☒
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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.

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 ~~October 23, 2017,~~April 30, 2021, there were ~~10,118,659~~62,637,925 shares of the registrant’s Common Stock outstanding.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TANDEM DIABETES CARE, INC.

See accompanying notes to unaudited condensed consolidated financial statements.

~~(1)~~

The issued and outstanding shares of common stock have been restated for all periods presented to reflect the effects of the 1-for-10 reverse stock split, which was effective on October 9, 2017 as described in Note 7.

See accompanying notes to unaudited condensed consolidated financial statements.

~~(1)~~

TANDEM DIABETES CARE, INC.

Three Months Ended March 31, 2021


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2020	62,335	$	62	$	1,025,233	$	220	$	(659,210)	$	366,305
Effect of change in accounting for convertible debt(1)	—	—		(85,803)		—		9,049		(76,754)
Exercise of stock options	111	1		3,135		—		—		3,136

Exercise of common stock warrants	125	—		437		—		—		437
Fair value of common stock warrants at time of exercise	—	—		12,434		—		—		12,434


Stock-based compensation expense	—	—		13,014		—		—		13,014
Unrealized loss on short-term investments	—	—		—		(38)		—		(38)
Foreign currency translation adjustments	—	—		—		(76)		—		(76)
Net loss	—	—		—		—		(5,044)		(5,044)
Balance at March 31, 2021	62,571	$	63	$	968,450	$	106	$	(655,205)	$	313,414

Three Months Ended March 31, 2020


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2019	59,396	$	59	$	819,626	$	122	$	(624,828)	$	194,979

Exercise of stock options	673	1		11,474		—		—		11,475

Exercise of common stock warrants	2	—		7		—		—		7
Fair value of common stock warrants at time of exercise	—	—		141		—		—		141
Stock-based compensation expense	—	—		15,808		—		—		15,808
Unrealized gain on short-term investments	—	—		—		42		—		42
Foreign currency translation adjustments	—	—		—		(409)		—		(409)
Net loss	—	—		—		—		(14,867)		(14,867)
Balance at March 31, 2020	60,071	$	60	$	847,056	$	(245)	$	(639,695)	$	207,176

(1) The Company adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity effective January 1, 2021 (see Note 2, “Summary of Significant Accounting Policies”).

TANDEM DIABETES CARE, INC.

Nine Months Ended September 30,

2017

2016

Operating activities

Net loss
$
(61,627
)

$
(68,624
)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization expense

4,737

4,017

Interest expense related to amortization of debt discount and debt issuance costs

1,338

194

Provision for allowance for doubtful accounts

664

666

Provision for inventory reserve

316

1,805

Payment in kind interest accrual of notes payable

1,236

675

Amortization of discount on short-term investments

(16
)

(59
)
Stock-based compensation expense

10,502

8,733

Other

69

(37
)
Changes in operating assets and liabilities:

Accounts receivable, net

(73
)

5,191

Inventory, net

(9,038
)

(7,110
)
Prepaid and other current assets

1,133

(1,408
)
Other long-term assets

(53
)

(8
)
Accounts payable

522

291

Accrued expense

907

(144
)
Employee-related liabilities

797

(1,225
)
Deferred revenue

(4,137
)

8,528

Other current liabilities

(601
)

1,348

Deferred rent

(425
)

(566
)
Other long-term liabilities

(746
)

142

Net cash used in operating activities

(54,495
)

(47,591
)
Investing activities

Purchase of short-term investments

—

(25,890
)
Proceeds from sales and maturities of short-term investments

8,500

37,950

Purchase of property and equipment

(4,299
)

(6,187
)
Net cash provided by investing activities

4,201

5,873

Financing activities

Issuance of notes payable, net of issuance costs

—

14,994

Restricted cash in connection with notes payable

(8,000
)

—

Proceeds from public offering, net of offering costs

25,125

—

Proceeds from issuance of common stock

570

1,592

Net cash provided by financing activities

17,695

16,586

Net decrease in cash and cash equivalents

(32,599
)

(25,132
)
Cash and cash equivalents at beginning of period

44,678

43,088

Cash and cash equivalents at end of period
$
12,079

$
17,956

Supplemental disclosures of cash flow information

Interest paid
$
5,871

$
3,205

Supplemental schedule of noncash investing and financing activities

Lease incentive - lessor-paid tenant improvements
$
3,037

$
—

Debt discount included in other long-term liabilities
$
4,116

$
454

Common stock warrants issued in connection with term loan
$
3,331

$
—

Property and equipment included in accounts payable
$
72

$
802


	Three Months Ended March 31,
	2021		2020
Operating Activities
Net loss	$	(5,044)	$	(14,867)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Depreciation and amortization expense	3,485		1,830
Amortization of debt issuance costs	428		0
Provision for expected credit losses	143		862
Provision (recovery) for inventory obsolescence	64		(363)
Change in fair value of common stock warrants	690		1,922
Amortization of premium (discount) on short-term investments	209		(66)

Stock-based compensation expense	12,947		15,865

Other	(73)		19
Changes in operating assets and liabilities:
Accounts receivable, net	8,389		(8,292)
Inventories	(3,084)		(11,095)
Prepaid and other current assets	(1,412)		(2,231)
Other long-term assets	(17)		(383)
Accounts payable	10,537		4,294
Accrued expenses	278		(2,124)
Employee-related liabilities	(1,448)		(6,253)
Deferred revenue	1,871		1,524
Other current liabilities	1,094		431
Other long-term liabilities	(372)		(1,704)
Net cash provided (used) by operating activities	28,685		(20,631)
Investing Activities
Purchases of short-term investments	(154,300)		(9,727)
Proceeds from maturities of short-term investments	140,200		30,859
Proceeds from sales of short-term investments	11,530		18,550
Purchases of property and equipment	(3,524)		(6,766)

Net cash (used in) provided by investing activities	(6,094)		32,916
Financing Activities



Proceeds from issuance of common stock under Company stock plans	3,135		11,474
Proceeds from exercise of common stock warrants	438		7
Net cash provided by financing activities	3,573		11,481
Effect of foreign exchange rate changes on cash	14		(456)
Net increase in cash and cash equivalents	26,178		23,310
Cash and cash equivalents at beginning of period	94,613		51,175
Cash and cash equivalents at end of period	$	120,791	$	74,485
Supplemental disclosures of cash flow information

Income taxes paid	$	197	$	91
Supplemental schedule of non-cash investing and financing activities
Right-of-use assets obtained in exchange for operating lease obligations	$	15,087	$	8,805

Property and equipment included in accounts payable	$	924	$	1,880
Intangible costs in accounts payable and other long-term liabilities	$	2,244	$	0

See accompanying notes to unaudited condensed consolidated financial statements.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

Tandem Diabetes Care, Inc. is a medical device company ~~focused on~~with a positively different approach to the design, development and commercialization of products for people with insulin-dependent diabetes. ~~The Company~~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 in the U.S. and Canada.

The Company manufactures, sells and ~~sells~~supports insulin pump products ~~in the United States~~ that are designed to address ~~large~~the evolving needs and preferences of differentiated ~~needs~~segments of the insulin-dependent diabetes market. The Company’s ~~pump products currently include:~~

manufacturing, sales and support activities principally focus on the t:slim X2 Insulin Delivery System ~~or t:~~(t:slim ~~X2,~~X2), the ~~next-generation~~Company’s flagship ~~product that~~pump platform which is ~~updatable~~capable of remote software updates and is designed to display ~~Dexcom G5~~ continuous glucose monitoring ~~or CGM,~~(CGM) sensor information directly on the pump ~~Home Screen; and~~

home screen. The Company’s insulin pump products are compatible with other complementary digital health offerings, such as the t:~~flex Insulin Delivery System, or t:flex, for people with greater insulin needs.~~

~~The Company began commercial sales of its first product, t:slim, in August 2012. During 2015, the Company commenced commercial sales of two additional insulin pumps: t:flex in May 2015~~connect cloud-based diabetes management application (t:connect) and t:slim G4 in September 2015. In October 2016, the Company commenced commercial sales of t:slim X2 and discontinued new sales of t:slim. In August 2017, the Company commenced commercial sales of t:slim X2 with Dexcom G5 Mobile CGM integration, or t:slim X2 with G5, and discontinued new sales of t:slim G4. The Company will continue to provide ongoing service and support to existing t:slim and t:slim G4 customers.

~~In July 2016, the Company received clearance from the U.S. Food and Drug Administration (“FDA”) to begin offering~~ the Tandem Device Updater, a Macand PC-compatible tool ~~for the remote update of Tandem insulin pump software.~~

~~In July 2016, the Company also announced~~which offers and launched a Technology Upgrade Program that provided eligible t:slim and t:slim G4 customers a path to obtain t:slim X2, or, as of August 2017, t:slim X2 with G5. Participating customers had the right to exchange their original t:slim and t:slim G4 for a t:slim X2 or t:slim X2 with G5, under a variable pricing structure. The ~~Technology~~ ~~Upgrade Program expired on September 30, 2017.~~

~~In September 2017, the Company commenced commercial sales of products using the t:lock~~^TM Connector, or t:lock, which replaces the standard Luer-lok connector that historically joined an infusion set to the cartridge. t:lock incorporates a smaller inner cavity than the Luer-lok connector, which reduces the amount of insulin used in the process and reduces the time required to fill the infusion set tubing.

Effective December 31, 2016, the Company adopted FASB Accounting Standard Codification (“ASC”) Topic 205-40, Presentation of Financial Statements – Going Concern, which requires management to evaluate whether there are relevant conditions and events that, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date the financial statements are issued.

The financial statements included in this Quarterly Report on form 10-Q for the three and nine months ended September 30, 2017 (the “Quarterly Report”) have been prepared on a basis that assumes the Company will continue as a going concern, and do not include any adjustments that may result from the outcome of this uncertainty. This basis of accounting contemplates the recoverysupports different updates of the Company’s ~~assets~~insulin pump software from a personal computer. The Company’s insulin pump products are generally considered durable medical equipment and ~~the satisfaction~~have an expected lifespan of ~~the Company’s liabilities and commitments in the normal course of business and does not include any adjustments~~at least four years. In addition to ~~reflect the possible future effects of the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should~~insulin pumps, the Company ~~be unable~~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 ~~continue~~a user’s body, as ~~a going concern.~~

~~The Company has incurred operating losses since its inception and,~~well as ~~reflected in the accompanying financial statements, the Company has an accumulated deficit of $466.2 million as of September 30, 2017, which reflects a net loss of $61.6 million~~other accessories for ~~the nine months ended September 30, 2017. The Company had cash and cash equivalents and short-term investments of $22.5 million at September 30, 2017, including $10.0 million of restricted~~ ~~cash as required by the Company’s term loan agreement (as amended, the “Term Loan Agreement”)~~ ~~with Capital Royalty Partners II, L.P. and its affiliate funds (“Capital Royalty Partners”).~~ The Company used $54.5 million in cash from operations in the nine months ended September 30, 2017. The Company concluded that, at the date the financial statements in this Quarterly Report were issued, it did not have sufficient cash to fund its operations for the next twelve months without additional financing and, therefore, there was substantial doubt about its ability to continue as a going concern within one year after the date the financial statements were issued.

On October 9, 2017, the Company effected a 1-for-10 reverse stock split of its issued and outstanding shares of common stock. The par value per share and the authorized number of shares of common stock and preferred stock were not adjusted as a result of the reverse stock split. All common stock share and per-share amounts for all periods presented in these condensed financial statements have been adjusted to reflect the reverse stock split. The number of authorized shares of common stock remains at 100 million shares.

The Company completed a registered public offering on October 17, 2017, or the October Financing, which resulted in gross proceeds to the Company of $16.2 million, before deducting underwriting discounts and commissions and other offering expenses (see Note 9 “Subsequent Events”). As part of the October Financing, the Company issued 4,630,000 shares of common stock, Series A warrants to purchase 4,630,000 shares of common stock and Series B warrants to purchase 4,630,000 shares of common stock, at a public offering price of $3.50 per share and accompanying warrants. The Series A warrants have an exercise price of $3.50 per share, are immediately exercisable, and will expire on the 5-year anniversary of the date of issuance. The Series B warrants have an exercise price of $3.50 per share, are immediately exercisable, and will expire on the 6-month anniversary of the date of issuance. Each series of warrants, if exercised by all holders in full, may result in additional gross proceeds of $16.2 million to the Company. As a result of the completion of the financing, the Company has satisfied the equity financing covenant in the Term Loan Agreement ~~(see Note 6, “Term Loan Agreement”), although it remains subject to additional covenants.~~

~~The Company believes it will be necessary to raise additional funding.~~ The Company intends to seek additional capital from public or private offerings of its capital stock or it may elect to borrow additional amounts under new debt financing arrangements or from other sources. If the Company issues equity or convertible debt securities to raise additional funding, its existing stockholders may experience dilution, it may incur significant financing costs, and the new equity or convertible debt securities may have rights, preferences and privileges senior to those of its existing stockholders. If the Company issues debt securities to raise additional funding, it would incur additional debt service obligations, it could become subject to additional restrictions limiting its ability to operate its business, and it may be required to further encumber its assets. The Company’s ability to continue as a going concern, meet its minimum liquidity requirements, satisfy the covenants under the Term Loan Agreement, and execute its business strategy is dependent on its ability to raise significant additional capital, of which there can be no assurance. If the Company cannot generate sufficient revenues from the sale of its products or secure additional financing on acceptable terms, it may be forced to significantly alter its business strategy, substantially curtail or modify its current operations, or cease operations altogether.

enhanced usability.

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”)~~(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, 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 ~~footnotes~~notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016 (“Annual Report”)~~2020 (Annual Report), from which the balance sheet information herein was derived. ~~These unaudited~~

The condensed consolidated financial statements ~~exclude disclosures required by~~include the accounts of Tandem Diabetes Care, Inc. and its wholly-owned subsidiaries in the U.S. ~~GAAP~~and Canada. All significant intercompany balances and transactions have been eliminated in consolidation.

The functional currency of the Company’s foreign subsidiary is the local currency. The Company translates the financial statements of its foreign subsidiary into U.S. dollars using period-end exchange rates for ~~complete financial statements.~~

assets and liabilities and average exchange rates for each period for revenue, costs and expenses. Translation related adjustments are included in other comprehensive loss, and in accumulated other comprehensive income 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.

Prior year amounts related to the presentation of other income (expense), net on the Company’s condensed consolidated statement of operations and comprehensive loss, have been reclassified to conform to the current year presentation. Starting with the third quarter of 2020, the first full quarter in which the Company’s convertible senior notes were outstanding, the Company began to present non-operating expenses unrelated to the convertible senior notes with interest income and other, net. In prior periods, other non-operating expenses were combined with interest expense and reported as interest and other expense.

2. Summary of Significant Accounting Policies

There have been no ~~significant~~material changes ~~in our~~to the Company’s significant accounting policies during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, as compared ~~with~~to those disclosed in the Annual ~~Report.~~

Report, other than the adoption of ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, effective January 1, 2021(see Note 7, “Convertible Senior Notes”).

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make ~~informed~~ estimates and ~~assumptions~~judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying ~~footnotes~~notes as of the date of the consolidated financial statements. ~~Actual~~Some of those judgments can be subjective and complex, and therefore, actual results could differ materially ~~differ~~ from those estimates ~~and assumptions.~~

under different assumptions or conditions.

The Company recorded ~~$10.0 million and $2.0~~$8.0 million of restricted cash as of ~~September 30, 2017~~March 31, 2021, representing funds deposited and ~~December 31, 2016, respectively, for the minimum cash balance requirement~~held in escrow in connection with an investment commitment. The restricted cash balance is included as a component of cash and cash equivalents on the ~~Term Loan Agreement (see Note 6, “Term Loan Agreement”).~~

condensed consolidated balance sheet at March 31, 2021, and the condensed consolidated statement of cash flows for the three months ended March 31, 2021.

The Company grants credit to various customers in the ~~normal~~ordinary course of ~~business.~~business and is paid directly by customers who use the products, distributors and third-party insurance payors. The Company maintains an allowance for ~~doubtful accounts for potential~~its current estimate of expected credit losses. Provisions for expected credit losses are ~~made~~estimated based on historical experience, assessment of specific risk, ~~specific~~ review of outstanding invoices, forecasts about the future, and various ~~additional~~ assumptions and estimates that are believed to be reasonable under the ~~circumstances.~~circumstances, which included the Company’s estimates of credit risks as a result of the coronavirus pandemic (COVID-19 global pandemic). 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. ~~Based on the borrowing rates currently available for loans with similar terms, the~~The Company ~~believes that~~determined the fair value of its ~~long-term~~convertible senior notes ~~payable approximates its carrying value.~~

~~Certain trade-in rights offered by the Company pursuant to the Technology Upgrade Program to certain eligible customers, have been determined~~ to be ~~guarantees under applicable accounting guidance.~~$306.2 million at March 31, 2021, and $333.5 million at December 31, 2020, based on Level 2 quoted market prices (see Note 7, “Convertible Senior Notes”). The ~~Company recorded a liability for the~~ estimated fair value of certain of the ~~guarantees at their inception. The Program expired on September 30, 2017, at which time~~Company’s common stock warrants was determined using the ~~remaining guarantee liabilities~~Black-Scholes pricing model as of $1.1 were recognized as sales. For further details regarding these guarantees, see the information included under the heading “Revenue Recognition” within this Note 2, as well as the information inMarch 31, 2021 and December 31, 2020 (see Note 5, “Fair Value ~~Measurements.”~~

Measurements”).

Operating Lease Right-of-Use Assets and Liabilities

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 (the 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, the Company combines lease and non-lease components. Rent expense on noncancellable 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 (see Note 6, “Leases”). The difference between rent expense and rent paid is accounted for as a component of operating lease right-of-use assets on the Company’s consolidated balance sheet. Landlord improvement allowances and other similar lease incentives are recorded as property and equipment and 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 provided over their estimated useful lives on a straight-line basis. The Company reviews its finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company has not recognized any impairment losses through March 31, 2021.

On June 24, 2020, the Company acquired Sugarmate, Inc. (Sugarmate), the developer of a mobile app designed to help people visualize diabetes therapy data in innovative ways. The Sugarmate acquisition was accounted for as an acquisition of assets in accordance with ASU No. 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. Substantially all of the fair value was concentrated in a single identifiable asset, a technology-based intangible asset. The purchased intangible asset is being amortized on a straight-line basis over an estimated useful life of five years. The Company’s results of operations include the operating results of Sugarmate since the date of acquisition, the amounts of which were not material.

Revenue is generated primarily from sales ~~in the United States~~ of insulin pumps, disposable cartridges and infusion sets to individual customers with third-party insurance coverage and ~~third-party~~through a network of distributors that resell the ~~product~~products to insulin-dependent diabetes customers. The Company ~~is paid directly by~~recognizes revenue when it transfers promised goods or services to customers ~~who use~~in an amount that reflects the ~~products, distributors and third-party insurance payors.~~

~~Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred and title passed, the price is fixed or determinable, and collectability is reasonably assured.~~

~~Trade-In Rights~~

~~The Company launched a Technology Upgrade Program in 2016,~~consideration to which expired September 30, 2017. The trade-in rights associated with the Program were accounted for as guarantees or rights to return based on specific factors and circumstances, including the period of time the trade-in rights were exercisable, the likelihood that the trade-in rights would be exercised, and the amount of the specified-price trade-in value.

The Company determined that trade-in rights for t:slim G4 Pump customers were generally guarantees. The Company accounted for the guarantees under applicable accounting standards, which require a guarantor to recognize, at the inception of the guarantees, a liability for the estimated fair value of the obligation undertaken in issuing the guarantees. Subsequently, the initial liability recognized for the guarantees was reduced as the Company ~~was released from the risk under the guarantees, which was when the trade-in right was exercised~~expects to be entitled in exchange for those goods or the right expired. The guarantees were accounted for as an element of a multiple element arrangement. The estimated fair value of the guarantees was based on various economic and customer behavioral assumptions, including the probability that a trade-in right would be exercised, the specified trade-in amount, the expected fair value of the used t:slim G4 Pump at trade-in and the expected sales price of a t:slim X2 Pump. Upon expiration of the Program at September 30, 2017, the remaining guarantee liabilities of $1.1 were recognized as sales compared to ~~$1.2 million recorded as guarantee liabilities in other current liabilities on the accompanying balance sheets, as of September 30, 2017 and December 31, 2016, respectively.~~

The Company determined that t:slim Pump trade-in rights were in-substance rights to return products. Such rights to return were accounted for pursuant to the right of return accounting guidance. As the Company did not have sufficient history to reasonably estimate returns associated with trade-in rights, all eligible t:slim Pump sales between July 2016 and October 2016, which is when the Company ~~discontinued new shipments of t:slim,~~ were recorded as deferred revenue until the trade-in right was exercised or the right expired. Despite expiration of the Program at September 30, 2017, the Company recorded $0.2 million for upgrades requested but not yet fulfilled compared to $3.2 million as a trade-in rights reserve in deferred revenue on the accompanying balance sheets, as of September 30, 2017 and December 31, 2016, respectively.

services.

Revenue Recognition for Arrangements with Multiple Deliverables

The Company considers the individual deliverables in its product offering as separate ~~units of accounting and recognizes deliverables as revenue upon delivery only if (i)~~performance obligations. The transaction price is determined based on the ~~deliverable has standalone~~consideration expected to be received, based either on the stated value ~~and (ii)~~in contractual arrangements or the ~~arrangement includes a general right of return relative~~estimated cash to ~~the delivered item(s) and delivery or performance of the undelivered item(s) is probable and substantially controlled by the Company.~~be collected in non-contracted arrangements. The Company allocates the consideration to the ~~separate units of accounting, unless~~individual performance obligations and recognizes the ~~undelivered elements were~~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 ~~perfunctory and inconsequential. The amount~~performance obligations that are satisfied at a point in time when the customer obtains control of the ~~determined guarantee fair value~~promised good, which typically is ~~allocated in full~~upon shipment for our distributor arrangements and upon receipt for sales directly to the guarantee and the remaining allocable consideration is allocated to other separate units of accounting using the relative selling price method, in which allocation of consideration is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”), or if VSOE and TPE are not available, management’s best estimate of a standalone selling price (“ESP”) for the undelivered elements.

~~The Company offers a cloud-based data management application,~~individual customers. Complementary products, such as t:connect ~~which is made available to customers upon purchase of any of its insulin pumps. In July 2016, the Company received clearance from the FDA to begin offering~~and the Tandem Device Updater, are considered 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 ratably over a ~~Macand PC-compatible tool~~four-year period. When there is no standalone value for the ~~remote update of Tandem insulin pump software. Utilizing Tandem Device Updater,~~complementary product, the Company ~~may from time to time provide future unspecified software upgrades~~determines their value by applying the expected cost plus a margin approach and then allocates the residual to the insulin pump’s essential software. The t:connect service and the embedded right included with qualifying insulin pumps to receive, on a when-and-if-available basis, future unspecified software upgrades relating to the product’s essential software are deemed undelivered elements at the time of the insulin pump sale. Because the Company has neither VSOE nor TPE for these deliverables, the allocation ofpumps. Deferred revenue is based on the Company’s ESP. The Company establishes its ESP based on the estimated cost to provide such services, including consideration for a reasonable profit margin, which is then corroborated by comparable market data. The Company allocates fair value based on management’s ESPrelated to these ~~elements at~~performance obligations that are satisfied over time was included in the ~~time~~following consolidated balance sheet accounts in the amounts shown as of ~~sale and recognizes the revenue over a~~ ~~four-year period, which is the hosting period for t:connect and the period that software upgrades are expected to be provided. At September 30, 2017~~March 31, 2021 and December 31, ~~2016, $1.8 million and $1.6 million, respectively, were recorded as deferred revenue for these undelivered elements. All other undelivered elements at the time~~2020 (in thousands):


	March 31, 2021		December 31, 2020
Deferred revenue	$	6,313	$	5,508
Other long-term liabilities	11,709		10,426
Total	$	18,022	$	15,934

The Company generally provides a four-year warranty on its insulin pumps to ~~end user~~end-user customers and may replace any pumps that do not function in accordance with the product specifications. Insulin pumps returned to the Company may be refurbished and redeployed. Additionally, the Company offers a six-month warranty on disposable cartridges and infusion sets. Estimated warranty costs are recorded at the time of shipment. The Company evaluates the reserve quarterly. Warranty costs are primarily estimated based on the current expected product replacement cost and expected replacement rates ~~based on~~utilizing historical experience. Recently released versions of the pump may not incur warranty costs in a manner similar to previously released pumps, on which the Company initially bases its warranty estimate of newer pumps. The Company ~~evaluates the reserve quarterly and makes~~may make further adjustments ~~when appropriate. Changes~~ to ~~the actual replacement rates or the expected product replacement cost could have a material impact on the Company’s warranty reserve.~~

~~At September 30, 2017 and December 31, 2016,~~ the warranty reserve ~~was $4.8 million~~when deemed appropriate, giving additional consideration to the length of time the pump version has been in the field and ~~$5.7 million, respectively.~~ future expectations of performance based on new features and capabilities that may become available through Tandem Device Updater.

The following table provides a reconciliation of the ~~change~~changes in product warranty liabilities ~~from~~for the three months ended March 31, 2021 and 2020 (in thousands):


	Three Months Ended March 31,
	2021		2020
Balance at beginning of period	$	22,075	$	16,724
Provision for warranties issued during the period	5,896		4,814
Settlements made during the period	(4,256)		(3,390)
Decreases in warranty estimates	(546)		(1,387)
Balance at end of period	$	23,169	$	16,761

As of March 31, 2021 and December 31, ~~2016 through September 30, 2017~~2020, total product warranty reserves of $23.2 million and $22.1 million, respectively, were included in the following consolidated balance sheet accounts (in thousands):

Balance at December 31, 2016
$
5,690

Provision for warranties issued during the period

4,110

Settlements made during the period

(5,240
)
Increases in warranty estimates

190

Balance at September 30, 2017
$
4,750

Current portion
$
2,080

Non-current portion

2,670

Total
$
4,750


	March 31, 2021		December 31, 2020
Other current liabilities	$	9,316	$	8,409
Other long-term liabilities	13,853		13,666
Total warranty reserve	$	23,169	$	22,075

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 Amended and Restated 2013 Stock Incentive Plan ~~(“2013 Plan”)~~(2013 Plan), and ~~shares issued~~the fair value of the employees’ purchase rights under the Company’s 2013 Employee Stock Purchase Plan ~~(“ESPP”)~~(ESPP), using athe Black-Scholes option-pricing model on the date of grant. The Black-Scholes option-pricing model requires the use of ~~subjective~~ assumptions about a number of ~~key~~ variables, including stock price volatility, expected term, dividend yield and risk-free interest ~~rate. For~~rate (see Note 8, “Stockholders’ Equity”). The fair value of restricted stock unit (RSU) awards issued under the Company’s 2013 Plan that vest solely based on service is estimated based on the ~~achievement~~fair market value of ~~service conditions,~~ the ~~Company recognizes expense using~~underlying stock on the ~~straight-line method less estimated forfeitures based on historical experience.~~

date of grant.

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares that were outstanding for the period, without consideration for common stock equivalents.

