost
Gross Unrealized
Gain
Gross Unrealized
Loss
Estimated
Fair Value
Available-for-sale securities:
U.S. Government-sponsored enterprises$100,602 $21 $(615)$100,008 
U.S. Treasury securities213,105 (1,947)211,161 
Commercial paper112,812 (208)112,610 
Corporate debt securities18,218 — (104)18,114 
Supranational bonds2,504 — (13)2,491 
Total$447,241 $30 $(2,887)$444,384 

The contractual maturities of available-for-sale debt securities as of June 30, 2023, were as follows (in thousands):
Years to Maturity
At June 30, 2023Within One YearOne to Two YearsEstimated Fair Value
U.S. Government-sponsored enterprises$102,060 $50,556 $152,616 
U.S. Treasury securities90,381 7,966 98,347 
Commercial paper115,048 — 115,048 
Corporate debt securities10,484 — 10,484 
Total$317,973 $58,522 $376,495 

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 June 30, 2023 were primarily due to the recent increases in market interest rates. The Company does not intend to sell the available-for-sale debt securities that are in an unrealized loss position, and it is not more likely than not that the Company will be required to sell these debt securities before recovery of their amortized cost bases, which may be at maturity. Based on the credit quality of the available-for-sale debt securities in an unrealized loss position, and the Company’s estimates of future cash flows to be collected from those securities, the Company believes the unrealized losses are not credit losses. Accordingly, the Company did not record an allowance for credit losses related to its available-for-sale debt securities at June 30, 2023.
4. Composition of Certain Financial Statement Items
Accounts Receivable
Accounts receivable, net consisted of the following at June 30, 2023 and December 31, 2022 (in thousands):
June 30,December 31,
20232022
Accounts receivable$103,556 $119,044 
Less: allowance for credit losses(4,842)(4,327)
Accounts receivable, net$98,714 $114,717 

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Allowance for Credit Losses
The following table provides a reconciliation of the changes in the allowance for estimated accounts receivable credit losses for the three and six months ended June 30, 2023 and 2022 (in thousands):
Three Months Ended
June 30,
Six Months Ended June 30,
2023202220232022
Balance at beginning of the period$4,467 $4,344 $4,327 $4,249 
Provision for expected credit losses1,372 1,144 2,758 1,990 
Write-offs and adjustments, net of recoveries(997)(888)(2,243)(1,639)
Balance at end of the period$4,842 $4,600 $4,842 $4,600 

Inventories
Inventories consisted of the following at June 30, 2023 and December 31, 2022 (in thousands):
June 30,December 31,
20232022
Raw materials$41,834 $39,207 
Work-in-process33,874 18,571 
Finished goods71,891 53,339 
Total inventories$147,599 $111,117 

5. Fair Value Measurements
Authoritative guidance on fair value measurements defines fair value, and provides a consistent framework for measuring fair value and for disclosures of each major asset and liability category measured at fair value on either a recurring or a nonrecurring basis. Fair value is intended to reflect an assumed exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1:Observable inputs such as unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2:Inputs, other than quoted prices in active markets, that are observable either directly or indirectly for substantially the full term of the asset or liability.
Level 3:Unobservable inputs in which there is little or no market data and that are significant to the fair value of the assets or liabilities, which require the reporting entity to develop its own valuation techniques that require input assumptions.
The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022, and indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in thousands):
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Fair Value Measurements at
June 30, 2023
TotalLevel 1Level 2Level 3
Assets
Cash equivalents(1)
$119,066 $119,066 $— $— 
U.S. Government-sponsored enterprises152,616 — 152,616 — 
U.S. Treasury securities98,347 98,347 — — 
Commercial paper115,048 — 115,048 — 
Corporate debt securities10,484 — 10,484 — 
Total assets$495,561 $217,413 $278,148 $— 

Fair Value Measurements at
December 31, 2022
TotalLevel 1Level 2Level 3
Assets
Cash equivalents(1)
$150,742 $150,742 $— $— 
U.S. Government-sponsored enterprises100,008 — 100,008 — 
U.S. Treasury securities211,161 211,161 — — 
Commercial paper112,610 — 112,610 — 
Corporate debt securities18,114 — 18,114 — 
Supranational bonds2,491 — 2,491 — 
Total assets$595,126 $361,903 $233,223 $— 
(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 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.

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. Leases with an initial term of 12 months or less (Short-term Lease) are expensed as incurred and are not recorded as right-of-use leased assets on the Company’s condensed consolidated balance sheets. The Company is required to recognize operating lease right-of-use assets and liabilities, and begin recording lease expense when the Company takes possession of the leased property (Commencement Date). The Company recognizes lease expense for these leases on a straight-line basis over the lease term. Because the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the lease Commencement Date to determine the operating lease right-of-use assets and liabilities based on the present value of future lease payments over the lease term.
Certain leases include an option to renew, with renewal terms that can extend the lease term for additional periods. The exercise of lease renewal options is at the Company’s sole discretion. For renewal options that are reasonably certain at the lease Commencement Date of being exercised, the Company includes the renewal option period in the lease term.
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Headquarters Lease
In September 2021, the Company entered into a lease agreement for 181,949 square feet of general administrative, laboratory, and research and development office space (the Premises) located on High Bluff Drive in San Diego, California (Headquarters Lease), formerly referred to as the Tech Center Lease. Possession of the Premises will be tendered to the Company by the landlord in two phases, with Phase I consisting of 143,850 rentable square feet, and Phase II consisting of 38,099 rentable square feet. The Headquarters Lease also includes a first right of offer with respect to an additional 34,569 rentable square feet of general office space should the space become available.
The Phase I Commencement Date occurred in March 2022 when the Company was tendered possession of the Phase I portion of the Premises, and rent payments commenced in September 2022 (Phase I Rent Commencement Date). The Phase II Commencement Date is expected to occur upon the earlier of (i) the date upon which the Company first commences business in the Phase II portion of the Premises, and (ii) May 1, 2025 (Phase II Rent Commencement Date). The Headquarters Lease term expires in April 2035. The Company has two options to extend the term of the lease, with each option providing for an additional period of five years. The Headquarters Lease term was determined assuming the renewal options would not be exercised.
The initial base rent for the Headquarters Lease is approximately $906,000 per month beginning on the Phase I Rent Commencement Date, and the base rent increases by approximately $255,000 per month on the Phase II Rent Commencement Date. The monthly base rent will increase by 3.0% on each annual anniversary of the respective Rent Commencement Date. In addition to the monthly base rent, the Company is required to pay its proportionate share of certain ongoing operating expenses throughout the duration of the lease. No base rent, other than the proportionate share of operating expenses, will be due for the Phase I portion of the Premises for months two through nine following the Phase I Rent Commencement Date, and for the Phase II portion of the Premises for months two through five following the Phase II Rent Commencement Date. The Company recognized operating lease right-of-use assets and corresponding operating lease liabilities of $107.5 million on the condensed consolidated balance sheet on the Phase I Commencement Date in the first quarter of 2022.
In the second quarter of 2023, the Company began using Phase I of the Headquarters Lease for operations that previously occupied 77,458 square feet of leased space located on Roselle Street (Roselle leases) in San Diego, California. The Roselle leases expired in May 2023. Also in the second quarter of 2023, the Company relocated operations that occupied 73,929 square feet of leased space on Vista Sorrento Parkway in San Diego, California (Vista Sorrento Lease) to the new Headquarters Lease location.
Operating Lease Impairment Charge
During the second quarter of 2023, the Company consolidated facilities by moving the administrative functions and other operations from the Vista Sorrento Lease facility to the new Headquarters Lease location. In connection with permanently ceasing use of the Vista Sorrento facility, the Company recorded a $14.1 million impairment charge as the carrying amount of the assets related to the Vista Sorrento Lease exceeded its fair value based on the Company’s estimate of future discounted cash flows related to the leased facility. Estimates used to determine the present value of future cash flows over the remaining lease term included projected sublease income and a discount rate. The $14.1 million charge was comprised of an $11.2 million impairment of operating lease right-of-use assets and a $2.9 million write-off of fixed assets consisting primarily of leasehold improvements, and was recorded as a component of selling, general and administrative expenses in the condensed consolidated statements of operations.
Supplemental Lease Disclosure Information
The Company’s lease costs recorded in the condensed consolidated statements of operations were as follows (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Operating lease cost$4,299 $5,061 $8,774 $8,189 
Short-term lease cost124 37 220 71 
Right-of-use asset impairment charge11,224 — 11,224 — 
Total lease cost$15,647 $5,098 $20,218 $8,260 

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Maturities of operating lease liabilities at June 30, 2023 were as follows (in thousands):
Years Ending December 31,
2023 (remaining)$8,980 
202417,198 
202517,023 
202617,068 
202717,333 
Thereafter103,844 
Total undiscounted lease payments181,446 
Less: amount representing interest(45,289)
Present value of operating lease liabilities136,157 
Less: current portion of operating lease liabilities(17,757)
Operating lease liabilities - long-term$118,400 
The weighted-average remaining lease term and weighted-average discount rate for operating leases were as follows:
June 30, 2023December 31, 2022
Weighted-average remaining lease term (in years)10.610.8
Weighted-average discount rate used to determine operating lease liabilities5.4 %5.3 %

Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows from operating leases, was $4.4 million and $5.9 million for the six months ended June 30, 2023 and 2022, respectively.
Lease For Which Accounting Has Not Yet Commenced
As of June 30, 2023, the Phase II Commencement Date for the Headquarters Lease had not yet occurred. Accordingly, the condensed consolidated balance sheet at June 30, 2023 does not include operating lease right-of-use assets and operating lease liabilities, and the condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022 do not include any lease costs, related to Phase II of the Headquarters Lease. In addition, the above disclosures of the Company’s lease costs, maturities of operating lease liabilities, weighted-average remaining lease term, and weighted-average discount rate do not include any amounts related to Phase II of the Headquarters Lease.
The Company currently estimates that Phase II Commencement Date will occur in the first quarter of 2025, at which time the Phase II operating lease right-of-use assets and liabilities will be recorded. Future minimum payments for monthly base rent due under Phase II of the Headquarters Lease, are currently estimated to be $34.7 million in total from 2025 through 2035, subject to the actual Phase II Commencement Date. Because the incremental borrowing rate will not be available until the Phase II Commencement Date, we are not yet able to determine the Phase II operating lease right-of-use assets and liabilities.

7. Debt

Convertible Senior Notes
In May 2020, the Company entered into a purchase agreement with certain counterparties for the sale of an aggregate of $287.5 million principal amount of 1.50% Convertible Senior Notes due 2025 (Notes) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. 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.

The 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 Notes mature on May 1, 2025 unless repurchased, redeemed, or converted in accordance with their terms before the maturity date.

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The Notes are convertible into cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s election, at an initial conversion rate of 8.8836 shares of common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of $112.57 (Conversion Price) per share of the Company’s common stock. The conversion rate is subject to customary adjustments for certain events as described in the Indenture governing the Notes.

