# TANDEM DIABETES CARE INC (TNDM) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from TANDEM DIABETES CARE INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1438133/000143813325000036/tndm-20241231.htm
Accession: 0001438133-25-000036
Filing date: 2025-02-26
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/TNDM/
All MD&A years: /company/TNDM/mda/
Previous year: /company/TNDM/mda/fy2023/ (FY 2023)
Next year: /company/TNDM/mda/fy2025/ (FY 2025)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis together with the “Consolidated Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report. The following discussion contains forward-looking statements, which statements are subject to considerable risks and uncertainties. For additional information, see “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this Annual Report.

A discussion of changes in our results of operations during the year ended December 31, 2023 compared with the year ended December 31, 2022 has been omitted from this Annual Report on Form 10-K but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 21, 2024, which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov.

Overview

We are a global insulin delivery and diabetes technology company focused on the design, development and commercialization of technology solutions that reduce the burden of diabetes management. We consider our primary addressable market to be people who live with type 1 diabetes. We are seeking to expand our addressable market to include people living with type 2 diabetes who require intensive insulin therapy. Diabetes management can vary greatly from person-to-person, creating multiple market segments based on clinical needs and personal preferences. Our goal is to address the individual needs of people with insulin-dependent diabetes and their care team, by offering flexibility and choice in intelligent insulin delivery systems, through an accessible portfolio of market-leading pumps, applications, and insights.

From inception in 2012 through 2018, we derived nearly all of our sales from the shipment of insulin pumps and associated supplies to customers in the United States. Starting in the third quarter of 2018, we began selling in select geographies outside the United States and our technology solutions are now available in 25 countries worldwide.

Through our portfolio approach, we offer people living with diabetes a choice in their therapy management system based on their individual needs and preferences. In support of this strategy, we recently expanded our portfolio which now includes both the t:slim X2 and the Tandem Mobi insulin pumps. The Tandem Mobi insulin pump is the world’s smallest durable automated insulin delivery (AID) system. At approximately half the size of our t:slim X2 pump, Tandem Mobi is designed for people who seek even greater discretion and flexibility, and includes features such as expanded pump-control from our iOS mobile application, inductive charging, and an on-pump button that can be used for bolusing and other actions. Beginning in early 2024, we scaled the commercial release of Tandem Mobi in the United States, first offering CGM integration with the Dexcom G6 sensor beginning in February followed by the Dexcom G7 beginning in June.

The vast majority of our customers use their insulin pump with CGM integration. This allows their insulin pump to receive CGM sensor readings, which can then be used in our AID algorithms, including our Control-IQ technology. Control-IQ is an advanced hybrid-closed loop feature designed to help increase a user’s time in their targeted glycemic range. Multiple studies, including three publications in the New England Journal of Medicine, have demonstrated that use of Control-IQ technology provides people across all demographics with improved clinical outcomes that are both immediate and sustained.

The t:slim X2 was the first pump in the industry on which remote software updates were made commercially available in the United States and is now also available in the countries we serve worldwide. This feature allows our t:slim X2 and Tandem Mobi customers to update their pump software independently. We believe this offering is a competitive advantage that allows us to bring our customers clinical and lifestyle enhancements within their warranty cycle without having to purchase a new pump. These enhancements include new developments in our AID technology, CGM integrations and mobile app features. For example, in 2024 we offered pump software updates to allow Tandem pump users access to integration with new CGM sensors.

For more than a decade we have offered our customers, their caregivers and healthcare providers a data management application to provide a fast, easy and visual way to display diabetes therapy management data from our pumps and integrated CGMs. In the second quarter of 2023, we expanded our digital technology solutions with the launch of Tandem Source in the United States. In addition to displaying diabetes therapy management data, Tandem Source is also designed to serve as a portal for supplies reordering and pump software updates. In the second quarter of 2024, we began a scaled launch of Tandem Source outside the United States.

Our Strategy & Future Technology

Diabetes management can vary greatly from person-to-person, creating multiple market segments based on clinical needs and personal preferences. Our goal is to redefine global leadership in insulin delivery with an accessible portfolio of transformational devices, applications and services that reduce the daily burden of living with diabetes.