Diluted ~~net~~ loss per share ~~is calculated by dividing~~reflects the ~~net loss by the sum of the weighted average number of~~potential dilution that would occur if securities exercisable for or convertible into common ~~shares that~~stock were ~~outstanding~~exercised for ~~the period and the weighted-average number of dilutive~~or converted into common ~~share equivalents outstanding for the period determined using the treasury stock method.~~stock. Dilutive common share equivalents are comprised of warrants, stock options outstanding under the Company’s equity incentive plans, unvested RSUs, and ~~shares subject to issuance~~potential awards granted pursuant to the ~~ESPP.~~ESPP, each calculated using the treasury stock method; and shares issuable upon conversion of the senior convertible notes using the if-converted method. For ~~all~~warrants that are recorded as a liability in the accompanying condensed consolidated balance sheets, the calculation of diluted loss per share requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of the warrants and the presumed exercise of the warrants is dilutive to loss per share for the period, an adjustment is made to net loss used in the calculation to remove the change in fair value of the warrants from the numerator for the period. Likewise, an adjustment to the denominator is required to reflect the related dilutive shares, if any, under the treasury stock method. For the three month periods ~~presented,~~ended March 31, 2021 and 2020, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

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

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Common stock warrants

-

99

-

99

Common stock options

8

293

3

262

ESPP

-

13

-

7

8

405

3

368


	Three Months Ended March 31,
	2021	2020
Warrants to purchase common stock	379	609
Options to purchase common stock	5,068	5,710
Unvested restricted stock units	133	N/A
Awards granted under the ESPP	78	198
Convertible senior notes (if-converted)	2,554	N/A
	8,212	6,517

Recent Accounting Pronouncements

In ~~August~~June 2016, the Financial Accounting Standards Board ~~(“FASB”)~~(FASB) issued ~~new guidance that clarifies how entities should classify certain cash receipts~~Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which modifies the measurement and ~~cash payments on the statement~~recognition of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance is effective for public companies for fiscal years beginning after December 15, 2017, and interim periods within those years. The Company does not believe the adoption of the standard will have a material impact on the Company’s statement of cash flow.

~~In June 2016, FASB~~ ~~issued a new~~ credit ~~loss standard that changes the impairment model~~losses for most financial assets and certain other instruments. The new standard requires the use of forward-looking expected credit loss models based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new standard. The new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income (loss) rather than reducing the carrying amount under the prior, other-than-temporary-impairment model. The new standard must be adopted using the modified retrospective approach and was effective for the Company starting in the first quarter of 2020. The Company determined there was no cumulative-effect transition adjustment to the opening balance of accumulated deficit for recognition of additional credit losses upon adoption of this standard as of January 1, 2020 based on its outstanding accounts receivable, the composition and credit quality of its short-term investments, and current economic conditions as of that date.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. ASU 2019-12 is effective for public business entities for ~~annual periods~~fiscal years beginning after December 15, ~~2019, and~~2020, including interim periods within those ~~years. Early~~fiscal years, and early adoption is ~~permitted for all entities~~ ~~for annual periods beginning after December 15, 2018, and interim periods within those years~~.permitted. The Company isearly adopted the new guidance in the ~~process~~second quarter of ~~assessing~~2020. As a result, the ~~impact~~Company recognized, on a prospective basis, $13,000 of income tax expense in the ~~adoption~~second quarter of 2020 upon the ~~standard~~reversal of tax benefits recorded in the first quarter of 2020 related to unrealized gains on ~~its financial statements.~~

short-term investments.

In ~~March 2016,~~June 2020, the FASB issued ASU ~~2016-09, Compensation - Stock Compensation (Topic 718) (“ASU 2016-09”)~~No. 2020-06, Accounting for Convertible Instruments and Contracts in

an Entity’s Own Equity, which is intended to simplify ~~several areas of~~the accounting for ~~share-based payment arrangements. The amendments in this update cover such areas as~~convertible instruments. This new guidance eliminates certain models that require separate accounting for embedded conversion features, and eliminates certain of the ~~recognition~~ of excess tax benefits and deficiencies, the classification of those excess benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualifyconditions for equity classification for contracts in an entity’s own equity. Accordingly, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and ~~the classification~~recognition as derivatives. The new guidance can be adopted through either a modified retrospective method of ~~those taxes paid on the statement~~transition or a fully retrospective method of ~~cash flows.~~transition. ASU ~~2016-09~~2020-06 is effective for public business entities for fiscal years beginning after December 15, ~~2016, and~~2021, including interim periods within those annual periods. The Company adopted this standard in the first quarter of 2017. The Company had excess tax benefits for which a benefit could not previously be recognized of approximately $656,000 as of December 31, 2016. Upon adoption, the balance of the unrecognized excess tax benefits was reversed with the impact recorded to (accumulated deficit) retained earnings, including any change to the valuation allowance as a result of the adoption. Due to the full valuation allowance on the U.S. deferred tax assets as of December 31, 2016, there was no impact to the financial statements as a result of this adoption.

In February 2016, FASB issued final guidance for lease accounting. The new guidance requires lessees to put most leases on their balance sheet but to recognize expenses on their income statement in a manner similar to current accounting principles. The new guidance also eliminates the current real estate-specific provisions for all entities. The standard is effective for public companies for annual periods beginning after December 15, 2018, and interim periods within thosefiscal years. Early adoption is permitted for ~~all entities.~~fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company ~~is in~~elected to early adopt the ~~process~~new standard on January 1, 2021 using the modified retrospective method, and recorded a net reduction to accumulated deficit of ~~assessing~~$9.0 million, a decrease to additional paid-in capital of $85.8 million, and an increase to convertible senior notes, net - long-term of $76.8 million to reflect the impact of the ~~adoption of the standard on its financial statements.~~

In May 2014, FASB and the International Accounting Standards Board issued a comprehensive new revenue recognition standard (“Revenue from Contracts with Customers Standard”) that will supersede existing revenue guidance under U.S. GAAP and International Financial Reporting Standards. The Revenue from Contracts with Customers Standard’s core principle is that a company will recognize revenue when it transfers 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. In doing so, companies will need to use more judgment and make more estimates than under current guidance. The Revenue from Contracts with Customers Standard will be effective for the Company beginning in its first quarter of 2018, and early adoption is permitted.

Subsequently, FASB issued the following standards related to Revenue from Contracts with Customers Standard: Principal versus Agent Considerations; Identifying Performance Obligations and Licensing; and Narrow-Scope Improvements and Practical Expedients (collectively, the “new revenue standards”accounting change (see Note 7, “Convertible Senior Notes”). The new revenue standards may be applied retrospectively to each prior period presented (full retrospective method) or retrospectively with the cumulative effect recognized as of the date of adoption (the modified retrospective method). The Company currently expects to adopt the new revenue standards in the first quarter of 2018 utilizing the modified retrospective method. The Company currently believes that the adoption will not have a material impact on the recognition of revenues for the sale of its products through third-party distributors and insurance payors with whom it has contractual arrangements, which generally comprise approximately 99% of its sales. Additionally, the Company has given consideration to the accounting for warranty and commissions and does not anticipate a material change to its current method of expense recognition. As of September 30, 2017, the Company has not determined the full impact the adoption of the new revenue standard may have on its reported revenue or results of operations.

3. Short-Term Investments

The Company invests in ~~investment~~marketable securities ~~principally~~consisting of debt instruments of the U.S. Government, and financial institutions and corporations with strong credit ratings. The following represents a summary of the estimated fair value of short-term investments ~~at September 30, 2017~~as of March 31, 2021 and December 31, ~~2016~~2020 (in thousands):

At September 30, 2017

Maturity
(in years)

Amortized
Cost

Unrealized
Gain

Unrealized
Loss

Estimated
Fair Value

Trading securities:

Mutual funds held for nonqualified deferred compensation plan participants

$
416

$
43

$
—

$
459

Total

$
416

$
43

$
—

$
459


At March 31, 2021	Maturity (in years)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
Available-for-sale securities:
Commercial paper	Less than 1	$	126,705	$	8	$	(2)	$	126,711
U.S. Government-sponsored enterprise	Less than 2	56,028		24		(6)		56,046
U.S. Treasury securities	Less than 1	140,183		14		0		140,197
Corporate debt securities	Less than 2	66,684		7		(13)		66,678
Supranational bonds	Less than 2	3,015		0		(1)		3,014
Total		$	392,615	$	53	$	(22)	$	392,646

At December 31, 2016

Maturity
(in years)

Amortized
Cost

Unrealized
Gain

Unrealized
Loss

Estimated
Fair Value

Available-for-sale investment securities:

Commercial paper

Less than 1

$
8,483

$
1

$
(2
)

$
8,482

Trading securities:

Mutual funds held for nonqualified deferred compensation plan participants

$
354

$
26

$
(2
)

$
378

Total

$
8,837

$
27

$
(4
)

$
8,860


At December 31, 2020	Maturity (in years)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
Available-for-sale securities:
Commercial paper	Less than 1	$	108,892	$	5	$	(1)	$	108,896
U.S. Government-sponsored enterprise	Less than 2	52,330		21		(1)		52,350
U.S. Treasury securities	Less than 2	143,244		12		(2)		143,254
Corporate debt securities	Less than 2	85,788		48		(13)		85,823
Total		$	390,254	$	86	$	(17)	$	390,323

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 periodically reviews the portfolio of available-for-sale debt securities 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 March 31, 2021 were not significant and were due to changes in interest rates, including credit spreads from perceived increased credit risks as a result of the COVID-19 global pandemic. 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 that are 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 has not recognized any impairment losses related to its available-for-sale debt securities at March 31, 2021.

4. ~~Inventory~~

~~Inventory~~Accounts Receivable and Inventories

Accounts receivable consisted of the following ~~at September 30, 2017~~(in thousands):


	March 31, 2021		December 31, 2020
Accounts receivable	$	77,232	$	86,052
Less: allowance for credit losses	(3,559)		(3,857)
Accounts receivable, net	$	73,673	$	82,195

Allowance for Credit Losses

The following table provides a reconciliation of the changes in the estimated allowance for expected accounts receivable credit losses for the three months ended March 31, 2021 and 2020 (in thousands):


	Three Months Ended March 31,
	2021		2020
Balance at beginning of the period	$	3,857	$	3,304
Provision for expected credit losses	143		862
Write-offs and adjustments, net of recoveries	(441)		(782)
Balance at end of the period	$	3,559	$	3,384

Inventories consisted of the following as of March 31, 2021 and December 31, ~~2016~~2020 (in thousands):

5. Fair Value Measurements

Authoritative guidance on fair value measurements defines fair value, ~~establishes~~and provides a consistent framework for measuring fair value and ~~expands~~for disclosures ~~for~~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.

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 ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

Fair Value Measurements at

September 30, 2017

(Level 1)

(Level 2)

(Level 3)

Assets

Cash equivalents ⁽¹⁾

$
16,527

$
16,527

$
—

$
—

Mutual funds held for nonqualified deferred compensation plan participants ⁽²⁾

459

459

—

—

Total assets

$
16,986

$
16,986

$
—

$
—

Liabilities

Deferred compensation ⁽²⁾

$
459

$
459

$
—

$
—

Total liabilities

$
459

$
459

$
—

$
—

Fair Value Measurements at

December 31, 2016

(Level 1)

(Level 2)

(Level 3)

Assets

Cash equivalents ⁽¹⁾

$
39,941

$
39,941

$
—

$
—

Commercial paper

8,482

—

8,482

—

Mutual funds held for nonqualified deferred compensation plan participants ⁽²⁾

378

378

—

—

Total assets

$
48,801

$
40,319

$
8,482

$
—

Liabilities

Deferred compensation ⁽²⁾

$
378

$
378

$
—

$
—

Total liabilities

$
378

$
378

$
—

$
—

~~(1)~~

Generally, cash equivalents include money market funds and investments with a maturity of three months or less from the date of purchase. This asset is included as a component of cash and cash equivalents on the balance sheet, of which $10.0 million is classified as restricted cash – long-term at September 30, 2017.

~~(2)~~

~~The~~ deferred compensation plan is directed by the Company and structured as a Rabbi Trust for the benefit of certain executives and non-employee directors. The investment assets of the Rabbi Trust are valued using quoted market prices multiplied by the number of shares held in each trust account. The related deferred compensation liability represents the fair value of the investment assets.


			Fair Value Measurements at March 31, 2021
			(Level 1)		(Level 2)		(Level 3)
Assets
Cash equivalents(1)	$	110,616	$	110,616	$	0	$	0
Commercial paper	126,711		0		126,711		0
U.S. Government-sponsored enterprise	56,046		0		56,046		0
U.S. Treasury securities	140,197		140,197		0		0
Corporate debt securities	66,678		0		66,678		0
Supranational bonds	3,014		0		3,014		0
Total assets	$	503,262	$	250,813	$	252,449	$	0

Liabilities
Common stock warrants	$	2,517	$	0	$	0	$	2,517

Total liabilities	$	2,517	$	0	$	0	$	2,517


			Fair Value Measurements at December 31, 2020
			(Level 1)		(Level 2)		(Level 3)
Assets
Cash equivalents(1)	$	87,300	$	87,300	$	0	$	0
Commercial paper	108,896		0		108,896		0
U.S. Government-sponsored enterprise	52,350		0		52,350		0
U.S. Treasury securities	143,254		143,254		0		0
Corporate debt securities	85,823		0		85,823		0
Total assets	$	477,623	$	230,554	$	247,069	$	0

Liabilities
Common stock warrants	$	14,261	$	0	$	0	$	14,261
Total liabilities	$	14,261	$	0	$	0	$	14,261

(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. ~~There~~

The Company’s Level 3 liabilities at March 31, 2021 and December 31, 2020 include the remaining Series A warrants issued by the Company in connection with the public offering of common stock in October 2017, and which expire in October 2022. As of March 31, 2021 and 2020, there were ~~no transfers between Level 1~~Series A warrants outstanding to purchase 29,700 shares and ~~Level 2 assets during~~415,200 shares, respectively, of the ~~nine months ended September 30, 2017.~~

Company’s common stock (see Note 8, “Stockholders’ Equity”).

Table of contents

The Company recorded $1.2 million as guarantee liabilities in other current liabilities on the accompanying condensed balance sheet at December 31, 2016. There were no guarantee liabilities at September 30, 2017. Guarantees were recorded as a reduction of revenue in the statement of operations and other comprehensive loss. Guarantees are not measured at fair value on a recurring basis, and therefore are not included in the tables above. Guarantees are classified within Level 3 of the fair value hierarchy. The estimated fair value of the guarantees is based on various economic and customer behavioral assumptions, including the probability that a trade-in right will be exercised, the specified trade-in amount, the expected fair value of the used t:slim G4 Pump at trade-in and the expected sales price of t:slim X2 (see Note 2, “Summary of Significant Accounting Policies – Revenue Recognition”). Changes in the probability that a trade-in right will be exercised have the most significant impact on the estimate ofreassesses the fair value of the ~~liabilities.~~

In ~~connection~~outstanding Series A warrants at each reporting date utilizing a Black-Scholes pricing model. Variables used in the pricing model include the closing market price of the Company’s common stock at the balance sheet date, and estimates of stock price volatility, dividend yield, expected warrant term and risk-free interest rate. The Company develops its estimates based on publicly available historical data. A significant increase (decrease) in any of these inputs in isolation, particularly the market price of the Company’s common stock, would have resulted in a significantly higher (lower) fair value measurement. The assumptions used to estimate the fair values of the outstanding Series A warrants at March 31, 2021 and December 31, 2020 are presented below:


	Series A Warrants
	March 31, 2021		December 31, 2020
Risk-free interest rate	0.1	%	0.1	%
Expected dividend yield	0.0	%	0.0	%
Expected volatility	54.0	%	55.3	%
Expected term (in years)	1.5		1.8

The following table presents a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
	2021		2020
Balance at beginning of the period	$	14,261	$	23,509
Loss recognized from the change in fair value of common stock warrants	690		1,922
Decrease in fair value from warrants exercised during the period	(12,434)		(141)
Balance at end of the period	$	2,517	$	25,290

Of the loss recognized from the change in fair value of common stock warrants for the three months ended March 31, 2021 and 2020, a gain of $0.2 million and a loss of $1.9 million was attributable to warrants outstanding as of March 31, 2021 and 2020, respectively.

6. Leases

The Company’s leases consist of operating leases for general office space, laboratory, manufacturing and warehouse facilities, and equipment. These noncancellable operating leases have initial lease terms ranging from one year to seven years. Leases with an initial term of 12 months or less are expensed as incurred and are not recorded as right-of-use assets on the ~~Term Loan Agreement,~~consolidated balance sheets. 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. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option that is reasonably certain to be exercised.

The Company recognizes lease expense for these leases on ~~March 7, 2017,~~a straight-line basis over the lease term. Because the Company’s leases do not provide an implicit interest rate, the Company ~~issued ten-year warrants~~uses its incremental borrowing rate based on the information available at the lease Commencement Date in determining the present value of future lease payments. The Company used the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that date.

In March 2021, the Company entered into a second amendment (Second Amendment) to its lease agreement covering approximately 59,013 square feet of general administrative office space (Existing Premises) located on Vista Sorrento Parkway, in San Diego, California (Vista Sorrento Lease). The Second Amendment expanded the Existing Premises by adding approximately 14,916 square feet of general administrative office space (Expansion Space), and extended the lease term for the Existing Premises through January 2028. The Expansion Space lease Commencement Date occurred in March 2021, and the lease term expires in January 2028. The Company has 2 options to extend the term of the Vista Sorrento Lease, covering both the Existing Premises and the Expansion Space, each option providing for an additional period of five years. The Company recognized right-of-use leased assets and corresponding operating lease liabilities of $15.1 million on the consolidated balance sheet in the first quarter of 2021 related to the Second Amendment.

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The Company’s lease cost recorded in the condensed consolidated statements of operations was as follows (in thousands):


	Three Months Ended March 31,
	2021		2020
Operating lease cost	$	2,006	$	1,756
Short-term lease cost	22		64
Total lease cost	$	2,028	$	1,820

Maturities of operating lease liabilities at March 31, 2021 were as follows (in thousands):


Years Ending December 31,
2021 (remaining)	$	7,096
2022	9,129
2023	6,856
2024	5,691
2025	5,801
Thereafter	10,654
Total undiscounted lease payments	45,227
Less: amount representing interest	(6,770)
Present value of operating lease liabilities	38,457
Less: current portion of operating lease liabilities	(9,446)
Operating lease liabilities - long term	$	29,011

The weighted-average remaining lease term and weighted-average discount rate for operating leases were as follows:


	March 31, 2021		December 31, 2020
Weighted-average remaining lease term (in years)	5.4		3.6
Weighted-average discount rate used to determine operating lease liabilities	5.6	%	6.6	%

Cash paid for amounts included in the measurement of lease liabilities, representing operating cash flows used for operating leases, was $2.3 million and $1.6 million for the three months ended March 31, 2021 and 2020, respectively.

7. 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 net proceeds from the issuance of the Notes were $244.6 million, net of debt issuance costs and cash used to purchase ~~193,788~~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 prior to 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 ~~exercise~~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 ~~$23.50~~approximately $112.57 (Conversion Price) per share ~~(the “Capital Royalty Warrant”). The Company used the Black-Scholes option-pricing model to calculate the value~~ of the ~~Capital Royalty Warrant of~~ ~~approximately $3.3 million~~.Company’s common stock. The ~~Capital Royalty Warrant was recorded~~conversion rate is subject to customary adjustments for certain events as ~~debt discount and stockholders’ equity, as~~described in the warrants met the definition of an equity instrument. The Black-Scholes option-pricing model requires the use of subjective assumptions about a number of key variables, including stock price volatility, expected term, and risk-free interest rate.

~~6. Term Loan Agreement~~

~~The Company had $82.3 million and $81.1 million of aggregate borrowings outstanding under the Term Loan Agreement, at September 30, 2017 and December 31, 2016, respectively.~~

~~Under the Term Loan Agreement, interest~~Indenture. It is ~~payable at~~ the Company’s ~~option, (i)~~intent and policy to settle conversions through combination settlement, which essentially involves payment in cash ~~at a rate of 11.5% per annum, or (ii) at a rate of 9.5% of the 11.5% per annum in cash and 2.0% of the 11.5% per annum (the “PIK Loan”) to be added~~equal to the principal portion and delivery of shares of common stock for the excess of the ~~loan and subject~~conversion value over the principal portion.

The Company may not redeem the Notes prior to ~~accruing interest. Interest-only payments are due quarterly on March 31, June 30, September 30 and December 31 of each year~~May 6, 2023. The Company has the option to redeem for cash all or any portion of the ~~interest-only payment period, which ends~~Notes on ~~December 31, 2019. The principal balance is due in full at~~or after May 6, 2023 if the ~~end~~last reported sale price of the ~~term~~Company’s common stock has been at least 130% of the ~~loan, which is March 31, 2020 (the “Maturity Date”). The Company had elected to pay interest~~Conversion Price then in ~~cash~~effect for at ~~a rate of 11.5% per annum through September 30, 2015. Beginning October 1, 2015,~~least 20 trading days (whether or not consecutive), including the Company elected to pay interest in cash at a rate of 9.5% per annum and for a rate of 2.0% per annum to be added to the principal of the loan. As a result, $2.3 million was added to the principal of the loan since October 1, 2015, which the Company refers to as PIK Loans.

The term loan is collateralized by all assets of the Company. The principal financial covenants require that the Company attain minimum annual revenues of $80.0 million in 2017 and $95.0 million each year thereafter until the Maturity Date.

~~Pursuant to~~ ~~Amendment No. 3 to~~ ~~Term Loan Agreement (the “Third Amendment”), the Company agreed to pay, on the earlier of (i) the Maturity Date, (ii) the date that the loan under the Term Loan Agreement becomes due, and (iii)~~trading day immediately preceding the date on which the Company ~~makes~~provides notice of redemption, during any 30 consecutive trading day period, at a ~~voluntary pre-payment of the loan, a financing fee~~redemption price equal to ~~3.0%~~100% of the sum of (x) the aggregate amount drawn under the Third Amendment, which is $50.0 million, and (y) any PIK Loans issued in relation to the Third Amendment (collectively, the “Back End Financing Fee”).

~~The~~ audit report of the Company’s independent registered public accounting firm contained in the Annual Report included an explanatory paragraph that describes conditions that raise substantial doubt about the Company’s ability to continue as a going concern. This explanatory paragraph constituted a potential event of default under the Term Loan Agreement. On March 7, 2017, the Company entered into ~~Waiver and Amendment No. 4 to the~~ Term Loan Agreement (the “Fourth Amendment”), which included a limited waiver of the potential event of default that could have resulted from the explanatory paragraph. In consideration for the waiver, the Company agreed to: (i) issue the Capital Royalty Warrant, (ii) increase its restricted cash balance from $2.0 million to $10.0 million, (iii) provide Capital Royalty Partners the same information it makes available to its board of directors, subject to limited exceptions, and (iv) not incur additional third party indebtedness secured solely by accounts receivable, inventory and cash. In addition, the Fourth Amendment includes a covenant requiring the Company to complete financings in which its gross proceeds from the sale of equity securities is at least $30.0 million, no later than January 15, 2018. Furthermore, the Company agreed to increase the Back End Financing Fee to 5.0% of the entire aggregate principal amount of borrowings outstanding, including total PIK Loans issued. The Back End Financing Fee is payable at maturity of the Company’s loans and on 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 prior to 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 5 business day period after any ~~loans~~5 consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for ~~which it makes an optional prepayment,~~each day of that 5 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 ~~be payable~~convert their Notes at any time, regardless of the foregoing circumstances.

Holders of the Notes who convert in connection with ~~certain asset sales~~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 ~~change~~portion of ~~control.~~

Asthe Notes at a price equal to 100% of ~~September 30, 2017~~the principal amount of the Notes, plus any accrued and ~~December 31, 2016, respectively,~~unpaid interest.

Initially, in accounting for the issuance of the Notes, the Company ~~had accrued $4.1~~separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar debt instruments, which do not have an associated convertible feature. The carrying amount of the equity component representing the conversion option for the Notes was $85.8 million and ~~$1.5 million for the Back End Financing Fee in other long-term liabilities and as contra-debt in notes payable-long-term on the accompanying condensed balance sheets.~~

~~The Company evaluated execution of the Fourth Amendment~~was recorded as a ~~modification for accounting purposes and concluded that it did not constitute a modification because the present value~~debt discount, to be amortized to interest expense at an effective interest rate of ~~the future cash flows under the Fourth~~ ~~Amendment~~ ~~did not exceed the present value of the future cash flows under the previous terms by more than 10%~~9.9%. ~~The Back End Financing Fee, the value of the Capital Royalty Warrant, and the remaining balance~~In addition, the Company allocated $2.7 million of debt issuance costs to the equity component and the remaining debt ~~discount~~issuance costs of $6.1 million were allocated to the ~~loan are~~liability component, to be amortized to interest expense under the effective interest rate method.

On January 1, 2021, the Company early adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which is intended to simplify the accounting for convertible instruments. The ASU eliminates the cash conversion feature models in ASC 470-20, Debt with Conversion and Other Options, which required an issuer of certain convertible debt to separately account for embedded conversion features as a component of equity. Instead, an issuer will account for these securities as a single unit of account, unless the conversion feature meets certain criteria. The Company adopted the new standard using the modified retrospective method, and recorded a net reduction to accumulated deficit of $9.0 million, a decrease to additional paid-in capital of $85.8 million, and an increase to convertible senior notes, net - long-term of $76.8 million to reflect the impact of the accounting change. The Notes are now accounted for as a single liability measured at amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

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The liability and equity components of the Notes consisted of the following (in thousands) at March 31, 2021 and December 31, 2020:


	March 31, 2021		December 31, 2020
Liability:
Principal amount	$	287,500	$	287,500
Unamortized debt discount and debt issuance costs	(7,332)		(84,516)
Net carrying amount	$	280,168	$	202,984
Carrying amount of the equity component	$	0	$	85,803

As of March 31, 2021, the unamortized debt issuance costs of $7.3 million associated with the Notes will be amortized to interest expense, at an effective interest rate of 2.2%, over the remaining term of the ~~Term Loan Agreement using~~Notes of approximately 4.1 years.

The following table details interest expense recognized related to the ~~effective interest method.~~

~~7. Stockholders’ Equity~~

~~Public Offering~~

InNotes for the ~~first quarter~~three months ended March 31, 2021 (in thousands):


	Three Months Ended March 31, 2021
Contractual interest expense	$	1,078
Amortization of debt issuance costs	428
Total interest expense	$	1,506

The Notes will have a dilutive effect to the extent the average market price per share of ~~2017,~~ the ~~Company completed a public offering of 1,850,000 shares of its~~Company’s common stock atfor a ~~public offering price~~given reporting period exceeds the Conversion Price of ~~$12.50 per share. The gross proceeds to~~$112.57. As of March 31, 2021, the ~~Company from~~“if-converted value” did not exceed the ~~offering were $23.1 million, before deducting underwriting discounts and commissions and other offering expenses payable by~~principal amount of the ~~Company.~~

~~At The Market (ATM) Program~~

Notes.

Capped Call Transactions

In ~~July 2017,~~connection with the issuance of the Notes, the Company entered into ~~an Equity Distribution Agreement implementing an ATM program for aggregate gross proceeds~~Capped Call Transactions in May of 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 ~~$15.0 million. During~~a Conversion Price of $173.18 on any conversion of the ~~three~~ ~~months ended September 30, 2017,~~Notes, or to offset any cash payments the Company ~~sold 464,108 shares~~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 ~~ATM program at prices ranging from $5.64 to $10.54.~~ ~~The gross proceeds~~terms of the Capped Call Transactions. Conditions that cause adjustments to the ~~Company from~~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. As these ~~sales were $4.3 million, before deducting underwriting discounts~~transactions meet certain criteria under the applicable accounting guidance, the Capped Call Transactions are recorded in stockholders' equity and ~~commissions~~are 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 consolidated balance sheet and ~~other offering expenses payable by the Company~~.

will not be remeasured.

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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 September 30, 2017~~as of March 31, 2021 (in thousands):


Shares reserved for issuance upon conversion of Convertible Senior Notes		2,554
Shares underlying outstanding warrants		254	~~293~~
Shares underlying outstanding stock options		5,772	~~933~~
Shares underlying unvested restricted stock units		136
Shares authorized for issuance pursuant to awards granted under the ESPP		1,389
Shares authorized for future equity award grants		1,957	39
~~Shares authorized for issuance as ESPP awards~~		12,062	—
	~~1,265~~

Common Stock Warrants

Warrants outstanding to purchase shares of the Company's common stock as of March 31, 2021 were as follows:


Issue Date	Exercise Price Per Share		Warrants Outstanding	Expiration Date
October 2017	$	3.50	29,700	October 2022
March 2017	$	23.50	193,788	March 2027
August 2011 - August 2012	$	73.73	30,861	August 2021 - August 2022
			254,349

Each warrant allows the holder to purchase 1 share of the Company's common stock at the exercise price per share of the respective warrant. The Company issued ~~24,408~~125,000 and 2,320 shares of its common stock, respectively, upon the exercise of warrants during the three months ended March 31, 2021 and March 31, 2020.