The Company has the option to redeem for cash all or any portion of the Notes on or after May 6, 2023 if the last reported sale price of the Company’s common stock has been at least 130% of the Conversion Price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest. No sinking fund is provided for the Notes.

Holders of the Notes may convert all or a portion of their Notes at their option before November 1, 2024, in multiples of $1,000 principal amounts, only under the following circumstances:

if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price of the Notes on each such trading day;

during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each day of that five consecutive trading day 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 Notes on such trading day;

if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or

on the occurrence of specified corporate events.

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

Holders of the 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 Notes may require us to repurchase all or a portion of the Notes at a price equal to 100% of the principal amount of the Notes, plus any accrued and unpaid interest.
The net carrying amount of the Notes on the condensed consolidated balance sheets consisted of the following (in thousands):
 June 30, 2023December 31, 2022
Principal amount$287,500 $287,500 
Unamortized debt issuance costs(3,372)(4,268)
Net carrying amount$284,128 $283,232 
The Notes will have a dilutive effect to the extent the average market price per share of common stock for a given reporting period exceeds the conversion price of $112.57. As of June 30, 2023 and December 31, 2022, the if-converted value of the Notes did not exceed the principal amount.
As of June 30, 2023, the unamortized debt issuance costs of $3.4 million associated with the Notes will be amortized to interest expense, at an effective interest rate of 2.2% over the remaining period of approximately 1.8 years.

16


The following table details interest expense related to the Notes recognized for the three and six months ended June 30, 2023 and 2022 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Contractual interest expense$1,078 $1,078 $2,156 $2,156 
Amortization of debt issuance costs450 458 897 896 
Total interest expense$1,528 $1,536 $3,053 $3,052 


Capped Call Transactions

In connection with the issuance of the Notes, the Company entered into Capped Call Transactions in May 2020 with certain counterparties at a net cost of $34.1 million. The Capped Call Transactions are intended to reduce potential dilution to holders of the Company’s common stock beyond the conversion price of $112.57, up to a conversion price of $173.18 on any conversion of the Notes, or to offset any cash payments the Company is required to make in excess of the principal amount of such converted Notes, as the case may be, with such reduction or offset subject to a cap. The cap price of the Capped Call Transactions is initially $173.18 per share of the Company’s common stock, representing a premium of 100% above the last reported sale price of $86.59 per share of the Company’s common stock on May 12, 2020, and is subject to certain adjustments under the terms of the Capped Call Transactions. Conditions that cause adjustments to the initial strike price of the Capped Call Transactions mirror conditions that result in corresponding adjustments for the Notes.

For accounting purposes, the Capped Call Transactions are separate transactions, and not part of the terms of the Notes, while they are integrated for federal tax purposes. As these transactions met certain criteria under the applicable accounting guidance, the Capped Call Transactions were recorded in stockholders' equity and were not accounted for as derivatives. The cost of the Capped Call Transactions was recorded as a reduction of the Company’s additional paid-in capital in the Company’s condensed consolidated balance sheet and will not be remeasured.

Line of Credit
On May 18, 2022, the Company entered into a three-year Revolving Line of Credit Agreement that provides the Company with a maximum principal borrowing amount of $100.0 million (Line of Credit), reduced by any letters of credit issued and outstanding under a $15.0 million letter of credit sub-limit. The Line of Credit allows the Company to request advances thereunder, and to use the proceeds of such advances for general corporate purposes, including working capital and capital expenditures. The Line of Credit matures on the earlier of (i) May 18, 2025 or (ii) the Springing Maturity Date, unless renewed at maturity upon approval by the Company’s board of directors and the lender. The Springing Maturity Date is any date during the 91 days before the May 1, 2025 maturity date of the Company’s Convertible Senior Notes, that the Company does not satisfy a predefined liquidity threshold. During the term of the Line of Credit, the Company is required to maintain compliance with two financial maintenance covenants: a minimum consolidated interest coverage ratio and a maximum consolidated net leverage ratio. The Company was in compliance with the minimum consolidated interest coverage ratio covenant as of June 30, 2023. On August 2, 2023, the Revolving Line of Credit Agreement was amended to lower the maximum principal borrowing amount to $50.0 million for the remainder of the term and provide that the maximum consolidated net leverage ratio will not be tested, and the borrowing base will be limited to a percentage of eligible accounts receivable for the second and third quarters of 2023. The Line of Credit is secured by a first priority security interest in substantially all of the assets of the Company and its subsidiaries.

Advances drawn under the Line of Credit bear interest at an annual rate of (1) the SOFR Rate (as defined in the Line of Credit); plus (2) an applicable credit spread adjustment ranging from 0.10% to 0.25%; plus (3) an applicable margin ranging from 1.25% to 2.00%, and each advance will be payable on the Maturity Date with the interest on outstanding advances payable quarterly. The Credit Agreement also includes a commitment fee ranging from 0.20% to 0.35% per annum on the average daily unused amount of the Line of Credit, payable quarterly. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time before the maturity date, without premium or penalty. As of June 30, 2023, the Company had no outstanding borrowings under the Line of Credit, and a $4.9 million outstanding standby letter of credit.

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8. Stockholders’ Equity
Shares Reserved for Future Issuance
The following shares of the Company's common stock were reserved for future issuance at June 30, 2023 (in thousands):
Shares reserved for issuance upon conversion of Convertible Senior Notes2,554 
Shares underlying outstanding warrants194 
Shares underlying outstanding stock options4,217 
Shares underlying unvested restricted stock units3,095 
Shares authorized for issuance pursuant to awards granted under the ESPP704 
Shares authorized for future equity award grants1,222 
Total11,986 
Common Stock Warrants

Warrants outstanding to purchase shares of the Company's common stock as of June 30, 2023 were as follows:
Issue DateExercise Price Per ShareWarrants OutstandingExpiration Date of Warrants Outstanding
March 2017$23.50193,788 March 2027
Each warrant allows the holder to purchase one share of common stock at the per share exercise price of the warrant.
Stock 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 then employees, officers, directors or consultants of the Company. The 2023 Plan replaced the Company’s Amended and Restated 2013 Stock Incentive Plan (2013 Plan), and no further equity awards will be granted under the 2013 Plan.
The Company’s Employee Stock Purchase Plan (ESPP) was approved by the Board in October 2013. The ESPP enables eligible employees to purchase shares of the Company’s common stock using their after-tax payroll deductions, subject to certain conditions. The purchase price of common stock under the ESPP is the lesser of: (a) 85% of the fair market value of a share of the Company’s common stock on the first date of an offering or (b) 85% of the fair market value of a share of the Company’s common stock on the date of purchase. Generally, offerings under the ESPP consist of a two-year offering period with four six-month purchase periods which begin in May and November of each year.

Stock-Based Compensation
Restricted Stock Units
Restricted stock units (RSUs) have a grant value equal to the closing price of the Company’s common stock on the award date. RSUs granted before March 2022 generally vest over a four-year period based on continued service to the Company as to 25% of the underlying shares on the first anniversary of the award, with the balance of the RSUs vesting quarterly over the following three years. RSUs granted in March 2022 and thereafter vest over a three-year period based on continued service to the Company as to 33% of the underlying shares on the first anniversary of the award, with the balance of the RSUs vesting quarterly over the following two years. In addition, the Company granted 110,074 performance-based RSUs during the three and six months ended June 30, 2023, and 53,662 performance-based RSUs during the three and six months ended June 30, 2022. The performance-based RSUs have a grant value equal to the closing price of the Company’s common stock on the award date, and vest upon the Company’s actual performance relative to predefined performance metrics and subject to the awardee’s continuing service through the respective December 31, 2024 and 2025 measurement dates.
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The total number of RSUs granted, which includes performance-based RSUs, and the respective weighted average grant date fair value were as follows:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
RSUs granted1,635,679 820,173 1,789,825 1,007,249 
Weighted average grant date fair value (per share)$27.61 $66.88 $28.92 $74.88 

Stock Options
Stock options have an exercise price equal to the closing price of the Company's common stock on the applicable grant date, and have a maximum term of ten years. Stock options granted before the second quarter of 2022 generally vest over a four-year period as to 25% of the underlying shares on the first anniversary of the grant date, with the balance of the options vesting monthly over the following three years. Stock options granted during the second quarter of 2022 and thereafter vest over a three-year period as to 33% of the underlying shares on the first anniversary of the grant date, with the balance of the options vesting monthly over the following two years. There were no common stock options granted during the three and six months ended June 30, 2023. The total number of common stock options granted during the three and six months ended June 30, 2022, along with the assumptions used in the Black-Scholes option-pricing model were as follows:
Stock Options
Three and Six Months Ended
June 30, 2022
Stock options granted83,008 
Weighted average grant date fair value (per share)$42.16 
Risk-free interest rate2.7 %
Dividend yield0.00 %
Expected volatility72.0 %
Expected term (in years)5.8
Employee Stock Purchase Plan
The Company records stock-based compensation expense associated with the ESPP using the Black-Scholes option-pricing model. Valuations are performed on the grant date at the beginning of the purchase period, which generally occurs in May and November of each year. The assumptions used in the Black-Scholes option-pricing model for the ESPP were as follows:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Weighted average grant date fair value (per share)$12.52 $26.57 $12.52 $26.57 
Risk-free interest rate4.7 %2.2 %4.7 %2.2 %
Dividend yield0.0 %0.0 %0.0 %0.0 %
Expected volatility60.9 %47.1 %60.9 %47.1 %
Expected term (in years)1.31.31.31.3

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The following table summarizes the allocation of stock-based compensation expense included in the condensed consolidated statements of operations for all stock-based compensation arrangements (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Cost of sales$1,749 $1,900 $3,343 $3,747 
Selling, general and administrative14,871 13,732 28,982 25,586 
Research and development6,781 4,498 12,269 8,908 
Total stock-based compensation expense$23,401 $20,130 $44,594 $38,241 
The total stock-based compensation expense capitalized as part of the cost of the Company’s inventories was $1.4 million at June 30, 2023, and $1.1 million at December 31, 2022.
9. Employee Benefits
Employee 401(k) Plan
The Company has a defined contribution 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 rehire or entry date. Under the terms of the plan, employees may make voluntary contributions as a percent of compensation, and, starting in 2022, the Company matches a discretionary percentage of employee contributions.
10. Income Taxes
For the three and six months ended June 30, 2023, the Company recognized income tax expense of $1.1 million and $1.4 million, respectively, on a pre-tax loss of $34.6 million and $158.2 million, respectively. The Company calculated the provision for income taxes for the three and six months ended June 30, 2023 using a discrete effective tax rate method as the annual effective tax rate method would not provide a reliable estimate. Income tax expense for the three and six months ended June 30, 2023 was primarily attributable to federal, state and foreign income tax expense as a result of current taxable income in certain jurisdictions.
For the three and six months ended June 30, 2022, the Company recognized income tax expense of $2.1 million and $0.4 million, respectively, on a pre-tax loss of $13.0 million and $29.4 million, respectively. The Company calculated the provision for income taxes for the three and six months ended June 30, 2022, using the discrete effective tax rate method as the annual effective tax rate method would not provide a reliable estimate. Income tax expense for the three months ended June 30, 2022 was primarily attributable to the change from the annual effective tax rate method used in the first quarter of 2022 to the discrete effective tax rate method, and state and foreign income tax expense as a result of current taxable income in certain jurisdictions.
The Company continues to maintain a full valuation allowance against its net deferred tax assets as of June 30, 2023, based on the current assessment that it is not more likely than not these future benefits will be realized before expiration.

