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,~~29, 2021, there were ~~10,118,659~~63,532,716 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.

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 September 30, 2021

Nine Months Ended September 30, 2021

Effect of change in accounting for convertible senior notes(1)

(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”).

See accompanying notes to unaudited condensed consolidated financial statements.

:AccountingStandardsUpdate202006Member

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

See accompanying notes to unaudited condensed consolidated financial statements.

TANDEM DIABETES CARE, INC.

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 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.

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 months ended September 30, ~~2017,~~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.~~

~~Restricted Cash~~

The Company recorded $10.0 million and $2.0 million of restricted cash as of September 30, 2017 and December 31, 2016, respectively, for the minimum cash balance requirement in connection with the Term Loan Agreement (see Note 6, “Term Loan Agreement”).

under different assumptions or conditions.

The Company grants credit to various customers in the ~~normal~~ordinary course of ~~business.~~business and is paid directly by customers who use its 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.~~$363.0 million at September 30, 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~~Company’s common stock warrants was determined using the Black-Scholes pricing model as of September 30, 2017, at which time the remaining guarantee liabilities 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 in2021 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, Leases, 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 condensed consolidated balance sheets. 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.

Cost Basis Equity Investment

During the second quarter of 2021, the Company made an $8.1 million equity investment in a private company, which represented less than 5% of the outstanding equity of that company. The investment is accounted for using the cost method, as the investment does not have a readily determinable fair value, and is included as a component of other long-term assets on the condensed consolidated balance sheet at September 30, 2021.

Intangible Assets Subject to Amortization

Finite-lived intangible assets are recorded at cost, net of accumulated amortization and, if applicable, impairment charges. Amortization of finite-lived intangible assets is recognized over their estimated useful lives on a straight-line basis. The Company 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 did not recognize any impairment losses during the nine months ended September 30, 2021 and 2020.

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 Accounting Standards Update (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 insulin 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 asto be 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~~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 of sale are deemed inconsequential or perfunctory.

~~Product Returns~~

~~The Company offers a 30-day~~ right of return to its customers from the date of shipment of any of its insulin pumps, provided a physician’s confirmation of the medical reason for the return is received. Estimated allowances for sales returns are based on historical returned quantities as compared to pump shipments in those same periods of return. The return rate is then applied to the sales of the current period to establish a reserve at the end of the period. The return rates used in the reserve are adjusted for known or expected changes in the marketplace when appropriate. The allowance for product returns is recorded as a reduction of revenue and accounts receivable in the period in which the related sale~~is recorded. The amount recorded on the Company’s balance sheets for product return allowance was~~ $0.2 million and $0.2 million at September 30, 2017 and December 31, 2016, respectively. Actual product returns have not differed materially from estimated amounts reserved in the accompanying condensed financial statements.

2020 (in thousands):


	September 30, 2021		December 31, 2020
Deferred revenue	$	8,489	$	5,508
Other long-term liabilities	15,264		10,426
Total	$	23,753	$	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.~~specifications within the warranty period. Insulin pumps returned to the Company may be refurbished and redeployed. Additionally, the Company offers a six-month warranty on disposable insulin cartridges and infusion sets. Estimated warranty costs are recorded at the time of shipment. 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 and nine months ended September 30, 2021 and 2020 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Balance at beginning of period	$	25,668	$	17,823	$	22,075	$	16,724
Provision for warranties issued during the period	6,622		4,930		20,538		14,588
Settlements made during the period	(4,665)		(3,496)		(13,672)		(10,217)
Decrease in warranty estimates	(80)		(1,064)		(1,396)		(2,902)
Balance at end of period	$	27,545	$	18,193	$	27,545	$	18,193

As of September 30, 2021 and December 31, ~~2016 through September 30, 2017~~2020, total product warranty reserves of $27.5 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


	September 30, 2021		December 31, 2020
Other current liabilities	$	11,299	$	8,409
Other long-term liabilities	16,246		13,666
Total warranty reserve	$	27,545	$	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 2013 Plan that vest solely based on service is estimated based on the fair market value of the underlying stock on the date of grant. The fair value of RSU awards issued under the 2013 Plan that vest based upon the Company’s actual performance relative to predefined performance metrics is estimated based on the ~~achievement~~fair market value of the underlying stock on the date of grant and the probability that the specified performance criteria will be met, subject to the awardee’s continuing service ~~conditions,~~through the ~~Company recognizes expense using~~measurement date. We update our assessment each quarter of the ~~straight-line method less estimated forfeitures based on historical experience.~~

probability that the specified performance criteria will be achieved, and adjust our estimate of the fair value of the performance-based RSUs if necessary.

Net ~~Loss~~Income (Loss) Per Share

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

Diluted net ~~loss~~income 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 and unvested RSUs outstanding under the Company’s ~~equity incentive~~stock plans, ~~and shares subject~~potential awards to ~~issuance~~be granted pursuant to the ~~ESPP.~~ESPP, and common stock warrants, each calculated using the treasury stock method; and shares issuable upon conversion of the convertible senior notes, calculated using the if-converted method. For ~~all periods presented,~~common stock 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 and nine months ended September 30, 2020, there iswas no difference in the weighted average number of shares used to calculate basic and diluted ~~shares outstanding~~net loss per share due to the Company’s net loss position.

For the three and nine months ended September 30, 2021, the numerator and denominator of the diluted net income per share computation were calculated as follows (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021		2021
Net income - basic and diluted	$	5,794	$	4,758



Weighted average shares outstanding - basic	63,167		62,780
Dilutive common share equivalents:
Options to purchase common stock	1,297		1,239
Unvested restricted stock units	135		17
Warrants to purchase common stock	159		152
Awards to be granted under the ESPP	26		10
Convertible senior notes (if-converted)	—		—
Weighted average shares outstanding - diluted	64,784		64,198

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 September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Options to purchase common stock	3,494	5,548	3,283	5,128
Unvested restricted stock units	—	134	—	61
Warrants to purchase common stock	1	383	1	383
Awards to be granted under the ESPP	—	42	—	21
Convertible senior notes (if-converted)	2,554	2,554	2,554	1,286
	6,049	8,661	5,838	6,879

Recent Accounting Pronouncements

In ~~August 2016,~~December 2019, the Financial Accounting Standards Board ~~(“FASB”)~~(FASB) issued ~~new guidance that clarifies how entities should classify certain cash receipts and cash payments on~~ASU No. 2019-12, Simplifying the ~~statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have~~Accounting for Income Taxes, which is intended to simplify various aspects of ~~more than one class of cash flows. The~~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 ~~companies~~business entities for fiscal years beginning after December 15, ~~2017, and~~2020, including interim periods within those ~~years.~~fiscal years, and early adoption is permitted. The Company ~~does not believe~~early adopted the ~~adoption~~new guidance in the second quarter of 2020. As a result, the ~~standard will have~~Company recognized, on a ~~material impact~~prospective basis, $13,000 of income tax expense in the second quarter of 2020 upon the reversal of tax benefits recorded in the first quarter of 2020 related to unrealized gains on ~~the Company’s statement of cash flow.~~

short-term investments.

In June ~~2016, FASB~~ ~~issued a new credit loss standard that changes~~2020, the ~~impairment model for most financial assets and certain other instruments.~~ ~~The standard is effective for public business entities for annual periods beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted for all entities~~ ~~for annual periods beginning after December 15, 2018, and interim periods within those years. The Company is in the process of assessing the impact of the adoption of the standard on its financial statements.~~

~~In March 2016,~~ 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 of those taxes paid on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods.~~recognition as derivatives. The Company ~~adopted this~~elected to early adopt the new standard inon January 1, 2021 using the ~~first quarter~~modified retrospective method, and recorded a net reduction to accumulated deficit of ~~2017. The Company had excess tax benefits for which~~$9.0 million, a ~~benefit could not previously be recognized~~decrease to additional paid-in capital of ~~approximately $656,000 as~~$85.8 million, and an increase to convertible senior notes, net - long-term of ~~December 31, 2016. Upon adoption, the balance of the unrecognized excess tax benefits was reversed with the impact recorded~~$76.8 million 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 those years. Early adoption is permitted for all entities. The Company is in the process of assessingreflect the impact of the ~~adoption~~accounting change (see Note 7, “Convertible Senior Notes”).

3. Short-Term Investments

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


At September 30, 2021	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
Available-for-sale securities:
Commercial paper	$	242,739	$	8	$	(1)	$	242,746
U.S. Treasury securities	116,945		4		(18)		116,931
U.S. Government-sponsored enterprise	56,344		12		(6)		56,350
Corporate debt securities	63,595		5		(16)		63,584
Supranational bonds	3,007		—		—		3,007
Total	$	482,630	$	29	$	(41)	$	482,618


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

The contractual maturities of available-for-sale debt securities as of September 30, 2021, were as follows (in thousands):


	Years to Maturity
At September 30, 2021	Within One Year		One to Two Years		Estimated Fair Value
Commercial paper	$	242,746	$	—	$	242,746
U.S. Treasury securities	59,125		57,806		116,931
U.S. Government-sponsored enterprise	30,869		25,481		56,350
Corporate debt securities	63,584		—		63,584
Supranational bonds	3,007		—		3,007
Total	$	399,331	$	83,287	$	482,618

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 September 30, ~~2017~~2021 were not significant and ~~December 31, 2016 (in thousands):~~

were primarily due to changes in market interest rates. The Company does not intend to sell the available-for-sale debt securities that are in an unrealized loss position, and it is not more likely than not that the Company will be required to sell these debt securities before recovery of their amortized cost bases, which may be at maturity. Based on the credit quality of the available-for-sale debt securities in an unrealized loss position, and the Company’s estimates of future cash flows to be collected from those securities, the Company believes the unrealized losses are not credit losses. Accordingly, the Company did not recognize any impairment losses related to its available-for-sale debt securities at September 30, 2021.