Stock Plans

The Company issued 110,424 and 672,442 shares of its common stock, respectively, upon the exercise of stock options during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021 and ~~issued 14,897 shares of its common stock upon the exercise of stock options during the year ended December 31, 2016.~~

2020.

The ESPP enables eligible employees to purchase shares of the Company’s common stock using their ~~after tax~~after-tax payroll deductions, subject to certain conditions. ~~The~~Generally, offerings under the ESPP ~~consists~~consist of a two-year offering period with ~~four~~4 six-month purchase periods which begin in May and November of each year. There were ~~38,929~~ 0 shares of ~~the Company’s~~ common stock purchased under the ESPP during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021 and ~~69,502~~ 2020.

Stock-Based Compensation

During the three months ended March 31, 2021 and 2020, the Company granted options to purchase 115,400 and 229,911 shares of common stock under the 2013 Plan, respectively. These options have an exercise price equal to the closing price of the Company’s common stock ~~purchased under~~on the ~~ESPP~~applicable award date, and generally vest as to 25% of the underlying shares on the first anniversary of the award, with the balance of the options vesting monthly over the following three years.

The Company also granted 3,208 restricted stock units (RSUs) during the ~~year~~three months ended ~~December~~March 31, ~~2016.~~

~~The Company announced~~2021. These RSUs have a grant value equal to the ~~suspension~~closing price of the ~~ESPP as~~Company’s common stock on the award date, and vest in annual installments over a period of ~~May 16, 2017 due to a lack~~three years.

Table of available shares. The suspension was accounted for as a cancellation of an award with no consideration. The previously unrecognized compensation cost as of the suspension date of $2.4 million was fully expensed during the second quarter of 2017.

~~Stock-Based Compensation~~

contents

The assumptions used in the Black-Scholes option-pricing model ~~are~~were as follows:

	Stock Option
	Three Months Ended						Nine Months Ended							Stock Options
	September 30,						September 30,							Three Months Ended March 31,
	2017			2016			2017			2016				2021			2020
Weighted average grant date fair value (per share)	$	3.00		$	35.00		$	5.10		$	37.80		Weighted average grant date fair value (per share)	$	60.98		$	43.40
Risk-free interest rate		2.0	%		1.3	%		1.9	%		1.4	%	Risk-free interest rate	0.9		%	1.1		%
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%	Expected dividend yield	0.0		%	0.0		%
Expected volatility		60.3	%		56.1	%		60.0	%		55.5	%	Expected volatility	75.6		%	72.5		%
Expected term (in years)		6.1			6.1			6.1			6.1		Expected term (in years)	6.1			6.1

ESPP

Nine Months Ended

September 30,

2017⁽¹⁾

2016

Weighted average grant date fair value (per share)
N/A

$
26.90

Risk-free interest rate
N/A

0.6
%
Expected dividend yield
N/A

0.0
%
Expected volatility
N/A

56.9
%
Expected term (in years)
N/A

1.3

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.

~~(1)~~

~~There were no grants made pursuant to the ESPP during the three and nine months ended September 30, 2017.~~

The total stock-based compensation expense capitalized as part of the cost of ~~inventory~~the Company’s inventories was ~~$0.3~~$0.7 million and ~~$0.2~~$0.6 million at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, respectively.

The Company recognized an income tax benefit of $0.1 million on a pre-tax loss of $5.2 million for the three months ended March 31, 2021, compared to income tax expense of $0.1 million on a pre-tax loss of $14.8 million for the three months ended March 31, 2020. The income tax benefit for the three months ended March 31, 2021 was primarily attributable to the pre-tax loss position and excess tax benefits from stock compensation recorded discretely during the quarter. Income tax expense for the three months ended March 31, 2020 was primarily attributable to state and foreign income tax expense as a result of current taxable income in those jurisdictions.

For the three months ended March 31, 2021, the Company calculated the provision (benefit) for income taxes by applying an estimate of the annual effective tax rate for the full year to ordinary income (loss) adjusted by the tax impact of discrete items. For the three months ended March 31, 2020, the Company calculated the provision for income taxes using a discrete effective tax rate method as the annual effective tax rate method would not provide a reliable estimate.

The Company continues to maintain a full valuation allowance against its net deferred tax assets as of March 31, 2021, based on the current assessment that it is not more likely than not these future benefits will be realized before expiration.

10. Business Segment and Geographic Information

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 cartridges and infusion sets for the storage and delivery of insulin. The Company views its operations and manages its business as 1 segment and a single reporting unit because key operating decisions and resource allocations are made by the CODM using consolidated financial data.

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, including in select European countries, Canada, Australia, New Zealand, and South Africa. In the United States and Canada, the Company utilizes 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 months ended March 31, 2021 and 2020, 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.


	Three Months Ended March 31,
	2021		2020
United States	$	103,339	$	79,546
International	37,698		18,380
Total Sales	$	141,037	$	97,926

Sales to distributors accounted for 68% and 69% of the Company’s total domestic sales for the three months ended March 31, 2021 and 2020, respectively. Sales to distributors accounted for 96% and 93% of the Company’s total international sales for the three months ended March 31, 2021 and 2020, respectively.

11. Commitments and Contingencies

Legal and Regulatory Matters

In April 2020, the Company was named as a defendant in 4 federal class action lawsuits relating to a data breach it experienced in January 2020, each of which was subsequently dismissed.

In addition, in May 2020 the Company was named as a defendant in 3 California state court class action lawsuits arising from the same data breach. Collectively, these lawsuits seek statutory, compensatory, actual, and punitive damages; equitable relief, including restitution; pre- and post-judgment interest; injunctive relief; and attorney fees, costs, and expenses from the Company. On July 24, 2020, these 3 pending 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 alleges violations of the Confidentiality of Medical Information Act (CMIA), California Consumer Privacy Act (CCPA), California’s Unfair Competition Law (UCL), and breach of contract. The Company filed a demurrer seeking dismissal of all claims, which was heard by the Court on October 27, 2020, and which resulted in the following outcome: (i) the demurrer of the CMIA claim was denied; (ii) the demurrer of the CCPA claim was sustained; and (iii) the demurrer of the UCL and contract claims were sustained with leave to amend the pending complaint. A second demurrer was heard by the Court on March 29, 2021 with the following outcome: (i) the demurrer of the CMIA claim was denied; and (ii) the demurrer of the UCL and contract claims were narrowed in scope to dismiss three plaintiffs for either failing to allege cognizable damages or injuries-in-fact, resulting in two remaining plaintiffs.

In September 2020, the Company was named as a defendant in a lawsuit entitled Buck Walsh, individually and on behalf of others similarly situated v. Tandem Diabetes Care, Inc., which was filed in the Superior Court of the State of California in the County of San Diego. The alleged violations include business and professions code and labor code violations for failure to compensate wages, unpaid meal and rest periods, and failure to reimburse for necessary business-related expenses. The proposed class of plaintiffs includes hourly paid or non-exempt employees of the Company who were employed from April 6, 2016 through the date of adjudication.

Although the Company intends to vigorously defend against these claims, there is no guarantee that the Company will prevail. The Company presently is unable to determine the ultimate outcome of these lawsuits or determine the amount (or range) of possible losses associated with the lawsuits.

From time to time, the Company ~~may be subject to~~is involved in various other legal proceedings, regulatory ~~encounters~~matters, and other disputes or ~~other matters~~claims arising infrom or related to the ~~ordinary~~normal course of our business activities, including actions with respect to intellectual property, data privacy, employment, regulatory, product liability and contractual matters. In connection with these proceedings or matters, the Company regularly assesses ~~on a regular basis,~~ the probability and ~~range~~amount (or range) of possible ~~loss~~losses based on the developments in these proceedings or matters. A liability is recorded in the consolidated financial statements if it is determined that it is probable that a loss has been incurred, and that the amount ~~or range~~(or range) of the loss can be reasonably estimated. Because of the uncertainties related to ~~the occurrence, amount, and range of loss on~~ any pending ~~actions,~~proceedings or matters, the Company is currently unable to predict their ultimate outcome and, with respect to any ~~pending litigation~~proceeding or ~~claim~~matter where no liability has been accrued, to make a ~~meaningful~~reasonable estimate of the ~~reasonably~~ possible loss or(or range of ~~loss~~loss) that could result from an ~~unfavorable~~adverse outcome. ~~At September 30, 2017~~

As of March 31, 2021 and December 31, ~~2016,~~2020, there were no0 legal proceedings, regulatory ~~encounters~~matters, or other ~~matters~~disputes or claims for which ~~the negative outcome~~a material loss was considered probable or for which the amount ~~or range~~(or range) of loss was reasonably estimable.

~~9. Subsequent Event~~

~~On October 9, 2017,~~ 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 ~~effected a 1-for-10 reverse stock split~~because of ~~its issued and outstanding shares of common stock. The par value per share and the authorized number of shares of common stock and preferred stock were not adjusted~~ as a result of ~~the reverse stock split. All common stock share~~defense and ~~per-share amounts for all periods presented in these condensed financial statements have been adjusted to reflect the reverse stock split. The number~~settlement costs, diversion of ~~authorized shares of common stock remains at 100 million shares.~~

~~On October 17, 2017, the Company completed a registered public offering of 4,630,000 shares of its common stock, Series A warrants to purchase up to 4,630,000 shares of its common stock~~management time and Series B warrants to purchase up to 4,630,000 shares of its common stock, at a public offering price of $3.50 per share and accompanying warrants. The gross proceeds to the Company from the offering were approximately $16.2 million, before deducting underwriting discounts and commissionsresources, and other ~~offering expenses payable by the Company. The Series A warrants have an exercise price~~factors.

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 ~~period~~quarter ended ~~September 30, 2017, or this Quarterly Report.~~

March 31, 2021 (Quarterly Report).

This Quarterly Report contains forward-looking statements within the meaning of the federal securities ~~laws.~~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, ~~(including our ability to continue as a going concern),~~ 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, the impact of the COVID-19 global pandemic, integration of acquisitions and partner technologies, and the application of accounting guidance. We caution you that the foregoing list may not include all of the forward-looking statements made in this Quarterly Report.

Our forward-looking statements are based on our management’s current assumptions and expectations about future events and trends, which affect or may affect our business, strategy, operations or financial performance. Although we believe that these forward-looking statements are based upon reasonable assumptions, they are subject to numerous known and unknown risks and uncertainties and are made in light of information currently available to us. Our actual financial condition and results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below in the section entitled “Risk Factors” in Part II, Item 1A, and elsewhere in this Quarterly ~~Report.~~Report, as well as 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 ~~from~~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~~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.

We are a medical device company with ~~an innovative~~a positively different approach to the design, development and commercialization of products for people with insulin-dependent diabetes. Diabetes management can vary greatly from person-to-person, creating multiple market segments based on clinical needs and personal preferences. We aim to improve and simplify the lives of all people living with insulin-dependent diabetes and those of their healthcare providers, by delivering innovative hardware and software solutions, as well as best-in-class customer support. Our goal is to lead in insulin therapy management by building a robust ecosystem and portfolio of data-driven products and services around our flagship insulin pumps. We believe ~~that~~ our competitive advantage is rooted in our ~~unique~~ consumer-focused approach, and ~~proprietary~~the incorporation of modern and innovative technology ~~platform. This allows us to deliver innovative hardware~~into our product offerings. Our manufacturing, sales and ~~software solutions to meet the various needs and preferences of people with diabetes and their healthcare providers. We manufacture and sell insulin~~support activities principally focus on our flagship pump ~~products in the United States that are designed to address large and differentiated segments of the insulin-dependent diabetes market. Our insulin pump products include:~~

platform, the t:slim X2 Insulin Delivery System ~~or t:~~(t:slim ~~X2,~~X2) and our ~~next-generation flagship~~complementary product ~~that is updatable~~offerings.

Since our initial commercial launch, we have been able to rapidly innovate and ~~designed~~bring more products to ~~display Dexcom G5 continuous glucose monitoring, or CGM, sensor information directly on the pump Home Screen; and~~

~~the t:flex Insulin Delivery System, or t:flex, for people with greater insulin needs.~~

market than our competitors. We have shipped more than 60,000 insulin pumps since our initial launch in August 2012, of which nearly 56,000 pumps have been shipped within the four years ended September 30, 2017. For the past three consecutive years, our company has been ranked #1 bycommercially launched seven insulin pump ~~users~~configurations in the United States ~~for customer support in an independent survey by dQ&A, a leading diabetes research firm.~~

since 2012 and three insulin pump configurations outside the United States since 2018. Today, our software-updatable t:slim X2 hardware platform represents 100% of our new pump shipments.

Our simple-to-use t:slim X2 is based on our proprietary technology platform and is the smallest durable insulin pump available. We have ~~successfully launched five insulin~~commercially offered our pump ~~products, beginning~~technology integrated with ~~the commercialization~~three generations of our first pump, the t:slim Insulin Delivery System, or t:slim, in August 2012. During 2015, we commenced commercial sales of two additional insulin pumps: t:flex and the t:slim G4 Insulin Delivery System, or t:slim G4, the firstDexcom’s continuous glucose monitoring ~~or CGM, enabled pump with touchscreen simplicity. In October 2016, we commenced commercial sales of~~(CGM) sensors. The t:slim X2 is the only pump on which remote software updates have been commercially available in the United States. This experience, which offers and ~~discontinued new sales of t:slim. In August 2017, we commenced commercial sales of t:slim X2 with Dexcom G5 Mobile CGM integration and discontinued new sales of t:slim G4.~~

~~Our insulin pumps are compatible with the Tandem Device Updater, a revolutionary new tool that allows pump users to update their pumps’~~supports different software updates quickly and easily from a personal ~~computer. Remote updatability for insulin pump software is a unique feature not available in competitive pump offerings, meaning~~computer through the use of our revolutionary tool referred to as Tandem Device Updater (TDU), provides us with a unique competitive advantage. Two of our ~~customers~~updates provided our users access to ~~new~~our automated insulin delivery (AID), algorithms, Basal-IQ technology and ~~enhanced features faster than~~Control-IQ technology. Basal-IQ technology launched in August 2018 and is a predictive low glucose suspend feature that is designed to temporarily suspend insulin delivery to help reduce the ~~industry has been able~~frequency and duration of hypoglycemic events. Control-IQ technology launched in January 2020 and is an advanced hybrid-closed loop feature, designed to help increase a user's time in their targeted glycemic range. It is the ~~past. Its~~ first and only system cleared ~~use~~ by the U.S. Food and Drug Administration ~~or FDA, was~~(FDA) to ~~update t:slim Pumps purchased before April 2015~~deliver automatic correction boluses in addition to adjusting insulin to help prevent high and low blood sugar. Outside the ~~latest software. In August 2017,~~United States we ~~received FDA approval to permit~~began selling t:slim X2 ~~customers to update their pumps’ software to allow integration~~ with ~~the~~ Dexcom G5 Mobile CGM system. We are currently offering this update free of charge to our 12,000 customers that purchased a t:slim X2 prior to us receiving FDA approval for G5 integration. As of September 30, 2017, approximately one third of these customers have elected to update their pump. Of the t:slim X2 Pump users who have updated their pump’s software, more than 85% indicated they were satisfied or extremely satisfied with the update process. In the future, the Tandem Device Updater has the potential to enable users to add other new features and functionality to their pumps, such as automated insulin delivery, or AID, algorithms, independent of the typical four-year insurance pump replacement cycle.

~~In September 2017, we commenced commercial sales of products using the t:lock~~^TM Connector, or t:lock, which replaces the standard Luer-lok connector that historically joined an infusion set to our cartridge. t:lock incorporates a smaller inner cavity than the Luer-lok connector, which reduces the amount of insulin usedintegration in the ~~process~~third quarter of 2018, offering no-cost software updates for Basal-IQ technology in the third quarter of 2019 and ~~reduces~~for Control-IQ technology beginning in the ~~time required~~third quarter of 2020. We intend to ~~fill~~continue our scaled launch of Control-IQ technology outside the ~~infusion set tubing.~~

~~Our innovative approach~~United States throughout the remainder of 2021, subject to product design and development is consumer-focused and based on our extensive market research, as we believe the user is the primary decision maker when purchasing an insulin pump. Our market research consists of interviews, focus groups and online surveyssecuring necessary regulatory clearances or approvals. We continue to understand what people with diabetes, their caregivers and healthcare providers are seeking in order to improve diabetes therapy management. We also apply the science of human factors to our design and development process, which seeks to optimize our devices, allowing users to successfully operate our devices in their intended environment.

We developed our products to provide the specific features that people with insulin-dependent diabetes seek in a next-generation insulin pump. Our proprietary pumping technology allows us to design the slimmest and smallest durable insulin pumpsoffer both AID algorithms on the market ~~without sacrificing insulin capacity.~~ to support the varying needs of people living with diabetes.

Our insulin pump ~~platform features~~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 ~~patented Micro-Delivery technology,~~pumps and ~~a miniaturized pumping mechanism~~are replaced every few days, including cartridges for storing and delivering insulin, and infusion sets that ~~draws insulin from a flexible bag within~~connect the pump’s cartridge, rather than relying on a syringe and plunger mechanism. It also features an easy-to-navigate software architecture, a vivid color touchscreen and, with the t:slim X2, it also features an advanced Bluetooth radio capable of communicating with multiple compatible devices, such as a CGM sensor, blood glucose meter or mobile device applications. Our insulin pump ~~platform has~~to a ~~micro-USB connection that supports a rechargeable battery and software updates through the Tandem Device Updater,~~user’s body, as well as ~~uploads to~~a variety of accessories designed for enhanced usability. We also offer t:connect, ~~Diabetes Management Application, or t:connect. t:connect is our custom cloud-based~~a web-based data management application that provides ~~customers~~users, their caregivers and their healthcare providers with a fast, easy and visual way to display diabetes therapy management data from ~~the pump~~our pumps, integrated CGMs and supported blood glucose meters.

In ~~April 2017,~~the four-year period ended March 31, 2021, we ~~launched the t:connect® HCP Portal,~~shipped approximately 239,000 insulin pumps, which is representative of our estimated global installed customer base, assuming the typical four-year reimbursement cycle. Approximately 186,000 of these pumps were shipped to customers in the United States and approximately 53,000 were shipped to international markets.

For the three months ended March 31, 2021 and 2020, our consolidated sales were $141.0 million and $97.9 million, respectively. For the three months ended March 31, 2021 and 2020, our net loss was $5.0 million and $14.9 million, respectively. Worldwide pump sales accounted for 58% and 63% of our total sales for the three months ended March 31, 2021 and 2020, respectively, while pump-related supplies and accessories accounted for the remainder in each year. Our accumulated deficit as of March 31, 2021 and December 31, 2020 was $655.2 million and $659.2 million, respectively. These amounts included $305.8 million and $292.1 million of accumulated non-cash stock-based compensation charges and non-cash charges from the change in fair value of common stock warrants as of March 31, 2021 and December 31, 2020, respectively.

In support of our digital health strategy, we continue to offer and improve t:connect and TDU, and also develop and launch other complementary offerings. In the first quarter of 2020, we began a limited launch in the United States of our first-generation t:connect mobile application, followed by general availability in July 2020. This mobile app wirelessly uploads pump data to our t:connect diabetes management application, receives notification of pump alerts and alarms, and provides a discrete, secondary display of glucose and insulin data. The availability of this mobile app is intended to reduce patient burden and increase healthcare provider office efficiency by reducing the manual and more time-consuming steps historically required for data extraction. In addition, in the second quarter of 2020, we acquired Sugarmate, the developer of a popular app designed to ~~streamline healthcare providers’ use~~help people visualize diabetes therapy data in innovative ways that also connects with many other popular, consumer-friendly devices. We intend to support the Sugarmate app in addition to our t:connect mobile app to provide a wide variety of features intended to benefit a broad community of people with diabetes.

In the ~~original t:connect Application and improve office efficiency.~~

WeUnited States, we have rapidly increased sales since ~~our~~the commercial launch of our first product by expanding our sales, clinical and marketing ~~infrastructure,~~organization, by developing, commercializing and marketing multiple differentiated products that utilize our proprietary technology platform and consumer-focused approach, and by providing strong customer support. InOur sales have further increased following our ~~research, approximately 86%~~scaled product launches in an expanding number of ~~healthcare providers surveyed believe that providing great customer support is~~geographies outside the ~~most important company attribute.~~United States. We believe that by demonstrating our product benefits and the shortcomings of existing insulin therapies, more people will choose our insulin pumps for their therapy needs, allowing us to further penetrate and expand the ~~market.~~market worldwide. In addition, we believe publications, such as the results from studies using Control-IQ technology that were published in the New England Journal of Medicine in October 2019 and August 2020, and post-market real-world data will be valuable in demonstrating the clinical outcome benefits derived from our system to healthcare providers and payors. We also believe we are positioned well ~~positioned~~ to address consumers’ needs and preferences with our current products and products under development and by offering customers ~~a pathway~~access to our future innovations through ~~the Tandem Device Updater~~TDU, as they are approved by the ~~FDA.~~

~~In July 2017, we announced plans to begin commercialization of~~local regulating bodies. At the same time, by innovating and offering new product features and benefits using our t:slim X2 ~~outside~~platform, we are able to leverage a shared global manufacturing and supply chain infrastructure. In the United States, ~~in select geographies during 2018. Unlike our approach domestically,~~ we ~~currently plan~~are able to ~~partner with distributors who will carry out the selling efforts,~~leverage a single sales, marketing, and clinical organization, as well as ~~the service~~our customer support services. In Canada, we have a separate sales organization and our customer support infrastructure benefits from close collaboration with our United States organization. In other international geographies, we have contracted with experienced distribution partners to commercialize and support our t:slim X2 platform.

COVID-19 Global Pandemic Impact and Considerations

We are deemed an essential healthcare business under applicable governmental orders based on the critical nature of the products we offer and the communities we serve. We experienced modest impacts from the COVID-19 global pandemic during the first quarter of 2020, which became more pronounced beginning in the second quarter and continuing through the current period. Initially, the impact on our business was relatively consistent worldwide but we have since seen varying degrees of impact in international markets based on local conditions. We anticipate that our sales and operating results will continue to be adversely impacted and subject to unpredictable variability for the duration of the pandemic. For example, we have experienced delays in certain programs of up to three or six months from when they were originally planned, such as human factors studies associated with our product development efforts. In addition, regulatory timelines have been and may continue to be difficult to predict as the FDA has stated that its review process may take longer than normal due to the impact of the COVID-19 global pandemic, and we have experienced delays in the review of pending submissions. The full extent of the impact of the COVID-19 global pandemic on our future business and operations is difficult to estimate and will depend on a number of factors including the scope and duration of the COVID-19 global pandemic, and the relative impact of COVID-19 on the business operations of our contract manufacturers, suppliers and competitors.

We have taken steps to prioritize the health and safety of our employees and customers during the COVID-19 global pandemic, while working to maintain a continuous supply of products, training and customer support. To that end, we have increased the frequency of our communications to employees, suppliers, customers, and healthcare providers. We continue to restrict non-essential employee travel and ban non-essential visitors from all of our facilities. Those employees who are able to perform their job functions outside of our facilities continue to work in ~~geographies outside~~a remote environment. We are planning for employees to return to our offices in a limited capacity over a period of several months. For our field-based sales and clinical employees, we initially discontinued all in-person activities and began utilizing technology to remotely engage healthcare providers and customers. We continue to work closely with our healthcare providers and customers, remaining flexible in our method of interaction. To help ensure the ~~United States.~~

safety and health of our employees in manufacturing and warehousing positions involved in production and fulfillment operations, we have implemented preventative measures to comply with social distancing requirements and require temperature checks of our employees before each shift.

In response to developments surrounding the COVID-19 global pandemic, we initiated discussions with our key suppliers in early 2020 regarding their abilities to fulfill existing orders, and we have continued to regularly assess their capacity. During the first six months of 2020, we experienced certain challenges managing our inventory, primarily due to the impacts of the COVID-19 global pandemic. For example, in the first quarter of 2020, we observed customers purchasing cartridges and infusion sets at a higher rate than anticipated. In addition, during the second quarter of 2020, our infusion set manufacturer experienced certain inventory constraints which resulted in us asking some customers to accept substitutions of similar products to prevent delays in order fulfillment. At this time, we believe many of our suppliers are deemed essential businesses under applicable governmental orders, and we have not experienced, and do not anticipate experiencing, disruption in our ability to manufacture insulin pumps and cartridges due to component procurement limitations. Our finished goods and raw material inventory, as well as available manufacturing capacity, position us well to respond to unforeseen disruptions in the near term.

Commercially, we have been communicating with our customers and healthcare providers through social media, direct email outreach and our website, in addition to regular communications sent by our sales and clinical employees. We are also leveraging our technology platforms, such as our t:connect diabetes management application, to support healthcare providers utilizing telehealth capabilities in their practices. By the end of the first quarter of 2020, we expanded our remote new pump training offering to all customers who purchased a t:slim X2 insulin pump, and in the third quarter of 2020, we resumed offering in-person trainings under specific conditions.

We are prudently managing our use of cash and completed a convertible debt financing in May 2020 to further strengthen our balance sheet. We believe that our total cash and investments on hand are sufficient to sustain our existing operations for at least the next 12 months from the date of this filing. In the meantime, we are focused on making necessary investments in the organization as originally planned to continue to progress against our long-term sales and profitability initiatives, including through the recruitment of key employees, advancement of our research and development pipeline, and implementation of technology solutions. We will continue to evaluate our business operations and strategy based on new information as it becomes available and will make changes that we consider necessary in light of this information.

Products ~~under~~Under Development

Our products under development support our strategy of focusing on both consumer and clinical ~~needs.~~needs, and include a connected (mobile) health offering, a next-generation hardware platform, which we refer to as the t:sport Insulin Delivery System (t:sport), AID system enhancements, and additional CGM integrations with our current and future products. We intend to leverage our consumer-focused approach and proprietary technology platform to continue to develop products that have the features and functionality that will allow us to ~~target~~meet the needs of people in ~~different~~differentiated segments of the insulin-dependent diabetes ~~market. Our current~~market, including the following:

•Connected (Mobile) Health Offerings – In July 2020 we began offering the first version of our t:connect mobile application that wirelessly uploads pump data to our cloud-based t:connect diabetes management application, receives notification of pump alerts and alarms, and provides a discrete, secondary display of glucose and insulin data. Future updates of our mobile application are planned to include mobile bolus delivery, add further pump control features, integrate other health-related information from third-party sources and support future capabilities for our products under ~~development include:~~

•

t:slim X2 with PLGS – Our first generation AID system is expected to include a predictive low glucose suspend, or PLGS, algorithm that utilizes Dexcom G5 sensor values. During 2016, we completed a feasibility study of our PLGS algorithm. The data from this feasibility study was used in an IDE submission for a pivotal study, which was approved by the FDA in May 2017. We commenced a pivotal study for our t:slim X2 with PLGS in the third quarter of 2017 and anticipate that it will conclude by the end of 2017. Once reports from the clinical trial sites are finalized, we intend to use the results in a PMA submission with the FDA. Based on this timing, and subject to future FDA approval, our goal is to launch the product in the summer of 2018.

~~t:slim X2~~development. In the future, we plan to provide mobile health offerings to all users, including pump users, caregivers and healthcare providers, with ~~TypeZero –~~a simplified and tailored user experience. Our second generation AID system is expected to integrate the t:slim X2 pump with the treat-to-range technology that we licensed from TypeZero Technologies LLC, as well as Dexcom’s G6 sensor. With TypeZero’s technology, our product is intended to both increase and decrease basal insulin based on a person’s predicted blood glucose levels, as well as deliver automated correction boluses. In November 2016, we announced that wemobile health offerings are working with Dexcom and TypeZero on the integration of our technologies into the National Institute of Health funded International Diabetes Closed Loop Trial, or IDCL Trial. We anticipate that a portion of the trial will utilize a t:slim X2 integrated with TypeZero’s inControl AID algorithms that isbeing designed to ~~automatically adjust a person’s insulin based on information~~enhance the user experience, streamline the pump and supplies purchasing process, and provide internal efficiencies. In the future, data from ~~a Dexcom G6 sensor. We intend to use~~our centralized system may be used for new product development, continuous product improvement, and for the ~~results from this portion~~generation of ~~the trial in a PMA submission with the FDA. Subject to both the timely completion of a successful IDCL Trial~~health economic outcomes data, and ~~future FDA approval, our goal is to launch this product in the first half of 2019.~~

may ultimately support other advanced technology and patient monitoring services.