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In support of this strategy, our portfolio of future technologies includes enhancing the features and capabilities of our t:slim X2 and Tandem Mobi insulin pump platforms, including adding a tubeless infusion site option for Tandem Mobi users. Our development efforts also include Sigi, our ergonomic and rechargeable patch pump, in addition to extended wear infusion technology and algorithm advancement in pursuit of offering fully closed loop technology.

Trends and Uncertainties Impacting Financial Results

Our financial condition and operating results have historically fluctuated on a quarterly or annual basis. We expect these periodic fluctuations will continue to be impacted by a number of trends and uncertainties, including the following:

Regulatory Approvals and Actions

•Sales of new products are subject to local government regulations. The requirements and timelines to receive regulatory clearance can vary substantially from country to country and delays may impact our ability to expand our worldwide customer base and bring products to market in a competitive timeframe. These delays, or failure to receive regulatory approval could adversely impact our revenue and results of operations.

•Any adverse event involving products that we distribute could result in future corrective actions, such as recalls or customer notifications, or regulatory agency action, which could include inspection, mandatory recall or other enforcement action. Any action by regulatory bodies against us, and any regulatory challenges we encounter could have a negative impact on our product sales and harm our reputation.

Markets, Seasonality, Competition, and Product Launches

•We expect our business to be impacted by the introduction of new diabetes devices and treatments by us or our competitors. The success of our products is variable and we believe it correlates to market acceptance, anticipated product launches and commercial availability.

•Seasonality in the United States is associated with annual insurance deductibles and coinsurance requirements of the medical insurance plans used by our customers and the customers of our distributors. In the United States, we typically experience a higher volume of pump shipments in the second half of the year due to the nature of the reimbursement environment. Other factors that may impact sales across the year include the timing of winter, summer and other seasonal holidays, particularly in our markets outside the United States.

•Regulatory approval and/or upcoming launches of other new Tandem or competing products could also adversely impact timing of purchasing decisions.

•In periods following new product launches, particularly with new hardware platforms, our cost of sales may increase on a per unit basis until the new products achieve manufacturing scale and operating expenses may be elevated by increased sales and marketing spend to support the product launches. For example, we began operations of a European distribution center which led to a reduction of inventory levels at our distributors, significantly impacting sales patterns in the second half of 2022 and first half of 2023.

Reimbursement

•Our insulin pump products are generally considered durable medical equipment (DME) and have an expected lifespan of at least four years. In addition to insulin pumps, we sell single-use products that are used together with our pumps and are replaced every few days, including cartridges for storing and delivering insulin, and infusion sets that connect the insulin pump to a user’s body. Because of the DME classification, our pumps and supplies are typically reimbursed through a medical benefit. As our portfolio expands, we are implementing a multi-channel managed care strategy and have begun serving Mobi customers through the pharmacy channel on a scaled basis in 2025.

•We generally have had broad insurance coverage for our current products from third-party payors. Our revenue and results of operations may be impacted by the failure to secure or retain adequate coverage, changes in reimbursement structures or availability of affordable options for our customers.

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Macroeconomic Factors

•Global economic and market uncertainty, such as recessionary concerns, changes in discretionary spending and increased interest rates have impacted our customers’ purchasing decisions and the buying patterns of our distributors.

•High inflation, fluctuations in foreign currency valuations, uncertainty regarding tariffs and the effects of other macroeconomic factors and concerns has disrupted and may continue to disrupt our relationships with suppliers, third-party manufacturers, healthcare providers, distributors and our existing or potential customers.

Components of Results of Operations

Sales

We offer products for people with insulin-dependent diabetes, including a portfolio of hardware platforms, single-use insulin cartridges and infusion sets, data management platforms and mobile applications. Our primary customers are the end users of our products, non-exclusive distribution partners whose level of service varies based on geography, the healthcare professionals who prescribe our products and the healthcare systems or payors who provide insurance coverage and access to our products. Our sales may fluctuate from period to period, particularly due to seasonality in the United States associated with the timing of insurance deductible resets, which generally reflect in a significant decline in pump shipments from any fourth quarter to the following first quarter. Therefore, the lowest percentage of sales is typically reported in the first quarter of each calendar year and the highest percentage is typically reported in the fourth quarter. See also “Trends and Uncertainties Impacting Financial Results—”Markets, Seasonality, Competition, and Product Launches” above.