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

4. ~~Inventory~~

~~Inventory~~Accounts Receivable and Inventories

Accounts receivable consisted of the following at(in thousands):

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 and nine months ended September 30, ~~2017~~2021 and 2020 (in thousands):

Inventories consisted of the following as of September 30, 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~~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 September 30, 2021
	Total		Level 1		Level 2		Level 3
Assets
Cash equivalents(1)	$	100,859	$	100,859	$	—	$	—
Commercial paper	242,746		—		242,746		—
U.S. Treasury securities	116,931		116,931		—		—
U.S. Government-sponsored enterprise	56,350		—		56,350		—
Corporate debt securities	63,584		—		63,584		—
Supranational bonds	3,007		—		3,007		—
Total assets	$	583,477	$	217,790	$	365,687	$	—

Liabilities
Common stock warrants	$	116	$	—	$	—	$	116

Total liabilities	$	116	$	—	$	—	$	116


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

Liabilities
Common stock warrants	$	14,261	$	—	$	—	$	14,261
Total liabilities	$	14,261	$	—	$	—	$	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 September 30, 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 September 30, 2021 and 2020, there were ~~no transfers between~~Series A warrants outstanding to purchase 1,000 shares and 158,200 shares, respectively, of the Company’s common stock (see Note 8, “Stockholders’ Equity”).

Table of contents

The Company reassesses the fair value of the 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, remaining 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 September 30, 2021 and December 31, 2020 are presented below:


	Series A Warrants
	September 30, 2021		December 31, 2020
Risk-free interest rate	0.1	%	0.1	%
Expected dividend yield	0.0	%	0.0	%
Expected volatility	39.9	%	55.3	%
Remaining term (in years)	1.1		1.8

The following table presents a summary of changes in the fair value of the Company’s Level ~~1 and Level 2 assets during~~3 financial liabilities for the nine months ended September 30, ~~2017.~~

2021 and 2020:


	Nine Months Ended September 30,
	2021		2020
Balance at beginning of the period	$	14,261	$	23,509
Loss recognized from the change in fair value of common stock warrants	1,354		19,906
Common stock warrants exercised during the period	(15,499)		(26,011)
Balance at end of the period	$	116	$	17,404

Of the loss recognized from the change in fair value of common stock warrants for the nine months ended 2020, $8.5 million was attributable to warrants outstanding as of September 30, 2020. The corresponding amount for the nine months ended September 30, 2021 was negligible.

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 Company’s condensed 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. For renewal options that are reasonably certain at the lease Commencement Date of being exercised, the Company includes the renewal option period in the lease term. 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 ~~recorded $1.2 million as guarantee liabilities in other current liabilities~~recognizes lease expense for these leases on a straight-line basis over the lease term. Because the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the ~~accompanying~~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 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 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, with each option providing for an additional period of five years. The Vista Sorrento Lease term was determined assuming the renewal options would not be exercised. The Company recognized right-of-use leased assets and corresponding operating lease liabilities of $15.1 million on the condensed consolidated balance sheet ~~at December 31, 2016. There were no guarantee~~in the first quarter of 2021 related to the Second Amendment.

Table of contents

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Operating lease cost	$	2,213	$	1,914	$	6,415	$	5,569
Short-term lease cost	22		63		67		198
Total lease cost	$	2,235	$	1,977	$	6,482	$	5,767

Maturities of operating lease liabilities at September 30, ~~2017. Guarantees~~2021 were ~~recorded~~ as ~~a reduction of revenue in the statement of operations~~follows (in thousands):


Years Ending December 31,
2021 (remaining)	$	2,388
2022	9,197
2023	6,925
2024	5,720
2025	5,801
Thereafter	10,654
Total undiscounted lease payments	40,685
Less: amount representing interest	(5,744)
Present value of operating lease liabilities	34,941
Less: current portion of operating lease liabilities	(9,261)
Operating lease liabilities - long term	$	25,680

The weighted-average remaining lease term and ~~other comprehensive loss. Guarantees are not measured at fair value on a recurring basis, and therefore are not~~weighted-average discount rate for operating leases were as follows:


	September 30, 2021		December 31, 2020
Weighted-average remaining lease term (in years)	5.1		3.7
Weighted-average discount rate used to determine operating lease liabilities	5.6	%	5.9	%

Cash paid for amounts included in the ~~tables above. Guarantees are classified within Level 3~~measurement of lease liabilities, representing operating cash flows used for operating leases, was $7.1 million and $5.4 million for the nine months ended September 30, 2021 and 2020, respectively.

High Bluff Lease

In September 2021, the Company entered into a lease agreement for 181,949 square feet of additional general administrative, laboratory, and research and development office space (the Premises) located on High Bluff Drive in San Diego, California (the High Bluff Lease). Possession of the ~~fair value hierarchy.~~Premises is expected to be tendered to the Company by the landlord in two phases, with Phase I consisting of 143,850 rentable square feet, and Phase II consisting of 38,099 rentable square feet. The ~~estimated fair value~~Company intends to use Phase I of the ~~guarantees~~High Bluff Lease for operations currently located at 4 separate leased buildings on Roselle Street in San Diego, California that comprise 77,458 square feet in the aggregate, and that have lease terms which are expected to expire in May 2023.

As of September 30, 2021, the Commencement Date for the High Bluff Lease, which is ~~based~~the date upon which the Company will recognize operating lease right-of-use assets and liabilities, and begin recording lease expense, had not yet occurred. Accordingly, the operating lease right-of-use assets and operating lease liabilities recorded on ~~various economic~~the condensed consolidated balance sheet at September 30, 2021, and ~~customer behavioral assumptions,~~the disclosures of lease cost, maturities of operating lease liabilities, and the weighted-average remaining lease term and weighted-average discount rate above, do not include any amounts related to the High Bluff Lease.

Table of contents

The initial lease term Phase I Commencement Date is expected to occur upon the earlier of (i) the date upon which the Company first commences business in the Phase I portion of the Premises, and (ii) the date on which the Company is tendered possession of the Phase I portion of the Premises (which date is currently anticipated to be March 1, 2022). The Phase I Rent Commencement Date is expected to be the date which is six months following the Phase I Commencement Date (the Phase I Rent Commencement Date). The Phase II Commencement Date is expected to occur upon the earlier of (i) the date upon which the Company first commences business in the Phase II portion of the Premises, and (ii) May 1, 2025 (the Phase II Rent Commencement Date). The lease will expire approximately twelve years, eight months from the first day of the first full month following the Phase I Rent Commencement Date. The Company has 2 options to extend the term of the lease, with each option providing for an additional period of five years, by delivering written notice to the landlord in accordance with the terms of the High Bluff Lease.

The High Bluff Lease also includes a first right of offer with respect to an additional 34,569 rentable square feet of general office space should the space become available. The lease term and associated base rent for the additional space will not be known until the Company is notified that the additional space has become available, and the Company elects to lease the space on terms mutually satisfactory to the Company and the landlord.

The initial base rent for the High Bluff Lease is approximately $906,000 per month beginning on the Phase I Rent Commencement Date, and the base rent increases by approximately $255,000 per month on the Phase II Rent Commencement Date. The monthly base rent will increase annually by 3.0% on each annual anniversary of the respective Rent Commencement Date. In addition to the monthly base rent, the Company is required to pay its proportionate share of certain ongoing operating expenses throughout the duration of the lease. No base rent, other than the proportionate share of operating expenses, will be due for the Phase I portion of the Premises for months two through nine of the initial lease term, and for the Phase II portion of the Premises for months two through five following the Phase II Rent Commencement Date.

Future minimum payments for monthly base rent due under the initial lease term, are currently estimated to be as follows (in thousands), subject to a number of factors, including the ~~probability~~actual Commencement Date of the lease:


Years Ending December 31,
2021 (remaining)	$	—
2022	—
2023	6,453
2024	11,313
2025	12,694
2026 through 2035	160,764
Total(1)	$	191,224

(1) The Company currently estimates that ~~a trade-in right~~the Phase I Commencement Date will occur in the first quarter of 2022, and the Phase II Commencement Date will occur in the first quarter of 2025, at which time the respective operating lease right-of-use assets and liabilities will be ~~exercised,~~recorded.

7. Convertible Senior Notes

In May 2020, the ~~specified trade-in~~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 ~~expected fair value~~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 ~~t:slim G4 Pump at trade-in and~~to pay 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 estimatecost of the ~~fair value~~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 ~~liabilities.~~

In ~~connection with the Term Loan Agreement, on March 7, 2017, the Company issued ten-year warrants to purchase 193,788~~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.~~

the Notes at a price equal to 100% of the principal amount of the Notes, plus any accrued and unpaid interest.