•t:sport Insulin Delivery System – ~~This product is expected to be~~Approximately half the size of our t:slim ~~and~~X2 pump, the t:sport pump is being designed for people who seek even greater discretion and flexibility with the use of their insulin pump. ~~The timing of the commercialization of this product~~We anticipate that t:sport will ~~be based on our prioritization of resources~~feature a 200-unit cartridge, an on-pump bolus button, a rechargeable battery, an AID algorithm, and ~~ongoing dialogue with the FDA.~~

~~Mobile application - We are currently developing~~ a ~~mobile application that~~Bluetooth radio. t:sport is being designed for use with leading U-100 insulins, and we are evaluating the use of insulin concentrates to ~~utilize the capability of the Bluetooth radio~~provide to ~~wirelessly upload~~people with greater insulin needs. We anticipate that t:sport will be our first insulin pump ~~data~~ to ~~t:connect, receive notification of pump alerts~~support full pump-control from our mobile application, subject to FDA review and ~~alarms, integrate other health-related information from third party sources, and support future pump-control capabilities for our products under development.~~ approval. A separate controller may be offered in addition to full mobile control availability.

•AID Enhancements – We intend to ~~launch~~further enhance our automated insulin delivery system and are considering alternative strategies to deliver new features and benefits to our customers on a regular basis. In addition to algorithm enhancements intended to improve clinical outcomes, we are also developing new features for greater personalization and refinements to the ~~first~~overall system usability.

Table of contents

•Additional CGM Integration – In June 2020 we announced an agreement with Abbott to develop and commercialize integrated diabetes solutions that combine Abbott’s CGM technology with our insulin delivery systems to provide more options for people to manage their diabetes. Following the completion of our integrated product development work, and after obtaining required regulatory clearances or approvals, we intend to focus our initial commercial activities on integrated products in the U.S. and Canada, with additional geographies considered in the future. In November 2020, we entered into an agreement with Dexcom to extend our current collaboration to include integration with Dexcom’s future G7 CGM technology. Following integrated product development work, and required regulatory clearances or approvals, this will be the fourth generation of Dexcom CGM that we intend to integrate with our ~~mobile application in 2018, with a subset of these features.~~

devices.

Pump Shipments

~~Since~~

From inception through June 2018, we ~~have~~ 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 commenced sales of our t:slim X2 insulin pump in select international geographies. We consider the number of insulin pump units shipped per quarter domestically and internationally to be an important metric for managing our business. ~~We have~~

In the four-year period ended March 31, 2021, we shipped ~~more than 60,000~~approximately 239,000 insulin pumps, ~~since our initial launch in August 2012,~~ of which ~~nearly 56,000 pumps have been~~approximately 186,000 were shipped ~~within~~to customers in the ~~four years ended September 30, 2017.~~ United States and approximately 53,000 were shipped to international markets.

Pump shipments ~~are broken down by product and~~to customers in the United States by fiscal quarter were as follows:

Pump Units Shipped for Each of the Three Months Ended in Respective Years⁽¹⁾⁽²⁾

Total

March 31

June 30

September 30

December 31

Total

2012

—

9

204

844

1,057

2013

852

1,363

1,851

2,406

6,472

2014

1,723

2,235

2,935

3,929

10,822

2015

2,487

3,331

3,431

6,234

15,483

2016

4,042

4,582

3,896

4,418

16,938

2017

2,816

3,427

3,868

N/A

10,111

t:slim

March 31

June 30

September 30

December 31

Total

2012
N/A

9

204

844

1,057

2013

852

1,363

1,851

2,406

6,472

2014

1,723

2,235

2,935

3,929

10,822

2015

2,487

2,957

2,390

1,658

9,492

2016

1,255

1,498

1,965

76

⁽⁴⁾

4,794

t:slim X2⁽³⁾

March 31

June 30

September 30

December 31

Total

2016
N/A

N/A

N/A

3,699

3,699

2017

2,576

3,209

3,709

N/A

9,494

t:flex

March 31

June 30

September 30

December 31

Total

2015
N/A

374

555

569

1,498

2016

371

493

389

354

1,607

2017

195

199

152

N/A

546

t:slim G4

March 31

June 30

September 30

December 31

Total

2015
N/A

N/A

486

4,007

4,493

2016

2,416

2,591

1,542

289

⁽⁴⁾

6,838

2017

45

19

7

N/A

71

~~(1)~~

~~This table does not reflect returns or exchanges of pump products that occur in the ordinary course of business.~~

~~(2)~~

~~This table does not reflect the impact of approximately 3,000 trade-ins fulfilled under the Technology Upgrade Program (discussed below) related to our commercial launch of t:slim X2.~~


	Pump Units Shipped for Each of the Three Months Ended in Respective Years - U.S.
	March 31	June 30	September 30	December 31	Total
2012	0	9	204	844	1,057
2013	852	1,363	1,851	2,406	6,472
2014	1,723	2,235	2,935	3,929	10,822
2015	2,487	3,331	3,431	6,234	15,483
2016	4,042	4,582	3,896	4,418	16,938
2017	2,816	3,427	3,868	6,950	17,061
2018	4,444	5,447	7,379	12,935	30,205
2019	9,669	12,799	13,814	17,453	53,735
2020	13,158	14,735	18,380	24,552	70,825
2021	16,644	N/A	N/A	N/A	16,644

~~(3)~~

~~t:slim X2 includes shipments of t:slim X2 with G5, which was approved by the FDA and began shipping in August 2017.~~

Pump shipments to international customers by fiscal quarter were as follows:

~~(4)~~

~~The decrease in t:slim and t:slim G4 shipments coincided with our commercial launch of t:slim X2.~~


	Pump Units Shipped for Each of the Three Months Ended in Respective Years - International
	March 31	June 30	September 30	December 31	Total
2018	N/A	N/A	1,055	3,233	4,288
2019	5,063	8,459	4,025	2,149	19,696
2020	4,220	3,952	3,641	8,133	19,946
2021	8,708	N/A	N/A	N/A	8,708

~~Technology Upgrade Program~~

In the third quarter of 2016, we launched a Technology Upgrade Program that provided eligible t:slim and t:slim G4 customers a path towards ownership of t:slim X2 or, as of August 2017, t:slim X2 with G5, by offering customers the right to exchange their t:slim or t:slim G4 for t:slim X2 or t:slim X2 with G5, under a variable pricing structure. The Program expired on September 30, 2017.

Due to the high degree of accounting complexity, the Technology Upgrade Program created unpredictable financial results under United States generally accepted accounting principles, or GAAP, for the duration of the Program. The accounting treatment for the Program required the deferral of up to 100% of sales and cost of sales for shipments of eligible pumps beginning in the third quarter of 2016. The amount of sales and cost of sales deferred varied based on a number of factors, including the model of pump involved and the timing of the initial sales relative to the availability of certain future products. In general, the deferrals required by the Program had the effect of initially decreasing our GAAP sales, primarily in 2016, even when the number of our pump shipments increased.

We recognized the deferred amount of sales and cost of sales at the earlier of when the obligations under the Technology Upgrade Program were satisfied or upon the expiration of the Program. If a customer elected to participate in the Program, we recognized any upgrade fees that we received and the associated costs at the time of fulfilling the given obligation. We recognized the majority of the remaining deferred sales and cost of sales in the quarter ended September 30, 2017, when the Program expired. At September 30, 2017, we had $0.2 million of current liabilities for deferred sales associated with the Program, as well as $0.2 million of deferred cost of sales, associated with upgrade requests received that will be fulfilled in the fourth quarter of 2017.

~~Historical Financial Results~~

~~For the nine months ended September 30, 2017 and 2016, our sales were $67.3 million and $55.3 million, respectively. For the nine months ended September 30, 2017, this included~~ ~~incremental net sales of~~ ~~$4.8 million with a corresponding increase of $3.2 million in gross profit as a result of the Technology Upgrade Program. For the nine months ended September 30, 2016, this included a~~ ~~deferral of sales of~~ $8.4 million with a corresponding deferral of $1.4 million in cost of sales as a result of the Program. For the nine months ended September 30, 2017 and 2016, our net loss was $61.6 million and $68.6 million, respectively. ~~Our accumulated deficit as of September 30, 2017 was $466.2 million.~~

Trends Impacting Financial Condition and Operating Results

Overall, we have experienced considerable sales growth since the commercial launch of ~~t:slim~~our first product in the third quarter of 2012, while incurring operating losses since our inception. Our operating results ~~fluctuate~~have historically fluctuated on a quarterly or annual basis, particularly in ~~the~~ periods surrounding anticipated ~~and actual~~ regulatory approvals, ~~and initial stages of commercialization of our new products and those of our competitors. These fluctuations were more pronounced for the duration of the Technology Upgrade Program.~~

~~In particular, we believe that the timing of~~ the commercial launch of ~~t:slim X2,~~new products by us and our competitors, the commercial launch of our products in geographies outside of the United States and due to general seasonality in the United States. We expect these periodic fluctuations in our operating results to continue.

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We believe that our financial condition and operating results, as well as the ~~launch~~decision-making process of our current and regulatory approval of competitive products, impacted our quarterly pump shipments since the second half of 2016. In the period leading up to the commercial launch of t:slim X2 in October 2016, we believe there was an increasing number of potential customers, ~~who delayed their purchasing decision until they could include t:slim X2~~has been and ~~competitive products in their decision-making process. In addition, pump shipments were impacted by a decision by UnitedHealthcare that restricted a majority of their members from accessing our pumps.~~

~~In the third quarter of 2017, we~~ ~~believe our sales results were~~will continue to be impacted by a number of ~~additional factors, including:~~

•

Hurricanes Harvey and Irma adversely impacted the normal business activities of our sales force, distributors, healthcare providers and potential customers in Texas, Florida and other impacted regions. For instance, the daily inflow to the insurance verification and approval portion of our sales pipeline decreased in early September compared to August, which coincided with the hurricanes. We also experienced a measurable decrease in our sequential monthly pump shipments for the Gulf Coast region for the month of September as compared to the month of August, whereas for all other sales regions we saw either relatively stable volumes or increases in monthly pump shipments for the same two months. In addition, we have two independent distributors located within the affected areas that experienced operational disruptions during the periods around the time of the hurricanes.

•

We received FDA approval to market the t:slim X2 with G5 on August 25, 2017. Although we immediately began commercial efforts to market this product, we do not believe that third quarter pump sales benefitted significantly because of the timing of the approval within the quarter, and the number of days typically required to complete the insurance verification and approval phase of the sales process. However, we did see a meaningful increase in the daily inflow to our insurance verification and approval phase during the last two weeks of the third quarter.

~~Prior to announcing our plans to launch~~general trends, including the t:lock Connector, only a small percentage of our customers and distributors purchased infusion sets from us as compared to purchases of our cartridges. Following our announcement, we have seen, and expect to continue to see, a substantial increase in the number of infusion sets sold both in absolute terms and relative to the number of cartridges sold. In particular, the ratio of our sales volume of infusion sets relative to sales volume of cartridges during the third quarter was approximately 66%, as compared to 61% during the second quarter of 2017, 51% during the first quarter of 2017 and 31% for all of 2016.

following:

•

We continue to be subject to negative perceptions regarding our financial stability relative to that of our competitors, including concerns among healthcare providers and potential customers regarding our ability to sustain our business operations on a long-term basis. In some cases, these perceptions and concerns have caused potential customers to delay the purchase of our products or purchase competitors' products and have negatively impacted the willingness of healthcare providers to recommend our products over those of our competitors.

~~In addition to the factors discussed above, we expect our financial results will fluctuate in the future due to a variety of factors, including:~~

•market acceptance of our products and competitive ~~products;~~

products by people with insulin-dependent diabetes, their caregivers and healthcare providers;

•the ~~timing~~introduction of new products, treatment techniques or technologies for the ~~sale~~treatment of ~~our products;~~

seasonality associated with summer vacations, annual deductibles and coinsurance requirements associated with most medical insurance plans utilized by our individual customers and the individual customers of our distributors;

~~the buying patterns of our distributors and other customers;~~

diabetes, including the timing of the commercialization of new products by us orand our competitors;

•seasonality in the United States associated with annual insurance deductibles and coinsurance requirements associated with the medical insurance plans utilized by our customers and the customers of our distributors;

•incidence of disease or illness, including the COVID-19 global pandemic, that may impact customer purchasing patterns or disrupt our supply chain;

•timing of holidays and summer vacations, which may vary by geography;

•the buying patterns of our distributors and other customers, both domestically and internationally;

•changes in the competitive landscape, including as ~~other~~a result of companies ~~enter~~entering or ~~exit~~exiting the diabetes ~~medical device~~therapy market;

•access to adequate coverage and reimbursement for our current and future products by third-party payors, and reimbursement decisions by third-party payors;

•the magnitude and timing of any changes to our facilities, manufacturing operations and other ~~infrastructure;~~infrastructure, and

factors impacting our ability to access our facilities;

•the impact of any privacy breaches, which may subject us to legal and regulatory proceedings and substantial fines, penalties and expenses, as well as significant reputational harm;

•anticipated and actual regulatory approvals of ~~new products.~~

our products and competitive products; and

~~We expect~~

•product recalls impacting, or the ~~combined effect~~suspension or withdrawal of regulatory clearance or approval relating to, our products or the ~~timing~~products of our competitors.

In addition to these general trends, we believe the following specific factors have materially impacted, and could continue to materially impact, our business going forward:

•the disruptions caused by the COVID-19 global pandemic on suppliers, third-party manufacturers, healthcare providers, distributors and our existing or potential customers;

•continued increase in demand following the commercial launch of t:slim X2 with G5Control-IQ technology in additional geographies, and ~~our expectation that customers will largely return to their historical decision-making patterns will once again result in our sales being heavily weighted towards~~ the ~~second half of the year. We expect seasonality will have a similar impact on our sales in 2017 as in years prior to launch of the Technology Upgrade Program, excluding approximately $4.8~~ ~~million of deferred sales and upgrade fees received associated with our Technology Upgrade Program that we recognized in the third quarter of 2017.~~

~~Recent Developments~~

~~Commercial Launch of t:slim X2 with G5 Integration~~

In late August 2017, the FDA approved, and we commercially launched our t:slim X2 Insulin Pump with Dexcom G5 Mobile CGM integration. The t:slim X2 with G5 is our first sensor-augmented insulin pump approved to allow users to make treatment decisions without pricking their finger. The pump conveniently displays a user’s insulin delivery activity and Dexcom G5 Mobile CGM data together on one single device. The t:slim X2 with G5 has been approved for users ages six and older.

~~Commercial Launch of t:lock Connector~~

~~In September 2017, we commenced commercial sales~~demonstrated success of our ~~insulin pump cartridges and infusion sets with our t:lock Connector. t:lock was designed~~Tandem Device Updater;

•anticipated new product launches;

•increased opportunity to ~~look and feel like the previous Luer-lok connector. However, t:lock incorporates~~achieve customer renewals as customers become eligible for insurance reimbursement to purchase a ~~smaller inner cavity, which reduces the amount of insulin used in the process and reduces the time required to fill the infusion set tubing, improving efficiency and customer experience.~~

~~Animas Will Discontinue the Manufacture and Sale of Insulin Pumps~~

~~On October 5, 2017, Johnson & Johnson announced that~~ it intends to discontinue the operations of Animas Corporation and to exit the insulin pump business entirely, and that, in connection with these activities, it designated Medtronic as a preferred partner to facilitate the transition of Animas insulin pump customers. As part of this transition, Medtronic is offering a portion of Animas customers the option of acquiring a prior-generation Medtronicnew insulin pump at ~~no charge. We now offer~~ the only alternative durable insulin pump to Medtronic in the United States. While this announcement represents a significant change within our industry, and we have experienced a recent increase in inquiries from current Animas customers following the announcement, it is too early to know how it will ultimately influence our business or the competitive landscape in which we operate, although we expect the impact may be dependent on one or moreend of the ~~following factors:~~

typical four-year reimbursement cycle;

The offer to Animas customers for a free Medtronic pump is currently limited to customers with a warranty expiration date later than September 30, 2019, and the offer is not available until May 2018. It remains uncertain how many Animas customers will avail themselves•designation by UnitedHealthcare of ~~this offer.~~

•

While Medtronic will have direct access to all Animas customers during the transition period, as those customers' pumps come up for renewal and they make new pump purchasing decisions, they may consider alternative pump options. According to recent surveys from dQ&A, when making renewal decisions, Animas customers have historically chosen their pump or a Tandem pump rather than a Medtronic offering. Recent surveys from dQ&A have also shown that only 5% of patients acquiring a Medtronic pump during the past six quarters were previous Animas customers, and 80% of new purchasers of Medtronic pumps were customers who upgraded from a current Medtronic pump rather than switching from an alternative brand. For these reasons, and based on our own customer data that shows a high number of customers switching to our products from an Animas pump, we believe our pumps are an attractive alternative to both Animas and Medtronic pumps.

~~We believe~~ one of ~~the~~our competitors as its preferred, in-network durable medical equipment provider of insulin pumps for most customers age seven and above from July 2016 through June 2020;

•ability to enter into and maintain agreements with CGM partners for CGM integration;

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•expansion and new product ~~features that have made Animas pumps attractive~~launches in select international geographies, including initial orders to ~~their customers is the integration of the Animas Vibe with Dexcom’s CGM technology. We now provide the only commercially available pump that is integrated with Dexcom’s technology.~~

stock inventories; and

~~Reverse Stock Split~~

~~At a special meeting of our stockholders, held on September 7, 2017, our stockholders approved an amendment~~

•ability to our amended and restated certificate of incorporation to effect a reverse stock split of our issued and outstanding shares of common stock at a ratio of not less than 1-for-8 and not greater than 1-for-12, with the exact ratio to be set within that range by our board of directors, without further approval or authorization of our stockholders. On October 4, 2017, our board of directors approved the reverse stock split at a ratio of 1-for-10, and on October 9, 2017, we filed an amendment to our amended and restated certificate of incorporation with the Delaware Secretary of State to effect the reverse stock split.

~~Unless otherwise noted, all share and per share amounts set forth in this Quarterly Report have been adjusted to reflect the impact of the reverse stock split.~~

~~Registered Public Offering~~

On October 17, 2017, we completed a registered public offering of 4,630,000 shares of our common stock, Series A warrants to purchase up to 4,630,000 shares of our common stock and Series B warrants to purchase up to 4,630,000 shares of our common stock at a public offering price of $3.50 per share and accompanying warrants, which we refer to as the October Financing. The gross proceeds to the Company from the October Financing were approximately $16.2 million, before deducting underwriting discounts and commissions and other offering expenses payable by the Company. The Series A warrants have an exercise price of $3.50 per share, are immediately exercisable, and will expire on the 5-year anniversary of the date of issuance. The Series B warrants have an exercise price of $3.50 per share, are immediately exercisable, and will expire on the 6-month anniversary of the date of issuance. Each series of warrants, if exercised by all holders in full, may result in additional gross proceeds to us of $16.2 million.

~~Additional Financing~~

~~From inception through September 30, 2017, we have primarily financed~~effectively scale our operations ~~through sales of equity securities, and, to a lesser extent, debt financings. The continued growth of our business, including the expansion of our customer care infrastructure~~ to support rapid growth, including expanding our ~~growing base of customers, additional~~facilities, advancing our research and development ~~activities,~~efforts, increasing manufacturing capacity through third-party manufacturers, and hiring and retaining employees in customer service and support functions.

In addition to working to achieve our sales growth expectations, in the ~~transition~~long-term we intend to ~~our new manufacturing facility, will~~ continue to ~~increase~~leverage our ~~expenses~~infrastructure investments to realize additional manufacturing, sales, marketing and ~~capital needs.~~

Onadministration cost efficiencies with the ~~date that~~goal of improving our ~~financial statements in this Quarterly Report were issued, our management believed that we did not have sufficient cash to fund our operations~~operating margins and ultimately achieving sustained profitability. We achieved profitability for the ~~next twelve months without additional financing,~~first time in the fourth quarter of 2018, and ~~therefore, we concluded there was substantial doubt about our ability to continue as a going concern within one year after~~again in the ~~date the financial statements were issued.~~ We ~~expect we will be required to raise additional capital in order to continue as a going concern, meet our minimum liquidity requirements,~~fourth quarters of 2019 and ~~execute on our business strategy. We may seek additional capital from public or private offerings of our capital stock (including pursuant to our ATM offering), or~~2020. Though we may ~~elect~~be unable to ~~borrow additional amounts under new debt financing arrangements or~~achieve profitability consistently from ~~other sources. We expect our ability~~period to raise additional financing may be negatively impacted by a number of factors, including our recent and projected financial results, recent changes in and volatility of our stock price, perceptions about the dilutive impact of our recent financing transactions, concerns regarding our ability to maintain the continued listing of our common stock on the NASDAQ Global Market, or NASDAQ, our current level of indebtedness and debt service costs, our conclusion that there is substantial doubt about our ability to continue as a going concern and the competitive environment in our industry.

~~Term Loan Agreement~~

~~In March 2017,~~period, we entered into Waiver and Amendment No. 4 to the Term Loan Agreement, or the Fourth Amendment. The Fourth Amendment includes a limited waiver of a potential event of default that could have resulted from the inclusion of an explanatory paragraph in the audit report of our independent registered public accounting firm included in our Annual Report on Form 10-K for the year ended December 31, 2016 (“Annual Report”) that describes conditions that raise substantial doubt about our ability to continue as a going concern.

Under the Term Loan Agreement, we are required to complete one or more financings in which our aggregate gross proceeds from the sale of equity securities was at least $30.0 million, no later than January 15, 2018. As a result of the public offering of our common stock in March 2017, the sale of our common stock pursuant to our ATM offering, and the public offering of our common stock and warrants in the October Financing, we have satisfied our obligations pursuant to this equity financing covenant, although we remain subject to additional covenants.

~~For additional information about the Term Loan Agreement, see the section entitled “Indebtedness” below.~~

~~Leverage from Technology Platform~~

We believe we can ultimately achieve sustained profitability ~~because our proprietary technology platform will allow us to maximize efficiencies~~by driving incremental sales growth in ~~the development, production, sale~~U.S. and marketing of multiple differentiated products. By offering products that are all based on our proprietary technology platform, in combination with the flexibility provided by the Tandem Device Updater, we believe we can develop and bring to market products and functionality more rapidly, while significantly reducing our per-unit design and development costs. Due to shared product design features, our production system is adaptable to new products and we intend to leverage our shared manufacturing infrastructure to drive operational efficiencies. Further, we expect to continue to increase production volume and to reduce the per-unit production overhead cost forinternational markets, meeting our pump ~~products~~renewal sales objectives, maximizing manufacturing efficiencies on increased production volumes, and ~~their associated disposable cartridges over time.~~ ~~We anticipate that~~leveraging the ~~transition to our recently launched t:lock Connector will continue to increase~~investments made in our sales, ~~of infusion sets.~~ ~~By expanding our product offerings to address people in different segments of the large~~clinical, marketing and ~~growing insulin-dependent diabetes market, we believe we can increase the productivity of our sales, clinical and marketing organization, as well as our~~ customer support ~~infrastructure, thereby improving our operating margin over the long term.~~

organizations.

Components of Results of Operations

Sales

We offer products for people with insulin-dependent diabetes. We commenced commercial sales of our original t:slim insulin pump platform in the United States in the third quarter of ~~2012. We launched our second insulin pump product, t:flex, in~~2012 and continued to launch various iterations of that platform during the ~~second quarter of 2015, and launched our third insulin pump product, t:slim G4, in the third quarter of 2015.~~ following years. In October 2016, we began shipping our flagship pump platform, the t:slim X2 ~~our next generation flagship product, at which time we discontinued sales of t:slim. In August 2017, we commenced commercial sales of~~insulin pump. The t:slim X2 insulin pump platform with G5remote software update capabilities, now represents 100% of our new pump shipments and ~~discontinued new sales~~is used by nearly all of ~~t:slim G4.~~ our in-warranty customers. Our products ~~currently~~also include ~~these insulin pumps, as well as~~ disposable cartridges and infusion ~~sets.~~sets, as well as our complementary t:connect, Tandem Device Updater and mobile application products. We also offer additional accessories including protective cases, belt clips, and power ~~adapters. Sales~~adapters, although sales of ~~accessories since commercial launch have~~these products are not ~~been~~ significant.

We primarily sell our products through national and regional distributors in the United States on a non-exclusive basis. These distributors are generally providers of medical equipment and supplies to individuals with diabetes. Our primary end customers are people with insulin-dependent diabetes. Similar to other durable medical equipment, the primary payor is generally a third-party insurance carrier and the customer is usually responsible for any medical insurance plan copay or coinsurance requirements. We believe our existing sales, clinical, and marketing infrastructure will allow us to continue to increase sales by allowing us to promote our products to a greater number of potential customers, caregivers and healthcare ~~providers.~~

providers, although the COVID-19 global pandemic has had, and may continue to have, an adverse impact on our sales.

In ~~general,~~the third quarter of 2018, we began the launch of our t:slim X2 hardware platform through distribution partners outside the United States. Our products are now sold in more than 20 countries, including in Canada, France and Germany. The software version on the t:slim X2 hardware platform has progressed from Dexcom G5 CGM integration at initial launch, followed by Basal-IQ technology scaling across various international markets beginning in the second quarter of 2019, and most recently we commenced the launch of our Control-IQ technology in select geographies. Our launch of Control-IQ technology in international markets will continue to scale across additional geographies throughout 2021 subject to applicable regulatory and reimbursement approvals.

Our independent international distributor partners perform all sales, customer support and training in their respective markets. In Canada, we market with a direct sales force and, similar to the United States, use a distributor partner for certain billing and fulfillment activities. Historically, we have experienced consistent levels of reimbursement for our products in the United States, but we expect the average sales price will vary in international markets based on a number of factors, such as the geographical mix, nature of the reimbursement environment, government regulations and ~~expect~~the extent to ~~continue~~which we rely on distributor relationships to ~~experience, product~~provide sales, clinical and marketing support.

In general, in the United States we have experienced pump shipments being weighted heavily towards the second half of the year, with the highest percentage of ~~product~~pump shipments expected in the fourth quarter due to the nature of the ~~year.~~reimbursement environment. Consistent with ~~prior results, we also expect product~~these historical seasonality trends, our domestic pump shipments have typically decreased significantly from the fourth quarter to the following first quarter. Internationally, we do not expect this same impact from seasonality associated with reimbursement, although the quarterly sales trends may be impacted by a number of other factors, including summer vacations and product launches into new geographies.

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During 2020, the COVID-19 global pandemic had a major impact on businesses around the world. While we experienced only a modest negative impact from the pandemic during the first quarter of 2020, which became more pronounced in the second quarter and remained through the end of the year, we anticipate that our sales and operating results will continue to ~~decrease significantly.~~

~~In addition,~~be adversely impacted for the duration of the pandemic. Starting in March 2020, we ceased nearly all in-person sales, marketing and training activities and adopted numerous other changes to our daily business operations. These changes primarily remain in effect as of the date of this report and, while we are planning for employees to return to our offices in a limited capacity, it remains uncertain when we may be able to resume our normal operations. Accordingly, we anticipate that our sales may not follow historical trends and may be subject to unpredictable variability in the coming months based on varying levels of impact of the global pandemic across the markets in which we operate. Our sales outside the United States have been negatively impacted due to similar disruptions. Initially, the impact was relatively consistent worldwide but we have since seen varying degrees of impact in international markets based on local conditions. The full extent of the impact of the COVID-19 global pandemic on our business and operations will depend on a number of factors, including the scope and duration of the pandemic, varying government responses to the pandemic and potential delays to product development timelines.

