TANDEM DIABETES CARE INC – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis together with our
financial statements and related notes in Part I, Item 1 of this Quarterly
Report on Form 10-Q for the quarter ended September 30, 2022 (Quarterly Report).

This Quarterly Report contains forward-looking statements within the meaning of
the federal securities laws, which statements are subject to considerable risks
and uncertainties. These forward-looking statements are intended to qualify for
the safe harbor from liability established by the Private Securities Litigation
Reform Act of 1995. All statements included or incorporated by reference in this
Quarterly Report, other than statements of historical fact, are forward-looking
statements. You can identify forward-looking statements by the use of words such
as "may," "will," "could," "anticipate," "expect," "intend," "believe,"
"continue" or the negative of such terms, or other comparable terminology.
Forward-looking statements also include the assumptions underlying or relating
to such statements. In particular, forward-looking statements contained in this
Quarterly Report may relate to, among other things, our future or assumed
financial condition, results of operations, liquidity, trends impacting our
financial results, business forecasts and plans, research and product
development plans, manufacturing plans, strategic plans and objectives, capital
needs and financing plans, product launches, geographic expansion, distribution
plans, production capacity, clinical trials, regulatory approvals, competitive
position and the impact of changes in the competitive environment, 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, 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 than what we expect.

Moreover, we operate in an evolving environment. New risk factors and
uncertainties emerge from time to time and it is not possible for our management
to predict all risk factors and uncertainties, nor can we assess the impact of
all factors on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.

Forward-looking statements speak only as of the date they were made and, except
to the extent required by law or the rules of the Nasdaq Global Market, we
undertake no obligation to update or review any forward-looking statement
because of new information, future events or other factors.

We qualify all of our forward-looking statements by these cautionary statements.

Overview

We are a medical device company focused on the design, development and
commercialization of technology solutions for people living with diabetes.
Diabetes management can vary greatly from person-to-person, creating multiple
market segments based on clinical needs and personal preferences. Our goal is to
lead in insulin therapy management across multiple of these market segments by
providing a portfolio of delivery devices, software, and data insight solutions
to people living with diabetes, as well as their caregivers and healthcare
providers.

Since our initial commercial launch, we have rapidly innovated and brought more
products to market than our competitors. We have commercially launched seven
insulin pump configurations in the United States since 2012 and three insulin
pump configurations outside the United States since 2018. Today, our
software-updatable t:slim X2 Insulin Delivery System (t:slim X2) hardware
platform represents 100% of our new pump shipments. In the four-year period
ended September 30, 2022, we shipped more than 400,000 insulin pumps, which is
representative of our estimated global installed customer base, assuming the
typical four-year reimbursement cycle. More than 280,000 of these pumps were
shipped to customers in the United States and over 120,000 were shipped in the
more than 20 countries in which we operated in the third quarter of 2022 outside
the United States.
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Our manufacturing, sales and support activities principally focus on our
flagship pump platform, the t:slim X2 and our complementary product offerings.
Our simple-to-use t:slim X2 is based on our proprietary technology platform and
is the smallest durable insulin pump available in the United States. We have
commercially offered two different automated insulin dosing (AID) algorithms on
t:slim X2, including our Control-IQ technology, which is an advanced
hybrid-closed loop feature, designed to help increase a user's time in their
targeted glycemic range. It was the first system cleared by the U.S. Food and
Drug Administration (FDA) to deliver automatic correction boluses in addition to
adjusting insulin to help prevent high and low blood sugar based on continuous
glucose monitoring (CGM) readings. Our Control-IQ technology launched in the
United States in the first quarter of 2020, and is now available in all of the
countries in which we operate. Our Control-IQ technology uses information from
Dexcom Inc.'s (Dexcom) G6 sensor, which is the third generation of Dexcom CGM
that we have integrated and commercially launched with our pump technology.

The t:slim X2 is unique in that it is the only pump on which remote software
updates have been made commercially available in the United States. Now
available in the countries we serve worldwide, our Tandem Device Updater (TDU)
is a revolutionary tool that allows people to update their t:slim X2 software
from a personal computer. In July 2022, we launched a new pump software update
though TDU to allow all t:slim X2 pump users in the United States to bolus
insulin using our smartphone app that is available on both iOS and Android
device models.