Initially, in accounting for the issuance of the Notes, the Company 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 was recorded as a debt discount, to be amortized to interest expense at an effective interest rate of 9.9%. In addition, the Company allocated $2.7 million of debt issuance costs to the equity component and the remaining debt issuance costs of $6.1 million were allocated to the 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 at September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021		December 31, 2020
Liability:
Principal amount	$	287,500	$	287,500
Unamortized debt issuance costs	(6,468)		(5,446)
Unamortized debt discount	—		(79,070)
Net carrying amount	$	281,032	$	202,984
Carrying amount of the equity component	$	—	$	85,803

As of September 30, ~~2017 and December 31, 2016, respectively,~~2021, the Company had accrued $4.1 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 as a modification for accounting purposes and concluded that it did not constitute a modification because the present value 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%. The Back End Financing Fee, the value of the Capital Royalty Warrant, and the remaining balance of~~unamortized debt issuance costs ~~and debt discount~~ of $6.5 million associated with the ~~loan are~~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 3.6 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 and nine months ended September 30, 2021 and 2020 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Contractual interest expense	$	1,078	$	1,078	$	3,234	$	1,797
Amortization of debt issuance costs	433		244		1,292		403
Amortization of debt discount	N/A		3,533		N/A		5,830
Total interest expense	$	1,511	$	4,855	$	4,526	$	8,030

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 September 30, 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~~transactions met certain criteria under the applicable accounting guidance, the Capped Call Transactions were ~~$4.3 million, before deducting underwriting discounts~~recorded in stockholders' equity and ~~commissions~~were not accounted for as derivatives. The cost of the Capped Call Transactions was recorded as a reduction of the Company’s additional paid-in capital in the Company’s 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 atas of September 30, ~~2017~~2021 (in thousands):


Shares reserved for issuance upon conversion of Convertible Senior Notes		2,554
Shares underlying outstanding warrants		215	~~293~~
Shares underlying outstanding stock options		5,144	~~933~~
Shares underlying unvested restricted stock units		527
Shares authorized for issuance pursuant to awards granted under the ESPP		1,289
Shares authorized for future equity award grants		1,445	39
~~Shares authorized for issuance as ESPP awards~~		11,174	—
	~~1,265~~

Common Stock Warrants

Warrants outstanding to purchase shares of the Company's common stock as of September 30, 2021 were as follows:


Issue Date	Exercise Price Per Share		Warrants Outstanding	Expiration Date of Warrants Outstanding
October 2017	$	3.50	1,000	October 2022
March 2017	$	23.50	193,788	March 2027
May 2012 - August 2012	$	73.73	19,722	May 2022 - August 2022
			214,510

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~~29,985 and 155,517 shares of its common stock, respectively, upon the exercise of ~~stock options~~warrants during the three and nine months ended September 30, ~~2017,~~2021, and ~~issued 14,897~~257,000 and 291,894 shares of its common stock, respectively, upon the exercise of warrants during the three and nine months ended September 30, 2020.

Stock Plans

The Company’s Amended and Restated 2013 Stock Incentive Plan (2013 Plan) was originally approved by the Company’s board of directors in October 2013. Under the 2013 Plan, the Company may grant stock options, ~~during~~stock appreciation rights, restricted stock and restricted stock units to individuals who are then employees, officers, directors or consultants of the ~~year ended December 31, 2016.~~

Company.

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~~

Stock-Based Compensation

Common Stock Options

The Company did not grant any options to purchase shares of ~~the Company’s~~ common stock ~~purchased under~~during the ~~ESPP~~three months ended September 30, 2021. The Company granted options to purchase 355,008 shares of common stock during the nine months ended September 30, ~~2017,~~2021, and ~~69,502~~ options to purchase 162,886 and 1,010,996 shares of common stock, respectively, during the three and nine months ended September 30, 2020. These options have an exercise price equal to the closing price of the Company’s common stock ~~purchased under~~on the ~~ESPP during~~applicable award date, and generally vest as to 25% of the ~~year ended December 31, 2016.~~

underlying shares on the first anniversary of the award, with the balance of the options vesting monthly over the following three years.

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The Company ~~announced~~estimates the ~~suspension~~fair value of stock options using the ~~ESPP as of May 16, 2017 due to a lack of available shares. The suspension was accounted for as a cancellation of an award with no consideration. The previously unrecognized compensation cost as of~~Black-Scholes option-pricing model on the ~~suspension date of $2.4 million was fully expensed during the second quarter of 2017.~~

~~Stock-Based Compensation~~

grant date. The assumptions used in the Black-Scholes option-pricing model ~~are~~for common stock options were as follows:

	Stock Option
	Three Months Ended						Nine Months Ended							Stock Options
	September 30,						September 30,							Three Months Ended September 30,			Nine Months Ended September 30,
	2017			2016			2017			2016				2021	2020		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)	N/A	$67.64		$56.89		$52.83
Risk-free interest rate		2.0	%		1.3	%		1.9	%		1.4	%	Risk-free interest rate	N/A	0.4	%	1.0	%	0.6	%
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%	Expected dividend yield	N/A	0.0	%	0.0	%	0.0	%
Expected volatility		60.3	%		56.1	%		60.0	%		55.5	%	Expected volatility	N/A	75.3	%	75.1	%	74.5	%
Expected term (in years)		6.1			6.1			6.1			6.1		Expected term (in years)	N/A	6.1		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

Restricted Stock Units

~~(1)~~

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

The Company granted 94,746 and 437,340 restricted stock units (RSUs), respectively, during the three and nine months ended September 30, 2021. During the three and nine months ended September 30, 2020, the Company granted 2,846 and 134,694 RSUs, respectively. These RSUs have a grant value equal to the closing price of the Company’s common stock on the award date, and generally vest based only on service as to 25% of the underlying shares on the first anniversary of the award, with the balance of the RSUs vesting quarterly over the following three years. In addition, the Company granted 25,674 performance-based RSUs during the nine months ended September 30, 2021. The Company did not grant any performance-based RSUs during the three months ended September 30, 2021. The performance-based RSUs have a grant value equal to the closing price of the Company’s common stock on the award date, and vest upon the Company’s actual performance relative to predefined performance metrics and subject to the awardee’s continuing service through the December 31, 2024 measurement date. The weighted average grant date fair value of RSUs granted were as follows:


	Restricted Stock Units
	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Weighted average grant date fair value (per share)	$109.63	$105.41	$87.98	$82.82

Employee Stock Purchase Plan

The Company records stock-based compensation expense associated with the ESPP using the Black-Scholes option-pricing model. Valuations are performed on the grant date at the beginning of the purchase period, which generally occurs in May and November of each year. The assumptions used in the Black-Scholes option-pricing model for the ESPP were as follows:


		ESPP
	Nine Months Ended September 30,
		2021		2020
Weighted average grant date fair value (per share)		$29.24		$36.18
Risk-free interest rate		0.1	%	0.2	%
Expected dividend yield		0.0	%	0.0	%
Expected volatility		47.5	%	65.7	%
Expected term (in years)		1.3		1.3

The following table summarizes the allocation of stock-based compensation expense included in the condensed consolidated statements of operations for all stock-based compensation arrangements (in thousands):

The total stock-based compensation expense capitalized as part of the cost of ~~inventory~~the Company’s inventories was ~~$0.3 million and $0.2~~$1.0 million at September 30, ~~2017~~2021, and $0.6 million at December 31, ~~2016,~~2020.

For the three and nine months ended September 30, 2021, the Company recognized income tax expense of $0.1 million and an income tax benefit of $2,000, respectively, on pre-tax income of $5.8 million and $4.8 million, respectively.

The income tax benefit for the nine months ended September 30, 2021 was primarily attributable to excess tax benefits from stock compensation recorded discretely during the period, offset by state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

For the three and nine months ended September 30, 2020, the Company recognized income tax expense of $39,000 on a pre-tax loss of $9.4 million, and an income tax benefit of $1.9 million on a pre-tax loss of $53.3 million, respectively. The income tax benefit for the nine months ended September 30, 2020 was primarily due to benefit associated with the release of valuation allowance related to the acquisition of Sugarmate, partially offset by state and foreign income tax expense as a result of current taxable income in those jurisdictions.

The Company calculated the provision for income taxes for the three and nine months ended September 30, 2021 by applying an estimate of the annual effective tax rate for the full year to ordinary income adjusted by the tax impact of discrete items. For the three and nine months ended September 30, 2020, the Company calculated the provision (benefit) 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 September 30, 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 insulin 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 Channels

During the three and nine months ended September 30, 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 September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
United States	$	133,106	$	107,517	$	364,025	$	276,340
International	46,521		16,086		128,778		54,425
Total Sales	$	179,627	$	123,603	$	492,803	$	330,765

Sales to distributors accounted for 68% and 74% of the Company’s total domestic sales for the three months ended September 30, 2021 and 2020, respectively, and 68% and 72% of total domestic sales for the nine months ended September 30, 2021 and 2020, respectively.

Sales to distributors accounted for 96% and 91% of the Company’s total international sales for the three months ended September 30, 2021 and 2020, respectively, and 95% and 93% of the Company’s total international sales for the nine months ended September 30, 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. 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.

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 case was brought as a class action and was later amended to also include a representative action under the California Private Attorney General Act, or PAGA. The 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. The parties recently agreed to resolve all claims in the lawsuit. The settlement of claims covered by the PAGA matter were approved by the Superior Court of the State of California in the County of San Diego on September 21, 2021 and settlement amounts were disbursed in October 2021. Also in October 2021, a settlement of the class action related claims was preliminarily approved by an independent arbitrator mutually acceptable to both parties. The class action is intended to resolve the claims of the individual plaintiff, as well as the remaining members of the class, unless an individual class member submits a timely request for exclusion. The material terms of the settlement are set forth in a binding Memorandum of Agreement dated as of July 1, 2021, which is subject to the completion of a number of conditions, as well as final approval by the independent arbitrator. There is no guarantee that the conditions will be met or that final approval will be obtained. If the final class settlement is not approved, or if other conditions to approval of the settlement are not met, the case will continue and the Company will continue to vigorously defend against the claims.