Separate from any impacts of the COVID-19 global pandemic, our quarterly sales have historically fluctuated, and may continue to fluctuate substantially in the periods surrounding anticipated and actual regulatory approvals and commercial launches of new products by us or our competitors. ~~For instance,~~We believe customers may defer a purchasing ~~decision~~decisions if they believe ~~that~~ a new product may be launched in the future. Additionally, upon the announcement of ~~the~~ FDA approval or commercial launch of a new product, ~~whether our own~~either by us or one of our competitors, potential new customers may reconsider their purchasing ~~decision~~decisions or take additional time to consider ~~the anticipated or new~~such FDA approval or product launch inbefore making their purchasing ~~decision.~~decisions. For ~~example,~~instance, we believe ~~that our pump shipments were negatively impacted~~certain customers paused their decision-making during the second half of ~~2016 and first half~~2019 in anticipation of ~~2017, as we announced~~ the ~~launches~~commercial availability of the t:slim X2 ~~and the Technology Upgrade Program in the third quarter of 2016, and one of our competitors announced the future availability of two new products~~ with ~~financial incentives for adoption.~~Control-IQ technology. However, ~~we are not able~~it is difficult to quantify the extent of the impact of these or similar events ~~including the launch of t:slim X2 with G5 and the transition to our t:lock Connector,~~ on future purchasing decisions.

Cost of Sales

~~We manufacture~~

Historically, we have manufactured our pumps and disposable cartridges at our manufacturing ~~facilities~~facility in San Diego, California. Near the end of the first quarter of 2020, our third-party cartridge manufacturer completed validation and commenced commercial-scale manufacturing to supplement our existing cartridge manufacturing capacity. We expect to increase production capacity and volumes at our third-party cartridge manufacturer over the next 24 months. Infusion sets and pump accessories are manufactured by third-party suppliers. 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 ~~inventory~~charges for excess and ~~obsolescence.~~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. ~~Historically, cost of sales has also included royalty costs associated with sales of t:slim G4.~~ ~~In August 2017, we commenced commercial sales of t:slim X2 with G5, which has no royalty obligation, and discontinued new sales of t:slim G4.~~ We anticipate that our cost of sales will continue to increase as our ~~products continue to gain broader market acceptance and our~~ product sales increase.

Over the long term, we expect our overall gross margin percentage, which for any given period is calculated as sales less cost of sales divided by sales, to improve, ~~over the long term,~~ as our sales increase and ~~we have more opportunities to spread~~ our overhead costs are spread over larger production volumes. We expect ~~that~~ we will be able to leverage our manufacturing cost structure across our products that utilize the same ~~proprietary~~ technology platform and manufacturing infrastructure and will be able to further reduce per unit costs with increased automation, process improvements and raw materials cost reductions. We also expect our warranty ~~costs~~cost per unit to decrease as we release additional product features and functionality utilizing the Tandem Device Updater. ~~However, we also expect~~Pumps have, and are expected to continue to have, a higher gross margin percentage than our pump-related supplies. Therefore, the percentage of pump sales relative to total sales will have a significant impact on our overall gross margin topercentage. In the event that customers delay their pump purchasing decisions or physicians pause in prescribing new pumps, whether as a result of the COVID-19 global pandemic, or for other reasons, it is possible that we may experience a higher percentage of pump-related supply sales than anticipated, which in turn could adversely impact our overall gross margin percentage. However, our overall gross margin percentage may fluctuate in future quarterly periods as a result of numerous factors ~~besides~~aside from those associated with production ~~volumes.~~volumes and product mix. For instance, as a result of the COVID-19 global pandemic we have implemented operational changes that may introduce unpredictable variability to our cost of sales, such as supplemental staffing, incremental expenses to protect the health, safety and welfare of our employees working on-site and to enable other employees to work remotely. In addition, as demand for our products increases, we may continue to make additional investments in manufacturing capacity or increase our reliance on third parties for manufacturing-related services, either of which could have a negative impact on our gross margins. Specifically, in ~~2017,~~2020, we ~~are increasing~~invested in additional manufacturing equipment to substantially increase our ~~manufacturing~~existing capacity ~~by relocating~~in order to meet anticipated long-term demand for our ~~manufacturing operations and related functions to a new facility over a period of several quarters,~~cartridges, which may ~~add duplicative and incremental cost in the short-term and~~initially place downward pressure ~~our overall gross margin for the duration of the transition.~~ ~~In general, we expect~~on the gross margin ~~on insulin pumps to be higher than the gross margin on pump-related supplies, which would be consistent~~percentage associated with our ~~historical experience.~~pump-related supplies.

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Other factors impacting our overall gross margin percentage may include ~~the changing mix of products sold with different gross margins,~~ the changing percentage of products sold to distributors versus directly to individual customers, varying levels of reimbursement among third-party payors in domestic and international markets, the timing and success of new regulatory approvals and product launches, the impact of the valuation and amortization of employee stock awards on non-cash stock-based compensation expense allocated to cost of sales, changes in warranty ~~and~~estimates, training costs, licensing and royalty costs, increased costs to support our digital health platforms, cost associated with excess and obsolete inventories, and changes in our manufacturing processes, capacity, costs or output.

Selling, General and Administrative

Our selling, general and administrative ~~or SG&A,~~(SG&A) expenses primarily consist of salary, cash-based incentive compensation, fringe benefits and non-cash stock-based compensation for our executive, financial, legal, marketing, sales, clinical, customer ~~care,~~support, technical services, insurance verification, regulatory affairs and other administrative functions. ~~In particular,~~We began expanding our U.S. field sales and clinical organization ~~consisted~~during the third quarter of 2019 to support an expected increase in demand for our products. We had approximately 7095 sales territories in the United States as of ~~September 30, 2017. Territories~~March 31, 2021. Our existing territories are generally maintained by sales representatives and field clinical specialists, and supported by managed care liaisons, additional sales management and other customer support ~~personnel.~~ personnel, which have also been rapidly expanding to support our growing installed base. Our operations in Canada are comprised of approximately ten sales territories. Other significant SG&A expenses include those incurred for product demonstration samples, 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. ~~Although we do not contemplate an increase in the number of sales territories in the near term,~~Overall, we expect our SG&A expenses, including the cost of our customer ~~care~~support infrastructure, to increase as our customer base ~~grows.~~grows in the United States and international markets. We will continue to evaluate, and may further increase, the number of our field sales and clinical personnel in order to optimize the coverage of our existing territories. Additionally, we recognized higher non-cash stock-based compensation expense through the first half of 2020, and experienced a reduction in expense beginning in the third quarter of 2020 as certain 2018 employee stock option grants became fully amortized. We anticipate that we will continue to see improvement in non-cash stock-based compensation expense as a percent of sales in future years. Our SG&A expenses may be affected by our response to the COVID-19 global pandemic, including reduced spending in areas such as non-essential employee travel, which may be offset by increased spending to support measures designed to prioritize the retention, health, safety and welfare of our employees. In the longer term, SG&A expenses may also increase due to anticipated costs associated with additional compliance and regulatory reporting requirements.

Research and Development

Our research and development ~~or R&D,~~(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, non-cash stock-based compensation and temporary employee expenses. 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~~.costs. We expect our R&D expenses ~~including clinical trial costs,~~ to increase as we advance our products under development and develop new products and technologies.

Similar to our SG&A expenses, our future R&D spending may be impacted by the COVID-19 global pandemic. For instance, we may experience lower spending associated with delays in the advancement of particular programs, which may be offset by increased spending to support the retention, health, safety and welfare of our employees or to enable development activities under alternative conditions.

Other Income and Expense

~~Our other~~

Other income and expense primarily consists of changes in the fair value of certain warrants issued in connection with our public offering of common stock in October 2017, interest expense ~~and~~which includes the amortization of debt ~~discount and~~ issuance costs ~~associated with the Term Loan Agreement. At September 30, 2017, there was $82.3 million of outstanding principal under the Term Loan Agreement, which accrues~~related to our 1.50% Convertible Senior Notes due 2025, issued in May 2020 (our Notes), and interest ~~at a rate of 11.5% per annum.~~ earned on our cash equivalents and short-term investments. We expect interest expense in future quarters to ~~increase~~be comparable with that of the first quarter of 2021, assuming that none of the Notes are converted or redeemed, and total other income and expense, net to fluctuate from period to period primarily due to the revaluation of the outstanding Series A warrants, which expire in ~~2017~~the fourth quarter of 2022.

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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 state and foreign cash tax expense as a result of ~~a higher outstanding balance under the Term Loan Agreement as compared~~taxable income anticipated or incurred in those jurisdictions. Income tax expense (benefit) may fluctuate in future quarters due to ~~2016~~ ~~(see the section below entitled “Indebtedness”).~~

adjustments related to non-recurring transactions and changes in certain tax assessments.

Results of Operations

	Three Months Ended						Nine Months Ended
	September 30,						September 30,							Three Months Ended March 31,
(in thousands, except percentages)	2017			2016			2017			2016			(in thousands, except percentages)	2021			2020
Sales	$	27,003		$	12,293		$	67,306		$	55,336
Sales:													Sales:
Domestic													Domestic	$	103,339		$	79,546
International													International	37,698			18,380
Total sales													Total sales	141,037			97,926
Cost of sales		15,131			13,870			40,680			41,809		Cost of sales	67,750			47,665
Gross profit (loss)		11,872			(1,577	)		26,626			13,527
Gross profit													Gross profit	73,287			50,261
Gross margin		44	%		(13	)%		40	%		24	%	Gross margin	52		%	51		%
Operating expenses:													Operating expenses:
Selling, general and administrative		20,125			20,683			65,077			63,768		Selling, general and administrative	58,563			49,717
Research and development		4,914			6,154			14,910			14,464		Research and development	17,961			14,117
Total operating expenses		25,039			26,837			79,987			78,232		Total operating expenses	76,524			63,834
Operating loss		(13,167	)		(28,414	)		(53,361	)		(64,705	)	Operating loss	(3,237)			(13,573)
Other income (expense), net:													Other income (expense), net:
Interest and other income		60			34			179			258
Interest and other expense		(2,928	)		(1,434	)		(8,446	)		(4,177	)
Interest income and other, net													Interest income and other, net	272			726
Interest expense													Interest expense	(1,506)			—

Change in fair value of common stock warrants													Change in fair value of common stock warrants	(690)			(1,922)
Total other expense, net		(2,868	)		(1,400	)		(8,267	)		(3,919	)	Total other expense, net	(1,924)			(1,196)
Loss before income taxes													Loss before income taxes	(5,161)			(14,769)
Income tax expense (benefit)													Income tax expense (benefit)	(117)			98
Net loss	$	(16,035	)	$	(29,814	)	$	(61,628	)	$	(68,624	)	Net loss	$	(5,044)		$	(14,867)

Comparison of the Three Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~

2020

Sales.For the three monthsended ~~September 30, 2017,~~March 31, 2021,sales were ~~$27.0~~$141.0 million, ~~including the recognition of $3.3~~which included $37.7 million of ~~pump sales originally deferred in prior periods and upgrade fees received as a result of the Technology Upgrade Program.~~international sales. Sales were ~~$12.3~~$97.9 million for the same period in ~~2016,~~2020, which ~~reflect the deferral of $8.4~~included $18.4 million of international sales.

The increase in worldwide sales of $43.1 million in the first quarter of 2021 compared to the first quarter of 2020 was driven by a 46% increase in worldwide pump shipments to 25,352 in the first quarter of 2021, compared to 17,378 in the first quarter of 2020, and a 54% increase in pump-related supply sales. Sales of pump-related supplies increased primarily due to 53% growth in our estimated worldwide installed base of customers.

Domestic sales by product were as follows (in thousands):


	Three Months Ended March 31,
	2021		2020
Pump	$	62,912	$	49,719
Infusion sets	27,392		20,214
Cartridges	12,765		9,455
Other	270		158
Total Domestic Sales	$	103,339	$	79,546

Table of contents

Domestic pump sales ~~associated~~were $62.9 million for the first quarter of 2021, compared to $49.7 million in the first quarter of 2020, as pump shipments increased 27% compared to the same period in the prior year due to continued strong demand for our products following the January 2020 domestic launch of our t:slim X2 insulin pump with Control-IQ technology. Domestic pump shipments were 16,644 in the ~~Technology Upgrade Program.~~

first quarter of 2021, compared to 13,158 in the first quarter of 2020. Sales of ~~insulin pumps were $18.0 million~~pump-related supplies increased primarily due to a 46% increase in our estimated domestic installed base of customers. Sales to distributors accounted for 68% and ~~$6.9 million, respectively,~~69% of our total domestic sales for the three months ended ~~September 30, 2017~~March 31, 2021 and 2016. For the three months ended September 30, 2017, sales of pump-related supplies were $8.7 million, of which $3.5 million were sales of cartridges and $5.0 million were sales of infusion sets. For the three months ended September 30, 2016, sales of pump-related supplies were $5.3 million, of which $3.0 million were sales of cartridges and $2.2 million were sales of infusion sets. The ratio of the number of infusion sets shipped to the number of cartridges shipped increased to 66% in the three months ended September 30, 2017 from 27% in the comparable quarter of the prior year. Sales of accessories were not significant in either of the reported periods.

Excluding the impact of the Technology Upgrade Program, the increase in sales was primarily driven by an increase in sales of infusion sets to our distributors, as well as an increase in the sale of pump-related supplies to ~~our growing customer base.~~ Pump shipments were relatively flat in the three months ended September 30, 2017 at 3,868 compared to 3,896 for the same period in 2016, which we believe was the result of a number of factors including the highly competitive market, the impact of the hurricanes in the Southeast region of the United States, the timing of FDA approval of t:slim X2 with G5 within the third quarter, and negative perceptions regarding our financial stability compared to that of our competitors.

2020, respectively. Our percentage of sales to distributors versus individual customers is principally determined by the mix of customers ordering our products within the period and whether or not we have a contractual arrangement with their underlying third-party insurance payor.

International sales by product were as follows (in thousands):


	Three Months Ended March 31,
	2021		2020
Pump	$	18,908	$	9,816
Infusion sets	12,734		6,246
Cartridges	5,949		2,233
Other	107		85
Total International Sales	$	37,698	$	18,380

International pump sales were $18.9 million for the first quarter of 2021, compared to $9.8 million in the first quarter of 2020, as pump shipments increased 106% compared to the same period in the prior year. Sales of pump-related supplies benefited from a 102% increase in our estimated international installed base of customers. The ordering patterns of our international distributors for pumps and supplies is highly variable from period to period. This variability was compounded by the varying levels of impact of the global pandemic across the international markets in which we operate. Sales to distributors accounted for ~~74%~~96% and ~~67%~~93% of our total international sales for the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, respectively. Sales deferred under the Technology Upgrade Program decreased the percentage of sales to distributors for the three months ended September 30, 2016 by five percentage points, while there was not a significant impact to the percentage of sales to distributors in the three months ended September 30, 2017. ~~Excluding this impact in 2016, the percentage of sales to distributors increased slightly in 2017.~~

Cost of Sales and Gross Profit ~~(Loss)~~.Our cost of sales for the three monthsended ~~September 30, 2017~~ March 31, 2021was ~~$15.1~~$67.8 million, resulting in gross profit of ~~$11.9~~$73.3 million, compared to ~~$13.9 million~~ cost of sales ~~and~~of $47.7 million for the same period in 2020 resulting in gross ~~loss~~profit of ~~$1.6 million in 2016.~~$50.3 million. The gross margin for the three monthsended ~~September 30, 2017~~March 31, 2021 was ~~44%~~52%, compared to ~~negative 13%~~51% in the same period in ~~2016.~~

2020.

The increase in our gross profit ~~(loss)~~ for the three months ended ~~September 30, 2017 compared to the same period in 2016~~March 31, 2021 was primarily the result of the ~~impact of the Technology Upgrade Program. During the three months ended September 30, 2017, our gross profit included a net recognition of $2.6~~$43.1 million ~~of gross profit that had been deferred~~increase in prior periods, partially offset by an immaterial cost incurred for the fulfillment of upgrades. In the same period of 2016, our gross profit was reduced by a net deferral of $7.0 million of pump sales under the terms of the Program. Additionally, we recorded a $1.1 million charge in the three months ended September 30, 2016 for inventory obsolescence as a result of the commercialization of the t:slim X2 Pump, launch of the Technology Upgrade Program and associated decrease in the overall demand for our t:slim G4 Pump. This charge negatively impacted our gross margin during the three months ended September 30, 2016 by nine percentage points.

total sales. Gross profit and gross margin ~~also increased as a result of~~both benefited from improvement in the cost per unit of our supplies from efficiencies in the manufacturing ~~cost improvements, including significant raw~~process, leverage of fixed overhead and material cost ~~reductions for our pumps and overall manufacturing efficiencies in labor and overhead for both pumps and cartridges. Other non-manufacturing costs, which primarily consist~~reductions. This increase was partially offset by lower worldwide pump average selling prices as international sales comprised a greater portion of warranty, freight and training, also reflected improvement, most notably demonstrated by a decrease in warranty expense as a result of improvements in our warranty trends and warranty replacement costs.

~~The gross~~total sales compared to the prior year. Gross margin was also ~~impacted~~pressured to a lesser extent by ~~an increase~~other factors that are more temporary in ~~sales of pump-related supplies, which generally have lower gross margins than our insulin pumps.~~ ~~However, we continue~~nature or anticipated to ~~experience a positive gross margin~~be leveraged through growth in future quarters, including costs associated with ~~our pump-related supplies as a whole, after first achieving a positive gross margin~~COVID-19 risk mitigation and the substantial expansion of cartridge manufacturing capacity in the fourth quarter of 2016. We have maintained a positive quarterly gross margin since that time. We expect to continue to see improvements in the gross profit and gross margin associated with our pump-related supplies as2020 from which we ~~manufacture higher volumes of cartridges to support our growing installed base and continue to increase sales of infusion sets to distributors with the launch of our t:lock Connector.~~

~~Selling, General and Administrative Expenses.~~ ~~SG&A expenses decreased 3% to $20.1~~anticipate continued leverage. Royalty expense was $1.6 million for the three months ended ~~September 30, 2017~~March 31, 2021, compared to $1.3 million in the same period in 2020. Other factors that have and may continue to have an impact on the gross margin percentage are changes in product and customer mix. Pump sales, which have the highest gross margin, were 58% of total worldwide sales in the first quarter of 2021 versus 61% in the first quarter of 2020.

Selling, General and Administrative Expenses. SG&A expenses increased 18% to $58.6 million for the three months ended March 31, 2021 from ~~$20.7~~$49.7 million for the same period in ~~2016.~~

2020.Employee-related expenses for ourSG&Afunctions comprise the majority of ~~the~~ SG&A expenses.The ~~decrease in SG&A expenses~~increase compared to ~~2016~~2020 was primarily athe result of a ~~reduction~~$9.2 million increase in salaries, incentive compensation and other employee benefits due to an increase in personnel to support additional sales territories, higher sales and other services in support of our ~~headcount-related costs~~growing installed customer base, offset by a $2.1 million decrease in ~~the third quarter of 2017, compared~~non-cash stock-based compensation expense. Non-cash stock-based compensation expense allocated to ~~the same period of 2016. Our~~ SG&A headcount declined 8% compared to 2016. Additionally, we have implemented efforts to control other spending, resulting in decreases in travel and entertainment, outside services, supplies and consulting.

~~Research and Development Expenses. R&D expenses decreased 20% to $4.9~~was $9.4 million for the three months ended ~~September 30, 2017~~March 31, 2021, compared to $11.5 million in the same period in 2020. The increase in non-cash stock-based compensation expense associated with increased headcount in 2020 and 2021 was more than offset by a decrease in non-cash stock-based compensation expense from ~~$6.2~~the valuation of certain 2018 employee stock option grants which are now fully amortized. We also experienced a decrease in travel costs of $1.2 million.

Table of contents

Research and Development Expenses. R&D expenses increased 27% to $18.0 million for the three months ended March 31, 2021 from $14.1 million for the same period in ~~2016.~~2020. The ~~decrease~~increase in R&D expenses was primarily the result of ~~higher costs~~an increase of $3.4 million in ~~2016 associated with~~salaries, incentive compensation and other employee benefits due to an increase in personnel to support our product ~~pipeline~~ development ~~efforts, primarily related~~efforts. Non-cash stock-based compensation expense allocated to ~~supplies and technology license fees~~.

~~Other Income and Expense. Other expense~~R&D was $2.1 million for the three months ended ~~September 30, 2017 and 2016 was $2.9~~March 31, 2021, compared to $2.2 million and $1.4 million, respectively. Other expense for both periods was primarily comprised of interest expense associated with the Term Loan Agreement. The outstanding principal balances under the Term Loan Agreement were $82.3 million and $45.8 million as of ~~September 30, 2017~~ ~~and September 30, 2016, respectively. Other income for both periods presented was not significant.~~

~~Comparison of the Nine Months Ended September 30, 2017 and 2016~~

~~Sales~~. ~~For the nine months ended~~ ~~September 30, 2017,~~ sales were $67.3 million, including the recognition of $4.8 million pump sales originally deferred in prior periods and upgrade fees received as a result of the Technology Upgrade Program. Sales were $55.3 million for the same period in 2016, which reflect the deferral of $8.4 million pump sales associated with the Technology Upgrade Program.

Sales of insulin pumps were $43.9 million and $41.2 million, respectively, for the nine months ended September 30, 2017 and 2016. For the nine months ended September 30, 2017, sales of pump-related supplies were $23.0 million, of which $9.7 million were sales of cartridges and $13.0 million were sales of infusion sets. For the nine months ended September 30, 2016, sales of pump-related supplies were $14.2 million, of which $8.2 million were sales of cartridges and $5.8 million were sales of infusion sets. The ratio of the number of infusion sets shipped to the number of cartridges shipped increased to 60% in the nine months ended September 30, 2017 from 25% in the same period in ~~2016. Sales of accessories were not significant in either of the reported periods.~~

~~Excluding the impact of the Technology Upgrade Program, the decrease in pump sales was primarily driven by a 19% decrease in aggregate pump shipments from 12,520~~2020.

Other Income (Expense), Net. Total other expense, net for the ~~nine~~three months ended September 30, 2016 to 10,111 for the same period in 2017 for reasons similar to those described in the three month discussion above. Additionally, the period ended June 30, 2016 represented the last period in which all UnitedHealthcare members had access to our products ~~due to their decision to designate one of our competitors as their preferred, in-network durable medical equipment provider of insulin pumps for most customers over the age of 18, which~~March 31, 2021 was ~~effective July 1, 2016. The decrease in pump sales was partially offset by an increase in sales of infusion sets to our distributors, as well as overall pump-related supplies to~~ ~~our growing customer base.~~

~~Sales to distributors accounted for 73% and 74% of our total sales for the nine months ended September 30, 2017 and 2016, respectively.~~

~~Cost of Sales and Gross Profit (Loss)~~. ~~Our cost of sales for the nine months ended September 30, 2017was $40.7 million,~~ ~~resulting in gross profit of $26.6~~$1.9 million compared to ~~$41.8~~$1.2 million ~~cost of sales and gross profit of $13.5 million in 2016. The gross margin~~ ~~for the nine months~~ ~~ended September 30, 2017 was 40% compared to 24%~~ in the same period in ~~2016.~~

~~The increase in our gross profit~~2020. Total other expense, net for the ~~nine~~three months ended ~~September 30, 2017 compared~~March 31, 2021 primarily consisted of $1.5 million of interest expense which includes the amortization of debt issuance costs related to our Notes issued in the ~~same period~~second quarter of 2020, and a $0.7 million revaluation loss from the change in ~~2016 was primarily~~ the ~~result~~fair value of certain warrants. Total other expense, net for the ~~Technology Upgrade Program. During the nine~~three months ended ~~September 30, 2017, our gross profit included $3.5~~March 31, 2020consisted of a $1.9 million ~~that had been deferred~~loss on revaluation from the change in ~~prior periods,~~the fair value of certain warrants, partially offset by $0.3 million incurred for the fulfillment of upgrades. In the same period of 2016, our gross profit was reduced by a net deferral of $7.0 million of pump sales eligible under the Program. Additionally, we recorded a $1.1 million charge in the nine months ended September 30, 2016 for inventory obsolescence as described previously.

Gross profit and gross margin also increased as a result of manufacturing cost improvements, including raw material cost reductions for our pumps and increased cartridge production volumes and cartridge labor and manufacturing efficiencies, as well as a decrease in warranty expense as a result of improvements in our warranty trends and warranty replacement costs.

~~The gross margin was also impacted by an increase in sales of pump-related supplies, which generally have lower gross margins than our insulin pumps.~~

~~Selling, General and Administrative Expenses.~~ ~~SG&A expenses increased 2% to $65.1 million for the nine months ended September 30, 2017 from $63.8 million for the same period in 2016.~~

~~Employee-related expenses for our~~ ~~SG&A~~ ~~functions comprise the majority of the SG&A expenses. The increase in SG&A expenses was primarily the result of~~ ~~a $1.1 million non-cash stock-based compensation charge associated with the suspension of our ESPP in 2017, as well as other net increases in employee expenses of $0.9 million. Other SG&A expenses, including costs for outside services, marketing and promotional activities, tradeshows and travel, decreased $0.7 million between periods.~~

~~Research and Development Expenses. R&D expenses increased 3% to $14.9 million for the nine months ended September 30, 2017 from $14.5 million for the same period in 2016. The increase in R&D expenses was the result of~~ ~~an increase of~~ $0.7 million of ~~employee-related expenses, which includes a $0.4 million~~ ~~non-cash stock-based compensation charge~~ ~~associated with the suspension of~~ interest earned on our ~~ESPP in 2017. This increase was offset by a reduction in non-employee-related expenses, primarily consulting~~cash equivalents and ~~supplies, for the advancement of our product pipeline.~~

~~Other Income and Expense~~. Other expense for the nine months ended September 30, 2017 and 2016 was $8.4 million and $4.2 million, respectively. Other expense for both periods was primarily comprised of interest expense associated with the Term Loan Agreement. The outstanding principal balances under the Term Loan Agreement were $82.3 million and $45.8 million as of ~~September 30, 2017~~ ~~and September 30, 2016, respectively. Other income for both periods presented was not significant.~~

short-term investments.

Liquidity and Capital Resources

~~At September 30, 2017,~~

As of March 31, 2021, we had ~~$22.5~~$513.4 million in cash and cash equivalents and short-term investments. We believe that our cash and cash equivalents and short-term investments ~~which included $10.0 million of restricted~~ ~~cash as required by~~balance is sufficient to satisfy our liquidity requirements for at least the ~~Term Loan Agreement. At~~next 12 months from the date the financial statements in this Quarterly Report were issued, our management believed that we did not have sufficient cash to fund our operations for the next twelve months without additional financing and, therefore, we concluded there was substantial doubt about our ability to continue as a going concern within one year after the date the financial statements were issued. ~~The financial statements included in this Quarterly Report have been prepared on a basis that assumes that we will continue as a going concern,~~ which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. This financial information and these financial statements do not include any adjustments that may result from the outcome of this ~~uncertainty.~~

filing.

Historically, our principal sources of cash have included cash collected from product sales, private ~~placements~~ and public offerings of equity securities, exercises of employee stock awards, and debt financing. Since the ~~Term Loan Agreement,~~beginning of 2020, we completed the following financing activities:

•In May 2020, we raised $278.7 million in net proceeds from the issuance of the Notes, and ~~cash collected~~used $34.1 million of the net proceeds to purchase capped call options in connection with the transaction (see Note 7, “Convertible Senior Notes”).

•From January 2020 through March 2021, we issued 2,449,891 shares of common stock upon the exercise of stock options, and 302,509 shares of common stock were purchased under our 2013 Employee Stock Purchase Plan, which generated aggregate proceeds of $70.0 million.

•From January 2020 through March 2021, we received proceeds of $1.4 million from ~~product sales.~~ the exercise of 387,615 outstanding warrants which were originally issued in connection with our registered public offering of common stock in October 2017. As of March 31, 2021, there were warrants to purchase 29,700 shares outstanding relating to the October 2017 offering.

•From January 2020 through March 2021, we received proceeds of $2.0 million from the exercise of 68,104 outstanding warrants which were originally issued between August 2011 and August 2012. As of March 31, 2021, there were warrants to purchase 30,861 shares outstanding relating to these issuances.