From September 2022 through February 2024, we offered the Tandem Choice program to eligible t:slim X2 customers to provide a pathway to ownership of our newest hardware platform, Tandem Mobi, for a fee once available. Eligible customers who purchased a t:slim X2 insulin pump during the program period had until December 31, 2024 to exercise the option to switch to the Tandem Mobi for a stated fee. The accounting treatment for Tandem Choice was complex (see Note 2, “Summary of Significant Accounting Policies”). The program required the deferral of some portion of sales for shipments of eligible pumps between the third quarter of 2022 and the first quarter of 2024. No election was made by the customer at the time of the initial sale, nor did the right offered to the customer impact the economics associated with how or when the initial pump sale was reimbursed. When a customer elected to participate in Tandem Choice, we recognized the existing sales deferral, incremental fees received and the associated costs of goods sold for the new insulin pump, Tandem Mobi, at the time of fulfillment. Qualifying customers were able to elect participation in Tandem Choice starting near the end of the second quarter of 2024. The remaining deferral balance was recognized as revenue when the program ended on December 31, 2024.

Cost of Sales

Cost of sales includes raw materials, labor costs, manufacturing overhead expenses, product training costs, royalties, freight, reserves for expected warranty costs, costs of supporting our digital health platforms, scrap and charges for excess and obsolete inventories. Manufacturing overhead expenses include expenses relating to quality assurance, manufacturing engineering, material procurement, inventory control, facilities, equipment, information technology and operations supervision and management. When taking into consideration the differences in reimbursement levels and cost structure, pumps have, and are expected to continue to have, a higher gross profit and gross margin percentage than our pump-related supplies on a per unit basis. Therefore, the percentage of pump sales relative to total sales could have a significant impact on our overall gross margin percentage.

Selling, General and Administrative

Our selling, general and administrative (SG&A) expenses primarily consist of salary, cash-based incentive compensation, fringe benefits and non-cash stock-based compensation for our sales, marketing and administrative functions, which also includes our clinical, customer support, technical services, insurance verification and regulatory affairs personnel. Our sales territories in the United States are generally maintained by sales representatives and field clinical specialists, and supported by managed care liaisons, additional sales management and other customer support personnel. Other significant SG&A expenses typically include those incurred for commercialization activities associated with new product launches, travel, trade shows, outside legal fees, independent auditor fees, outside consultant fees, insurance premiums, facilities costs and information technology costs.

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Research and Development

Our research and development (R&D) activities primarily consist of engineering and research programs associated with our hardware, software and digital health products under development, as well as activities associated with our core technologies and processes. R&D expenses are primarily related to employee compensation, including salary, cash-based incentive compensation, fringe benefits and non-cash stock-based compensation. We also incur R&D expenses for supplies, development prototypes, outside design and testing services, depreciation, allocated facilities and information services, clinical trials, payments under our licensing, development and commercialization agreements and other indirect costs.

Acquired In-process Research and Development (IPR&D)

Acquired IPR&D reflects costs of external research and development projects acquired directly in a transaction other than a business combination, that do not have an alternative future use.

Other Income and Expense

Other income and expense primarily consists of interest earned on our cash equivalents and short-term investments, income or loss from equity method investments, foreign currency transaction gains and losses and interest expense which includes the amortization of debt issuance costs related to our convertible senior notes.

Income Tax Expense (Benefit)

Because the Company maintains a full valuation allowance against its net deferred tax assets, income tax expense is expected to primarily consist of current federal, state and foreign cash tax expense as a result of taxable income anticipated or incurred in those jurisdictions.