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~~Although the results of legal proceedings, disputes and other claims cannot be predicted with ~~these matters,~~certainty, the Company ~~assesses, on~~believes it is not currently a ~~regular basis,~~party to any legal proceeding(s) which, if determined adversely to the ~~probability and range of possible loss based~~Company, would, individually or taken together, have a material adverse effect on the ~~developments in these matters. A liability is recorded in the~~Company’s business, operating results, financial ~~statements if it is determined that it is probable that a loss has been incurred, and that the amount~~condition or ~~range~~cash flows. However, regardless of the ~~loss can be reasonably estimated. Because~~merit of the ~~uncertainties related to~~claims raised or the ~~occurrence, amount, and range of loss~~outcome, legal proceedings may have an adverse impact on ~~any pending actions,~~ the Company ~~is currently unable to predict their ultimate outcome,~~as a result of defense and ~~with respect to any pending litigation or claim where no liability has been accrued, to make a meaningful estimate~~settlement costs, diversion of ~~the reasonably possible loss or range~~management time and resources, and other factors.

Except as set forth above, as of ~~loss that could result from an unfavorable outcome. At~~ September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, there were no 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.~~

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,~~��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 on our business, supply chain, and the businesses of our contract manufacturers and suppliers, integration of acquisitions and partner technologies, and the application of accounting guidance. We caution you that the foregoing list may not include all of the forward-looking statements made in this Quarterly Report.

Our forward-looking statements are based on our management’s current assumptions and expectations about future events and trends, which affect or may affect our business, strategy, operations or financial performance. Although we believe that these forward-looking statements are based upon reasonable assumptions, they are subject to numerous known and unknown risks and uncertainties and are made in light of information currently available to us. Our actual financial condition and results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth 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 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 rapidly innovated and ~~designed~~brought 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~~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. We now have approximately 296,000 customers in ~~an independent survey by dQ&A,~~our global installed base, assuming a ~~leading diabetes research firm.~~

typical four year reimbursement cycle, of which 26% are in international markets.

Our simple-to-use t:slim X2 is based on our proprietary technology platform and is the smallest durable insulin pump available in the United States. 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 made 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), is now available in the countries in which we serve worldwide and 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 the industry has been able to~~Control-IQ technology. Basal-IQ technology launched domestically in the ~~past. Its~~third quarter of 2018 and its international rollout began in the third quarter of 2019. Basal-IQ is a predictive low glucose suspend feature that is designed to temporarily suspend insulin delivery to help reduce the frequency and duration of hypoglycemic events. Control-IQ technology launched domestically in the first quarter of 2020 and its international rollout began in the third quarter of 2020. Our Control-IQ technology is an advanced hybrid-closed loop feature, designed to help increase a user's time in their targeted glycemic range. By the fourth quarter of 2021, we will have substantially completed our scaled launch of Control-IQ technology outside the United States, which was staged based on the timing of necessary regulatory clearances or approvals. It is the first 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 ~~the latest software. In August 2017, we received FDA approval~~adjusting insulin to ~~permit~~help prevent high and low blood sugar. Approximately 200,000 t:slim X2 ~~customers~~users worldwide have our Control-IQ algorithm. However, we continue 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, oroffer both AID algorithms ~~independent~~to support the varying needs 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 used in the process and reduces the time required to fill the infusion set tubing.

Our innovative approach 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 surveys to understand what people living 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 pumps on the market, without sacrificing insulin capacity. 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,~~support of our digital health strategy, we continue to offer and improve t:connect and TDU, and develop and launch other complementary offerings. In the third quarter of 2020, we launched our first-generation t:connect mobile application in the United States. This mobile app wirelessly uploads pump data to our t:~~connect® HCP Portal, which~~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 continue 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 second quarter of 2021, we began limited testing of an initial version of Tandem Source, our second-generation data management platform, in the United Kingdom. We continue to develop and test new features for Tandem Source in anticipation of a future commercial release of the ~~original t:connect Application~~product.

For the nine months ended September 30, 2021 and ~~improve office efficiency.~~

We2020, our consolidated sales were $492.8 million and $330.8 million, respectively. For the nine months ended September 30, 2021 and 2020, we reported net income of $4.8 million and net loss of $51.4 million, respectively. Worldwide pump sales accounted for 59% and 62% of our total sales for the nine months ended September 30, 2021 and 2020, respectively, while pump-related supplies and accessories accounted for the remainder in each year. Our accumulated deficit as of September 30, 2021 and December 31, 2020 was $645.4 million and $659.2 million, respectively. These amounts included $337.1 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 September 30, 2021 and December 31, 2020, respectively.

In the United States, we have rapidly increased sales since ~~our~~the commercial launch of our first product by expanding our sales, clinical and marketing ~~infrastructure, by developing, commercializing~~organization, through our development, commercialization and marketing of 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 platform, we are able to leverage a shared global manufacturing and supply chain infrastructure. In the United States, we are able to leverage a single sales, marketing, and clinical organization, as well as our customer support services to support our business and engage with our consumers, customers and healthcare providers. 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 of 2020 and continued through to the current period. Initially, the impact on our business was relatively consistent worldwide but we have since seen varying degrees of impact in individual markets based on local conditions.

Commercially, during the first nine months of 2021, we saw a gradual increase in the amount of in-person sales and training activities in the United States as vaccination availability expanded and social-distancing requirements were relaxed. During the third quarter of 2021, we also saw reduced availability of customers and healthcare providers relating to people taking time off to vacation, which adversely impacted our worldwide sales of new pumps to customers during the period. This is a common seasonal pattern outside the United States, but was seen more prominently domestically than in ~~select geographies~~previous years due to the lessening of COVID-19 restrictions during ~~2018. Unlike~~the quarter. Later in the third quarter, as diagnosis rates for COVID-19 variants began to increase, we saw sales activities begin to shift to fewer live interactions once again. In addition, labor shortages at healthcare prescriber offices related to impacts from COVID-19 can adversely impact our ~~approach domestically,~~sales productivity and result in practice inefficiencies. We continue to see variability across the country and anticipate fluctuations between in-person and remote interactions will also continue.

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, during the early stages of the pandemic, we ~~currently plan~~experienced delays of certain programs of up to ~~partner~~six months from when they were originally planned, such as human factors studies associated with ~~distributors who~~our product development efforts. More recently, recruiting and hiring new employees has proven more difficult due to generalized labor shortages impacting global markets. There is substantial competition for talent in the markets in which we operate as the economy is entering a recovery phase and businesses increase hiring to meet heightened demand. 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 ~~carry out~~depend on a number of factors including the ~~selling efforts,~~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. Until recently, we restricted nearly all non-essential employee travel and banned non-essential visitors from all of our facilities. We have recently modified those restrictions to allow for some limited employee travel and visitors to our facilities with controls. To help ensure the safety and health of our employees in manufacturing and warehousing positions involved in production and fulfillment operations, we have implemented preventative measures by requiring employees to wear masks and perform temperature checks before each shift.

In early 2020, we initiated having regular discussions with our key suppliers regarding their abilities to fulfill existing orders and assess their ongoing 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; however, we have not observed similar patterns in more recent periods. Nevertheless, our infusion set manufacturer continues to experience certain inventory constraints which have resulted in us asking some customers to accept substitutions of similar products to prevent delays in order fulfillment. Additionally, at various times since the beginning of the pandemic, components of our inventory were below our targeted stocking levels.

We use components from various suppliers to build our products. While we have adequate raw material inventory for a substantial portion of our pump and cartridge components, we are below our targeted stocking levels for others. Currently, we do not anticipate a significant disruption in our ability to manufacture insulin pumps and cartridges, nor do we anticipate our third-party manufacturers will be unable to provide sufficient quantities to meet product demand during the remainder of 2021. However, we continue to monitor factors that could negatively impact our supply chain, such as global shortages of semiconductors and copper that are needed to manufacture our insulin pumps and accessories, as well as custom components for our insulin pumps and cartridges where we rely on a limited number of qualified suppliers. At this time, we believe many of our suppliers are deemed essential businesses under applicable governmental orders, and are not at risk of being subject to orders requiring facility closures. We could experience these or other challenges with our supply chain if demand for our products meaningfully exceeds our current forecasts, or if continued proliferation of the ~~service~~virus, resurgences, or the emergence of new variants results in additional or prolonged restrictions that impact global supply chains.

We are prudently managing our use of cash and ~~support~~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 ~~customers~~this filing. In the meantime, we are focused on making necessary investments in ~~geographies outside~~ the ~~United States.~~

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 connected (mobile) health offerings, 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 the third quarter of 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, additional 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 with TypeZero – Our second generation AID system is expected~~development. We are designing our future mobile applications to ~~integrate~~enhance the ~~t:slim X2~~user experience, streamline the 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 we are working with Dexcom~~supplies purchasing process, and ~~TypeZero on the integration of our technologies into the National Institute of Health funded International Diabetes Closed Loop Trial, or IDCL Trial.~~provide internal efficiencies. We anticipate that a portion of the trial will utilize a t:slim X2 integrated with TypeZero’s inControl AID algorithms that is designed to automatically adjust a person’s insulin based on information from a Dexcom G6 sensor. We intendalso plan to use data from our centralized system 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.~~

it 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~~provide to people with greater insulin needs. We anticipate that t:sport will be our first insulin pump to support full pump-control from our mobile application, subject to FDA review and approval. A separate controller may be offered in addition to full mobile control availability.