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, disposable insulin cartridges and infusion sets for the storage and delivery of insulin. The Company views its operations and manages its business as one segment and a single reporting unit because key operating decisions and resource allocations are made by the CODM using consolidated financial data.
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Disaggregation of Revenue
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 and by major sales channel as management believes these categories best depict how the nature, amount and timing of revenues and cash flows are affected by economic factors.
Revenues by Geographic Region and Customer Sales Channel
During the three and six months ended June 30, 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):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
United States$142,501 $145,667 $273,743 $276,950 
Outside the United States53,416 54,595 91,557 99,219 
Total Sales$195,917 $200,262 $365,300 $376,169 
Sales to distributors accounted for 64% and 65% of the Company’s United States sales for the three months ended June 30, 2023 and 2022, respectively, and 65% of the Company’s United States sales for each of the six-month periods ended June 30, 2023 and 2022. Sales to distributors accounted for 94% and 96% of the Company’s sales outside the United States for the three and six-month periods ended June 30, 2023 and 2022, respectively.
12. Acquisitions

AMF Medical Acquisition
On December 10, 2022, the Company entered into a Share Purchase Agreement (Purchase Agreement) with AMF Medical SA, a corporation organized and existing under the laws of Switzerland (AMF Medical), and its shareholders to acquire all of the registered shares of AMF Medical (Transaction). AMF Medical is the developer of the Sigi Patch Pump, which is designed to be an ergonomic, rechargeable patch pump that reduces the burden of managing diabetes through its use of pre-filled insulin cartridges. The Sigi Patch Pump is under development and not commercially available.
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 Transaction includes a previous strategic investment of Swiss Francs (CHF) 8.0 million made in the third quarter of 2022, a cash payment of CHF 62.4 million paid at the closing of the Transaction, and additional contingent earnout payments of up to CHF 129.6 million. The contingent earnout payments become payable upon the achievement of certain milestones, and are comprised of a payment of up to CHF 38.4 million upon the successful completion of key development milestones over the next two years, and a payment of up to CHF 91.2 million upon obtaining regulatory clearance from the United States Food and Drug Administration of an automated controller enabled (ACE) pump. The contingent consideration will be recognized as each contingency is resolved and the respective consideration is paid or becomes payable. As of June 30, 2023, the contingencies related to the earnout milestones were not yet resolved and, therefore, the related amounts were not included in the fair value of the asset acquired and were not recognized as a liability on the condensed consolidated balance sheet at June 30, 2023. The Company funded the initial closing payment using existing cash balances. As of December 31, 2022, the previous strategic investment was included as a component of other long-term assets on the condensed consolidated balance sheet.
The transaction was accounted for as an asset acquisition as substantially all the value of the gross assets was concentrated in a single asset. The Company recorded a $78.8 million charge representing the value of acquired in-process research and development assets with no alternative future use, and acquisition related expenses, on its condensed consolidated statements of operations in acquired in-process research and development expenses. The Company’s results of operations for the three and six months ended June 30, 2023 included the operating results of AMF Medical since the date of acquisition.
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Capillary Biomedical Acquisition
On July 21, 2022, the Company acquired Capillary Biomedical, Inc. (Capillary Biomedical), an infusion set developer, for total cash consideration of $24.7 million, and the assumption of $4.7 million of long-term debt. The debt becomes due and payable upon the first sale or license of the commercialized product, and is included as a component of other long-term liabilities on the condensed consolidated balance sheets at June 30, 2023 and December 31, 2022. Capillary Biomedical’s extended-wear infusion set technology is currently in development and is not yet commercially available. The Company funded the purchase price using existing cash balances.
The transaction was accounted for as an asset acquisition as substantially all the value of the gross assets was concentrated in a single asset. The Company recorded a $31.0 million charge representing the value of acquired in-process research and development assets with no alternative future use, and acquisition related expenses, on its condensed consolidated statements of operations in acquired in-process research and development expenses. The Company’s results of operations for the three and six months ended June 30, 2023 included the operating results of Capillary Biomedical.
13. Commitments and Contingencies
Legal and Regulatory Matters
In May 2020, the Company was named as a defendant in three California state court class action lawsuits arising from a phishing incident that occurred in January 2020. Collectively, these lawsuits sought statutory, compensatory, actual, and punitive damages; equitable relief, including restitution; pre- and post-judgment interest; injunctive relief; and attorney fees, costs, and expenses from us. On July 24, 2020, these three lawsuits were consolidated into a single case in the Superior Court of the State of California in the County of San Bernardino entitled Joseph Deluna et al. v. Tandem Diabetes Care, Inc. The consolidated case alleged violations of the Confidentiality of Medical Information Act (CMIA), CCPA, California’s Unfair Competition Law (UCL), and breach of contract. The Company filed a demurrer on all claims, which was heard by the Court on October 20, 2020, and the demurrer to the CCPA claim was sustained. The plaintiffs filed a motion for class certification on January 7, 2022 and we filed a motion for summary adjudication on the CMIA claim on April 7, 2022. On February 8, 2023, the Court granted plaintiffs’ request to dismiss their remaining two claims with prejudice, and dismissed the motion for class certification, thereby terminating the case in the Superior Court. On March 7, 2023, the plaintiffs filed a notice of appeal of the Court’s order granting the Company’s motion for summary adjudication. Although the Company intends to vigorously defend against this claim, there is no guarantee that the Company will prevail. Accordingly, the Company is unable to determine the ultimate outcome of this lawsuit or determine the amount or range of potential losses associated with the lawsuit.
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 June 30, 2023 the Company believes it is not currently a party to any legal proceedings, regulatory matters, or other disputes or claims for which a material loss was considered probable or for which the amount (or range) of loss was reasonably estimable. However, regardless of the merit of the claims raised or the outcome, legal proceedings may have an adverse impact on the Company as a result of defense and settlement costs, diversion of management time and resources, and other factors.
Letters of Credit
In connection with one of the Company’s operating leases (see Note 6, “Leases”), the Company has a $4.9 million unsecured irrevocable standby letter of credit arrangement with a bank (see Note 7, “Debt”), under which the landlord of the building is the beneficiary. The Company is required to maintain the standby letter of credit throughout the term of the lease, which expires in April 2035.
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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 June 30, 2023 (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, manufacturing plans, strategic plans and objectives, capital needs and financing plans, product launches, geographic expansion, distribution plans, production capacity, clinical trials, regulatory approvals, competitive position and the impact of changes in the competitive environment, supply chain, and the businesses of our contract manufacturers and suppliers, integration of acquisitions and partner technologies, and the application of accounting guidance. We caution you that the foregoing list may not include all of the forward-looking statements made in this Quarterly Report.
Our forward-looking statements are based on our management’s current assumptions and expectations about future events and trends, which affect or may affect our business, strategy, operations or financial performance. Although we believe that these forward-looking statements are based upon reasonable assumptions, they are subject to numerous known and unknown risks and uncertainties and are made in light of information currently available to us. Our actual financial condition and results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section entitled “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2022 (Annual Report), and below in the section entitled “Risk Factors” in this Quarterly Report, as well as in the other public filings we make with the Securities and Exchange Commission. You should read this Quarterly Report with the understanding that our actual future financial condition and results may be materially different from and worse than what we expect.
Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Forward-looking statements speak only as of the date they were made and, except to the extent required by law or the rules of the Nasdaq Global Market, we undertake no obligation to update or review any forward-looking statement because of new information, future events or other factors.
We qualify all of our forward-looking statements by these cautionary statements.
Overview
We are a medical device company focused on the design, development and commercialization of technology solutions for people living with diabetes. Diabetes management can vary greatly from person-to-person, creating multiple market segments based on clinical needs and personal preferences. Our goal is to lead in insulin therapy management across multiple of these market segments by providing a robust ecosystem and a portfolio of delivery devices, software, and data insight solutions to people living with diabetes, as well as their caregivers and healthcare providers.
Since our initial commercial launch, we have rapidly innovated and brought more products to market than our competitors. Today, the t:slim X2 Insulin Delivery System is our flagship technology solution. In the four-year period ended June 30, 2023, we shipped approximately 437,000 t:slim X2 insulin pumps, which is representative of our in-warranty global installed customer base, assuming the typical four-year reimbursement cycle. Approximately 305,000 of these pumps were shipped to customers in the United States and 132,000 were shipped to customers outside the United States. Our products are currently available in approximately 25 countries outside the United States. In addition, in July 2023, the FDA provided clearance for the Tandem Mobi insulin pump, which is approximately half the size of our t:slim X2 pump. A limited release of Tandem Mobi in the United States is expected to start in late 2023 with full commercial availability planned in early 2024.
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Our manufacturing, sales and support activities principally focus on our flagship pump platform, the t:slim X2 and our complementary product offerings. Our simple-to-use t:slim X2 is based on our proprietary technology platform and is the smallest durable insulin pump currently available in the United States. The majority of our customers use the t:slim X2 with continuous glucose monitoring (CGM) integration. This allows the t:slim X2 to receive CGM sensor readings, which can then be used in our automated insulin dosing (AID) algorithms, including our Control-IQ technology. Control-IQ is an advanced hybrid-closed loop feature designed to help increase a user’s time in their targeted glycemic range. Multiple studies have demonstrated that use of Control-IQ technology provides people across all demographics with improved clinical outcomes that are both immediate and sustained. It was the first system cleared by the U.S. Food and Drug Administration (FDA) to deliver automatic correction boluses in addition to adjusting insulin to help prevent high and low blood sugar.
The t:slim X2 was the first pump on which remote software updates were made commercially available in the United States. Now available in the countries we serve worldwide, our Tandem Device Updater (TDU) has allowed hundreds of thousands of people to update their t:slim X2 software from a personal computer. This offering is a competitive advantage that allows us to bring our customers clinical and lifestyle enhancements, such as new developments in our AID technology, CGM integrations and mobile app features. In the third quarter 2022, we launched a new pump software update through TDU to allow all t:slim X2 pump users in the United States to bolus insulin using our smartphone app that is available on compatible iOS and Android devices.
Our insulin pump products are generally considered durable medical equipment and have an expected lifespan of at least four years. In addition to insulin pumps, we sell disposable 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.
In the United States, we also offer t:connect, our data management web application that provides users, their caregivers and their healthcare providers with a fast, easy and visual way to display diabetes therapy management data from our pumps, integrated CGMs and supported blood glucose meters. In the second quarter of 2023, we began scaling the U.S. launch of Tandem Source, our second-generation web-based data management application that is being designed to be deployed globally. This application enhances clinical data visualization, and provides added interface customization for users to personalize how they engage with their data and for healthcare providers to better manage their care.