Results of Operations

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[[/GREPCENT_TABLE]]

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Pump Reimbursement Cycle

Insulin pumps in the markets we serve worldwide are generally subject to a four-year reimbursement cycle, imposed by the third-party insurance carrier, government plan or healthcare system that serves as the primary payor. At the end of the typical four-year reimbursement cycle, customers may be eligible to purchase a new insulin pump, subject to the rules and requirements of their primary insurance payor. While warranties generally expire four years from the original pump shipment date, those customers that renew take on average up to one year from date of warranty expiration to purchase a subsequent pump. While the majority of our insulin pump sales from initial commercialization through the current period have been generated by sales to new customers, the opportunity to make subsequent sales of renewal insulin pumps to existing customers increases each period as an escalating number of customer warranties expire. With programs dedicated to customer retention efforts, we expect such renewal purchases to represent an increasing portion of our pump shipments over time.

At December 31, 2024, we had over 480,000 users in our in-warranty installed base, approximately one-third of whom live outside the United States.

The ordering patterns of, and levels of inventory carried by, our distributors outside the United States for pumps and supplies have historically been highly variable from period to period due to a number of factors, including summer vacations, the timing of product launches, expansion into new geographies and variability due to supply chain logistics, particularly during the global pandemic. This also influences the timing in which renewal eligibility begins for existing customers, which may not initially be consistent with trends in the United States market. We recently began completing full four-year reimbursement cycles in an increasing number of our markets outside of the United States.

Comparison of Years Ended December 31, 2024 and 2023

Sales

For the year ended December 31, 2024, we shipped more than 120,000 pumps worldwide. Sales were $940.2 million, which included $267.5 million of sales outside the United States. For the year ended December 31, 2024, we recognized $30.2 million in net revenue from pump sales as the result of the conclusion of our Tandem Choice program which launched in the United States in the third quarter of 2022 and ended in 2024. For the year ended December 31, 2023, sales were $747.7 million, which included $192.8 million of sales outside the United States, and deferral of $25.1 million of pump sales as a result of Tandem Choice.

Sales by product in the United States were as follows (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023","","% Change"],["Sales:"],["Pump","$","328,625","","","$","289,546","","","13%"],["Supplies and other","313,811","","","290,439","","","8%"],["Net revenue recognized (deferred) for Tandem Choice program","30,249","","","(25,107)","","","220%"],["Total Sales in the United States","$","672,685","","","$","554,878","","","21%"]]
[[/GREPCENT_TABLE]]

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Pump sales in the United States were $328.6 million for the year ended December 31, 2024 compared to $289.5 million for the year ended December 31, 2023. Our pump shipments in the United States increased approximately 10% to nearly 81,000 pumps compared to the year ended December 31, 2023. We also benefited from higher average selling prices across all product lines, driven by price increases and favorable customer mix, as we continue to shift a higher percent of sales from distribution to our direct channel. Sales to distributors accounted for 61% and 64% of our total sales in the United States for the years ended December 31, 2024 and 2023, respectively. Sales of pump-related supplies increased primarily due to a year-over-year increase in our installed base of customers in the United States, as well as an increase in average selling prices. We also recognized $30.2 million in net revenue from pump sales due to the conclusion of Tandem Choice during the year ended December 31, 2024. Sales in the United States for the year ended December 31, 2023 were reduced by $25.1 million in sales deferrals related to Tandem Choice.

Sales by product outside the United States were as follows (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023","","% Change"],["Sales:"],["Pump, net of rebates","105,544","","","76,296","","","38%"],["Supplies and other","161,974","","","116,544","","","39%"],["Total Sales Outside the United States","$","267,518","","","$","192,840","","","39%"]]
[[/GREPCENT_TABLE]]

Pump sales, net of rebates, outside the United States were $105.5 million for the year ended December 31, 2024, compared to $76.3 million in the prior year. Our pump shipments outside the United States increased by 30% to nearly 40,000 pumps for the year ended December 31, 2024 compared to the year ended December 31, 2023. Pump sales outside the United States in 2023 included a reduction of $8.5 million for the establishment of the new rebate structure implemented in a single market. Sales of pump-related supplies increased due to a year-over-year increase in our installed base of customers outside the United States. In addition, for the year ended December 31, 2024, we recorded a reduction to sales of $1.5 million due to sales rebates outside of the United States.