Table of the Bluetooth radio to wirelessly upload pump data to t:connect, receive notification of pump alerts and alarms, integrate other health-related information from third party sources, and support future pump-control capabilities for our products under development. contents

•AID Enhancements – We intend to ~~launch~~further enhance our automated insulin delivery system and we are planning and performing numerous clinical studies in diverse user populations to support the ~~first~~development of expanded labeling indications and new product features. These include algorithm enhancements intended to improve clinical outcomes, as well as new features for greater personalization and refinements to the overall system usability.

•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 shipped more than 60,000 insulin pumps since our initial launch in August 2012, of which nearly 56,000 pumps have been shipped within~~

In the ~~four years~~four-year period ended September 30, ~~2017.~~ 2021, we shipped approximately 296,000 insulin pumps, of which approximately 219,000 were shipped to customers in the United States and approximately 77,000 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 - 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	20,665	20,296	N/A	57,605

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


	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	13,152	11,262	N/A	33,122

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

Table of contents

~~(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.~~

~~(3)~~

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

~~(4)~~

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

~~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.

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, or create uncertainty or delay with respect to regulatory approvals;

•timing of holidays and summer vacations, which may vary by geography and may be further influenced by the lifting or relaxation of COVID-19 related restrictions during 2021 and broader availability of vaccines;

•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;

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•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;

•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, 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. We expect we will be required to raise additional capital in order to continue as a going concern, meet our minimum liquidity requirements, 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 we may elect to borrow additional amounts under new debt financing arrangements or from other sources. We expect 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 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, 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 paragraphfirst time in the ~~audit report~~fourth quarters of ~~our independent registered public accounting firm included in our Annual Report on Form 10-K~~2018, 2019 and 2020, and were profitable for the ~~year~~nine months 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,September 30, 2021. Though we have ~~satisfied our obligations pursuant~~yet to ~~this equity financing covenant, although~~achieve profitability consistently from period to period, 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~~disposable insulin ~~pumps,~~cartridges and infusion sets, as well as ~~disposable cartridges~~our complementary t:connect, TDU and ~~infusion sets.~~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.

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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.

Since early 2020, the COVID-19 global pandemic had a major impact on businesses around the world. We experienced only a modest negative impact from the pandemic during the first quarter of 2020, which became more pronounced in the second quarter through the end of the year. Initially, the impact on our business was relatively consistent worldwide but we have since seen varying degrees of impact in individual markets based on local conditions. Commercially, during the first nine months of 2021, we saw a gradual increase in the amount of in-person sales and training activities in the United States as vaccination availability expanded and social-distancing requirements were relaxed. During the third quarter, we also saw reduced availability of customers and healthcare providers relating to ~~decrease significantly.~~

~~In addition,~~people taking time off to vacation, which adversely impacted our worldwide sales of new pumps to customers during the period. 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. 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, 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 with Control-IQ technology, and ~~the Technology Upgrade Program~~similar occurrences may occur in ~~the third quarter of 2016, and one of our competitors announced the~~ future ~~availability of two new products with financial incentives for adoption.~~periods. 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 insulin 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 and concurrently reduce our t:slim cartridge manufacturing capacity in our existing facility in order to create capacity for t:sport cartridge manufacturing in the future. 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.

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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 implemented temporary operational changes that introduced 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 and 2021, we ~~are increasing~~have and will continue to evaluate investing 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.

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, cost 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, our~~We have approximately 95 sales ~~and clinical organization consisted of approximately 70~~ territories in the United States as of September 30, ~~2017. Territories~~2021 and have commenced an expansion in the fourth quarter of 2021 to approximately 110 sales territories and related customer service functions. 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 may experience additional costs as our employees return to work at our offices and as we adapt to alternative hybrid work models, or as needed to respond to general labor shortages and heightened competition for employees with specialized skills. In addition, 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.

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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.~~

technologies and support more clinical trials. 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 three quarters of 2021, assuming that none of the Notes are converted or redeemed in ~~2017~~future periods. We expect the revaluation of the outstanding Series A warrants will not have a significant impact on our other income and expense from the fourth quarter of 2021, through the fourth quarter of 2022 when the remaining warrants expire.

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.

Table of contents

Results of Operations

	Three Months Ended						Nine Months Ended
	September 30,						September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except percentages)	2017			2016			2017			2016			(in thousands, except percentages)	2021			2020			2021			2020
Sales	$	27,003		$	12,293		$	67,306		$	55,336
Sales:													Sales:
Domestic													Domestic	$	133,106		$	107,517		$	364,025		$	276,340
International													International	46,521			16,086			128,778			54,425
Total sales													Total sales	179,627			123,603			492,803			330,765
Cost of sales		15,131			13,870			40,680			41,809		Cost of sales	82,882			58,290			230,317			160,801
Gross profit (loss)		11,872			(1,577	)		26,626			13,527
Gross profit													Gross profit	96,745			65,313			262,486			169,964
Gross margin		44	%		(13	)%		40	%		24	%	Gross margin	54		%	53		%	53		%	51		%
Operating expenses:													Operating expenses:
Selling, general and administrative		20,125			20,683			65,077			63,768		Selling, general and administrative	64,923			50,228			190,009			150,385
Research and development		4,914			6,154			14,910			14,464		Research and development	24,102			16,094			62,562			46,198
Total operating expenses		25,039			26,837			79,987			78,232		Total operating expenses	89,025			66,322			252,571			196,583
Operating loss		(13,167	)		(28,414	)		(53,361	)		(64,705	)
Operating income (loss)													Operating income (loss)	7,720			(1,009)			9,915			(26,619)
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	31			143			721			1,235
Interest expense													Interest expense	(1,511)			(4,855)			(4,526)			(8,030)

Change in fair value of common stock warrants													Change in fair value of common stock warrants	(392)			(3,648)			(1,354)			(19,906)
Total other expense, net		(2,868	)		(1,400	)		(8,267	)		(3,919	)	Total other expense, net	(1,872)			(8,360)			(5,159)			(26,701)
Net loss	$	(16,035	)	$	(29,814	)	$	(61,628	)	$	(68,624	)
Income (loss) before income taxes													Income (loss) before income taxes	5,848			(9,369)			4,756			(53,320)
Income tax expense (benefit)													Income tax expense (benefit)	54			39			(2)			(1,938)
Net income (loss)													Net income (loss)	$	5,794		$	(9,408)		$	4,758		$	(51,382)

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

2020

Sales.For the three monthsended September 30, ~~2017,~~2021,sales were ~~$27.0~~$179.6 million, ~~including the recognition of $3.3~~which included $46.5 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~~$123.6 million for the same period in ~~2016,~~2020, which ~~reflect the deferral of $8.4~~included $16.1 million of international sales.

The increase in worldwide sales of $56.0 million in the third quarter of 2021 compared to the third quarter of 2020 was driven by a 43% increase in worldwide pump shipments to 31,558 in the third quarter of 2021, compared to 22,021 in the third quarter of 2020, and a 71% increase in pump-related supply sales. Sales of pump-related supplies increased primarily due to 58% growth in our estimated worldwide installed base of customers.

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


	Three Months Ended September 30,
	2021		2020
Pump	$	78,771	$	69,464
Infusion sets	37,725		26,133
Cartridges	16,289		11,767
Other	321		153
Total Domestic Sales	$	133,106	$	107,517

Table of contents

Domestic pump sales ~~associated~~were $78.8 million for the third quarter of 2021, compared to $69.5 million in the third quarter of 2020. Domestic pump shipments were 20,296 in the third quarter of 2021, compared to 18,380 in the third quarter of 2020. The increase in pump shipments was primarily 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, offset by the ~~Technology Upgrade Program.~~

impact from increased travel and vacations by both customers and healthcare providers in the United States, as well as increased rates of infection related to COVID-19 variants. Sales of ~~insulin pumps were $18.0 million~~pump-related supplies increased primarily due to a 45% increase in our estimated domestic installed base of customers. Sales to distributors accounted for 68% and ~~$6.9 million, respectively,~~74% of our total domestic sales for the three months ended September 30, ~~2017~~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 September 30,
	2021		2020
Pump	$	23,762	$	9,045
Infusion sets	16,175		5,118
Cartridges	6,269		1,761
Other	315		162
Total International Sales	$	46,521	$	16,086

International pump sales were $23.8 million for the third quarter of 2021, compared to $9.0 million in the third quarter of 2020, as pump shipments increased 209% compared to the same period in the prior year due to strong demand for our products as we continue to expand the launch of Control-IQ technology, which began in the third quarter of 2020, outside the United States, as well as the varying impact of the global pandemic. Sales of pump-related supplies benefited from a 115% 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, particularly during the typical third quarter European holiday season. 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%~~91% of our total international sales for the three months ended September 30, ~~2017~~2021 and ~~2016,~~2020, respectively.

Cost of Sales ~~deferred under the Technology Upgrade Program decreased the percentage~~and Gross Profit.Our cost of sales for the three monthsended September 30, 2021was $82.9 million, resulting in gross profit of $96.7 million, compared to ~~distributors~~cost of sales of $58.3 million and gross profit of $65.3 million for the same period in 2020. The gross margin for the three monthsended September 30, 2021 was 54%, compared to 53% in the same period in 2020.