Recent Developments
In July 2023, the FDA provided clearance for the Tandem Mobi insulin pump, which is approximately half the size of our t:slim X2 pump. This is the world’s smallest durable automated insulin delivery system and is designed for people who seek even greater discretion and flexibility with the use of their insulin pump. Its features include pump-control from our iOS mobile application, a 200-unit cartridge, an on-pump bolus button, inductive charging, and our Control-IQ algorithm. A limited release of Tandem Mobi in the United States is expected to start in late 2023 with full commercial availability planned in early 2024.
Expanding the capabilities of our application, Tandem Source is our second-generation web-based data management application that enhances clinical data visualization, and provides added interface customization for users to personalize how they engage with their data and for healthcare providers to better manage their care. This application was designed to be deployed globally, beginning with a limited release in the United States which started in June 2023.

Products Under Development
Our products under development support our strategy of developing insulin delivery systems as part of a therapy management portfolio that is designed to improve patient experience and outcomes. Our product development efforts fall into three pillars of innovation: delivery devices, device software including algorithms, and data and insights.
Delivery Devices

We are developing a family of delivery device solutions to meet the varying needs of people living with type 1 and type 2 diabetes by providing choice within our portfolio. Preferences in the size, shape, and mode of operation that comprise an insulin pump’s hardware often impact a person’s pump purchasing decision and overall user experience.
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t:slim X3
Advancing our flagship t:slim platform, the t:slim X3 is being designed to provide a modernized user interface and even greater usability for our planned feature updates. It is also being designed to include enhanced technology, such as greater processing power and capacity to support our advanced algorithms, as well as increased battery life, improved durability, and wireless software update capabilities.

Mobi: Tubeless

This offering is being developed to provide an alternative tubeless infusion site option for Tandem Mobi pump users. It will allow a Tandem Mobi pump to be worn completely on the user’s body with no tubing. A goal of this design is to allow people living with diabetes to customize the way they wear their pump with each cartridge change, switching between tubed and tubeless wear configurations, to best suit their personal preferences and lifestyle.

Sigi
This ergonomic, rechargeable Sigi Patch Pump is being designed to reduce the burden of managing diabetes through its use of pre-filled insulin cartridges and compatibility with AID technology.

Extended Wear Infusion Sets

Infusion sets provide additional choice and flexibility to people living with diabetes. Our goals for infusion set innovations focus on solutions that extend wear time and enhance user experience, while reducing occlusions, body burden and waste. In support of this effort, we are currently developing a unique extended wear infusion set technology.
Device Software
Our device software is used to control our pumps either directly through the pump’s interface or through our mobile application. It also includes our AID technology and the software used to support remote pump updatability.
Control-IQ Advancements
We are continuing to drive innovation in our algorithms, emphasizing automation, personalization and simplification to continue to improve therapeutic outcomes and provide a positive patient experience. We recently completed clinical studies to support expanding the indications of our Control-IQ technology to include children with type 1 diabetes ages 2 to 5 years old. Additionally, we began a pivotal study to support expanding indications to include people living with type 2 diabetes. We are also researching the use of different insulins with our Control-IQ technology.
Integration
Building a robust ecosystem and portfolio around our flagship insulin pumps requires product development efforts to integrate, add, and enhance complementary system components.
Dexcom CGM: We have agreements with Dexcom, Inc. (Dexcom) to extend our current collaboration to include integration with their G7 CGM technology. Following integrated product development work, this will be the fourth generation of Dexcom CGM that we intend to integrate with our devices.

Abbott CGM: We have an agreement with Abbott Laboratories (Abbott) to develop and commercialize integrated diabetes solutions that combine Abbott’s FreeStyle Libre CGM technology with our insulin delivery systems. Following the completion of our integrated product development work, we intend to launch in the United States, and expand to additional geographies after obtaining regulatory clearances or approvals, where required.
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Data and Insights
Our goal is to innovate across our digital health platforms by using the vast amount of data that we collect, in combination with technology such as artificial intelligence or machine learning, to provide information and insights to people living with diabetes, their caregivers and healthcare providers and insurance payors. Our key objectives include making these insights easy to understand, making the data available in real time, and providing the information in a flexible format through mobile or web apps. In addition, we are working to integrate health-related information from third-party sources and to use our data to support current and future products under development.
Settings Automation

Our automation research and development activities center around opportunities for enhanced user and healthcare provider experience and improved clinical outcomes. In support of this effort, we are working to automate our pump settings adjustments to further enhance ease of use and expand adoption of our insulin pump products.

Pump Shipments
From inception in 2012 through June 2018, we derived nearly all of our sales from the shipment of insulin pumps and associated supplies to customers in the United States. Starting in the third quarter of 2018, we began selling our t:slim X2 insulin pump in select geographies outside the United States and our technology solutions are now available in approximately 25 countries worldwide. We consider the number of insulin pump units shipped to be an important metric for managing our business.
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. In the past four years, we have shipped approximately 437,000 insulin pumps worldwide, which is representative of our global in-warranty installed customer base. Our ending estimated worldwide installed base increased approximately 16% year over year.
At the end of the typical four-year reimbursement cycle, customers may be eligible for the purchase of a new insulin pump, subject to the rules and requirements of their primary insurance payor. While warranties generally expire four years from the original pump shipment date, those customers that renew typically purchase a subsequent pump up to one year from the date of warranty expiration. 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.
Approximately 305,000 pumps were shipped to customers in the United States in the past four years, which aligns with the standard four-year warranty period. Pump shipments to customers in the United States by fiscal quarter for the current year and each of the previous five years, which aligns more closely with our typical renewal cycle, were as follows:
United States Pump Unit Shipments
for Each of the Three Months Ended in Respective Years
March 31June 30September 30December 31Total
20184,444 5,447 7,379 12,935 30,205 
20199,669 12,799 13,814 17,453 53,735 
202013,158 14,735 18,380 24,552 70,825 
202116,644 20,665 20,296 25,712 83,317 
202218,658 20,818 20,394 23,684 83,554 
202317,003 18,964 N/AN/A35,967 

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Since beginning sales outside the United States in the third quarter of 2018, we shipped approximately 132,000 pumps and our products are now available in approximately 25 countries. The ordering patterns of our distributors outside the United States for pumps and supplies has historically been highly variable from period to period due to a number of factors including summer vacations, the timing of product launches into new geographies and variability in the ordering patterns of our distributor partners. We are only beginning to complete a full four-year reimbursement cycle in certain of our markets outside of the United States. Pump shipments to customers outside the United States by fiscal quarter for the current year and each of the previous five years, were as follows:
Outside the United States Pump Unit Shipments
for Each of the Three Months Ended in Respective Years
March 31June 30September 30December 31Total
2018N/AN/A1,055 3,233 4,288 
20195,0638,459 4,025 2,149 19,696 
20204,2203,952 3,641 8,133 19,946 
20218,70813,152 11,262 11,873 44,995 
20229,43711,296 12,113 11,939 44,785 
20236,05210,530 N/AN/A16,582 

Trends and Uncertainties Impacting Financial Results
Our financial condition and operating results have historically fluctuated on a quarterly or annual basis. We expect these periodic fluctuations will continue to be impacted by a number of trends and uncertainties, including the following:
Regulatory Approvals and Actions
Sales of new products are subject to local government regulations. The requirements and timelines to receive regulatory clearance can vary substantially from country to country and delays may impact our ability to expand our worldwide customer base and bring products to market in a competitive timeframe. These delays, or failure to receive regulatory approval could adversely impact our revenue and results of operations.
Any adverse event involving any products that we distribute could result in future corrective actions, such as recalls or customer notifications, or regulatory agency action, which could include inspection, mandatory recall or other enforcement action. Any action by regulatory bodies against us, and any regulatory challenges we encounter could have a negative impact on our product sales and harm our reputation.
Product - Launches and Reimbursement
We expect our business to be impacted by the introduction of new diabetes devices and treatments by us or our competitors. The success of our products is variable and we believe it correlates to market acceptance, anticipated product launches and commercial availability. We anticipate that our recently announced Tandem Choice program, and its related financial and accounting impact, may continue to materially impact our business until the conclusion of the program.
We have historically experienced higher net sales in our third and fourth quarters compared to the first half of the year. Our recently announced FDA clearance of Tandem Mobi and the anticipated launch may impact the timing of purchasing decisions by our current and prospective customers as the launch date approaches, resulting in delays that are unlike historical seasonal patterns or purchasing behaviors. Regulatory approval and/or upcoming launches of other new Tandem or competitor products could also adversely impact timing of purchasing decisions.
Our revenue and results of operations may be impacted by the failure to secure or retain adequate coverage or reimbursement for our current and future products from third-party payors.
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Foreign Markets
We have expanded our business and launched new products in select geographies outside the United States. The ordering patterns of our distributors outside the United States is highly variable from period to period. We commenced operations of a European distribution center beginning in the third quarter of 2022, which led to downward adjustments of inventory levels at our distributors in late 2022 and in the first half of 2023.
Seasonality
Seasonality in the United States is associated with annual insurance deductibles and coinsurance requirements of the medical insurance plans used by our customers and the customers of our distributors. In the United States, we typically experience a higher volume of pump shipments in the third and fourth quarters due to the nature of the reimbursement environment. Other factors that may impact sales across the year include the timing of winter, summer and other seasonal holidays, particularly in our markets outside the United States, as well as the anticipated launch of new products.
Macroeconomic Factors
Global economic and market uncertainty, such as recessionary concerns, inflation, changes in discretionary spending and increased interest rates have impacted our customers’ purchasing decisions and the buying patterns of our distributors.
High inflation and the effects of other macroeconomic factors and concerns have continued to disrupt our relationships with suppliers, third-party manufacturers, healthcare providers, distributors and our existing or potential customers. We are experiencing higher costs as we navigate these global macroeconomic challenges.