Cost of Sales and Gross Profit

Our cost of sales for the year ended December 31, 2024 was $450.6 million, resulting in gross profit of $489.6 million, compared to cost of sales of $380.0 million and gross profit of $367.7 million for the year ended December 31, 2023. The gross margin for 2024 was 52%, compared to 49% in 2023.

The increase in our gross profit for the year ended December 31, 2024 was primarily the result of the $192.5 million increase in total sales, driven by higher pump shipments, the impact of the conclusion of the Tandem Choice program and the greater impact of the sales rebate structure outside the United States in 2023 compared to 2024. Additionally, we recognized charges to cost of sales of $1.3 million for Tandem Choice fulfillments in 2024, with no corresponding charge in 2023. The net effect of the Tandem Choice adjustments increased gross margin by approximately one percentage point in 2024 and decreased gross margin by approximately two percentage points in 2023. The new rebate structure negatively impacted gross margin by nearly one percentage point in 2023.

Excluding the impact of Tandem Choice and the sales rebate outside the United States, gross margin benefited from pricing improvement across all product lines and lower pump materials cost, offset by higher labor, overhead and non-manufacturing costs on a per-unit basis as we continued to scale the launch of Tandem Mobi. Gross margin was positively impacted by product mix. Pump sales, which have the highest gross margin, were 49% of total worldwide sales, excluding the impact of Tandem Choice in 2024, compared to 46% in 2023.

Operating Expenses

Our operating expenses for the year ended December 31, 2024 were $588.7 million, compared to $600.9 million for the year ended December 31, 2023.

Selling, General and Administrative Expenses. SG&A expenses increased 11% to $389.8 million for the year ended December 31, 2024, from $352.5 million for the same period in 2023. Employee-related expenses for our SG&A functions comprised the majority of our SG&A expenses, which increased $33.6 million due to continued support services for our growing installed customer base. Excluding certain non-recurring facilities consolidations costs of $14.1 million from 2023, we experienced a $17.9 million increase in other non-employee discretionary spending, primarily attributable to outside consulting, outside services, and supplies.

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Research and Development Expenses. R&D expenses increased 17% to $198.9 million for the year ended December 31, 2024, from $169.7 million for the same period in 2023. The increase in R&D expenses was primarily the result of a $20.3 million increase in salaries and related benefits due to our acquisitions, as well as an increase in personnel to support our product development efforts. We also experienced an $8.5 million increase in other non-employee discretionary spending, including outside services and consulting, clinical trial expenses, and equipment costs attributable to R&D.

Acquired In-Process Research and Development Expenses. Acquired IPR&D expenses of $78.8 million for the year ended December 31, 2023, pertained to our 2023 acquisition of AMF Medical (see Note 12, “Acquisitions”).

Other Income (Expense), Net

Total other income, net for the year ended December 31, 2024 was $7.3 million, compared to $13.0 million in 2023. Other income, net for 2024 primarily consisted of $22.1 million of interest income earned on our cash equivalents and short-term investments, offset by $7.4 million of interest expense, $2.1 million in losses attributable to equity method investments, $2.0 million loss on impairment of strategic investment, $2.0 million in foreign currency transaction losses, and $1.3 million loss on extinguishment of debt. Other income, net for 2023 consisted primarily of $21.2 million of interest income earned on our cash equivalents and short-term investments, and $1.5 million in foreign currency transaction gains, partially offset by $9.9 million of interest expense which included $3.3 million of additional interest as discussed above and the amortization of debt issuance costs related to our Convertible Senior Notes.

Income Tax Expense

We recognized income tax expense of $4.2 million on a pre-tax loss of $91.9 million for the year ended December 31, 2024, compared to income tax expense of $2.4 million on a pre-tax loss of $220.3 million for the year ended December 31, 2023. Income tax expense for the years ended December 31, 2024 and 2023 was primarily attributable to federal, state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

Liquidity and Capital Resources

At December 31, 2024, we had $438.3 million in cash and cash equivalents and short-term investments. We believe that our cash and cash equivalents, short-term investments, and future cash flows from operations will be sufficient to fund our ongoing core business activities for at least the next 12 months.