The increase in our gross profit for the three months ended September 30, ~~2016 by five percentage points, while there~~2021 was ~~not~~primarily the result of the $56.0 million increase in total sales. Gross profit and gross margin both benefited from improvement in the per unit manufacturing costs for pumps and cartridges from efficiencies in the manufacturing process, leverage of fixed overhead and increased volumes from our third-party cartridge manufacturer. On an aggregate basis, non-manufacturing costs, which primarily consist of warranty, royalty, freight, training and digital health product support costs, also reflected improvement on a ~~significant impact~~per unit basis. To a lesser extent, overall average selling prices slightly pressured gross margin as international pump sales comprised a greater portion of total pump sales compared to the ~~percentage~~prior year, while supply average selling prices reflected modest benefit from the growth 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 months~~ ~~ended September 30, 2017~~ our international installed base. Royalty expense was ~~$15.1~~$1.9 million~~resulting in gross profit of $11.9 million, compared to $13.9 million cost of sales and gross loss of $1.6 million in 2016. The gross margin~~ ~~for the three months~~ ~~ended September 30, 2017 was 44% compared to negative 13% in the same period in 2016.~~

~~The increase in our gross profit (loss)~~ for the three months ended September 30, ~~2017~~2021, compared to $1.7 million in the same period in ~~2016~~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 57% of total worldwide sales in the third quarter of 2021 versus 64% in the third quarter of 2020. Non-cash stock-based compensation expense allocated to cost of sales was ~~primarily the result of the impact of the Technology Upgrade Program. During~~$1.6 million for the three months ended September 30, ~~2017, our gross profit included a net recognition of $2.6~~2021, compared to $2.1 million ~~of gross profit that had been deferred~~ in ~~prior periods, partially offset by an immaterial cost incurred for the fulfillment of upgrades. In~~ the same period in 2020.

Table of ~~2016, our gross profit was reduced by a net deferral of $7.0~~contents

Selling, General and Administrative Expenses. SG&A expenses increased 29% to $64.9 million ~~of pump sales under the terms of the Program. Additionally, we recorded a $1.1 million charge in~~for the three months ended September 30, ~~2016~~2021 from $50.2 million for ~~inventory obsolescence as a~~the same period in 2020.Employee-related expenses for ourSG&Afunctions comprise the majority of SG&A expenses.The increase compared to 2020 was primarily the result of ~~the commercialization~~a $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 ~~the t:slim X2 Pump, launch of the Technology Upgrade Program~~our growing installed customer base, and ~~associated decrease~~a $2.4 million increase in ~~the overall demand~~non-cash stock-based compensation expense. Non-cash stock-based compensation expense allocated to SG&A was $11.3 million 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.~~

Gross profit and gross margin also increased as a result of per unit manufacturing cost improvements, including significant raw material cost reductions for our pumps and overall manufacturing efficiencies2021, compared to $8.9 million in labor and overhead for both pumps and cartridges. Other non-manufacturing costs, which primarily consist of warranty, freight and training, also reflected improvement, most notably demonstrated by a decreasethe same period in ~~warranty expense as a result of improvements in our warranty trends and warranty replacement costs.~~

2020. 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.~~ ~~However, we continue to experience a positive gross margin~~non-cash stock-based compensation expense was associated with ~~our pump-related~~increased headcount in 2020 and 2021. We also experienced a $3.1 million increase in other non-employee discretionary spending, including information technology, supplies, ~~as a whole, after first achieving a positive gross margin in the fourth quarter of 2016. We have maintained a positive quarterly gross margin since that time. We expect~~outside services and travel costs.

Research and Development Expenses. R&D expenses increased 50% to continue to see improvements in the gross profit and gross margin associated with our pump-related supplies as 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~~$24.1 million for the three months ended September 30, ~~2017~~2021 from ~~$20.7~~$16.1 million for the same period in ~~2016.~~

~~Employee-related expenses for our~~ ~~SG&A~~ ~~functions comprise the majority of the SG&A expenses.~~2020. The decrease in SG&A expenses compared to 2016 was primarily a result of a reduction in our headcount-related costs in the third quarter of 2017, compared 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 million for the three months ended~~ ~~September 30, 2017~~ ~~from $6.2 million for the same period in 2016. The decrease~~increase in R&D expenses was primarily the result of ~~higher costs~~an increase of $4.8 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~~R&D was $2.9 million for the three months endedSeptember 30, 2021, compared to $1.8 million in the same period in 2020. Non-employee discretionary spending also increased $2.1 million for product development, facilities and ~~technology license fees~~.

maintenance costs.

Other Income ~~and Expense~~(Expense), Net. ~~Other~~Total other expense, net for the three months ended September 30, ~~2017 and 2016~~2021 was ~~$2.9~~$1.9 million ~~and $1.4~~compared to $8.4 million ~~respectively. Other~~in the same period in 2020. Total other expense, net for ~~both periods was~~the three months ended September 30, 2021 primarily ~~comprised~~consisted of $1.5 million of interest expense ~~associated with~~which included the ~~Term Loan Agreement. The outstanding principal balances under~~amortization of debt issuance costs related to our Notes issued in the ~~Term Loan Agreement were $82.3~~second quarter of 2020, and a $0.4 million ~~and $45.8 million as~~revaluation loss from the change in the fair value of certain warrants. Total other expense, net for the three months ended September 30, ~~2017~~ 2020consisted of a $3.6 million loss on revaluation from the change in the fair value of certain warrants, and ~~September 30, 2016, respectively. Other income for both periods presented~~$4.9 million of interest expense which included the amortization of debt discount and debt issuance costs related to our Notes. The decrease in interest expense was ~~not significant.~~

primarily due to the adoption of ASU No. 2020-06 in the first quarter of 2021 (see Note 7, “Convertible Senior Notes”).

Comparison of the Nine Months Ended September 30, ~~2017~~2021 and ~~2016~~

2020

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.~~2021,sales were $492.8 million, which included $128.8 million of international sales. For the nine months ended September 30, ~~2017,~~2020, sales were $330.8 million, which included $54.4 million of international sales.

The increase in worldwide sales of $162.0 million in the first nine months of 2021 compared to the first nine months of 2020 was driven by a 56% increase in worldwide pump shipments to 90,727 in the first nine months of 2021, compared to 58,086 in the first nine months of 2020, and a 58% increase in pump-related supply sales. Sales of pump-related supplies increased primarily due to a 58% growth in our estimated worldwide installed base of customers.

Domestic sales by product were ~~$23.0~~as follows (in thousands):


	Nine Months Ended September 30,
	2021		2020
Pump	$	221,724	$	175,550
Infusion sets	97,251		68,883
Cartridges	44,136		31,418
Other	914		489
Total Domestic Sales	$	364,025	$	276,340

Table of contents

Domestic pump sales were $221.7 million ~~of which $9.7 million were sales of cartridges and $13.0 million were sales of infusion sets. For~~for the first nine months ~~ended September 30, 2016, sales~~ of ~~pump-related supplies were $14.2~~2021, compared to $175.6 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 first nine months ~~ended September 30, 2017 from 25% in~~of 2020, as pump shipments increased 24% compared to the same period in ~~2016.~~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 57,605 in the first nine months of 2021 compared to 46,273 in the first nine months of 2020. 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~~pump-related supplies increased primarily driven by a 19% decrease in aggregate pump shipments from 12,520 for the nine 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 was effective July 1, 2016~~. The decrease in pump sales was partially offset by an~~a 45% increase in ~~sales~~our estimated domestic installed base of ~~infusion sets to our distributors, as well as overall pump-related supplies to~~ ~~our growing customer base.~~

customers. Sales to distributors accounted for ~~73%~~68% and ~~74%~~72% of our total domestic sales for the nine months ended September 30, ~~2017~~2021 and ~~2016,~~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):


	Nine Months Ended September 30,
	2021		2020
Pump	$	70,300	$	27,985
Infusion sets	41,074		18,794
Cartridges	16,878		7,315
Other	526		331
Total International Sales	$	128,778	$	54,425

International pump sales were $70.3 million for the first nine months of 2021, compared to $28.0 million in the first nine months of 2020, as pump shipments increased 180% compared to the same period in the prior year due to strong demand for our products as we continue to expand the launch of Control-IQ technology, which began in the third quarter of 2020, outside the United States. Sales of pump-related supplies increased primarily due to an 115% 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, particularly during the typical third quarter European holiday season. 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 95% of our total international sales for the nine month period ended September 30, 2021, and 93% for the same period in 2020.

Cost of Sales and Gross Profit ~~(Loss)~~.Our cost of sales for the nine monthsended September 30, ~~2017~~2021was ~~$40.7~~$230.3 millionresulting in gross profit of ~~$26.6~~$262.5 million, compared to ~~$41.8 million~~ cost of sales of $160.8 million and gross profit of ~~$13.5~~$170.0 million for the same period in ~~2016.~~2020. The gross margin for the nine monthsended September 30, ~~2017~~2021 was ~~40%~~53% compared to ~~24%~~51% in the same period in ~~2016.~~

2020.