Components of Results of Operations
Sales
We offer products for people with insulin-dependent diabetes in approximately 25 countries. The t:slim X2 insulin pump is our flagship pump platform. Our other products include disposable insulin cartridges and infusion sets, as well as our complementary t:connect, TDU and mobile application products. Our primary customers are the end customers who use 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—Product Launches and Reimbursement,” above.
In September 2022, we began offering the Tandem Choice program to eligible t:slim X2 customers to provide a pathway to ownership of our newest hardware platform, Tandem Mobi, for a fee when available. Tandem Choice expires on December 31, 2024. The accounting treatment for Tandem Choice is complex. Initially, the program requires the deferral of some portion of sales for shipments of eligible pumps, which began in the third quarter of 2022. No election is made by the customer at the time of the initial sale, nor does the right offered to the customer impact the economics associated with how or when the initial pump sale is reimbursed. If a customer elects to participate in Tandem Choice at a future date beginning with the launch of our next generation hardware platform, Tandem Mobi, we will recognize the existing deferral, incremental fees received and the associated costs of providing the new hardware, Tandem Mobi, at the time of fulfillment. Any remaining deferrals will be recognized at program expiration. At this time, we are not able to estimate the financial impact for the duration of Tandem Choice.
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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. 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. We have approximately 110 sales territories in the United States, which are generally maintained by sales representatives and field clinical specialists, and supported by managed care liaisons, additional sales management and other customer support personnel. Other significant SG&A expenses typically include those incurred for commercialization activities associated with new product launches, travel, trade shows, outside legal fees, independent auditor fees, outside consultant fees, insurance premiums, facilities costs and information technology costs.
Research and Development
Our research and development (R&D) activities primarily consist of engineering and research programs associated with our hardware, software and digital health products under development, as well as activities associated with our core technologies and processes. R&D expenses are primarily related to employee compensation, including salary, cash-based incentive compensation, fringe benefits and non-cash stock-based compensation. We also incur R&D expenses for supplies, development prototypes, outside design and testing services, depreciation, allocated facilities and information services, clinical trial costs, payments under our licensing, development and commercialization agreements and other indirect costs.
Acquired In-process Research and Development (IPR&D) Expenses
Acquired IPR&D reflects costs of external research and development projects acquired directly in a transaction other than a business combination, that do not have an alternative future use.
Other Income and Expense
Other income and expense primarily consists of interest earned on our cash equivalents and short-term investments, foreign currency transaction gains and losses, and interest expense which includes the amortization of debt issuance costs related to our 1.50% Convertible Senior Notes due May 2025.
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.

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Results of Operations
Three Months Ended
June 30,
Six Months Ended June 30,
(in thousands, except percentages)2023202220232022
Sales:
United States$142,501 $145,667 $273,743 $276,950 
Outside the United States53,416 54,595 91,557 99,219 
Total sales195,917 200,262 365,300 376,169 
Cost of sales94,182 98,316 180,658 183,130 
Gross profit101,735 101,946 184,642 193,039 
Gross margin52 %51 %51 %51 %
Operating expenses:
Selling, general and administrative97,610 80,614 187,424 153,885 
Research and development42,933 33,571 85,093 66,731 
Acquired in-process research and development— — 78,750 — 
Total operating expenses140,543 114,185 351,267 220,616 
Operating loss(38,808)(12,239)(166,625)(27,577)
Other income (expense), net:
Interest income and other, net5,784 826 11,649 1,241 
Interest expense(1,605)(1,537)(3,239)(3,053)
Total other income (expense), net4,179 (711)8,410 (1,812)
Loss before income taxes(34,629)(12,950)(158,215)(29,389)
Income tax expense1,146 2,106 1,433 382 
Net loss$(35,775)$(15,056)$(159,648)$(29,771)

Comparison of the Three Months Ended June 30, 2023 and 2022
Sales
For the three months ended June 30, 2023, sales were $195.9 million, which included $53.4 million of sales outside the United States. For the three months ended June 30, 2023, we deferred $2.3 million of pump sales as the result of Tandem Choice, which launched in the United States in the third quarter of 2022. Sales were $200.3 million for the same period in 2022, which included $54.6 million of sales outside the United States.

Sales by product in the United States were as follows (in thousands):
Three Months Ended
June 30,
20232022% Change
Pump$74,360 $81,656 (9)%
Supplies and other70,450 64,011 10%
Deferral for Tandem Choice program(2,309)— —%
Total Sales in the United States$142,501 $145,667 (2)%
Pump sales in the United States were $74.4 million for the second quarter of 2023, compared to $81.7 million in the second quarter of 2022 as pump shipments decreased 9% compared to the same period in 2022. We continued to face challenging marketplace dynamics and economic conditions, with inflation and the threat of recession impacting pump purchasing decisions. Sales of pump-related supplies increased 10% primarily due to a 14% increase year over year in our ending estimated installed base of customers in the United States. Sales to distributors accounted for 64% and 65% of our total sales in the United States for the three months ended June 30, 2023 and 2022, respectively. Sales in the United States for the three months ended June 30, 2023 were reduced by a deferral of $2.3 million as the result of our Tandem Choice program which launched in the third quarter of 2022. No comparable program existed in the second quarter of 2022.
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Sales by product outside the United States were as follows (in thousands):
Three Months Ended
June 30,
 20232022% Change
Pump$27,317 $25,798 6%
Supplies and other26,099 28,797 (9)%
Total Sales Outside the United States$53,416 $54,595 (2)%
Pump sales outside the United States were $27.3 million for the second quarter of 2023, compared to $25.8 million in the second quarter of 2022. We commenced operations of a centralized European distribution center in late 2022, which resulted in a material disruption to distributor ordering patterns in the first half of 2023 as affected distributors lowered their pump and supply inventory levels to adjust for the reduced transit time. This disruption was more significant in the first quarter of 2023, impacting the second quarter to a lesser degree. As a result, pump shipments decreased 7% compared to the same period in the prior year and supply order shipments declined as well. The decrease in pump sales was offset by a 14% increase in average selling prices due primarily to geographical mix. Sales to distributors accounted for 94% and 96% of our total sales outside the United States for the three-month periods ended June 30, 2023 and 2022, respectively.
Cost of Sales and Gross Profit
Our cost of sales for the three months ended June 30, 2023 was $94.2 million, resulting in gross profit of $101.7 million, compared to cost of sales of $98.3 million and gross profit of $101.9 million for the same period in 2022. The gross margin for the three months ended June 30, 2023 and 2022 was 52% and 51%, respectively.
Gross profit for the three months ended June 30, 2023 was reduced by $2.3 million from the impact of Tandem Choice, resulting in a gross margin reduction of approximately one percentage point. The impact on gross margin from our Tandem Choice program will fluctuate through the expiration of the program based on the timing of availability of a new hardware platform, Tandem Mobi, and the number of eligible customers who ultimately elect to participate.
Gross margin benefited from reductions in manufacturing costs, largely due to the lower impact of certain high-cost raw materials acquired in the prior year, as well as continued operational efficiencies, partially offset by fluctuations in other non-manufacturing costs and product mix. More specifically, the higher cost of raw materials acquired in the prior year stemmed from supply chain challenges during the pandemic, where certain pump materials were sourced from alternative suppliers to reduce the risk of component shortages. The impact in the quarter was reduced to less than one percent of sales and we do not anticipate a material impact in future quarters based on our remaining inventory levels.
Operating Expenses
Our operating expenses for the three months ended June 30, 2023 were $140.5 million, compared to $114.2 million for the three months ended June 30, 2022. More than half of the $26.3 million increase was driven by a non-recurring operating lease impairment charge in SG&A of $14.1 million in the second quarter of 2023, as a result of our facilities consolidation (see Note 6, “Leases”), with no comparable expense in 2022. Additionally, incremental personnel and discretionary spending attributable to our recent acquisitions in both SG&A and R&D was $4.9 million.
Selling, General and Administrative Expenses. SG&A expenses increased 21% to $97.6 million for the three months ended June 30, 2023, from $80.6 million for the same period in 2022. Excluding the impact of the $14.1 million lease impairment charge, the increase of $2.9 million was largely driven by higher employee-related expenses to provide continued support services for our growing installed customer base, partially offset by certain facilities expense savings from our facilities consolidation initiatives.
Research and Development Expenses. R&D expenses increased 28% to $42.9 million for the three months ended June 30, 2023, from $33.6 million for the same period in 2022. The increase in R&D expenses was primarily the result of a $7.5 million increase in salaries and related benefits due to our acquisitions and an increase in personnel to support our product development efforts. We also experienced a $1.8 million increase in other non-employee discretionary spending, including equipment and clinical trials costs.
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Other Income (Expense), Net
Total other income (expense), net for the three months ended June 30, 2023 was $4.2 million income, compared to $0.7 million expense in the same period in 2022. Other income, net for the three months ended June 30, 2023 primarily consisted of $5.1 million of interest income earned on our cash equivalents and short-term investments, and $0.7 million in foreign currency transaction gains, partially offset by $1.6 million of interest expense which included the amortization of debt issuance costs related to our Convertible Senior Notes. Other expense, net for the three months ended June 30, 2022 primarily consisted of $1.5 million of interest expense which included the amortization of debt issuance costs related to our Notes.
Income Tax Expense
We recognized income tax expense of $1.1 million on a pre-tax loss of $34.6 million for the three months ended June 30, 2023, compared to income tax expense of $2.1 million on a pre-tax loss of $13.0 million for the three months ended June 30, 2022. Income tax expense for the three months ended June 30, 2023 was primarily attributable to federal, state and foreign income tax expense as a result of current taxable income in certain jurisdictions. Income tax expense for the three months ended June 30, 2022 was primarily attributable to the change from the annual effective tax rate method used in the first quarter of 2022 to the discrete effective tax rate method, and state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

Comparison of the Six Months Ended June 30, 2023 and 2022
Sales
For the six months ended June 30, 2023, sales were $365.3 million, which included $91.6 million of sales outside the United States. For the six months ended June 30, 2023 we deferred $4.3 million of pump sales as a result of Tandem Choice, which launched in the United States in the third quarter of 2022. For the six months ended June 30, 2022, sales were $376.2 million, which included $99.2 million of sales outside the United States.
Sales by product in the United States were as follows (in thousands):
Six Months Ended June 30,
20232022% Change
Pump$140,816 $155,153 (9)%
Supplies and other137,259 121,797 13%
Deferral for Tandem Choice program(4,332)— —%
Total Sales in the United States$273,743 $276,950 (1)%
Pump sales in the United States were $140.8 million for the first six months of 2023, compared to $155.2 million in the first six months of 2022, as pump shipments decreased 9% compared to the same period in the prior year. We continued to face challenging marketplace dynamics and economic conditions, with inflation and the threat of recession impacting pump purchasing decisions. Sales of pump-related supplies increased primarily due to a 14% increase year over year in our ending estimated installed base of customers in the United States. Sales to distributors accounted for 65% and 65% of our total sales in the United States for the six months ended June 30, 2023 and 2022, respectively. Sales in the United States for the six months ended June 30, 2023 were reduced by a deferral of $4.3 million as the result of our Tandem Choice program which launched in the third quarter of 2022. No comparable program existed in the first six months of 2022.