Our historical cash outflows have primarily been associated with cash used for operating activities such as research and development activities, sales, marketing and commercialization of our products worldwide, expansion of clinical and customer support organizations, the acquisition of intellectual property, equity investments and acquired assets, capital expenditures and debt service costs.

Historically, our principal sources of cash have included cash collected from product sales, private and public offerings of equity securities, exercises of employee stock awards and debt financing. We expect to rely on these sources of cash, primarily from product sales, to fund our material cash requirements in both the short and long term.

The following table shows a summary of our cash flows for the twelve months ended December 31, 2024, 2023, and 2022 (in thousands):

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[[/GREPCENT_TABLE]]

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Operating activities. Net cash provided by operating activities was $24.2 million for the year ended December 31, 2024, compared to net cash used in operating activities of $31.8 million for the year ended December 31, 2023. The increase in net cash provided by operating activities for 2024 compared to 2023 was primarily a result of the $128.8 million decrease in net loss, offset by a decrease of $76.5 million net non-cash adjustments. Net non-cash adjustments in 2023 were primarily related to acquired in-process research and development expenses, operating lease termination and impairment charges and stock-based compensation expense. In addition, there was a net decrease of $3.7 million in changes of working capital balances. Changes of working capital balances primarily consisted of decreases in deferred revenue, current liabilities and inventories, offset by increases to accounts receivable.

Investing activities. Net cash used in investing activities was $23.5 million for the year ended December 31, 2024, which primarily consisted of $46.4 million cash paid for investments in equity method investees, $19.2 million in purchases of property and equipment, offset by $42.2 million provided by short-term investments activity as proceeds from maturities and redemptions exceeded purchases. Net cash used in investing activities was $85.7 million for the year ended December 31, 2023, which primarily consisted of $69.5 million cash paid for the acquisition of AMF Medical, including transaction costs (see Note 12, “Acquisitions”), $26.8 million in purchases of property and equipment, and $24.8 million cash paid for purchases of intangible assets and strategic investments, offset by $35.4 million provided by short-term investments activity.

Financing activities. Net cash provided by financing activities was $8.4 million for the year ended December 31, 2024, which primarily consisted of net proceeds of $306.9 million from the issuance of the 2029 Notes which was partially offset by $246.1 million used in the repurchase of 2025 Notes, $30.0 million used in the repurchase and retirement of common stock and $15.8 million used to purchase Capped Call Options related to the 2029 Notes. In addition, $6.7 million was used in payments for tax withholdings related to the issuance of common stock under our stock plans, net of proceeds received from common stock issuances for the period. Net cash provided by financing activities was $4.1 million for the year ended December 31, 2023, which primarily consisted of proceeds from the issuance of common stock under our stock plans, net of payments for related tax withholdings.

Our liquidity position and capital requirements are subject to fluctuation based on a number of factors. In particular, our cash inflows and outflows are principally impacted by the following:

•our ability to generate sales, the timing of those sales, the mix of products sold and the collection of receivables from period to period;

•contractual debt obligations, including periodic interest payments;

•the timing of any additional financings, and the net proceeds raised from such financings;

•the timing and amount of proceeds from the issuance of equity awards pursuant to employee stock plans;

•fluctuations in gross and operating margins; and

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

Both our primary short-term and long-term capital needs are expected to include expenditures related to:

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

•expansion of our commercial resources for our growing installed customer base;

•research and product development efforts, including clinical trial costs;

•acquisitions, including strategic investments, equity method investments and future contingent payments associated with acquisitions;

•leasing or licensing of equipment, technology, intellectual property and other assets;

•additional facilities leases and related tenant improvements;

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•investments for the development, improvement and acquisition of manufacturing, testing and packaging equipment to support business growth and increase capacity;

•payments under licensing, development and commercialization agreements; and

•integration costs related to acquisitions of businesses, products and technologies.