The increase in our gross profit for the nine months ended September 30, ~~2017 compared to the same period in 2016~~2021 was primarily the result of the ~~Technology Upgrade Program. During the nine months ended September 30, 2017, our gross profit included $3.5~~$162.0 million ~~that had been deferred~~increase in prior periods, 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.

total sales. Gross profit and gross margin ~~also increased as a result of~~both benefited from improvement in the per unit manufacturing ~~cost improvements, including raw material cost reductions~~costs for ~~our~~ pumps and supplies from efficiencies in the manufacturing process, leverage of fixed overhead, increased volumes from our third-party cartridge ~~production volumes and cartridge labor and manufacturing efficiencies,~~manufacturer as well as labor and material cost reductions. On an aggregate basis, non-manufacturing costs, which primarily consist of warranty, royalty, freight, training and digital health product support costs, also reflected improvement on a ~~decrease in warranty expense as~~per unit basis. To a ~~result of improvements in our warranty trends and warranty replacement costs.~~

~~The~~lesser extent, overall average selling prices slightly pressured gross margin as international pump sales comprised a greater portion of total pump sales compared to the prior year, while supply average selling prices reflected modest benefit from the growth of our international installed base. Royalty expense 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~~$5.4 million for the nine months ended September 30, ~~2017 from $63.8~~2021, compared to $4.7 million ~~for~~in the same period in ~~2016.~~

~~Employee-related expenses for our~~ ~~SG&A~~ ~~functions comprise~~2020. Other factors that have and may continue to impact the ~~majority~~gross margin percentage are changes in product and geographical mix and the level 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~~allocated to cost of sales. Pump sales, which have the ~~suspension~~highest gross margin, were 59% of ~~our ESPP~~total worldwide sales in ~~2017, as well as other net increases~~the first nine months of 2021 compared to 62% in ~~employee expenses~~the same period in 2020. Non-cash stock-based compensation expense allocated to cost 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~~sales was $4.6 million for the nine months ended September 30, ~~2017~~2021, compared to $6.5 million in the same period in 2020.

Table of contents

Selling, General and Administrative Expenses. SG&A expenses increased 26% to $190.0 million for the nine months ended September 30, 2021 from ~~$14.5~~$150.4 million for the same period in ~~2016.~~2020. Employee-related expenses for our SG&A functions comprise the majority of SG&A expenses. The increase compared to 2020 was primarily the result of a $25.7 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 growing installed customer base. Non-cash stock-based compensation expense allocated to SG&A was $31.6 million for the nine months ended September 30, 2021, compared to $32.1 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 the valuation of certain 2018 employee stock option grants which became fully amortized in the second quarter of 2020. We also experienced a $14.4 million increase in other non-employee discretionary spending, including outside consulting, software maintenance and outside services.

Research and Development Expenses. R&D expenses increased 35% to $62.6 million for the nine months ended September 30, 2021 from $46.2 million for the same period in 2020. The increase in R&D expenses was primarily the result of an increase of ~~$0.7~~$11.8 million ~~of employee-related expenses, which includes a $0.4 million~~ ~~non-cash~~in salaries, incentive compensation and other employee benefits due to an increase in personnel to support our product development efforts. Non-cash stock-based compensation ~~charge~~ ~~associated with the suspension of~~ ~~our ESPP in 2017. This increase~~expense allocated to R&D was ~~offset by a reduction in non-employee-related expenses, primarily consulting and supplies,~~$7.5 million for the ~~advancement of our~~nine months ended September 30, 2021, compared to $6.6 million in the same period in 2020. We also experienced a $3.7 million increase in other non-employee discretionary spending, including software maintenance, equipment and product ~~pipeline.~~

development costs.

Other Income (Expense), Net. Total other expense, net for the nine months ended September 30, 2021 and ~~Expense~~.2020 was $5.2 million and $26.7 million, respectively. Other expense for the nine months ended September 30, ~~2017~~2021 primarily consisted of $4.5 million of interest expense which included the amortization of debt issuance costs related to our Notes issued in the second quarter of 2020, and ~~2016 was $8.4~~a $1.4 million ~~and $4.2 million, respectively.~~revaluation loss from the change in the fair value of certain warrants. Other expense for ~~both periods was~~the nine months ended September 30, 2020 primarily ~~comprised~~consisted of a $19.9 million revaluation loss from the change in the fair value of certain warrants and $8.0 million of interest expense which included the amortization of debt discount and debt issuance costs related to our Notes. Interest income and other, net for the nine months ended September 30, 2021 and 2020 primarily consisted of interest earned on our cash equivalents and short-term investments. The decrease in interest expense was primarily due to the adoption of ASU No. 2020-06 in the first quarter of 2021 (see Note 7, “Convertible Senior Notes”).

Income Tax Expense (Benefit). We recognized an income tax benefit of $2,000 on pre-tax income of $4.8 million for the nine months ended September 30, 2021, compared to an income tax benefit of $1.9 million on a pre-tax loss of $53.3 million for the nine months ended September 30, 2020. The income tax benefit for the nine months ended September 30, 2021 was primarily attributable to excess tax benefits from stock compensation recorded discretely during the period, offset by state and foreign income tax expense as a result of current taxable income in certain jurisdictions. The income tax benefit for the nine months ended September 30, 2020 was primarily due to benefit associated with the ~~Term Loan Agreement. The outstanding principal balances under~~release of valuation allowance related to the ~~Term Loan Agreement were $82.3 million~~acquisition of Sugarmate, partially offset by state and ~~$45.8 million~~foreign income tax expense as a result of ~~September 30, 2017~~ ~~and September 30, 2016, respectively. Other~~current taxable income ~~for both periods presented was not significant.~~

in those jurisdictions.

Liquidity and Capital Resources

As of September 30, ~~2017,~~2021, we had ~~$22.5~~$595.0 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 pay the cost of the Capped Call Transactions related to the Notes (see Note 7, “Convertible Senior Notes”).

•From January 2020 through September 2021, we issued 3,165,455 shares of common stock upon the exercise of stock options, and 402,312 shares of common stock were purchased under our 2013 Employee Stock Purchase Plan, which generated aggregate proceeds of $103.5 million.

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•From January 2020 through September 2021, we received proceeds of $1.5 million from ~~product sales.~~ the exercise of 416,315 outstanding warrants which were originally issued in connection with our registered public offering of common stock in October 2017. As of September 30, 2021, there were warrants to purchase 1,000 shares outstanding relating to the October 2017 offering.

•From January 2020 through September 2021, we received proceeds of $2.1 million from the exercise of 73,985 outstanding warrants which were originally issued between August 2011 and August 2012. As of September 30, 2021, there were warrants to purchase 19,722 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.

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

~~During the three~~nine months ended September 30, ~~2017, we sold 464,108 shares~~2021 and 2020:


	Nine Months Ended September 30,
(in thousands)	2021		2020
Net cash provided by (used in):
Operating activities	$	91,724	$	9,432
Investing activities	(110,058)		(236,430)
Financing activities	36,046		305,234
Effect of foreign exchange rate changes on cash	50		70
Net increase in cash and cash equivalents	$	17,762	$	78,306

Operating Activities. Net cash provided by operating activities was $91.7 million for the nine months ended September 30, 2021, compared to $9.4 million 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 $37.5 million improvement to net income when adjusted for non-cash expenses, particularly stock-based compensation expense, as well as a $44.8 million increase from working capital changes. Working capital changes during the first nine months of 2021, which primarily consisted of increases in employee related liabilities, accounts payable and accrued expenses, deferred revenue, and accounts receivable related to the growth in our business, provided $28.8 million in cash compared to a use of $16.0 million from working capital changes in the same period of 2020. Accounts receivable increased to $87.5 million at September 30, 2021 from $82.2 million at December 31, 2020. Inventories increased to $65.7 million at September 30, 2021 from $63.7 million at December 31, 2020.

Investing Activities. Net cash used in investing activities was $110.1 million for the nine months ended September 30, 2021, which was primarily related to $542.8 million of purchases of short-term investments, $9.3 million cash paid for the acquisition of intangible assets and equity investments, and $8.4 million in purchases of property and equipment, offset by $450.5 million in proceeds from maturities and sales of short-term investments. Net cash used in investing activities was $236.4 million for the nine months ended September 30, 2020, which was primarily related to $332.0 million of purchases of short-term investments, $23.3 million in purchases of property and equipment, and $4.9 million cash paid for the acquisition of intangible assets, offset by $123.7 million in proceeds from maturities and sales of short-term investments.

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Financing Activities. Net cash provided by financing activities was $36.0 million for the nine months ended September 30, 2021, which primarily consisted of 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 $305.2 million for the nine months ended September 30, 2020, which primarily consisted of $278.7 million in proceeds ~~to us~~ from the ~~offering were $4.3~~issuance of the Convertible Senior Notes which was partially offset by $34.1 million ~~before deducting underwriting discounts~~in payments related to the Capped Call Transactions, and ~~commissions~~$57.7 million in proceeds from the issuance of common stock under our stock plans.

Our liquidity position and capital requirements are subject to fluctuation based on a number of factors, 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 relative mix of sales between domestic and international markets;

•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.

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~~control.

Table of ~~$80.0 million in 2017 and $95.0 million each year thereafter until the end of the term of the loan.~~

contentsIn 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,~~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

We invest our excess cash primarily in commercial paper, ~~government-sponsored enterprise~~corporate debt securities, U.S. Treasury securities and U.S. ~~government treasury~~Government-sponsored enterprise 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, from time to time, issued downgrades or revised outlooks to negative for certain issuers of the debt securities held in our short-term investments portfolio. Unrealized losses on available-for-sale debt securities at September 30, 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~~a 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, this change~~2021, it would not have had a material effect on the fair value of our investment portfolio as of that date.

~~The~~

In May 2020, 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”).