Sales by product outside the United States were as follows (in thousands):
Six Months Ended June 30,
 20232022% Change
Pump$45,563 $48,130 (5)%
Supplies and other45,994 51,089 (10)%
Total Sales Outside the United States$91,557 $99,219 (8)%
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Pump sales outside the United States were $45.6 million for the first six months of 2023, compared to $48.1 million in the first six months of 2022. We commenced operations of a centralized European distribution center in late 2022, which resulted in a material disruption to distributor ordering patterns in the first half of 2023 as affected distributors reduced their pump and supply inventory levels to adjust for the reduced transit time. This disruption was more significant in the first quarter of 2023, impacting the second quarter to a lesser degree. As a result, pump shipments decreased 20% compared to the same period in the prior year and supply orders declined as well. We believe that this transition was substantially completed by the end of the second quarter of 2023. The decrease in pump sales was offset by an 18% increase in average selling prices due primarily to geographical mix. Sales to distributors accounted for 94% of our total sales outside the United States for the six-month period ended June 30, 2023, and 96% for the same period in 2022.

Cost of Sales and Gross Profit

Our cost of sales for the six months ended June 30, 2023 was $180.7 million resulting in gross profit of $184.6 million, compared to cost of sales of $183.1 million and gross profit of $193.0 million for the same period in 2022. The gross margin for the six months ended June 30, 2023 was 51% compared to 51% in the same period in 2022.

Gross profit for the six months ended June 30, 2023 was most meaningfully impacted by the decrease in sales associated with the European distribution center transition. Furthermore, gross profit was reduced by $4.3 million from the impact of Tandem Choice, resulting in a gross margin reduction of approximately one percentage point. The impact on gross margin from our Tandem Choice program will fluctuate through the expiration of the program based on the timing of availability of Tandem Mobi and the number of eligible customers who ultimately elect to participate.
Gross margin benefited from reductions in manufacturing costs due to the lower impact of certain high-cost raw materials acquired in the prior year, as well as continued operational efficiencies, partially offset by fluctuations in other non-manufacturing costs and product mix. More specifically, the higher cost of raw materials acquired in the prior year stemmed from supply chain challenges during the pandemic, where certain pump materials were sourced from alternative suppliers to reduce the risk of component shortages. The impact in the first six months of 2023 was reduced to less than one percent of sales and we do not anticipate a material impact in future quarters based on our remaining inventory levels.
Operating Expenses
Our operating expenses for the six months ended June 30, 2023 were $351.3 million, compared to $220.6 million for the six months ended June 30, 2022. A significant portion of the increase was driven by certain non-recurring transactions, for which there was no comparable expense in 2022. We incurred $78.8 million of acquired in-process research and development expenses in connection with our recent acquisition of AMF Medical. As a part of continued operating efficiency measures, we also incurred an operating lease impairment charge in SG&A of $14.1 million as a result of a facilities consolidation, and employee severance costs of $2.7 million. Additionally, incremental personnel and discretionary spending attributable to our recent acquisitions in both SG&A and R&D was $8.9 million.
Selling, General and Administrative Expenses. SG&A expenses increased 22% to $187.4 million for the six months ended June 30, 2023, from $153.9 million for the same period in 2022. Excluding the impact of the $14.1 million lease impairment charge and $2.1 million in severance costs, the increase of $17.3 million was largely driven by $14.0 million in employee-related expenses. This was primarily the result of higher salaries and related benefits to provide continued support services for our growing installed customer base.
Research and Development Expenses. R&D expenses increased 28% to $85.1 million for the six months ended June 30, 2023, from $66.7 million for the same period in 2022. The increase in R&D expenses was primarily the result of a $16.0 million increase in salaries and related benefits from our acquisitions and an increase in personnel to support our product development efforts. We also experienced a $2.4 million increase in other non-employee discretionary spending, including equipment, supplies and clinical trials costs.
Acquired In-Process Research and Development Expenses. Acquired IPR&D expenses of $78.8 million for the six months ended June 30, 2023 represented the value of assets acquired, and acquisition related expenses, in connection with our acquisition of AMF Medical (see Note 12, “Acquisitions”).
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Other Income (Expense), Net
Total other income (expense), net for the six months ended June 30, 2023 and 2022 was income of $8.4 million and expense of $1.8 million, respectively. Other income, net for the six months ended June 30, 2023 primarily consisted of $9.3 million of interest income earned on our cash equivalents and short-term investments, and $2.3 million in foreign currency transaction gains, partially offset by $3.2 million of interest expense which included the amortization of debt issuance costs related to our Convertible Senior Notes. Other expense, net for the six months ended June 30, 2022 primarily consisted of $3.1 million of interest expense which included the amortization of debt issuance costs related to our Notes, partially offset by $1.2 million of interest income earned on our cash equivalents and short-term investments.
Income Tax Expense
We recognized income tax expense of $1.4 million on pre-tax loss of $158.2 million for the six months ended June 30, 2023, compared to income tax expense of $0.4 million on a pre-tax loss of $29.4 million for the six months ended June 30, 2022. Income tax expense for the six months ended June 30, 2023 and 2022 was primarily attributable to federal, state and foreign income tax expense as a result of current taxable income in certain jurisdictions.
Liquidity and Capital Resources
At June 30, 2023, we had $507.2 million in cash and cash equivalents and short-term investments. In addition, we have a Revolving Line of Credit (Line of Credit), which expires in May 2025 (see Note 7, “Debt”), under which we may borrow up to $50.0 million, less the amount of our standby letter of credit, subject to a reduced borrowing base through the third quarter of 2023. We believe that our cash and cash equivalents, short-term investments, borrowing availability under the Line of Credit, and future cash flows from operations will be sufficient to fund our ongoing core business activities for at least the next twelve months.
Historically, our principal sources of cash have included cash collected from product sales, private and public offerings of equity securities, exercises of employee stock awards, and debt financing.
Our historical cash outflows have primarily been associated with cash used for operating activities such as research and development activities, sales, marketing and commercialization of our products worldwide, expansion of clinical and customer support organizations, the acquisition of intellectual property, equity investments and acquired assets, capital expenditures and debt service costs.
The following table shows a summary of our cash flows for the six months ended June 30, 2023 and 2022 (in thousands):
Six Months Ended June 30,
20232022
Net cash provided by (used in):
Operating activities$(24,649)$20,701 
Investing activities(20,631)11,554 
Financing activities3,407 11,551 
Effect of foreign exchange rate changes on cash107 (21)
Net increase (decrease) in cash and cash equivalents$(41,766)$43,785 