Our historical cash outflows have primarily been associated with cash used for operating activities such as the development and commercialization of our products, the expansion and support of our sales, marketing, clinical and ~~marketing infrastructure, increase in~~customer support organizations, the expansion of our R&D activities, the expansion of our commercial activities to select international geographies, the acquisition of intellectual property, expenditures related to ~~equipment and improvements used to increase~~increases in our manufacturing capacity and ~~improve~~improvements to our manufacturing efficiency, overall ~~facility~~ expansion of our facilities and operations, and other working capital needs.

~~During 2017, we have completed~~

We expect our sales performance and the ~~following financings:~~

~~In March 2017, we completed a registered public offering~~resulting operating income or loss, as well as the status of ~~1,850,000 shares~~each of our ~~common stock at~~new product development programs, will significantly impact our cash flow from operations, liquidity position and cash management decisions. In light of the COVID-19 global pandemic, we are prudently managing our use of cash. We will continue to evaluate new information as it becomes available and make changes as are considered necessary.

Table of contents

The following table shows a ~~public offering price~~summary of ~~$12.50 per share. The gross proceeds to us from the offering were approximately $23.1 million, before deducting underwriting discounts and commissions and other offering expenses payable by us.~~

~~During~~our cash flows for the three months ended ~~September 30, 2017, we sold 464,108 shares~~March 31, 2021 and 2020:


	Three Months Ended March 31,
(in thousands)	2021		2020
Net cash provided by (used in):
Operating activities	$	28,685	$	(20,631)
Investing activities	(6,094)		32,916
Financing activities	3,573		11,481
Effect of foreign exchange rate changes on cash	14		(456)
Net increase in cash and cash equivalents	$	26,178	$	23,310

Operating Activities. Net cash provided by operating activities was $28.7 million for the three months ended March 31, 2021, compared to $20.6 million net cash used by operating activities in the same period in 2020. The improvement to net cash provided by operating activities for 2021 compared to 2020 was driven by higher sales and gross profit in 2021, which resulted in a reduction in net loss when adjusted for non-cash expenses, particularly stock-based compensation expense, as well as working capital changes. Working capital changes during the first three months of 2021 primarily consisted of increases in inventories, accounts payable and deferred revenue related to the growth in our business, and a decrease in accounts receivable related to the timing of sales. Accounts receivable decreased to $73.7 million at March 31, 2021 from $82.2 million at December 31, 2020, as a result of higher sales in the fourth quarter of 2020 as compared to the first quarter of 2021. Inventories increased to $66.8 million at March 31, 2021 from $63.7 million at December 31, 2020, primarily to support the growth in our business.

Investing Activities. Net cash used in investing activities was $6.1 million for the three months ended March 31, 2021, which was primarily related to $154.3 million of purchases of short-term investments, and $3.5 million in purchases of property and equipment, offset by $151.7 million in proceeds from maturities and sales of short-term investments.Net cash provided by investing activities was $32.9 million for the three months ended March 31, 2020, which was primarily related to $49.4 million in proceeds from maturities and sales of short-term investments, offset by $9.7 million of purchases of short-term investments and $6.8 million in purchases of property and equipment.

Financing Activities. Net cash provided by financing activities was $3.6 million for the three months ended March 31, 2021, which primarily consisted of $3.1 million in proceeds from the issuance of common stock under our ~~ATM offering program at prices ranging from $5.64 to $10.54. The gross~~stock plans. Net cash provided by financing activities was $11.5 million for the three months ended March 31, 2020, which primarily consisted of proceeds ~~to us~~ from the ~~offering were $4.3 million, before deducting underwriting discounts~~issuance of common stock under our stock plans.

Our liquidity position and ~~commissions~~capital requirements are subject to fluctuation based on a number of factors, including 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 the exercise of outstanding warrants, and proceeds from the issuance of equity awards pursuant to employee stock plans;

•fluctuations in gross margins and operating margins;

•fluctuations in working capital, including changes in accounts receivable, inventories, accounts payable, employee-related liabilities, and operating lease liabilities; and

•the impacts and disruptions caused by the COVID-19 global pandemic.

Table of contents

Our primary short-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 ~~offering expenses payable by us.~~

assets;

•additional facilities leases and related tenant improvements, and manufacturing equipment to support business growth and increase manufacturing capacity; and

•payments under licensing, development and commercialization agreements.

~~On October 17, 2017,~~Although we ~~completed~~believe the ~~October Financing, pursuant to which~~foregoing items reflect our most likely uses of cash in the short-term, we ~~sold 4,630,000 shares~~cannot predict with certainty all of our ~~common stock, Series A warrants~~particular cash uses or the timing or amount of cash used. In addition, from time to ~~purchase up~~time we may consider opportunities to ~~4,630,000 shares~~acquire or license other products or technologies that may enhance our product platform or technology, expand the breadth of our ~~common stock~~markets or customer base, or advance our business strategies. Any such transaction may require short-term expenditures that may impact our capital needs. If for any reason our cash and ~~Series B warrants~~cash equivalents balances, or cash generated from operations is insufficient to ~~purchase up~~satisfy our working capital requirements, we may in the future be required to ~~4,630,000 shares~~seek additional capital from public or private offerings of our ~~common stock at a public offering price of $3.50 per share and accompanying warrants. The gross proceeds~~equity or debt securities, or we may elect to usborrow capital under new credit arrangements or from ~~the October Financing were approximately $16.2 million, before deducting underwriting discounts and commissions and~~ other ~~offering expenses payable by us. Each series of warrants, if exercised by all holders in full,~~sources. We may ~~result in additional gross proceeds to us of $16.2 million.~~

~~Management currently believes that it will be necessary for us~~also seek to raise additional ~~funding. However,~~capital from such offerings or borrowings on an opportunistic basis when we ~~expect~~believe there are suitable opportunities for doing so. If we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, we may incur significant financing or debt service costs, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. There can be no assurance that financing will be available on acceptable terms, or at all. Our ability to raise additional financing may be negatively impacted by a number of factors, including our recent and projected financial results, recent changes in and volatility of our stock price, perceptions about the ~~recent completion~~dilutive impact of a public offering of our common stock and warrants, concerns regarding our ability to maintain the continued listing of our common stock on NASDAQ, our current level of indebtedness and debt service costs, our conclusion that there is substantial doubt about our ability to continue as a going concern,financing transactions, the competitive environment in our industry, ~~and accounting complexities brought about by our Technology Upgrade Program. There can be no assurance that we will be able to complete any financing on acceptable terms or at all.~~

~~We expect that,~~uncertainties regarding the regulatory environment in addition to the outcome of any additional financing activities, our sales performance and the resulting operating income or loss, as well as the status of each of our new product development programs, will significantly impact our cash management decisions.

~~The following table shows a summary of our cash flows for the nine months ended September 30, 2017 and 2016:~~

Nine Months Ended September 30,

(in thousands)
2017

2016

Net cash provided by (used in):

Operating activities
$
(54,495
)

$
(47,591
)
Investing activities

4,201

5,873

Financing activities

17,695

16,586

Total
$
(32,599
)

$
(25,132
)

~~Operating activities~~. Net cash used in operating activities was $54.5 million for the nine months ended September 30, 2017, compared to $47.6 million for the same period in 2016. The increase in net cash used in operating activities was ~~primarily associated with changes in working capital, partially offset by a decrease in net loss.~~The changes in working capital were primarily due to decreases in deferred revenue and guarantee liabilities associated with the Technology Upgrade Program, lower cash collections from accounts receivable and increased inventory associated with the launch of t:lock, as well as other net changes associated with the timing of payments.

~~Investing activities~~. Net cash provided by investing activities was $4.2 million for the nine months ended September 30, 2017, which was primarily related to sales and maturities of short-term investments of $8.5 million, partially offset by the purchase of $4.3 million of ~~property and equipment~~. ~~Net cash provided by investing activities was $5.9 million for the~~ ~~nine months ended~~ September 30, 2016, which was primarily related to the purchase of $25.9 million of short-term investments and $6.2 million of property and equipment, offset by proceeds from sales and maturities of short-term investments of $38.0 million.

~~Financing activities.~~ Net cash provided by financing activities was $17.7 million for the nine months ended September 30, 2017, which was primarily the result of net proceeds of approximately $25.7 million from the issuance of common stock~~, partially offset by an increase in our restricted cash balance of $8.0 million as required by the Fourth Amendment to our Term Loan Agreement~~. Net cash provided by financing activities was $16.6 million for the nine months ended September 30, 2016, which was primarily the result of net proceeds of $15.0 million under the Term Loan Agreement and ~~$1.6 million in proceeds from the issuance of common stock associated with our ESPP, as well as the exercise of outstanding stock options and warrants.~~

~~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 and the collection of receivables generated from those sales from period to period;~~

●

~~the timing and amount of any additional financings, including the exercise of the warrants issued in the October Financing;~~

●

~~fluctuations in gross margins and operating margins; and~~

●

~~fluctuations in working capital.~~

~~Our primary short-term capital needs, which are subject to change, include expenditures related to:~~

●

~~support of our commercialization efforts related to our current and future products;~~

●

~~expansion of our manufacturing facilities and improvements in our manufacturing efficiency;~~

●

~~new research and product development efforts, including clinical trial costs;~~

●

~~payment of interest due under the Term Loan Agreement;~~

●

~~acquisition of equipment and other fixed assets; and~~

●

~~payments under our licensing, development and commercialization agreements.~~

Although we believe the foregoing items reflect our most likely uses of cash in the short-term, we cannot predict with certainty all of our particular short-term cash uses or the timing or amount of cash used. We expect we will need to raise additional funding in order to continue as a going concern, meet our minimum liquidity requirements, and execute on our business strategy. We intend to seek additional capital from public or private offerings of our capital stock (including pursuant to our ATM offering) or we may elect to borrow additional amounts under new debt financing arrangements or from other sources. If we issue equity or convertible debt securities to raise additional funding, our existing stockholders may experience dilution, we may incur significant financing costs, and the new equity or convertible debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we issue debt securities to raise additional funding, we would incur additional debt service obligations, we could become subject to additional restrictions limiting our ability to operate our business, and we may be required to further encumber our assets. Our ability to continue as a going concern, meet our minimum liquidity requirements, satisfy the covenants under the Term Loan Agreement, and execute our business strategy is dependent on our ability to raise additional capital, of which there can be no assurance. If we cannot generate sufficient revenues from the sale of our products or secure additional financing on acceptable terms, we may be forced to significantly alter our business strategy, substantially curtail or modify our current operations, or cease operations altogether.

~~Indebtedness~~

~~Term Loan Agreement~~

~~We had $82.3 million and $81.1 million of aggregate borrowings outstanding under the Term Loan Agreement at September 30, 2017 and December 31, 2016, respectively.~~

~~Under~~ the Term Loan Agreement, interest is payable, at our option, (i) in cash at a rate of 11.5% per annum or (ii) at a rate of 9.5% of the 11.5% per annum in cash and 2.0% of the 11.5% per annum to be added to the principal of the loan and subject to accruing interest. Interest-only payments are due quarterly on March 31, June 30, September 30 and December 31 of each year of the interest-only payment period, which ends on December 31, 2019. The principal balance is due in full on the maturity date of the Term Loan Agreement, which is March 31, 2020. We had elected to pay interest in cash at a rate of 11.5% per annum through September 30, 2015. Beginning October 1, 2015, we elected to pay interest in cash at a rate of 9.5% per annum and to have 2.0% per annum added to the principal of the loan. As a result, $2.3 million was added to the principal of the loan since October 1, 2015, which we ~~refer to as PIK Loans.~~

~~The loan is collateralized by all~~operate and conditions impacting the capital markets more generally, including economic weakness, inflation, political instability, war and terrorism, natural disasters, incidence of illness or disease, or other events beyond our ~~assets. The principal financial covenants require that we attain minimum annual revenues of $80.0 million in 2017 and $95.0 million each year thereafter until the end of the term of the loan.~~

In connection with the Third Amendment, we previously agreed to pay, on the earlier of (i) the maturity date of the Term Loan Agreement, which is March 31, 2020, (ii) the date that the loan under the Term Loan Agreement becomes due, and (iii) the date on which we make a voluntary pre-payment of the loan, a financing fee equal to 3.0% of the sum of (x) the aggregate amount drawn under the Third Amendment, and (y) any PIK Loans issued in relation to the Third Amendment, which we refer to as the Back End Financing Fee.

The audit report and opinion of our independent registered public accounting firm contained in the Annual Report includes an explanatory paragraph that describes conditions that raise substantial doubt about our ability to continue as a going concern. This explanatory paragraph constitutes a potential event of default under the Term Loan Agreement. On March 7, 2017, we entered into the Fourth Amendment, which included a limited waiver of the potential event of default. In consideration for the waiver, we agreed to: (i) issue the Capital Royalty Warrant, (ii) increase our restricted cash balance from $2.0 million to $10.0 million, (iii) provide Capital Royalty Partners the same information we make available to our board of directors, subject to limited exceptions, and (iv) not incur additional third party indebtedness secured solely by accounts receivable, inventory and cash. In addition, the Fourth Amendment includes a covenant requiring us to complete financings in which our gross proceeds from the sale of equity securities is at least $30.0 million, no later than January 15, 2018. As a result of the public offering of our common stock in March 2017, the sale of our common stock pursuant to our ATM offering, and the public offering of our common stock and warrants in the October Financing, we have satisfied our obligations pursuant to this equity financing covenant, although we remain subject to additional covenants.

Pursuant to the Fourth Amendment, we have agreed to increase the Back End Financing Fee to 5.0% of the entire aggregate principal amount of borrowings outstanding, including total PIK Loans issued, under the Term Loan Agreement. The Back End Financing Fee is payable at maturity of our loans and on the principal amount of any loans for which we make an optional prepayment, and may be payable in connection with asset sales not permitted under the Term Loan Agreement or in connection with a change of control. ~~As of September 30, 2017, we had accrued $4.1 million for the Back End Financing Fee.~~

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with ~~U.S. GAAP.~~accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of these 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 consolidated financial statements and accompanying notes as of the date of the consolidated 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. Actual results may differ from these estimates.

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 ~~Annual Report.~~

year ended December 31, 2020, other than the adoption of ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity effective January 1, 2021(see Note 7, “Convertible Senior Notes”).

Off-Balance Sheet Arrangements

As of ~~September 30, 2017,~~March 31, 2021, we did not have any off-balance sheet arrangements.

~~Item 3.~~

~~Quantitative and Qualitative Disclosures about~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

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We invest our excess cash primarily in commercial paper, ~~government-sponsored~~corporate debt securities, U.S. Government-sponsored enterprise securities and U.S. ~~government treasury~~Treasury securities. Some of the financial instruments in which we invest have market risk associated with them, 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 potentially subject us to credit risk, in that the value of the instrument may fluctuate based on the issuer’s ability to pay.

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.

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. As a result of the COVID-19 global pandemic and the perceived increased credit risks associated with certain securities, credit rating agencies have issued downgrades and revised outlooks to negative for a number of issuers of the debt securities held in our short-term investments portfolio. Unrealized losses on available-for-sale debt securities at March 31, 2021 were not significant. Based on the credit quality of the available-for-sale debt securities that are in an unrealized loss position, and our current estimates of future cash flows to be collected from those securities, we believe the unrealized losses are not credit losses (see Note 3, “Short-Term Investments”).

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 any significant impact on the realized value of our investment portfolio. If a 10% change in interest rates were to have occurred on ~~September 30, 2017~~,March 31, 2021, this change would not have had a material effect on the fair value of our investment portfolio as of that date.

~~The~~

In May 2020, the we issued $287.5 million principal amount of Convertible Senior Notes, which bear interest at a fixed rate ~~under the Term Loan Agreement is fixed and~~of 1.50% per year. Accordingly, we are not subject to ~~changes in market~~ interest ~~rates.~~

rate risk as a result of the Convertible Senior Notes (see Note 7, “Convertible Senior Notes”).

Foreign Currency Exchange Rate Risk

Our operations are primarily located in the United States, and nearly all of our sales since inception have been made in U.S. dollars. With the exception of a portion of our sales in Canada, our sales outside of the United States are currently made to independent distributors under agreements denominated in U.S. dollars. Accordingly, we believe we do not currently have any material exposure to foreign currency rate fluctuations. ~~From~~As our business in markets outside of the United States increases, we may be exposed to foreign currency exchange risk. We believe this is currently limited to our operations in Canada, where fluctuations in the rate of exchange between the U.S. dollar and the Canadian dollar could adversely affect our financial results. In addition, from time to time, we may have foreign currency exchange risk ~~associated with currency exposure~~ related to existing assets and liabilities, 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 ~~risks.~~risk. In general, we may hedge material foreign currency exchange exposures up to 12 months in advance. However, we may choose not to hedge some exposures for a variety of reasons, including prohibitive economic costs.

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~~Item 4.~~

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 Securities ~~and~~ Exchange Act of 1934, as amended ~~(the “Exchange Act”)~~ (Exchange Act) that are designed to ensure that information required to be disclosed in ~~our~~the periodic and current reports ~~that~~ we file with the ~~SEC~~Securities and Exchange Commission (SEC) 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 for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As of ~~September 30, 2017,~~March 31, 2021, 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 the reasonable assurance level as of ~~September 30, 2017.~~

March 31, 2021.

Changes in Internal Control over Financial Reporting

T~~here~~

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 ~~September 30, 2017~~March 31, 2021 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

In April 2020, we were named as a defendant in four federal class action lawsuits relating to a data breach we experienced in January 2020, each of which was subsequently dismissed.

In addition, in May 2020 we were named as a defendant in three California state court class action lawsuits arising from the same data breach. Collectively, these lawsuits seek 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 pending 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 alleges violations of the Confidentiality of Medical Information Act (CMIA), California Consumer Privacy Act (CCPA), California’s Unfair Competition Law (UCL), and breach of contract. We filed a demurrer seeking dismissal of all claims, which was heard by the Court on October 27, 2020, and which resulted in the following outcome: (i) the demurrer of the CMIA claim was denied; (ii) the demurrer of the CCPA claim was sustained; and (iii) the demurrer of the UCL and contract claims were sustained with leave to amend the pending complaint. A second demurrer was heard by the Court on March 29, 2021 with the following outcome: (i) the demurrer of the CMIA claim was denied; and (ii) the demurrer of the UCL and contract claims were narrowed in scope to dismiss three plaintiffs for failing to allege cognizable damages or injuries-in-fact, resulting in two remaining plaintiffs.

In September 2020, we were named as a defendant in a lawsuit entitled Buck Walsh, individually and on behalf of others similarly situated v. Tandem Diabetes Care, Inc., whichwas filed in the Superior Court of the State of California in the County of San Diego. The alleged violations include business and professions code and labor code violations for failure to compensate wages, unpaid meal and rest periods, and failure to reimburse for necessary business-related expenses. The proposed class of plaintiffs includes hourly paid or non-exempt employees of the Company who were employed from April 6, 2016 through the date of adjudication.

Although we intend to vigorously defend against these claims, there is no guarantee that we will prevail. We are presently unable to determine the ultimate outcome of these lawsuits or determine the amount (or range) of possible losses associated with the lawsuits.

From time to time, we are involved in various other legal proceedings, ~~disputes~~regulatory matters, and other disputes or claims arising infrom or related to the ~~ordinary~~normal course of our ~~business.~~business activities, including actions with respect to intellectual property, data privacy, employment, regulatory, product liability and contractual matters. Although the results of legal proceedings, disputes and other claims cannot be predicted with certainty, we believe we are not currently ~~believe that the final outcome of these ordinary course matters will not,~~a party to any legal proceeding(s) which, if determined adversely to us, would, individually or ~~in the aggregate,~~taken together, have a material adverse effect on our business, operating results, financial ~~position, results of operations~~condition or cash flows. However, regardless of the merit of the claims raised or the outcome, legal proceedings ~~can~~may have an adverse impact on us ~~because~~as a result of ~~legal~~defense and settlement costs, diversion of management time and resources, and other factors.

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Item 1A. Risk Factors

The following sets forth certain risk factors associated with our business. The risk factors set forth below marked with an asterisk (*) next to the title contain changes to the description of the risk factors associated with our business previously disclosed in Part I, Item 1A of the Annual Report.

An investment in our common stock, or in securities convertible into or exchangeable for our common stock, involves ~~risks.~~a high degree of risk. You should carefully consider ~~carefully~~ the risks described below, together with all of the other information included in this Quarterly Report, as well as in our other filings with the SEC, in evaluating our business. If any of the following risks actually occur, our business, financial condition, operating results and future prospects could be materially and adversely affected. In that case, the trading price of our common stock may decline and you might lose all or part of your investment. The risks described 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. Certain statements below are forward-looking statements.

For additional information, see Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report.

The risk factors set forth below marked with an asterisk (*) next to the title contain changes to the description of the risk factors previously disclosed in Part I, Item 1A of our Annual Report.

Summary of Risk Factors

An investment in our common stock, or in securities convertible into or exchangeable for our common stock, involves a high degree of risk. Below is a summary of material factors that make an investment in our securities speculative or risky. Importantly, this summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, as well as other risks that we face, can be found below, after this summary.

Risks ~~Relating~~Related to Our Business and Our Industry

•We have incurred significant operating losses since inception and may not achieve sustained profitability.

•We currently rely on sales of insulin pump products to generate a significant portion of our revenue, and any factors that negatively impact sales of these products may adversely affect us.

•Public health threats, such as the COVID-19 global pandemic, have had a material adverse effect on our business.

•Our ability to maintain and grow our revenue depends on retaining a high percentage of our customer base.

•We operate in a very competitive industry.

•Competitive products or other technological developments may render our products obsolete or less desirable.

•The failure of our insulin pump and related products to achieve and maintain market acceptance could result in us achieving sales below our expectations.

•Failure to secure or retain adequate coverage or reimbursement for our products by third-party payors could adversely affect our business.

•We may face unexpected challenges in marketing and selling our products, and training new customers on the use of our products.

•We may fail to meet our sales forecasts if we are unable to maintain our existing sales, marketing, clinical and customer service infrastructure.

•If we are unable to maintain or expand our network of independent distributors, our sales may be negatively affected.

•The third parties on which we rely to assist us with our pre-clinical development or clinical trials may not perform as expected.

•Our failure to successfully complete clinical trials and development-stage testing could prevent us from obtaining regulatory approvals for or commercializing our products.

•If assumptions about the potential market for our products are inaccurate our business may be adversely affected.

•Our ability to achieve profitability has dependencies on our ability to reduce the per-unit cost of our products.

•Manufacturing risks may adversely affect our ability to manufacture products.

•We depend on a limited number of third-party suppliers for certain components and products.

•Any disruption at one of our facilities could adversely affect our business and operating results.

•We may not experience the anticipated operating efficiencies from the transition of our manufacturing and warehousing operations.

•If we do not enhance our product portfolio to meet the demands of our market, we may fail to effectively compete.

•Concerns regarding the safety and efficacy of our products could limit sales and cause negative effects to our business.

•We may enter into collaborations or partnerships with third parties that may not result in commercially viable products or the generation of significant revenues.

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•We operate our business in regions subject to natural disasters and other catastrophic events.

•A security breach or other significant disruption to our information technology systems could materially disrupt our operations or result in the unauthorized disclosure of sensitive information.

•We may be unable to retain and motivate our senior management or recruit additional qualified personnel.

•We may experience a variety of risks associated with international operations.

•Our failure to successfully manage the integration of acquisitions could have an adverse effect on our business.

Risks Related to Our Future Financings and Financial Results

•We may need to raise additional funds in the future and funds may not be available on commercially reasonable terms.

•Our operating results may fluctuate significantly from quarter to quarter.

Risks Related to Our Intellectual Property and Potential Litigation

•Our ability to comprehensively protect our intellectual property and proprietary technology is uncertain.

•Patent litigation is not uncommon in the medical device industry, and we may be subject to such litigation.

•We may be subject to damages resulting from claims that we have wrongfully used or disclosed patient health information or trade secrets, or are in breach of non-competition or non-solicitation agreements.

•We may incur product liability losses, and insurance coverage may be inadequate or unavailable to cover these losses.

Risks Related to Our Legal and Regulatory Environment

•Our products and operations are subject to extensive governmental regulation, and regulatory approvals could be denied or delayed.

•New products or modifications to our existing products may require new regulatory approvals, or require us to cease marketing or recall modified products.

•A recall of our products, or the discovery of safety issues with our products, could have a negative impact on us.

•Our failure to comply with foreign, U.S. federal and state fraud and abuse laws could have an adverse impact on us.

•We may be liable if we engage in the promotion of the off-label use of our products.

•Legislative or regulatory healthcare reforms may result in downward pressure on the price of and decrease reimbursement for our products.

Risks Related to Our Common Stock

•The price of our common stock may continue to fluctuate significantly.

•Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

•We may fail to maintain an effective system of internal control over financial reporting.

Risks Related to Our Convertible Senior Notes

•The Notes could adversely affect our financial condition.

•We may not have sufficient cash flow from our business to service the Notes.

•We may take actions which could limit our ability to make payments on the Notes.

•We may not be able to raise the funds necessary to repurchase or settle conversions of the Notes.

•Conversion of the Notes may dilute the ownership interest of existing stockholders.

Risks Related to Our Business and ~~our~~Our Industry

We have incurred significant operating losses since inception and cannot assure you that we will achieve sustained profitability.*

Since our inception in January 2006, we have incurred a significant net loss. As of ~~September 30, 2017,~~March 31, 2021, we had an accumulated deficit of ~~$466.2~~$655.2 million. To date, we have ~~financed~~funded our operations primarily through cash collected from product sales, private and public ~~and private sales~~offerings of our equity securities, and debt ~~financing with Capital Royalty Partners II, L.P. and its affiliated funds, or Capital Royalty Partners, and sales of our products.~~financing. We have devoted substantially all of our resources to the design, development and commercialization of our products, the scaling of our manufacturing and business operations, and ~~commercial organization,~~ the research and development of our current products and products under ~~development, and the assembly of a management team to manage our business.~~

development.

We began commercial sales of our first ~~commercial~~ product, t:slim, in August 2012 and our current flagship pump platform, t:slim X2, in October 2016. The t:slim X2 insulin pump now represents 100% of new pump shipments. Until the third quarter of ~~2012. We began commercial sales~~

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2018 we were selling our products only in the ~~second quarter of 2015~~United States and ~~t:slim G4~~have since launched our products in the third quarter of 2015. In October 2016, we discontinued new shipments of t:slim and launched t:slim X2, our next-generation flagship pump. In August 2017, we commenced commercial sales of t:slim X2 with G5 integration and discontinued new sales of t:slim G4. select international geographies.

Since the first quarter of 2013, we have been able to manufacture and sell our insulin pump products at a cost and in volumes sufficient to allow us to achieve a positive overall gross margin. For the years ended December 31, ~~2016~~2020 and ~~2015,~~2019, our gross profit was ~~$23.6~~$194.2 million and ~~$26.6~~$89.8 million, respectively. Although we have achieved a positive overall gross margin and have substantially reduced our operating loss, we still operate at a ~~significant~~ net loss on an annual basis and expect that we ~~will~~may continue to do so for the ~~next several years.~~

foreseeable future.

To implement our business strategy and achieve consistent profitability, we need to, among other things, increase sales ~~and gross profits~~ of our products and the gross profit associated with those sales, maintain an appropriate customer service and support infrastructure, fund ongoing ~~research and development~~R&D activities, ~~improve and expand~~create additional efficiencies in our manufacturing ~~capabilities,~~processes while adding to our capacity, and obtain regulatory clearance or approval to commercialize our products currently under ~~development. Our~~development both domestically and internationally. We expect our expenses ~~may~~will continue to increase as we pursue these objectives and make investments in our business. Additional increases in our expenses without commensurate increases in sales could significantly increase our operating losses.