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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 ~~do not currently have any material~~believe our exposure to foreign currency rate ~~fluctuations. From time~~fluctuations is currently limited to ~~time, we~~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. We may ~~have~~be exposed to further foreign currency exchange risk ~~associated with currency exposure related to existing assets and liabilities, committed transactions and forecasted future cash flows.~~as we expand our operations in markets outside the United States. 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,~~2021, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures 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.~~officer. 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.~~

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~~2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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. 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.

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., 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 case was brought as a class action and was later amended to also include a representative action under the California Private Attorney General Act, or PAGA. The 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. The parties recently agreed to resolve all claims in the lawsuit. The settlement of claims covered by the PAGA matter were approved by the Superior Court of the State of California in the County of San Diego on September 21, 2021 and settlement amounts were disbursed in October 2021. Also in October 2021, a settlement of the class action related claims was preliminarily approved by an independent arbitrator mutually acceptable to both parties. The class action settlement is intended to resolve the claims of the individual plaintiff, as well as the remaining members of the class, unless an individual class member submits a timely request for exclusion. The material terms of the settlement are set forth in a binding Memorandum of Agreement dated as of July 1, 2021, which is subject to the completion of a number of conditions, as well as final approval by the independent arbitrator. There is no guarantee that the conditions will be met or that final approval will be obtained. If the final class settlement is not approved, or if other conditions to approval of the settlement are not met, the case will continue and the Company will continue to vigorously defend against the claims.

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.

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.

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

Risks Related to Our Future Financings and Financial Results

Risks Related to Our Intellectual Property and Potential Litigation

Risks Related to Our Legal and Regulatory Environment

Risks Related to Our Common Stock

Risks Related to Our Convertible Senior Notes

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,~~2021, we had an accumulated deficit of ~~$466.2~~$645.4 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 of t:flex~~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~~$260.5 million and ~~$26.6~~$194.2 million, respectively. Although we have achieved a positive overall gross margin and generated net income for the first time for the nine month period ended September 30, 2021, we may still operate at a ~~significant~~ net loss ~~and expect that we will continue~~from time to ~~do so for the next several years.~~

time due to fluctuations in our business.

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, training 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:

●

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

●

~~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.~~

Table of contents

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.*

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. Additionally, global shortages of semiconductors and copper could limit our insulin pump manufacturing capacity in the future. If we experience these or similar manufacturing challenges in the future, it could have a negative impact on product sales and harm our reputation.

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.

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 by a third party. 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:

●

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

●

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

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. Abbott ~~Laboratories recently announced FDA approval of a new blood~~also offers 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 using Abbott’s glucose sensor. 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 and impact their ability to fulfill contractual obligations to us, which could negatively impact our ~~relationship with these partners, impact their ability to fulfil their obligations to us,~~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:

●

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;

●

~~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;~~

~~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~~2021 (Unaudited) and December 31, ~~2016~~ 2020						1
						Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) for the Three and Nine Months Ended September 30, ~~2017~~2021 and ~~2016~~2020 (Unaudited)				2
			Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)			3
			Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2021 and ~~2016~~2020 (Unaudited)						3 5
						Notes to Unaudited Condensed Consolidated Financial Statements				4 6
Item 2						Management’s Discussion and Analysis of Financial Condition and Results of Operations				15 24
Item 3						Quantitative and Qualitative Disclosures ~~about~~About Market Risk				29 41
Item 4						Controls and Procedures				30 43

Part II						Other Information				31 44
Item 1						Legal Proceedings				31 44
Item 1A						Risk Factors				31 45
~~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~~82				63


	September 30,			December 31,				September 30,		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	$	112,375	$	94,613
Restricted cash		-			2,000
Short-term investments		459			8,860		Short-term investments	482,618		390,323
Accounts receivable, net		10,582			11,172		Accounts receivable, net	87,462		82,195
Inventory, net		29,985			21,195
Inventories							Inventories	65,734		63,721
Prepaid and other current assets		2,887			4,187		Prepaid and other current assets	6,758		6,383
Total current assets		55,992			92,092		Total current assets	754,947		637,235
Restricted cash—long-term		10,000			-
Property and equipment, net		20,286			18,409		Property and equipment, net	49,621		50,022
Patents, net		1,539			1,784
Operating lease right-of-use assets							Operating lease right-of-use assets	29,683		19,773
Other long-term assets		160			107		Other long-term assets	16,028		9,385
Total assets	$	87,977		$	112,392		Total assets	$	850,279	$	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	$	26,973	$	17,805
Accrued expense		2,536			1,629
Accrued expenses							Accrued expenses	6,330		4,783
Employee-related liabilities		11,413			10,183		Employee-related liabilities	47,219		34,159
Deferred revenue		2,295			5,208		Deferred revenue	9,022		6,082
Common stock warrants							Common stock warrants	116		14,261
Operating lease liabilities							Operating lease liabilities	9,261		9,421
Other current liabilities		5,562			6,943		Other current liabilities	20,729		17,341
Total current liabilities		29,411			31,476		Total current liabilities	119,650		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	281,032		202,984
Operating lease liabilities - long-term							Operating lease liabilities - long-term	25,680		15,914
Other long-term liabilities		6,786			5,274		Other long-term liabilities	34,263		27,360
Total liabilities		115,935			118,319		Total liabilities	460,625		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, 63,451 and 62,335 shares issued and outstanding at September 30, 2021 (unaudited) and December 31, 2020, respectively.							Common stock, $0.001 par value; 200,000 shares authorized, 63,451 and 62,335 shares issued and outstanding at September 30, 2021 (unaudited) and December 31, 2020, respectively.	63		62
Additional paid-in capital		438,194			398,623		Additional paid-in capital	1,034,980		1,025,233
Accumulated other comprehensive loss		-			(1	)
Accumulated other comprehensive income							Accumulated other comprehensive income	14		220
Accumulated deficit		(466,207	)		(404,580	)	Accumulated deficit	(645,403)		(659,210)
Total stockholders’ deficit		(27,958	)		(5,927	)
Total liabilities and stockholders’ deficit	$	87,977		$	112,392
Total stockholders’ equity							Total stockholders’ equity	389,654		366,305
Total liabilities and stockholders’ equity							Total liabilities and stockholders’ equity	$	850,279	$	716,415


	Nine Months Ended September 30,
	2021		2020
Operating Activities
Net income (loss)	$	4,758	$	(51,382)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense	10,325		7,024
Amortization of debt discount and issuance costs	1,292		6,233
Provision for expected credit losses	1,462		2,181
Provision for (recovery of) inventory obsolescence	279		(109)
Change in fair value of common stock warrants	1,354		19,906
Amortization of discount on short-term investments	(83)		(1,446)
Benefit for deferred income taxes	—		(2,126)
Stock-based compensation expense	43,653		45,123

Other	(132)		37
Changes in operating assets and liabilities:
Accounts receivable, net	(6,773)		(7,820)
Inventories	(1,930)		(22,052)
Prepaid and other current assets	(157)		(1,082)
Other long-term assets	(154)		33
Accounts payable and accrued expenses	10,854		1,589

Employee-related liabilities	13,061		1,704
Deferred revenue	7,774		4,215
Other current liabilities	3,561		5,023
Other long-term liabilities	2,580		2,381
Net cash provided by operating activities	91,724		9,432
Investing Activities
Purchases of short-term investments	(542,838)		(331,968)
Proceeds from maturities of short-term investments	427,257		82,709
Proceeds from sales of short-term investments	23,288		41,027
Purchases of property and equipment	(8,434)		(23,312)
Acquisition of intangible assets and equity investments	(9,331)		(4,886)
Net cash used in investing activities	(110,058)		(236,430)
Financing Activities
Proceeds from issuance of convertible senior notes, net of $8,809 debt issuance costs	—		278,691
Payment for capped call transactions related to convertible senior notes	—		(34,069)

Proceeds from issuance of common stock under Company stock plans, net	35,453		57,677

Proceeds from exercise of common stock warrants	593		2,935
Net cash provided by financing activities	36,046		305,234
Effect of foreign exchange rate changes on cash	50		70
Net increase in cash and cash equivalents	17,762		78,306
Cash and cash equivalents at beginning of period	94,613		51,175
Cash and cash equivalents at end of period	$	112,375	$	129,481
Supplemental disclosures of cash flow information

Income taxes paid	$	260	$	192
Supplemental schedule of non-cash investing and financing activities
Right-of-use assets obtained in exchange for operating lease obligations	$	15,087	$	11,022

Property and equipment included in accounts payable	$	945	$	1,618
Intangible costs in other current and other long-term liabilities	$	1,029	$	2,348

☒
☒			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


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at June 30, 2021	62,952	$	63	$	997,190	$	29	$	(651,197)	$	346,085
Exercise of stock options	464	—		18,992		—		—		18,992
Vesting of restricted stock units, net of shares withheld for taxes	5	—		(297)		—		—		(297)

Exercise of common stock warrants	30	—		156		—		—		156


Fair value of common stock warrants at time of exercise	—	—		3,066		—		—		3,066
Stock-based compensation expense	—	—		15,873		—		—		15,873
Unrealized gain on short-term investments	—	—		—		8		—		8
Foreign currency translation adjustments	—	—		—		(23)		—		(23)
Net income	—	—		—		—		5,794		5,794
Balance at September 30, 2021	63,451	$	63	$	1,034,980	$	14	$	(645,403)	$	389,654

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


	September 30, 2021		December 31, 2020
Accounts receivable	$	91,256	$	86,052
Less: allowance for credit losses	(3,794)		(3,857)
Accounts receivable, net	$	87,462	$	82,195

			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	$	—	$	—