Operating Activities. Net cash used in operating activities was $24.6 million for the six months ended June 30, 2023, compared to $20.7 million cash provided by operating activities in the same period in 2022. The reduction in net cash provided by operating activities for 2023 compared to 2022 was primarily a result of the increase in net loss, which included $78.8 million of acquired in-process research and development expenses and a $14.1 million operating lease impairment charge in 2023, as well as working capital changes. Working capital changes during the first six months of 2023 primarily consisted of an increase in inventories, partially offset by a decrease in accounts receivable. Accounts receivable decreased to $98.7 million at June 30, 2023, from $114.7 million at December 31, 2022. Inventories increased to $147.6 million at June 30, 2023, from $111.1 million at December 31, 2022.
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Investing Activities. Net cash used in investing activities was $20.6 million for the six months ended June 30, 2023, which was primarily related to $235.5 million of purchases of short-term investments, $69.5 million for the acquisition of AMF Medical, including transaction costs (see Note 12, “Acquisitions”), and $16.2 million in purchases of property and equipment, offset by $303.1 million in proceeds from maturities and redemptions of short-term investments. Net cash provided by investing activities was $11.6 million for the six months ended June 30, 2022, which was primarily related to $256.5 million in proceeds from maturities and redemptions of short-term investments, offset by $229.7 million of purchases of short-term investments, and $14.8 million in purchases of property and equipment.
Financing Activities. Net cash provided by financing activities was $3.4 million for the six months ended June 30, 2023, which primarily consisted of proceeds from the issuance of common stock under our stock plans, net of payments for related tax withholdings. Net cash provided by financing activities was $11.6 million for the six months ended June 30, 2022, which primarily consisted of proceeds from the issuance of common stock under our stock plans, net of payments for related tax withholdings.
Our liquidity position and capital requirements are subject to fluctuation based on a number of factors. 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;
the timing of any additional financings, and the net proceeds raised from such financings;
the timing and amount of proceeds from the issuance of equity awards pursuant to employee stock plans;
fluctuations in gross margins and operating margins; and
fluctuations in working capital, including changes in accounts receivable, inventories, accounts payable, employee-related liabilities, and operating lease liabilities.
Both our primary short-term and long-term capital needs are expected to include expenditures related to:
support of our commercialization efforts related to our current and future products;
expansion of our customer support resources for our growing installed customer base;
research and product development efforts, including clinical trial costs;
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
acquisition and subsequent integration of businesses, products and technologies.
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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, 2022.
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Item 3. 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 June 30, 2023 were primarily due to the recent increase in market interest rates. 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. If a 10% change in interest rates were to have occurred on June 30, 2023, it would not have had a material effect on the fair value of our investment portfolio as of that date.
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. Accordingly, we are not subject to interest rate risk as a result of 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. In addition, a portion of our sales in Canada are denominated in Canadian dollars. Accordingly, we believe our exposure to foreign currency rate fluctuations is primarily related to our operations in Canada and Europe, 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.
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 may have foreign currency exchange risk related to existing assets and liabilities, 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.
Item 4.     Controls and Procedures.
Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in the reports we file with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
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As of June 30, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2023.
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended June 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Except as set forth above under the caption “Commitments and Contingencies - Legal and Regulatory Matters” in Part I, Notes to Unaudited Condensed Consolidated Financial Statements, Subsection 13 of this Quarterly Report, as of June 30, 2023, we do not believe we are currently a party to any legal proceedings, regulatory matters, or other disputes or claims which, if determined adversely to us, would, individually or taken together, have a material adverse effect on our business, financial condition, operating results, liquidity or future prospects. However, regardless of the merits of the claims raised or the outcome, legal proceedings, regulatory matters, and other disputes and claims 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.
Item 1A. Risk Factors.
Below are material changes to the risk factors set forth under the caption “Risk Factors” in Part II, Item 1A of the Annual Report, which are incorporated herein by reference. The risks described in the Annual Report and below are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business, financial condition, operating results, liquidity, and future prospects.
Risks Related to Privacy and Security
A security breach or other significant disruption to our information technology systems or data, or those of our third-party business partners, or failures of our software used with our pumps to perform as we anticipate, could materially disrupt our operations or compromise sensitive information relating to our customers, suppliers, employees or other individuals, which could damage our relationships, expose us to litigation or regulatory proceedings, or harm our reputation.
The efficient operation of our business depends on our information technology and communication systems, as well as those of our suppliers, contract manufacturers, distributors and other third-party business partners. We rely on such systems to effectively store, process and transmit confidential, personal, or other sensitive data, including health information, proprietary sales and marketing data, accounting and financial information, manufacturing and quality records, inventory management data, product development tasks, research and development data, customer service and technical support information. These systems and the underlying data are vulnerable to damage or interruption from a number of causes, including earthquakes, fires, floods and other natural disasters, terrorist attacks, attacks by computer viruses or hackers, malware, ransomware or other destructive software, cyber-attacks, social-engineering attacks, malicious code, denial-of-service attacks, credential harvesting, supply chain attacks, power losses, and computer system, data network failures, and other similar threats. Cyber-attacks, malicious internet-based activity, online and offline fraud, and other similar activities are prevalent and continue to rise, are increasingly difficult to detect, and come from a variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,” organized criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors. Some actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. Notably, severe ransomware attacks are becoming increasingly prevalent and can lead to significant interruptions in our operations, loss of sensitive data and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments.
Should any of the risks described herein occur, it could also result in the loss, theft, misuse, unauthorized disclosure, or unauthorized access of such sensitive information, which could lead to significant reputational or competitive harm, litigation involving us or our business partners, regulatory proceedings, or substantial liabilities, fines, penalties or expenses. Further, many of our third-party service providers are subject to similar risks. We rely on third-party service providers and technologies to operate critical business systems to process sensitive information in a variety of contexts, including, without limitation, cloud-based infrastructure, data center facilities, encryption and authentication technology, employee email, and other functions and systems. Our ability to monitor these third parties’ information security practices is limited, and these third parties may not have adequate information security measures in place. If our third-party service providers experience a security incident or other interruption, we could experience adverse consequences. While we may be entitled to damages if our third-party service providers fail to satisfy their privacy- or security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such an award. In addition, supply chain attacks have increased in frequency and severity, and we cannot guarantee that third parties’ infrastructure in our supply chain or our third-party partners’ supply chains have not been compromised.
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In addition to the risks regarding information technology systems and processing of sensitive information, our insulin pumps and other products rely on software, some of which is developed by third-party service providers, that could contain vulnerabilities. We take steps to detect and remediate vulnerabilities, but we may not be able to detect and remediate all vulnerabilities because the threats and techniques used to exploit the vulnerability change frequently and are often sophisticated in nature. Therefore, such vulnerabilities could be exploited but may not be detected until after a security incident has occurred. These vulnerabilities pose material risks to our business. Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities. These risks significantly increased when we began use of our Tandem Device Updater, which enables customers to remotely update software on their insulin pumps and may be higher after we launched our new mobile application in the second half of 2020. These risks may have further increased in the second half of 2022 when we enabled users to control insulin boluses through the mobile app.
Moreover, remote work has become more common and has increased risks to our information technology systems and data, as more of our employees use network connections, computers and devices outside our premises or network, including working at home, while in transit, and in public locations. Additionally, future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies. Furthermore, we may discover security issues that were not found during due diligence of such acquired or integrated entities, and it may be difficult to integrate companies into our information technology environment and security program.
We may expend significant resources or modify our business activities to try to protect against security incidents. Whether or not our security measures and those of our third-party service providers are ultimately successful, our expenditures on those measures could have an adverse impact on our financial condition and results of operations, and divert management’s attention from pursuing our strategic objectives. Certain data privacy and security obligations may require us to implement and maintain reasonable or specific security measures or industry standards to protect our information technology systems and sensitive information.
Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are costly, and the disclosure or the failure to comply with such requirements could lead to adverse consequences. If we (or a third party upon whom we rely) experience a security incident (such as the incident described below) or are perceived to have experienced a security incident, we may experience adverse consequences, such as government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive information (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of data); financial loss; and other similar harms. Security incidents and attendant consequences may cause customers to stop using our products, deter new customers from using our products, and negatively impact our ability to grow and operate our business.
Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations. We cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or that such coverage will pay future claims.
In addition to experiencing a security incident, third parties may gather, collect, or infer sensitive information about us from public sources, data brokers, or other means that reveals competitively sensitive details about our organization and could be used to undermine our competitive advantage or market position. The failure of our or our service providers’ information technology systems or our pumps’ software or other mobile or cloud applications to perform as we anticipate, or our failure to effectively identify, investigate and mitigate potential threats through ongoing maintenance and enhancement of software applications, information technology systems and privacy policies and controls, could disrupt our entire operation or adversely affect our software products. For example, we market our Tandem Device Updater as having the unique capability to deploy software updates to our pumps, which may allow customers remote access to new and enhanced features. The failure of our Tandem Device Updater to provide software updates as we anticipate, including as a result of our inability to secure and maintain necessary regulatory approvals, the inability of our pumps to properly receive software updates, errors or viruses embedded within the software being transmitted, or the failure of our customers to properly use the system to complete the update, could result in decreased sales, increased warranty costs, and harm to our reputation, any of which could have a material adverse effect on our business, financial condition and operating results.
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We may be subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and other obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation (including class claims); fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse business consequences.
In the ordinary course of business, we collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and share (collectively, process (or processing)) sensitive information. Our data processing activities may subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual requirements, and other obligations relating to data privacy and security.
There are a number of laws in the United States governing the privacy and security of personal information, including data breach notification laws, personal data privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), and other similar laws (e.g., wiretapping laws). For example, the U.S. Health Insurance Portability and Accountability Act of 1996 (HIPAA) as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), imposes specific requirements relating to the privacy, security, and transmission of individually identifiable protected health information.
For example, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 ("CAN-SPAM”) and the Telephone Consumer Protection Act of 1991 (“TCPA”) impose specific requirements on communications with customers. For example, the TCPA imposes various consumer consent requirements and other restrictions on certain telemarketing activity and other communications with consumers by phone, fax or text message. TCPA violations can result in significant financial penalties, including penalties or criminal fines imposed by the Federal Communications Commission or fines of up to $1,500 per violation imposed through private litigation or by state authorities.
As another example, the California Consumer Privacy Act of 2018 (CCPA), as amended by the California Privacy Rights Act of 2020 (CPRA), applies to personal information of consumers, business representatives, and employees who are California residents, and requires businesses to provide specific disclosures in privacy notices and honor requests of such individuals to exercise certain privacy rights. The CCPA provides for administrative fines of up to $7,500 per violation and allows private litigants affected by certain data breaches to recover significant statutory damages. Although the CCPA exempts some data processed in the context of clinical trials, the CCPA increases compliance costs and potential liability with respect to other personal data we maintain about California residents. In addition, the CPRA expanded the CCPA’s requirements, including by adding a new right for individuals to correct their personal information and establishing a new regulatory agency to implement and enforce the law. Other states, such as Virginia and Colorado, have also passed comprehensive privacy laws, and similar laws are being considered in several other states, as well as at the federal and local levels. While these states, like the CCPA, also exempt some data processed in the context of clinical trials, these developments further complicate compliance efforts, and increase legal risk and compliance costs for us, the third parties upon whom we rely, and our customers.
Outside the United States, an increasing number of laws, regulations, and industry standards govern data privacy and security. For example, the European Union’s General Data Protection Regulation (“EU GDPR”), the United Kingdom’s GDPR (“UK GDPR”), and Canada’s Personal Information and Electronic Documents Act (PIPEDA) or the applicable provincial alternatives, impose strict requirements for processing personal data.
For example, under the EU GDPR, companies may face temporary or definitive bans on data processing and other corrective actions; fines of up to 20 million Euros / 17.5 million pounds sterling under the UK GDPR or, in each case, 4% of annual global revenue, whichever is greater; or private litigation related to processing of personal data brought by classes of data subjects or consumer protection organizations authorized at law to represent their interests. In Canada, the Personal Information Protection and Electronic Documents Act (“PIPEDA”) and various related provincial laws, as well as Canada’s Anti-Spam Legislation (“CASL”), may apply to our operations.
Additionally, regulators are increasingly scrutinizing companies that process children’s data. Numerous laws, regulations, and legally-binding codes, such as the Children’s Online Privacy Protection Act (“COPPA”), California’s Age Appropriate Design Code (effective in July 2024), the CCPA and CPRA, other U.S. state comprehensive privacy laws, the EU and UK GDPR, and the UK Age Appropriate Design Code, impose various obligations on companies that process children data, including by requiring certain consents to process such data and extending certain rights to children and their parents with respect that data. Some of these obligations have wide ranging applications, including for services that do not intentionally target child users (defined in some circumstances as a user under the age of 18 years old).
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In the ordinary course of business, we may transfer personal data from Europe and other jurisdictions to the United States or other countries. Europe and other jurisdictions have enacted laws requiring data to be localized or limiting the transfer of personal data to other countries. In particular, the European Economic Area (EEA) and the UK have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it believes are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws. Although there are currently various mechanisms that may be used to transfer personal data from the EEA and UK to the United States in compliance with law, such as the EEA and UK’s standard contractual clauses, these mechanisms are subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States. If there is no lawful manner for us to transfer personal data from the EEA, the UK or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business. Additionally, companies that transfer personal data out of the EEA and UK to other jurisdictions, particularly to the United States, are subject to increased scrutiny from regulators, individual litigants, and activist groups. Some European regulators have ordered certain companies to suspend or permanently cease certain transfers out of Europe for allegedly violating the GDPR’s cross-border data transfer limitations. Additionally, in May 2023, the Irish Data Protection Commission determined that a major social media company’s use of the standard contractual clauses to transfer personal data from Europe to the United States was insufficient and levied a 1.2 billion Euro fine against the company and prohibited the company from transferring EU personal data to the United States.
In addition to data privacy and security laws, we are contractually subject to industry standards adopted by industry groups and we are, or may become subject to such obligations in the future. For example, we may also be subject to the Payment Card Industry Data Security Standard (“PCI DSS”). The PCI DSS requires companies to adopt certain measures to ensure the security of cardholder information, including using and maintaining firewalls, adopting proper password protections for certain devices and software, and restricting data access. Noncompliance with PCI-DSS can result in penalties ranging from $5,000 to $100,000 per month by credit card companies, litigation, damage to our reputation, and revenue losses. We are also bound by contractual obligations related to data privacy and security, and our efforts to comply with such obligations may not be successful. For example, certain privacy laws, such as the GDPR and the CCPA, require our customers to impose specific contractual restrictions on their service providers. Additionally, some of our customer contracts require us to host personal data locally. We publish privacy policies, marketing materials and other statements, such as compliance with certain certifications or self-regulatory principles, regarding data privacy and security. If these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators or other adverse consequences.
Obligations related to data privacy and security are quickly changing, becoming increasingly stringent, and creating regulatory uncertainty. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and complying with these obligations requires us to devote significant resources, which may necessitate changes to our services, information technologies, systems, and practices and to those of any third parties that process personal data on our behalf. In addition, these obligations may require us to change our business model. We may at times fail (or be perceived to have failed) in our efforts to comply with our data privacy and security obligations. Moreover, despite our efforts, our personnel or third parties on whom we rely may fail to comply with such obligations, which could negatively impact our business operations.
If we or the third parties on which we rely fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, we could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims) and mass arbitration demands; additional reporting requirements and/or oversight; bans on processing personal data; orders to destroy or not use personal data; and imprisonment of company officials. In particular, plaintiffs have become increasingly more active in bringing privacy-related claims against companies, including class claims and mass arbitration demands. Some of these claims allow for the recovery of statutory damages on a per violation basis; if viable, these claims carry the potential for monumental statutory damages, depending on the volume of data and the number of violations.
Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers; interruptions or stoppages in our business operations (including, as relevant, clinical trials); inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or substantial changes to our business model or operations.
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Risks Related to Our Regulatory Environment
New products or modifications to our existing products may require new 510(k) clearances, PMAs or certifications, or may require us to cease marketing or recall the modified products until clearances, certifications or approvals are obtained.
Any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design, or manufacture, requires a new 510(k) clearance or, possibly, a PMA. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances or approvals are necessary for changes that we have made to our products. If the FDA disagrees with our determination and requires us to submit new 510(k) notifications or PMAs for modifications to our previously cleared or approved products, for which we concluded that new clearances or approvals were not necessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties.
Further, the FDA’s ongoing review of and potential changes to the 510(k) program may make it more difficult for us to modify our previously cleared products, either by imposing stricter requirements on when a new 510(k) for a modification to a previously cleared product must be submitted, or by applying more onerous review criteria to such submissions.
For those medical devices sold in the EU and for which we have obtained a CE Certificate of Conformity by a Notified Body, we must notify our Notified Body if significant changes are made to the products or if there are substantial changes to our quality assurance systems affecting those products. Obtaining variation of existing CE Certificates of Conformity or a new CE Certificate of Conformity can be a time-consuming process, and delays in obtaining required future clearances, certifications or approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth.
A recall or suspension of our products, or the discovery of serious safety issues with our products, could have a significant negative impact on us.
The FDA and equivalent foreign regulatory authorities have the authority to require the recall or suspension, either temporarily or permanently, of commercialized products in the event of material deficiencies or defects in quality systems, product design or manufacture or in the event that a product poses an unacceptable risk to health. Regulatory authorities have broad discretion to require the recall or suspension of a product or to require that manufacturers alert customers of safety risks, and may do so even in circumstances where we do not believe our product poses an unacceptable risk to health. In addition, manufacturers may, under their own initiative, recall a product or suspend sales if any material deficiency in a product is found or alert customers of unanticipated safety risks. A government-mandated or voluntary recall or suspension by us, one of our distributors or any of our other third-party suppliers could occur as a result of an unacceptable risk to health, component failures, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls, suspensions or other notices relating to any products that we distribute would divert managerial and financial resources, and have an adverse effect on our reputation, financial condition and operating results.
Further, under the FDA’s Medical Device Reporting regulations and equivalent regulations and requirements in other geographies, we are required to maintain appropriate quality systems and report incidents in which our product may have caused or contributed to serious injury or death in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to serious injury or death. Repeated product malfunctions may result in a voluntary or involuntary product recall or suspension of product sales, which could divert managerial and financial resources, impair our ability to manufacture our products in a cost-effective and timely manner and have an adverse effect on our reputation, financial condition and operating results. We have initiated product recalls in the past, and our risk of future product recalls may increase as we launch new products or offer new software updates for existing products.
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Any adverse event involving any products that we distribute could result in future voluntary corrective actions, such as recalls or customer notifications, or regulatory authority action, which could include inspection, mandatory recall or other enforcement action. For example, the Australian Therapeutic Goods Administration (TGA) temporarily suspended our pump product sales in Australia starting November 24, 2020, however sales of pump-related supplies were allowed to continue. Effective April 1, 2021, following discussions with the TGA, the temporary suspension was lifted for our t:slim X2 with Basal-IQ technology, subject to certain post-market surveillance obligations and other conditions. We discontinued sales of earlier generation products in Australia and we started offering our Control-IQ technology in Australia. There can be no assurance that the TGA will not reimpose the suspension of our pump product sales or impose other regulatory restrictions in the future. In addition, other regulatory authorities may take similar actions against us, and any regulatory challenges we encounter could have a negative impact on our product sales and harm our reputation. Any corrective actions we take in response to this action or future matters with the TGA or other regulatory authorities, whether voluntary or involuntary, will require the dedication of our time and capital, may distract management from operating our business, may harm our reputation and financial results or could result in additional regulatory scrutiny in other geographies.
In addition, we may be required to conduct costly post-market testing and surveillance to monitor the safety or effectiveness of our products in the EU. We must comply with medical device reporting requirements, including the reporting of adverse events and malfunctions related to our products. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements may result in changes to labeling, restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines, suspension, variation or withdrawal of CE Certificates of Conformity, product seizures, injunctions or the imposition of civil or criminal penalties that would adversely affect our business, operating results and prospects.
Legislative or regulatory healthcare reforms, or other regulatory reforms, may result in downward pressure on the price of and decrease reimbursement for our products, and uncertainty regarding the healthcare regulatory environment could have a material adverse effect on our business.
The sales of our products depend in part on the availability of coverage and reimbursement from third-party payors such as government health administration authorities, private health insurers, health maintenance organizations and other healthcare-related organizations. Both the federal and state governments in the United States continue to propose and pass new legislation and regulations designed to, among other things, expand healthcare coverage to more individuals, contain or reduce the cost of healthcare, and improve the quality of healthcare outcomes. For example, the Affordable Care Act has substantially changed the way healthcare is financed by both governmental and private insurers and encourages improvements in the quality of healthcare items and services. In the future, additional changes could be made to governmental healthcare programs that could significantly impact the success of our products. This legislation and regulation may result in decreased reimbursement for medical devices, which may create additional pressure to reduce the prices charged for medical devices. Reduced reimbursement rates could significantly decrease our revenue, which in turn would place significant downward pressure on our gross margins and impede our ability to become profitable.
We cannot predict which, if any, additional healthcare reform proposals will be adopted, when they may be adopted or what impact they may have on the existing regulatory environment, or our ability to operate our business. Any of these factors could have a material adverse effect on our operating results and financial condition.
In the EU, the MDR became applicable on May 26, 2021, repealing and replacing both the MDD and Directive 90/385/EEC on active implantable medical devices. The MDR establishes transitional provisions. However, the changes to the regulatory system implemented in the EU by the MDR include stricter requirements for clinical evidence and pre-market assessment of safety and performance, new classifications to indicate risk levels, requirements for third party testing by Notified Bodies, tightened and streamlined quality management system assessment procedures and additional requirements for the quality management system, additional requirements for traceability of products and transparency as well a refined responsibility of economic operators. We are also required to provide clinical data in the form of a clinical evaluation report. Fulfillment of the obligations imposed by the MDR may cause us to incur substantial costs. We may be unable to fulfil these obligations, or our Notified Body may consider that we have not adequately demonstrated compliance with our related obligations to merit a CE Certificate of Conformity on the basis of the MDR.
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Moreover, in the EU, some EU Member States may, after a medical device is CE marked, require the completion of additional studies that compare the cost-effectiveness of a particular medical device candidate to currently available therapies. This Health Technology Assessment, or HTA process, which is currently governed by the national laws of the individual EU Member States, is the procedure according to which the assessment of the public health impact, therapeutic impact and the economic and societal impact of use of a given medical device in the national healthcare systems of the individual country is conducted. The outcome of HTA regarding specific medical device will often influence the pricing and reimbursement status granted to these products by the competent authorities of individual EU Member States. In December 2021, Regulation No 2021/2282 on HTA, amending Directive 2011/24/EU, was adopted in the EU. This Regulation, which entered into force in January 2022 and will apply as of January 2025, is intended to boost cooperation among EU Member States in assessing health technologies and providing the basis for cooperation at EU level for joint clinical assessments in these areas. If we are unable to obtain or maintain favorable pricing and reimbursement status in EU Member States for our medical devices or medical devices that we may successfully develop and for which we may obtain certification, any anticipated revenue from and growth prospects for those products in the EU could be negatively affected.
In addition, the exit of the UK from the EU, commonly referred to as “Brexit” could lead to regulatory divergence between the EU and the UK. On May 26, 2021, the MDR became applicable in the EU. However, the MDR is not applicable in the UK. In the UK, medical devices are governed by the Medical Devices Regulations 2002 (SI 2002 No 618, as amended) (UK MDR 2002) which, for the time being, retains a regulatory framework similar to the framework set out by the MDD. The government plans to introduce new legislation governing medical devices with an aim for core aspects of the future regime for medical devices to apply from July 1, 2025. New legislation is also anticipated later in 2023 to bring into force strengthened post-market surveillance requirements ahead of the wider future regulatory regime. These post-market surveillance requirements are expected to apply from mid-2024. Should the UK or Great Britain further diverge from the EU from a regulatory perspective, tariffs could be put into place in the future. We could therefore, both now and in the future, face significant additional expenses to operate our business, which could significantly and materially harm or delay our ability to generate revenue or achieve profitability of our business. Any further changes in international trade, tariff and import/export regulations as a result of Brexit or otherwise may impose unexpected duty costs or other non-tariff barriers on us. These developments, or the perception that any of them could occur, may significantly reduce global trade and, in particular, trade between the EU and the UK.