The extent of our future operating losses and the timing of our profitability are highly uncertain in light of a number of factors, including the timing of the launch of new products and product features by us and our competitors, market acceptance of our products and competitive products by people with insulin-dependent diabetes, their caregivers and healthcare providers, ~~and~~ the timing of regulatory approval of ~~new products.~~our products and the products of our competitors, the actual efficiencies gained in our manufacturing processes, and the scope and duration of the impacts caused by the COVID-19 global pandemic. Any additional operating losses will have an adverse effect on our stockholders’ equity, and we cannot assure you that we will ~~ever~~ be able to ~~achieve or~~ sustain profitability.

We currently rely on sales of insulin ~~pumps~~pump products to generate a significant portion of our revenue, and any factors that negatively impact sales of ~~our insulin pump~~these products may adversely affect our business, financial condition and operating results.*

We generate ~~a significant majority~~nearly all of our revenue from the sale of ~~our insulin pump products. During 2017, our insulin pump products have included our~~ t:slim X2 ~~t:flex~~insulin pumps and ~~t:slim G4 products. In August 2017, we received FDA approval for t:slim X2 with G5,~~the related insulin cartridges and ~~discontinued sales of t:slim G4 in connection with our launch of t:slim X2 with G5 during the three months ended September 30, 2017.~~infusion sets. Sales of ~~our insulin pumps~~these products may be negatively impacted by many factors, including:

●

~~the potential that other technological breakthroughs for the monitoring, treatment or prevention of diabetes may render our insulin pump products obsolete or less desirable;~~

•market acceptance of the insulin pumps and related products manufactured and sold by our key competitors, including Medtronic;

●

~~adverse regulatory or legal actions relating to our insulin pump products or similar products or technologies;~~

•the potential that breakthroughs for the monitoring, treatment or prevention of diabetes may render our insulin pumps obsolete or less desirable;

●

failure of our Tandem Device Updater to accurately and timely provide customers with remote access to new product features and functionality as anticipated, or our failure to obtain regulatory approval for any such updates;

•adverse regulatory or legal actions relating to our products, or similar products or technologies of our competitors;

●

changes in reimbursement rates or policies relating to insulin pumps or similar products or technologies by third-party payors, such as the decision by UnitedHealthcare during 2016 that restricted a majority of its members from accessing our pumps;

•failure of our Tandem Device Updater to accurately and timely provide customers with remote access to new product features and functionality as anticipated, or our failure to obtain regulatory approval for any such updates;

●

~~our inability to enter into contracts with third-party payors on a timely basis and on acceptable terms;~~

•changes in reimbursement rates or policies relating to insulin pumps or similar products or technologies by third-party payors;

●

~~problems arising from the expansion of our manufacturing capabilities, or destruction, loss, or temporary shutdown of our manufacturing facility; and~~

•our inability to enter into contracts with third-party payors on a timely basis and on acceptable terms;

●

~~claims that any of our insulin pump products, or any component thereof or related supplies, infringes on patent rights or other intellectual property rights of third parties.~~

•problems arising from the expansion of our manufacturing capabilities and commercial operations, or destruction, loss, or temporary shutdown of our manufacturing facilities;

•concerns regarding the perceived safety or reliability of any of our products, or any component thereof; and

•claims that any of our products, or any component thereof, infringes on patent rights or other intellectual property rights of third parties.

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In addition, sales of any of our current or future insulin pump products with CGM integration are subject to the continuation of our applicable agreements with Dexcom, Abbott, or other third parties which, under some circumstances, ~~are~~may be subject to termination, ~~by Dexcom,~~ with or without cause, on relatively short notice.

~~Furthermore, sales~~ Sales of our current or future products may also be negatively impacted in the event of any regulatory or legal actions relating to CGM products that are compatible with our pumps, or in the event of any disruption to the availability of the applicable CGM-related supplies, such as sensors or transmitters, in a given market in which our products are sold. Sales of our products may also be adversely impacted ~~by negative perceptions regarding~~if the CGM products that are compatible with our ~~financial stability relative~~pumps are not viewed as superior to that of our competitors, and our ability to sustain our business operations on a long-term basis. These perceptions may cause people with insulin-dependent diabetes, their caregivers and healthcare providers, as well as independent distributors and third-party payors, to question our ability to continue to sellcompeting CGM products in markets where our products ~~provide customer service, support our commercial organization, and fulfill our strategic objectives. These concerns may arise from a number~~are sold, or if the price of ~~factors, including our recent and projected financial results, recent changes~~these products is not competitive with similar products available in ~~and volatility of our stock price, concerns regarding our ability to maintain~~ the continued listing of our common stock on the NASDAQ Global Market, or NASDAQ, perceptions about the recent completion of a public offering of our common stock and warrants, our current level of indebtedness and debt service costs, our conclusion that there is substantial doubt about our ability to continue as a going concern, the competitive environment in our industry, and accounting complexities brought about by our Technology Upgrade Program, and uncertainties regarding the regulatory environment. Any such concerns, whether actual or perceived, could cause consumers to delay the purchase of our products or to purchase competitive products.

market.

Because we currently rely on sales of our t:slim X2 insulin pump and related products to generate a significant majority of our revenue, any factors that negatively impact sales of these products (or negatively impact the products or components integrated with these products), or result in sales of these products increasing at a lower rate than expected, could adversely affect our business, financial condition and operating results.

We believe the COVID-19 global pandemic has had, and that it may continue to have, an adverse impact on sales of our products. For instance, we have seen examples of customers delaying their purchasing decisions or physicians pausing prescriptions for our products. It could also have the effect of magnifying the negative impact of any of the factors described above.

Public health threats, such as the COVID-19 global pandemic, have had and could continue to have a material adverse effect on our operations, the operations of our business partners, and the global economy as a whole.*

Public health threats and other highly communicable diseases and outbreaks could adversely impact our operations, the operations of our customers, suppliers, distributors and other business partners, as well as the healthcare system in general. For example, the COVID-19 global pandemic, which is currently affecting numerous countries throughout the world, has resulted in a rapid and sustained rise in unemployment rates and decreases in global economic activity, and the scope of the COVID-19 global pandemic and its impacts is continuing to fluctuate, and in some instances worsen, in various regions worldwide. While the overall negative impact from the COVID-19 global pandemic is difficult to estimate, we anticipate that our sales and operating results will continue to be adversely impacted in future periods and subject to unpredictable variability. In addition, the rise in unemployment and decreases in economic activity due to the COVID-19 global pandemic may negatively impact the affordability of our products for certain customers, which could reduce demand for our products. Further, certain development activities originally planned to occur during 2020, such as human factors studies associated with our product development efforts and activities to support the manufacturing scale-up for new products, were modified or delayed due impacts of the COVID-19 global pandemic, which has impacted our development timelines and regulatory strategies and also could have a negative impact on our product commercialization efforts and the future demand for our products.

The COVID-19 global pandemic, or other similar outbreaks or epidemics, may have an adverse effect on the overall productivity of our workforce, and we expect to continue to take extraordinary measures to protect the health and safety of our employees and our business partners and reduce the risk of disruptions to our operations. For example, we continue to have restrictions on non-essential employee travel and on non-essential visitors to our facilities, and many of our employees who are able to perform their job function outside of our facilities remain in a remote work environment. For our field-based sales and clinical employees, we initially discontinued all in-person activities and began utilizing technology to remotely engage healthcare providers and customers. Where permitted, in-person activities have resumed on a limited basis, though the scope and scale have been limited and we still rely heavily on remote engagement. For our employees in manufacturing and warehousing positions involved in production and fulfillment operations, we have implemented health and safety protocols in compliance with applicable government orders and expert agency guidance, to include physical distancing requirements, requiring temperature checks for our employees before each shift, and other safety measures. We have also increased our staffing in certain operations in order to mitigate potential risks associated with increases in unplanned employee absences or illness. Our adoption of these preventive measures has resulted in incremental costs that have negatively impacted our gross margin, and the impacts could be more significant in future periods. In addition, for the duration of the COVID-19 global pandemic, some of our employees may be required to continue to operate within a remote work environment for extended periods of time due to illness, travel restrictions, government-imposed orders, school closures or for other reasons, any of which could result in reduced productivity of our workforce. As the COVID-19 global pandemic improves, we anticipate that more of our employees will return to working in our facilities under modified conditions. We are implementing protocols and safety measures and for the time being are continuing to limit the number of employees allowed in our facilities.

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In addition to the foregoing impacts, disruptions from the COVID-19 global pandemic, or other similar outbreaks or epidemics, could result in delays in or the suspension of our manufacturing operations, research and product development activities, regulatory work streams, clinical development programs and other important commercial functions. In particular, if we or our third-party manufacturers are required to delay or suspend our manufacturing operations, we may encounter severe product shortages, which would adversely affect our results of operations and harm our reputation. We are also dependent upon our third-party suppliers for many of our product components and for our manufacturing-related equipment, and the COVID-19 global pandemic could have a material adverse impact on the operations of one or more of our suppliers, which could prevent them from delivering products to us or supporting our requirements for manufacturing-related equipment on a timely basis, or at all. For example, we continue to focus on increasing our cartridge inventory to targeted levels, but there can be no assurance that we or our third-party cartridge manufacturer will be able to manufacture cartridges in the quantities we require to meet product demand. In addition, at various times since 2020 our primary infusion set manufacturer experienced certain inventory constraints. There can be no assurance our supplier will be able to provide infusion sets in the quantities we require to meet customer demand. If we experience these or similar manufacturing challenges in the future, it could have a negative impact on product sales and harm our reputation.

The full extent of the impact of the COVID-19 global pandemic on our business and operations is highly uncertain and subject to change, and will continue to depend on a number of factors, including the scope and duration of the pandemic. Further spread or escalation of the COVID-19 global pandemic, or even the threat or perception that this could occur, or any protracted duration of decreased economic activity, could have a material adverse impact on our business, operations and financial results and could negatively impact or disrupt our plans to have employees return to our facilities.

Our ability to maintain and grow our revenue depends in part on retaining a high percentage of our customer base.*

A key to maintaining and growing our revenue is the retention of a high percentage of our customers due to the potentially significant revenue generated from ongoing purchases of disposable infusion sets, insulin cartridges and other supplies. In addition, our pumps are designed and tested to remain effective for at least four years and a customer may consider purchasing another product from us when the time comes to replace the pump. We have developed retention programs aimed at our customers, their caregivers and healthcare providers, which include training specific to our products, ongoing support by our sales and clinical employees, and technical support and customer service. Demand for our products from our existing customers could decline or could fail to increase as anticipated or projected as a result of a number of factors, including the introduction of competitive products, breakthroughs for the monitoring, treatment or prevention of diabetes, changes in reimbursement rates or policies, manufacturing problems, perceived safety or reliability issues with our products or components or the products of our competitors, the failure to secure regulatory clearance or approvals for products or product features in a timely manner or at all, product development or commercialization delays, the impacts and disruptions caused by the COVID-19 global pandemic, or for other reasons.

Further, the COVID-19 global pandemic has resulted in substantial restrictions on our engagement efforts with customers and healthcare providers, including the cancellation or postponement of company-sponsored educational events, as well as third-party conferences, trade shows and similar events. The impact continues even as some third-party conferences, trade shows and events are being held remotely from time to time, which restricts our engagement with customers and healthcare providers. These restrictions have negatively impacted, and are likely to continue negatively impacting, our ability to promote our new products and features to customers and healthcare providers, which could adversely impact our product sales and customer retention rates, as well as the strength of our brand.

The failure to retain a high percentage of our customers and increase sales to these customers consistent with our forecasts would have a material adverse effect on our business, financial condition and operating results.

We operate in a very competitive industry and if we fail to compete successfully against our existing or potential competitors, ~~many of whom have greater resources than us,~~or if the competitive environment harms our ~~sales~~business partners, our financial condition and operating results may be negatively affected.*

The medical device industry is intensely competitive, subject to rapid change and highly sensitive to the introduction of new products, treatment techniques or technologies, oras well as other activities of industry participants. We believe our products compete, and will continue to compete, directly with a number of traditional insulin pumps, as well as other methods for the treatment of diabetes, including multiple daily injection ~~or MDI,~~(MDI) therapy.

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Our primary competitors are major medical device companies that are ~~either~~ publicly traded companies or divisions or subsidiaries of publicly traded ~~companies. For instance, Medtronic MiniMed,~~companies, including Insulet and Medtronic. In addition, Eli Lilly has announced a ~~division of Medtronic, Inc., has been the market leader for many years and has the majority share of the traditional~~collaboration to commercialize an insulin pump ~~market in the United States. However, the market for~~currently under development. There are also a number of other companies developing and marketing their own insulin delivery systems and/or related software applications, including insulin pumps ~~continues~~and Bluetooth-enabled insulin pens to experience significant changes. For instance, in 2016, Roche Diabetes Care, a division of F. Hoffman-La Roche, discontinued sales of new insulin pumps in the United States. On October 5, 2017, Johnson & Johnson announced that it is planning to discontinue the operations of Animas Corporation and to exit the insulin pump business entirely. Both Roche and Animas designated Medtronic as a preferred partner to facilitate the transition of their respective insulin pump customers.support MDI therapy. While these industry changes are significant, it is ~~too early~~difficult to know how itthey will ~~influence~~impact our business or the competitive landscape in which we operate.

Our key competitors, most notably Medtronic, enjoy several competitive advantages over us, including:

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~~greater financial and human resources for sales and marketing, product development, customer service and clinical resources;~~

•greater financial and human resources for sales and marketing, product development, customer service and clinical resources;

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~~greater financial resources to respond to competitive pressures and regulatory uncertainty;~~

•greater ability to respond to competitive pressures, regulatory uncertainty, or challenges within the financial markets;

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~~established relationships with healthcare providers, third-party payors and regulatory agencies;~~

•established relationships with healthcare providers, third-party payors and regulatory agencies;

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~~established reputation and name recognition among healthcare providers and other key opinion leaders in the diabetes industry;~~

•established reputation and name recognition among healthcare providers and other key opinion leaders in the medical industry generally and the diabetes industry in particular;

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~~greater market share and established base of customers;~~

•larger and more established distribution networks;

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~~products supported by long-term clinical data;~~

•greater ability to cross-sell products or provide incentives to healthcare providers to use their products; and

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~~larger and more established distribution networks;~~

•more experience in conducting R&D, manufacturing, clinical trials, and obtaining regulatory approval or clearance.

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~~greater ability to cross-sell products or provide incentives to healthcare providers to use their products; and~~

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~~more experience in conducting research and development, manufacturing, clinical trials, and obtaining regulatory approval or clearance.~~

In some instances, our competitors offer products that include features that we do not currently offer. For instance, Medtronic offers a traditional insulin pump that is integrated with a CGM system with a threshold suspend feature. In addition, Medtronic recently commenced the commercialization of a new insulin pump product with additional automated insulin delivery functionality and a new CGM system. Similarly, Insulet offers an insulin pump with a tubeless delivery system that does not utilize an infusion ~~set. These specific features may make~~set and Medtronic recently announced the ~~competitive products more desirable~~acquisition of a connected insulin pen delivery device. Additionally, Medtronic recently announced the launch in some European countries of an infusion set that can be worn for up to ~~customers and healthcare providers, which could negatively impact sales of our products.~~

seven days.

In addition, the competitive environment in which we operate has resulted and may continue to result in competitive pressures on our manufacturers, suppliers, distributors, collaboration partners and other business constituents. For example, we have entered into development agreements with Dexcom, which provide us non-exclusive licenses to integrate various generations of Dexcom CGM technology with our insulin pump products. In 2017 Abbott ~~Laboratories recently announced FDA approval of a new~~launched blood glucose ~~monitoring system,~~sensors which ~~is expected to~~ compete with ~~the~~ Dexcom ~~technology.~~CGMs. In June 2020, we entered into an agreement with Abbott to develop and commercialize integrated diabetes solutions. There can be no assurance that our collaborations with Dexcom and Abbott will be successful or that we will not experience delays, business disputes, or other unanticipated challenges. Competitive pressures within our industry, ~~have impacted~~as well as the impacts and ~~may continue to~~disruptions associated with the COVID-19 global pandemic, could negatively impact the financial condition of our business partners ~~which could negatively impact our relationship with these partners,~~and impact their ability to ~~fulfil their~~fulfill contractual obligations to us, which could negative impact our product sales, result in delays in obtaining regulatory approvals for new products, harm our reputation, and result in harm to our financial condition and operating results.

For these and other reasons, we may not be able to compete successfully against our current or potential future ~~competitors. As a result, our product sales may be negatively affected,~~competitors, which could have ana material adverse impact on our financial condition and operating results.

Competitive products or other technological developments and breakthroughs for the monitoring, treatment or prevention of diabetes may render our products obsolete or less desirable.

Our ability to grow our business and achieve our strategic objectives will depend, among other things, on our ability to develop and commercialize products for the treatment of diabetes that offer distinct features and functionality, are easy-to-use, provide superior treatment outcomes, receive adequate coverage and reimbursement from third-party payors, and are otherwise more appealing than available alternatives. Our primary competitors, as well as a number of other companies and medical researchers ~~and pharmaceutical companies~~ are pursuing new delivery devices, delivery technologies, sensing technologies, treatment techniques, procedures, drugs and other therapies for the monitoring, treatment and prevention of diabetes. Any ~~technological~~ breakthroughs in diabetes monitoring, treatment or prevention could reduce the potential market for our products or render our products obsolete altogether, which would significantly reduce our sales or cause our sales to grow at a slower rate than we currently expect. In addition, even the perception that new products may be introduced, or that technological or treatment advancements could occur, could cause consumers to delay the purchase of our products.

Because the insulin-dependent diabetes market is large and growing, we anticipate ~~that~~ companies will continue to dedicate significant resources to developing competitive ~~products.~~products and technologies. The ~~frequent~~ introduction by competitors of products that are or claim to be superior to our products may create market confusion that may make it difficult to differentiate the benefits of our products over competitive products. In addition, some of our competitors employ aggressive pricing strategies, including the use of discounts, rebates, low cost product upgrades or other financial incentives that could adversely affect sales of our products. If a competitor develops a product that competes with or is perceived to be superior to our products, or if competitors continue to utilize strategies that place downward pressure on pricing within our industry, our sales may decline, our operating margins could be reduced and we may fail to meet our financial projections, which would materially and adversely affect our business, financial condition and operating results.

Moreover, we have designed our hardware products to resemble modern consumer electronic devices to address certain embarrassment and functionality concerns consumers have raised with respect to traditional pumps. ~~The~~Similarly, our newer mobile software applications are being designed to incorporate features and functions that are common to other consumer-oriented applications. These consumer ~~electronics industry is itself~~industries are themselves highly competitive, and characterized by continuous new product introductions, rapid developments in technology, and subjective and changing consumer preferences. If, in the future, consumers cease to view our products as contemporary or convenient as compared to then-existing consumer ~~electronics~~ technology, our products may become less desirable.

The Technology Upgrade Program has resulted in accounting complexities that may be difficult for investors to understand and may lead to confusion when comparing our historical and future financial results.

The Technology Upgrade Program has resulted in a number of accounting complexities that will make comparisons of our historical and future financial results more difficult. In particular, United States generally accepted accounting principles, or GAAP, prevent us from recognizing, at the time of sale, up to 100% of the sales and cost of sales associated with the sale of t:slim and t:slim G4 made to eligible customers during the term of the Technology Upgrade Program. Instead, depending on the type of pump sold, we are required to defer some or all of the sales and cost of sales until a later date, which will generally be the earlier of when our obligations under the Technology Upgrade Program are satisfied or when the program expires. The amount and timing of the deferred sales and cost of sales will depend on multiple factors that are based on future events that are difficult to estimate or predict, especially because we have not offered a similar trade-in program in the past. For example, we do not currently have sufficient history to reasonably estimate the ~~likelihood that the trade-in rights will be exercised, or the timing of any trade-in decisions~~. Accordingly, it is very difficult for us to estimate the amount of the deferrals with any level of certainty, which makes it very difficult for us to predict our GAAP results, including revenues and operating margins.

Despite our efforts to explain the required accounting treatment for the Technology Upgrade Program, it is possible that investors or analysts will view the accounting treatment or the resulting impact on our GAAP financial results negatively, and there may be confusion when comparing our historical and future financial results, which may cause our stock price to decline. In addition, the complexities associated with the accounting treatment, or with the Technology Upgrade Program generally, may cause investors to avoid purchasing our common stock until the impact of the program is better understood or our financial results and trends are more predictable, which also may adversely impact our stock price.

Our ability to achieve profitability will depend, in part, on our ability to reduce the per unit cost of our products by increasing production volume and manufacturing efficiency, including by reducing raw material, labor, product-training, expected warranty and manufacturing overhead costs per unit.*

~~We believe that our ability to reduce the per-unit cost~~failure of our insulin pump ~~products~~ and related ~~cartridges will have a significant impact on our ability to achieve profitability.~~ ~~Our cost of sales includes~~ raw material procurement costs, labor costs, product-training expenses and expected warranty expenses. It also includes manufacturing overhead costs, including expenses relating to quality assurance, inventory control, facilities, equipment, information technology, and operations management. If we are unable to sustain or reduce our overall cost of sales, including through arrangements such as volume purchase discounts, negotiation of improved pricing, more efficient training programs for customers, and improved warranty performance, it will be difficult to reduce our per unit costs and our ability to achieve profitability will be constrained. The per unit cost of our products is significantly impacted by our overall production volumes, and any factors that cause our production volumes to decline, or to grow at a slower rate than we expect, would significantly impact our expected per unit costs. In addition, we may experience disruption in our manufacturing productivity or incur duplicative or incremental costs as we manage the planned relocation of our manufacturing facility over the next several months. Furthermore, while we currently believe our proprietary technology platform will allow us to gain efficiencies in the design and development of new products, changes in the market that require us to modify or replace our existing platform will reduce the amount of efficiency gained through our platform and increase our per unit costs. If we are unable to effectively manage our overall costs, while increasing our production volumes, we may not be able to achieve or sustain profitability, which would have an adverse impact on our business, financial condition and operating results.

~~The failure of our~~ products to achieve and maintain market acceptance could result in us achieving sales below our expectations, which would cause our business, financial condition and operating results to be materially and adversely affected.*

Our current business and growth strategy is highly dependent on our insulin pump and related products achieving and maintaining market acceptance. ~~Our products include t:slim X2 with G5 integration and t:flex.~~ In order for us to sell our products to people with insulin-dependent diabetes, we must convince them, their caregivers and healthcare providers that our products are an attractive alternative to competitive products for the treatment of diabetes, including traditional insulin pump products and MDI therapies, as well as alternative ~~insulin~~diabetes monitoring, treatment or prevention methodologies. Market acceptance and adoption of our products depends on educating people with diabetes, as well as their caregivers and healthcare providers, about the distinct features, ease-of-use, ~~positive lifestyle impact,~~beneficial treatment outcomes, and other perceived benefits of our products as compared to competitive products. If we are not successful in convincing existing and potential customers of the benefits of our products, or if we are not able to achieve the support of caregivers and healthcare providers for our ~~insulin pump~~ products, our sales may decline or we may ~~fail to increase~~achieve sales below our ~~sales in line with our forecasts.~~

~~Achieving and maintaining market~~expectations.

Market acceptance of our products could be negatively impacted by many factors, including:

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•the failure of our products to achieve and maintain wide acceptance among ~~people with insulin-dependent diabetes, their caregivers, healthcare providers, third-party payors and key opinion leaders in the diabetes treatment community;~~

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the failure of our products to provide the features and functionality that people with insulin-dependent diabetes, their caregivers and healthcare providers are seeking in an insulin pump, and to incorporate those features into our products in a timely, cost-effective and user-friendly manner;

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~~lack of evidence supporting the safety, ease-of-use or other perceived benefits of our products over competitive products or other currently-available insulin treatment methodologies;~~

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~~perceived risks or uncertainties associated with the use of our insulin pump products or similar products or technologies generally;~~

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~~the introduction of competitive products, technologies or treatment techniques and the rate of their acceptance as compared to our insulin pump products;~~

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~~discounts, rebates and other financial incentives that our competitors may offer for competitive products that make them more attractive than our products; and~~

●

~~results of clinical studies relating to our existing products or products under development or similar competitive products.~~

•lack of evidence supporting the safety, ease-of-use or other perceived benefits of our products ~~compare favorably to~~over competitive products or other currently available insulin treatment methodologies;

•perceived risks or uncertainties associated with the products and treatment alternatives offered by our competitors, negative perceptions regarding our financial stability relative to that of our competitors, and our ability to sustain our business operations on a long-term basis, especially in light of our recent and projected financial results, recent changes in and volatility of our stock price, concerns regarding our ability to maintain the continued listing of our common stock on NASDAQ, perceptions about the recent completion of a public offering of our common stock and warrants, our current level of indebtedness and debt service costs, our conclusion that there is substantial doubt about our ability to continue as a going concern, and uncertainties regarding the regulatory environment, could cause consumers to delay the purchaseuse of our products, or components thereof, or of similar products or technologies of our competitors;

•adverse regulatory or legal actions relating to ~~purchase~~our insulin pump products or similar products or technologies; and

•results of clinical studies relating to our existing products or products under development or similar competitive products.

~~Furthermore,~~

In addition, the rapid evolution of technology and treatment options within our industry may cause consumers to delay the purchase of our products in anticipation of advancements or breakthroughs, or the perception that advancements or breakthroughs could occur, in our products or the products offered by our competitors. For example, we believe that during the second half of 2016, consumers interested in purchasing our insulin pump products may have delayed or changed their purchasing decisions in anticipation of the release of a new product by one of our competitors. It is also possible that consumers interested in purchasing any of our future products currently under development may delay the purchase of one of our current products.

We anticipate that customers may delay their purchasing decisions, or physicians may pause prescriptions of our products, as a result of the COVID-19 global pandemic.

If our insulin pump products do not achieve and maintain widespread market acceptance, we may fail to achieve sales ~~at or above~~consistent with our ~~projected amounts. If our sales do not meet our sales~~ projections, in which case our business, financial condition and operating results could be materially and adversely ~~affected, and we may fail to meet our strategic objectives.~~

affected.

Failure to secure or retain adequate coverage or reimbursement for our current products and our potential future products by third-party payors could adversely affect our business, financial condition and operating results.*

~~We have derived nearly~~ ~~all of our revenue from sales of insulin pumps and associated supplies and expect to continue to do so.~~

A substantial portion of the purchase price of an insulin pump is typically paid for by third-party payors, including private insurance companies, preferred provider organizations and other managed care providers. Future sales of our current and future products will be limited unless our customers can rely on third-party payors to pay for all or part of the associated purchase cost. Access to adequate coverage and reimbursement for our current and future products by third-party payors, both domestically and internationally, is essential to the acceptance of our products by customers.

As guidelines in setting their coverage and reimbursement policies, many third-party payors in the United States use coverage decisions and payment amounts determined by the Centers for Medicare and Medicaid Services ~~or CMS,~~(CMS), which administers the U.S. Medicare program. Medicare periodically reviews its reimbursement practices for diabetes-related products. Medicare previously implemented a competitive bidding process for blood glucose strip reimbursement, which resulted in a significant reduction in the reimbursement rate for those products. More recently, in 2017, Medicare announced,products, and ~~then shortly thereafter suspended, a competitive bidding process for insulin pumps. As a result,~~ there is uncertainty as to the future Medicare reimbursement rate for our products. Effective January 1, 2020, in addition to the existing reimbursement code for insulin pumps, CMS established additional reimbursement codes for insulin pumps with AID and CGM integration and associated supplies. In light of complexities surrounding use and payment of the codes, CMS subsequently determined the new codes will not be valid for Medicare submission at this time. It is also possible that CMS may continue to review and modify the current coverage and reimbursement of diabetes-related products in connection with anticipated changes to the regulatory approval process for insulin pumps and related products, software applications and services. In addition, ~~those~~ third-party payors that do not follow the CMS guidelines may adopt different coverage and reimbursement policies for our current and future products. ItFurther, it is possible that some third-party payors will not offer any coverage for our current or future products. For instance, ~~effective July 1, 2016, UnitedHealthcare designated~~it is possible that third-party payors may adopt policies in the future that designate one or more of our competitors as their preferred, in-network durable medical equipment provider of insulin pumps ~~for most customers over~~and that such policies would discourage or prohibit the ~~age of 18. We expect this decision will prevent a majority of UnitedHealthcare~~payors’ members from purchasing ~~an insulin pump from us for the foreseeable future. It is possible that other third-party payors may adopt similar policies in the future,~~our products, which would adversely impact our ability to sell our products.