Indebtedness

Convertible Senior Notes

In March 2024, we completed an offering of $316.3 million aggregate principal amount of 1.50% Convertible Senior Notes due 2029 (the 2029 Notes). The proceeds from the issuance of the 2029 Notes were $306.8 million, net of debt issuance costs and cash used to pay the cost of certain capped call transactions (see Note 7, “Debt”). The Company used approximately $246.1 million of the net proceeds to repurchase approximately $246.7 million in aggregate principal amount of its Convertible Senior Notes Due 2025 (the 2025 Notes) concurrently with the pricing of the 2029 Notes. The 2029 Notes are the Company’s senior unsecured obligations. Interest is payable in cash semi-annually in arrears on March 15 and September 15 of each year beginning on September 15, 2024, at a rate of 1.50% per year. The 2029 Notes mature on March 15, 2029 unless repurchased, redeemed, or converted in accordance with their terms prior to the maturity date.

In May 2020, we 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. The proceeds from the issuance of the Notes were $244.6 million, net of debt issuance costs and cash used to pay the cost of the Capped Call Transactions (see Note 7, “Debt”).

Cash payments due by calendar year for our Convertible Senior Notes at December 31, 2024, are as follows (in thousands):

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

(1) The convertible senior notes may be settled in cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election.

We may from time to time seek to retire or purchase our outstanding debt, including the Notes, through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material.

Promissory Note Payable

In connection with our acquisition of Capillary Biomedical, Inc. (see Note 12, “Acquisitions”), we assumed a $4.7 million promissory note payable. The promissory note accrues interest at the rate of 5% per year, and becomes due and payable upon the first sale or license of the commercialized product. At December 31, 2024, $4.8 million was included as a component of other long-term liabilities on the consolidated balance sheet.

Critical Accounting Estimates

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 accounting principles generally accepted in the United States. 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. 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 materially from these estimates.

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While our significant accounting policies are more fully described in Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report, we believe that the following accounting policies are the most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Warranty Reserve

We generally provide a four-year assurance type warranty on our insulin pumps to end user customers and may replace any pumps that do not function as intended in accordance with the product specifications within the warranty period. Insulin pumps returned to us may be refurbished and redeployed. We establish the warranty reserve liability when control of the pump is transferred to the customer, and we reevaluate our estimate of the warranty obligation at each reporting period. Warranty costs are estimated primarily based on the current expected product replacement cost and expected replacement rates utilizing historical experience. Experience has shown that initial data for any new pump version or pump platform may be insufficient. Therefore, our process relies on long-term historical replacement data from existing platforms until sufficient data is available. As actual experience accumulates, we adjust the warranty reserve estimate accordingly. In addition, the availability of replacement data may differ by country due to local compliance and privacy regulations, which may require us to estimate the warranty liability using available information or data from similar markets. Changes to the actual replacement rates or the expected product replacement cost could cause a material increase or decrease to our estimated warranty reserve and related cost of goods sold. We may make further adjustments to the warranty reserve when appropriate, considering revised expectations of product performance based on enhanced hardware, or new features and capabilities that may become available through Tandem Device Updater.

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 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, which present a significant level of estimation uncertainty and 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 and have a material impact on our financial condition and results of operations.

Contractual Obligations & Off-Balance Sheet Arrangements

Contractual Obligations

Operating Lease Obligations

We lease general office space, laboratory, manufacturing and warehouse facilities, and equipment under noncancelable operating leases for use in our operations. For a description of our contractual obligations related to leases at December 31, 2024, see Note 6 “Leases” to the consolidated financial statements in Part II, Item 8 of this Annual Report.

Purchase Order Commitments

We have agreements with suppliers and other parties to purchase inventory, other goods and services and long-lived assets. For a description of our contractual obligations related to purchase order commitments at December 31, 2024, see Note 13 “Commitments and Contingencies” to the consolidated financial statements in Part II, Item 8 of this Annual Report.

Acquisition-related Contingent Consideration

In connection with our acquisition of AMF Medical SA completed in January of 2023, the total consideration included cash paid at the closing of the transaction and additional contingent earnout payments (see Note 12, “Acquisitions” to the consolidated financial statements in Part II, Item 8 of this Annual Report for additional information).

Standby Letter of Credit

As of December 31, 2024, we were party to a standby letter of credit arrangement in support of certain operating lease obligations (See Note 13 “Commitments and Contingencies” to the consolidated financial statements in Part II, Item 8 of this Annual Report).

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