Item 5. Other Information.
As previously reported, at our 2022 Annual Meeting of Stockholders on May 25, 2022 (the 2022 Annual Meeting), our stockholders approved an amendment to our Amended and Restated Certificate of Incorporation (the Charter Amendment) to provide for the phased elimination of our classified board structure, such that our board of directors would be fully declassified with all directors elected for one-year terms by our 2024 Annual Meeting of Stockholders. Our board of directors also approved a corresponding amendment to our bylaws to remove the requirement that our board of directors be constituted as a classified board (the Bylaws Amendment), for adoption following the filing of the Charter Amendment. Recently, we discovered that the Charter Amendment was inadvertently not filed with the Delaware Secretary of State following its approval at the 2022 Annual Meeting, and on August 1, 2023, we filed the Charter Amendment with the Delaware Secretary of State and adopted the Bylaws Amendment.
The foregoing summary of the Charter Amendment and the Bylaws Amendment is qualified by these documents, which are filed as Exhibits 3.1 and 3.2 to this Quarterly Report.
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Item 6. Exhibits.


Incorporated by ReferenceProvided Herewith
Exhibit NumberExhibit DescriptionFormFile No.Date of First FilingExhibit Number
3.1X
3.2X
4.1
Reference is made to Exhibits 3.1 and 3.2.
10.1X
10.2X
31.1X
31.2X
32.1*X
32.2*X
101.INSInline XBRL Instance Document.X
101.SCHInline XBRL Taxonomy Extension Schema Document.X
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.X
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.X
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.X
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.X
104Cover Page Interactive Data File (embedded within the Inline XBRL Document contained in Exhibit 101).X

* This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Tandem Diabetes Care, Inc.
Dated: August 3, 2023
By:/s/ John F. Sheridan
John F. Sheridan
President and Chief Executive Officer
(on behalf of the registrant and as the registrant’s
Principal Executive Officer)
Dated: August 3, 2023
By:/s/ Leigh A. Vosseller
Leigh A. Vosseller
Executive Vice President, Chief Financial Officer and Treasurer
(on behalf of the registrant and as the registrant’s
Principal Financial and Accounting Officer)
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