We currently have contracts establishing reimbursement for our insulin pump products with ~~approximately 150~~a number of national and regional third-party payors in the United States. While we ~~anticipate entering~~may enter into additional contracts both domestically and internationally with third-party payors and ~~adding~~add coverage for future products under our current agreements,, we cannot guarantee that we will succeed in doing so or that the reimbursement contracts that we are able to negotiate will enable us to sell our products on a profitable basis. In particular, ~~any negative perceptions among third-party payors regarding our financial stability and our ability to continue to sell and service our products, may make it more difficult to enter into contracts for~~we have limited experience securing reimbursement ~~with additional third-party payors. This may be especially true~~ in light of the fact that our management believes that we do not have sufficient cash to fund our operations for the next twelve months without additional financing, and the conclusion that there is substantial doubt about our ability to continue as a going concern.international markets. In addition, existing contracts with third-party payors generally can be modified or terminated by the third-party payor without cause and with little or no notice to us. Moreover, compliance with the administrative procedures or requirements ~~of third-party payors~~ may result in increased costs for us and delays in processing approvals by those third-party payors for customers to obtain coverage for our products. Failure to secure or retain adequate coverage or reimbursement for our current and future products by third-party payors, or delays in processing approvals by those payors, could result in the loss of sales, which could have a material adverse effect on our business, financial condition and operating results.

Further, the healthcare industry in the United States is increasingly focused on cost containment as government and private insurers seek to control healthcare costs by imposing lower payment rates and negotiating reduced contract rates with third-party payors. If third-party payors deny coverage or reduce their current levels of payment, or if our production costs increase faster than increases in reimbursement levels, we may be unable to sell our products on a profitable basis.

We may face unexpected challenges in marketing and selling our products, and training new customers on the use of our products, which could harm our ability to achieve our sales ~~and service objectives.~~forecasts.*

We have ~~only~~ limited experience marketing and selling our newer products as well as training new customers on their ~~use.~~use, particularly in international markets. In addition, the vast majority of our existing customers are individuals with type 1 diabetes, and we have ~~only~~ limited experience marketing and selling our products to customers with type 2 diabetes. ~~As a result,~~

In addition, due to the current COVID-19 global pandemic, starting in March 2020 we ~~may face unexpected challenges marketing~~temporarily discontinued in-person activities for our field-based sales and ~~selling t:flex,~~clinical employees and are utilizing technology to remotely engage healthcare providers and customers. While we have authorized limited in-person activities to resume, many restrictions persist that have been imposed by state and local governmental authorities or expert agencies, as well as by the health systems and professional organizations with which we interact. The scope and duration of these restrictions on our field-based employees remains highly uncertain, and it is ~~designed~~difficult to ~~meet~~predict the ~~needs~~extent of ~~customers with type 2 diabetes and/or higher insulin requirements.~~

~~We expect to derive nearly all of~~any adverse impacts on the demand for our ~~revenue~~products resulting from ~~the sale of t:slim X2 with G5, t:flex Pumps and pump-related supplies unless and until we receive regulatory clearance or approval for other products currently under development. As a result, our~~these restrictions.

Our financial condition and operating results are and will continue to be highly dependent on ~~the~~our ability ~~of our sales and marketing organization~~ to adequately promote, market and sell our insulin ~~pumps~~pump and related products, and the ability of our diabetes educators to train new customers on the use of our products. If our sales and marketing representatives or diabetes educators ~~fail~~continue to ~~achieve~~be restricted in their ~~objectives,~~ability to interact with healthcare providers and customers, our sales could decrease or may not increase at levels that are in line with our forecasts.

If we are unable to maintain our existing sales, marketing, clinical and customer service infrastructure, we may fail to increase our sales to meet our forecasts.

A key element of our business strategy ~~is the ability of~~involves our sales, marketing, clinical ~~marketing~~ and customer service ~~infrastructure to drive~~personnel driving adoption ~~of our products, which includes independent diabetes educators that train new customers on the use~~ of our products. We have ~~rapidly~~significantly increased the number of sales, marketing, clinical and customer service personnel employed by us since ~~the initial~~we commenced commercial ~~launch of t:slim in 2012.~~sales. However, we have faced considerable challenges in growing and managing these resources, including with respect to recruiting, training and assimilation of ~~new territories and accounts.~~sales territories. We expect to continue to face significant challenges as we ~~manage~~seek to further increase the number of our sales, clinical and ~~grow our infrastructure~~customer service personnel in order to optimize the ~~future and work to motivate and retain the individuals who make up~~coverage of our existing ~~infrastructure.~~sales territories, as well as expand the number and scope of our existing sales territories. These challenges may be even greater in ~~light~~connection with our commercial expansion outside of ~~negative perceptions regarding our financial stability, and~~ the ~~recent decline in our stock price, which may make it more difficult to motivate and retain key personnel.~~United States, where we have limited experience. Unexpected turnover among our sales, marketing, clinical and customer service personnel, or unanticipated challenges in recruiting additional personnel, would have a negative impact on our ability to achieve our sales projections. Further, if a sales, marketing or clinical representative was to depart and be retained by one of our competitors, we may fail to prevent him or her from helping competitors solicit business from our existing customers, which couldadversely affect our sales. Similarly, if we are not able to recruit and retain a network of diabetes educators and customer service personnel, we may not be able to successfully train and service new customers, which could delay new sales and harm our reputation.

We expect ~~that~~ the ~~management~~oversight of our sales, marketing, clinical and customer service personnel will continue to place significant burdens on our management ~~team.~~team, which may be compounded as we manage remote employees during the COVID-19 global pandemic and as we work towards returning personnel to our facilities. If we are unable to retain our personnel in line with our strategic plans, we may not be able to effectively commercialize our existing products or products under development, or enhance the strength of our brand, either of which could result in the failure of our sales to increase in line with our projections or ~~could even~~ cause sales to decline.

Our sales and marketing efforts are dependent on independent distributors who are free to market products that compete with our products. If we are unable to maintain or expand our network of independent distributors, our sales may be negatively affected.

For the year ended December 31, 2016, sales to approximately 40 independent distributors represented approximately 74% of our sales. While our goal is to ultimately reduce the percentage of our sales to independent distributors over time as we enter into contracts with additional third-party payors, we

We believe ~~that~~ a ~~meaningful percentage~~majority of our sales will continue to be to independent distributors for the foreseeable future, and it is possible that the percentage of our sales to independent distributors could ~~even~~ increase, particularly in light of our reliance on independent distributors outside of the ~~near term.~~United States. For example, our dependence upon independent distributors domestically could increase if third-party payors decide to contract with independent distributors directly in lieu of contracting with us to supply our products to their members directly. Our dependence upon independent distributors is also expected to increase following our launch of the t:lock Connector for our insulin cartridge, which we expect will result in greater sales of our infusion sets to distributors. Our dependence upon independent distributors could also increase if customers prefer to purchase all of their diabetes supplies through a single source, instead of purchasing pump-related products through us and other diabetes supplies through other suppliers. ~~However,~~ our conclusion that, unless we successfully raise additional capital, there is substantial doubt about our ability to continue as a going concern, together with the inclusion of an explanatory paragraph that describes conditions that raise substantial doubt about our ability to continue as a going concern in our independent registered public accounting firm’s report contained in our financial statements for the year ended December 31, 2016, may negatively impact one or more of our distributors’ interest in continuing to do business with us. None of our independent distributors domestically has been required to sell our products exclusively and each of them may freely sell the products of our competitors. ~~Our distributor agreements generally have one-year initial terms with automatic one-year renewal terms, and are terminable in connection with a party’s material breach.~~ If we are unable to maintain or expand our network of independent distributors, our sales may be negatively affected.

For the year ended December 31, ~~2016,~~2020, our two largest independent distributors in the United States collectively comprised approximately ~~33%~~29% of our worldwide sales, and our three largest independent international distributors collectively comprised approximately 53% of our international sales. If any of our key independent distributors were to cease to distribute our products or reduce their promotion of our products as compared to the products of our competitors, our sales could be adversely affected. In ~~such a situation,~~that case, we may need to seek alternative independent distributors or increase our reliance on our other independent distributors or our direct sales representatives, which may not prevent our sales from being adversely affected. Additionally, to the extent ~~that~~ we enter into additional arrangements with independent distributors to perform sales, marketing or distribution services, ~~or other arrangements pursuant to which independent distributors may purchase product from us,~~ the terms of the arrangements could ~~cause~~result in our product margins ~~to be~~being lower than if we directly marketed and sold our products.

If the third parties on which we increasingly rely to assist us with our current and anticipated pre-clinical development or clinical trials do not perform as expected, we may not be able to obtain regulatory clearance or approval or commercialize our products.

As our clinical infrastructure expands, we expect to increasingly rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct some of our current and anticipated pre-clinical investigations and clinical trials. If we are not able to ~~contract with or~~ reach ~~other~~ mutually acceptable agreements with these third parties on a timely basis, ~~or on mutually acceptable terms, or~~ these third parties do not successfully carry out their commitments or regulatory obligations or meet expected deadlines, or the quality or accuracy of the data they obtain is compromised due to the failure to adhere to ~~agreed upon~~agreed-upon clinical protocols or regulatory requirements or for other reasons, our pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory clearance or approval for, or successfully commercialize, our products on a timely basis, if at all, and our business, operating results and prospects may be adversely affected. In particular, we currently expect to rely on data from the IDCL Trial to support our development of t:slim X2 with TypeZero inControl AID algorithms. The IDCL Trial is being conducted entirely by third parties over which we have little or no control or influence. In the event that the IDCL Trial is not performed on a timely basis, or if the quality or accuracy of the data obtained from the IDCL Trial is compromised due to the failure to adhere to clinical protocols or regulatory requirements or for other reasons, our development activities for t:slim X2 with TypeZero may be negatively impacted.

We are increasingly dependent on clinical investigators and clinical sites to enroll ~~patients~~participants in our current and anticipated clinical trials and human factors studies, and the failure to successfully complete ~~the clinical~~those trials and studies could prevent us from obtaining regulatory approvals for or commercializing our products.

As part of our product development efforts, we expect to increasingly rely on clinical investigators and clinical sites to enroll ~~patients~~participants in our clinical trials or users in our human factors testing and other third parties to manage such trials and testing and to perform related data collection and analysis. However, we may not be able to control the amount and timing of resources that clinical sites may devote to our clinical trials ~~especially with respect to the IDCL Trial that we intend to rely upon for the development of t:slim X2 with TypeZero.~~or other studies. If these clinical investigators and clinical sites fail to enroll a sufficient number of patients, fail to ensure compliance by patients with clinical protocols, or fail to comply with regulatory requirements, we may be unable to successfully complete our clinical trials or other studies, which could prevent us from obtaining regulatory approvals for our products and commercializing our products, which would have an adverse impact on our business.

~~Our ability to maintain and grow our revenue depends in part on retaining a high percentage of our customer base.~~

A key to maintaining and growing our revenue is the retention of a high percentage of our customers due to the potentially significant revenue generated from ongoing purchases of disposable insulin cartridges and other supplies. In addition, our pumps are designed and tested to remain effective for at least four years and a satisfied customer may consider purchasing another product from us when the time comes to replace the pump. We have developed retention programs aimed at customers, their caregivers and healthcare providers, which include training specific to our products, ongoing support by sales and clinical employees, and 24/7 technical support and customer service. If demand for our products fluctuates, including as a result of the introduction of competitive products, changes in reimbursement policies, manufacturing problems, perceived safety or reliability issues with our or our competitors’ products, the failure to secure regulatory clearance or approvals, or for other reasons, our ability to attract and retain customers could be harmed. In addition, the retention of current customers may be impacted by negative perceptions regarding our financial stability relative to that of our competitors, and our ability to sustain our business operations on a long-term basis. The failure to retain a high percentage of our customers would negatively impact our revenue growth and may have a material adverse effect on our business, financial condition and operating results.

If important assumptions about the potential market for our products are inaccurate, or if we have failed to understand what people with insulin-dependent diabetes are seeking in an insulin pump, our business and operating results may be adversely affected.

Our business strategy was developed based on a number of important assumptions about the diabetes industry in general, and the insulin-dependent diabetes market in particular, any one or more of which may prove to be inaccurate or may change over time. For example, we believe that the benefits of insulin pump therapy as compared to other common insulin treatment alternatives will continue to drive growth in the market for insulin pump therapy. In addition, we believe the incidence of diabetes in the United States and worldwide is increasing. Further, our view is that diabetes management can vary greatly from person to person, creating multiple market segments based on clinical needs and personal preferences. However, each of these assumptions may prove to be inaccurate and limited sources exist to compare treatment alternatives and obtain reliable market data. The actual incidence of diabetes, and the actual demand for our products or competitive products, could differ materially from our projections if our assumptions are incorrect. In addition, our strategy of focusing exclusively on the insulin-dependent diabetes market may limit our ability to increase sales or achieve profitability.

Another key element of our business strategy is utilizing market research to understand what people with diabetes are seeking to improve in their diabetes therapy management. This strategy underlies our entire product design, marketing and customer support approach and is the basis on which we developed our current products and are pursuing the development of new products. However, our market research is based on interviews, focus groups and online surveys involving people with insulin-dependent diabetes, their caregivers and healthcare providers, ~~that~~which represent only a small percentage of the overall insulin-dependent diabetes market. As a result, the responses we ~~received~~receive may not be reflective of the broader market and may not provide us accurate insight into the desires of people with insulin-dependent diabetes. In addition, understanding the meaning and significance of ~~the responses received during our~~such market research responses necessarily requires that analysis be conducted and conclusions be drawn. We may not be able perform an analysis that yields meaningful results, or the conclusions we draw from the analysis could be misleading or incorrect. Moreover, even if our market research has allowed us to better understand the features and functionality consumers are seeking in an insulin pump to improve management of their diabetes therapy, there can be no assurance that consumers will actually purchase our products or that our competitors will not develop products with similar features.

We ~~have a limited operating history upon~~expect to face complexities frequently encountered by companies in competitive and rapidly evolving markets, which may make it difficult to evaluate our business and forecast our future sales and operating ~~results and may face difficulties frequently encountered by companies early~~results.*

We operate in ~~their commercialization in~~a competitive and rapidly-evolving markets.*

We commenced operations in 2006, and began commercial sales of t:slim in the third quarter of 2012, of t:flex in the second quarter of 2015 and of t:slim G4 in the third quarter of 2015. Accordingly, we have a limited operating history upon which to evaluate our business and forecast our future sales and operating results. More recently, our commercial launches of t:slim X2 with G5 and t:lock,rapidly evolving market. Important industry changes, such as the FDA approval and launch of new products by ~~one~~our competitors, as well as changes specific to our business, such as the timing of our ~~competitors,~~launch of new products currently in development, increasing reliance on digital health products and ~~the announcement by Johnson & Johnson that it is discontinuing the operations~~connected devices, and our potential expansion of ~~Animas Corporation and exiting the insulin pump business~~commercial sales in international markets, combine to make it more difficult for us to predict our future sales and operating ~~results.~~results, as well as our expected timeframe to achieve profitability. The significant uncertainty resulting from the COVID-19 global pandemic has made, and may continue to make, it more difficult for us to accurately forecast our financial results and achieve sustained profitability. In assessing our business prospects, you should consider these factors as well as the various risks and difficulties frequently encountered by companies ~~early in their commercialization history~~ in competitive and rapidly evolving markets, particularly those ~~facing emerging growth~~ companies that manufacture and sell medical devices.

These risks include our ability to:

●

~~implement~~ ~~and execute our business strategy;~~

•implement and execute our business strategy;

●

~~manage and improve the productivity of our sales, clinical and marketing infrastructure to grow sales of our existing and proposed products;~~

●

~~increase awareness of our brand and build loyalty among people with insulin-dependent diabetes, their caregivers and healthcare providers;~~

●

~~expand our commercial operations, including complying with a broad range of legal requirements within a highly regulated industry;~~

●

expand our manufacturing capabilities, including obtaining and maintaining regulatory approvals to operate our facilities, increasing production of products efficiently while maintaining quality standards, and adapting our manufacturing facilities to the production of new products;

●

~~respond effectively to competitive pressures and developments;~~

●

~~enhance our existing products and develop proposed products;~~

●

~~obtain and maintain regulatory clearance or approval to enhance our existing products and commercialize proposed products;~~

●

~~perform clinical trials with respect to our existing products and proposed products; and~~

●

~~attract, retain and motivate qualified personnel in various areas of our business.~~

•achieve and maintain market acceptance of our products and increase awareness of our brand among people with insulin-dependent diabetes, their caregivers and healthcare providers;

•comply with a broad range of regulatory requirements within a highly regulated industry;

•enhance our manufacturing capabilities, increase production of products efficiently while maintaining quality standards, and adapt our manufacturing facilities to the institutional knowledge or experience to be able to effectively address these and other risks that may face our business. In addition, we may not be able to develop insights into trends that could emerge and negatively affect our business and may fail to production of new products;

•respond effectively to ~~those trends.~~ competitive pressures and developments;

•enhance our existing products and develop proposed products;

•manage cybersecurity and other technological risks associated with our expanding portfolio of digital health products, and align these products to a dynamic threat landscape.

•obtain and maintain regulatory clearance or approval to enhance our existing products and commercialize proposed products;

•perform clinical trials and other studies with respect to our existing products and proposed products; and

•attract, retain and motivate qualified personnel in various areas of our business.

As a result of these or other risks, we may not be able to execute key components of our business strategy, and our business, financial condition and operating results may suffer.

Our ability to achieve profitability will depend, in part, on our ability to reduce the per-unit cost of our products while also increasing production volume.*

~~Delaware~~	~~20-4327508~~
Delaware				20-4327508
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)
11075 Roselle Street				92121
~~11045 Roselle Street~~ San Diego, ~~California~~		California	~~92121~~	(Zip Code)
(Address of principal executive offices)				~~(Zip Code)~~


Title of Each Class	Trading Symbol(s)	Name of Exchange on Which Registered
Common Stock, par value $0.001 per share	TNDM	~~The NASDAQ Stock~~Nasdaq Global Market ~~LLC~~

~~Part I~~		~~Financial Information~~			1
~~Item 1~~ Part I			Financial Information			~~Financial Statements~~1				1
Item 1			Financial Statements			1
			Condensed Consolidated Balance Sheets at ~~September 30, 2017~~March 31, 2021 (Unaudited) and December 31, ~~2016~~ 2020						1
						Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 (Unaudited)				2
			Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020 (Unaudited)			3
			Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 (Unaudited)						3 4
						Notes to Unaudited Condensed Consolidated Financial Statements				4 5
Item 2						Management’s Discussion and Analysis of Financial Condition and Results of Operations				15 21
Item 3						Quantitative and Qualitative Disclosures ~~about~~About Market Risk				29 34
Item 4						Controls and Procedures				30 36

Part II						Other Information				31 37
Item 1						Legal Proceedings				31 37
Item 1A						Risk Factors				31 38
~~Item 2~~				~~Unregistered Sales of Equity Securities and Use of Proceeds~~			62
~~Item 3~~		~~Defaults Upon Senior Securities~~			62
~~Item 4~~		~~Mine Safety Disclosures~~			62
~~Item 5~~		~~Other Information~~			62
Item 6	Exhibits			~~Exhibits~~74				63


	September 30,			December 31,				March 31,		December 31,
	2017			2016				2021		2020
	(Unaudited)			(Note 1)				(Unaudited)		(Note 1)
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	12,079		$	44,678		Cash and cash equivalents	$	120,791	$	94,613
Restricted cash		-			2,000
Short-term investments		459			8,860		Short-term investments	392,646		390,323
Accounts receivable, net		10,582			11,172		Accounts receivable, net	73,673		82,195
Inventory, net		29,985			21,195
Inventories							Inventories	66,816		63,721
Prepaid and other current assets		2,887			4,187		Prepaid and other current assets	7,770		6,383
Total current assets		55,992			92,092		Total current assets	661,696		637,235
Restricted cash—long-term		10,000			-
Property and equipment, net		20,286			18,409		Property and equipment, net	50,445		50,022
Patents, net		1,539			1,784
Operating lease right-of-use assets							Operating lease right-of-use assets	33,273		19,773
Other long-term assets		160			107		Other long-term assets	8,859		9,385
Total assets	$	87,977		$	112,392		Total assets	$	754,273	$	716,415
Liabilities and stockholders’ deficit
Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current liabilities:							Current liabilities:
Accounts payable	$	7,605		$	7,513		Accounts payable	$	28,184	$	17,805
Accrued expense		2,536			1,629
Accrued expenses							Accrued expenses	5,058		4,783
Employee-related liabilities		11,413			10,183		Employee-related liabilities	32,711		34,159
Deferred revenue		2,295			5,208		Deferred revenue	6,670		6,082
Common stock warrants							Common stock warrants	2,517		14,261
Operating lease liabilities							Operating lease liabilities	9,446		9,421
Other current liabilities		5,562			6,943		Other current liabilities	18,824		17,341
Total current liabilities		29,411			31,476		Total current liabilities	103,410		103,852
Notes payable—long-term		75,596			78,960
Deferred rent—long-term		4,142			2,609
Convertible senior notes, net - long-term							Convertible senior notes, net - long-term	280,168		202,984
Operating lease liabilities - long-term							Operating lease liabilities - long-term	29,011		15,914
Other long-term liabilities		6,786			5,274		Other long-term liabilities	28,270		27,360
Total liabilities		115,935			118,319		Total liabilities	440,859		350,110
Commitments and contingencies (Note 8)
Commitments and contingencies (Note 11)							Commitments and contingencies (Note 11)	0		0
Stockholders’ equity:							Stockholders’ equity:
Common stock, $0.001 par value; 100,000 shares authorized as of September 30, 2017 and December 31, 2016, 5,487 and 3,110 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively.⁽¹⁾		55			31
Common stock, $0.001 par value; 200,000 shares authorized, 62,571 and 62,335 shares issued and outstanding at March 31, 2021 (unaudited) and December 31, 2020, respectively.							Common stock, $0.001 par value; 200,000 shares authorized, 62,571 and 62,335 shares issued and outstanding at March 31, 2021 (unaudited) and December 31, 2020, respectively.	63		62
Additional paid-in capital		438,194			398,623		Additional paid-in capital	968,450		1,025,233
Accumulated other comprehensive loss		-			(1	)
Accumulated other comprehensive income							Accumulated other comprehensive income	106		220
Accumulated deficit		(466,207	)		(404,580	)	Accumulated deficit	(655,205)		(659,210)
Total stockholders’ deficit		(27,958	)		(5,927	)
Total liabilities and stockholders’ deficit	$	87,977		$	112,392
Total stockholders’ equity							Total stockholders’ equity	313,414		366,305
Total liabilities and stockholders’ equity							Total liabilities and stockholders’ equity	$	754,273	$	716,415

	September 30,		December 31,
	2017		2016			March 31, 2021		December 31, 2020
Raw materials	$	10,138	$	9,375	Raw materials	$	27,001	$	30,880
Work in process		5,497		4,395
Work-in-process					Work-in-process	15,327		15,664
Finished goods		14,350		7,425	Finished goods	24,488		17,177
Total	$	29,985	$	21,195
Total inventories					Total inventories	$	66,816	$	63,721


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
	2017			2016			2017			2016				2021		2020
Sales	$	27,003		$	12,293		$	67,306		$	55,336		Sales	$	141,037	$	97,926
Cost of sales		15,131			13,870			40,680			41,809		Cost of sales	67,750		47,665
Gross profit (loss)		11,872			(1,577	)		26,626			13,527
Gross profit													Gross profit	73,287		50,261
Operating expenses:													Operating expenses:
Selling, general and administrative		20,125			20,683			65,077			63,768		Selling, general and administrative	58,563		49,717
Research and development		4,914			6,154			14,910			14,464		Research and development	17,961		14,117
Total operating expenses		25,039			26,837			79,987			78,232		Total operating expenses	76,524		63,834
Operating loss		(13,167	)		(28,414	)		(53,361	)		(64,705	)	Operating loss	(3,237)		(13,573)
Other income (expense), net:													Other income (expense), net:
Interest and other income		60			34			179			258
Interest and other expense		(2,928	)		(1,434	)		(8,445	)		(4,177	)
Interest income and other, net													Interest income and other, net	272		726
Interest expense													Interest expense	(1,506)		0

Change in fair value of common stock warrants													Change in fair value of common stock warrants	(690)		(1,922)
Total other expense, net		(2,868	)		(1,400	)		(8,266	)		(3,919	)	Total other expense, net	(1,924)		(1,196)
Loss before income taxes													Loss before income taxes	(5,161)		(14,769)
Income tax expense (benefit)													Income tax expense (benefit)	(117)		98
Net loss	$	(16,035	)	$	(29,814	)	$	(61,627	)	$	(68,624	)	Net loss	$	(5,044)	$	(14,867)
Other comprehensive loss:													Other comprehensive loss:
Unrealized gain (loss) on short-term investments	$	-		$	(6	)	$	1		$	(23	)	Unrealized gain (loss) on short-term investments	$	(38)	$	42
Foreign currency translation loss													Foreign currency translation loss	(76)		(409)
Comprehensive loss	$	(16,035	)	$	(29,820	)	$	(61,626	)	$	(68,647	)	Comprehensive loss	$	(5,158)	$	(15,234)
Net loss per share, basic and diluted⁽¹⁾	$	(3.09	)	$	(9.73	)	$	(13.79	)	$	(22.52	)
Weighted average shares used to compute basic and diluted net loss per share⁽¹⁾		5,190			3,063			4,468			3,047

Net loss per share, basic and diluted													Net loss per share, basic and diluted	$	(0.08)	$	(0.25)

Weighted average shares used to compute basic and diluted net loss per share													Weighted average shares used to compute basic and diluted net loss per share	62,448		59,740

Balance at December 31, 2016	$	5,690
Provision for warranties issued during the period		4,110
Settlements made during the period		(5,240	)
Increases in warranty estimates		190
Balance at September 30, 2017	$	4,750

Current portion	$	2,080
Non-current portion		2,670
Total	$	4,750

At September 30, 2017	Maturity (in years)	Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value
Trading securities:
Mutual funds held for nonqualified deferred compensation plan participants		$	416	$	43	$	—	$	459
Total		$	416	$	43	$	—	$	459

At December 31, 2016	Maturity (in years)	Amortized Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Available-for-sale investment securities:
Commercial paper	Less than 1	$	8,483	$	1	$	(2	)	$	8,482
Trading securities:
Mutual funds held for nonqualified deferred compensation plan participants		$	354	$	26	$	(2	)	$	378
Total		$	8,837	$	27	$	(4	)	$	8,860

			Fair Value Measurements at
			September 30, 2017
			(Level 1)		(Level 2)		(Level 3)
Assets
Cash equivalents ⁽¹⁾	$	16,527	$	16,527	$	—	$	—
Mutual funds held for nonqualified deferred compensation plan participants ⁽²⁾		459		459	—		—
Total assets	$	16,986	$	16,986	$	—	$	—

Liabilities
Deferred compensation ⁽²⁾	$	459	$	459	$	—	$	—
Total liabilities	$	459	$	459	$	—	$	—

			Fair Value Measurements at
			December 31, 2016
			(Level 1)		(Level 2)		(Level 3)
Assets
Cash equivalents ⁽¹⁾	$	39,941	$	39,941	$	—	$	—
Commercial paper		8,482		—		8,482		—
Mutual funds held for nonqualified deferred compensation plan participants ⁽²⁾		378		378		—		—
Total assets	$	48,801	$	40,319	$	8,482	$	—
Liabilities
Deferred compensation ⁽²⁾	$	378	$	378	$	—	$	—
Total liabilities	$	378	$	378	$	—	$	—

	ESPP
	Nine Months Ended
	September 30,
	2017⁽¹⁾	2016
Weighted average grant date fair value (per share)	N/A	$	26.90
Risk-free interest rate	N/A		0.6	%
Expected dividend yield	N/A		0.0	%
Expected volatility	N/A		56.9	%
Expected term (in years)	N/A	1.3