Our insulin pump products are generally considered durable medical equipment and
have an expected lifespan of at least four years. In addition to insulin pumps,
we sell disposable products that are used together with our pumps and are
replaced every few days, including cartridges for storing and delivering
insulin, and infusion sets that connect the insulin pump to a user's body.
Additionally, we sell accessories such as belt clips and cases for use with
pumps which are designed to enhance usability. In the United States, we also
offer t:connect, our data management web application that provides users, their
caregivers and their healthcare providers with a fast, easy, and visual way to
display diabetes therapy management data from our pumps, integrated CGMs and
supported blood glucose meters.

COVID-19 Global Pandemic Impact and Considerations

Our business has been impacted in a variety of ways since the onset of the
COVID-19 global pandemic in early 2020, and will likely continue to be impacted
for the remainder of 2022. Specific factors that have influenced our financial
results and the way in which we operate include fluctuations in shelter-in-place
restrictions, supply chain constraints, generalized labor shortages impacting
global markets, the timing and extent of vaccine availability and surges in
infection and hospitalization rates as new COVID variants have emerged. Most
notably, our sales results reflected a high degree of variability across the
quarters during this time, unlike historical seasonal trends. Our raw material
costs and inventory levels have also fluctuated as we respond to supply chain
constraints due to the timing of availability of components from the various
suppliers we use to build our products. In addition, we experienced extended
regulatory review timelines for new product submissions in the United States.
Throughout this time, we have responded to each of these unique challenges,
while prioritizing the health and safety of our employees and customers and
working diligently to maintain a continuous supply of products, training and
customer support.

Overall, we anticipate that our sales and operating results will continue to be
impacted and subject to unpredictable variability. The full extent of the impact
of the pandemic on our future business and operations is difficult to estimate
and will depend on a number of factors including the scope and duration of the
COVID-19 global pandemic, and the relative impact of COVID-19 on the business
operations of our contract manufacturers, suppliers and competitors and any
resulting changes to general economic conditions in the countries in which we
operate and sell our products.

Products Under Development

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

Delivery Devices

We are developing a family of delivery device solutions to meet the varying
needs of people living with type 1 and type 2 diabetes by providing choice
within our own portfolio. Preferences in the size, shape, and mode of operation
that comprise an insulin pump's hardware often impact a person's pump purchasing
decision and overall user experience.
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Mobi

Formerly referred to by its development name, t:sport, Tandem Mobi is
approximately half the size of our t:slim X2 pump, and is being designed for
people who seek even greater discretion and flexibility with the use of their
insulin pump. In addition to being waterproof, Mobi's features include a
200-unit cartridge, an on-pump bolus button, inductive charging, and an AID
algorithm. We anticipate that Mobi will be our first insulin pump to support
full pump-control from our mobile application.

t:slim X3

Advancing our flagship t:slim platform, the t:slim X3 is being designed to
provide a modernized user interface and even greater usability for our planned
feature updates. It is also being designed to include enhanced technology, such
as greater processing power and capacity to support our advanced algorithms, as
well as increased battery life, improved durability, and wireless software
update capabilities.

Mobi: Tubeless

This offering is being developed to provide an alternative tubeless infusion
site option for Mobi pump users. A goal of this design is to allow people living
with diabetes to customize the way they wear their pump with each cartridge
change to best suit their personal preferences and lifestyle.

Patch

Our patch pump design is in its early stages and is being developed for people
living with diabetes who want a disposable tubeless solution.

Infusion Sets

Infusion sets provide additional choice and flexibility to people living with
diabetes. Our goals for infusion set innovations focus on solutions that extend
wear time and enhance user experience, while reducing occlusions, body burden
and waste. In support of this effort, in July 2022 we acquired infusion set
developer, Capillary Biomedical, Inc. (Capillary Biomedical). Capillary
Biomedical's unique extended wear infusion set technology is currently in
development.

Device Software

Our device software is used to control our pumps either directly through the
pump's interface or through our mobile application. It also includes our AID
technology and the software used to support remote pump updatability.

Control-IQ Advancements

We are driving innovation in our algorithms, emphasizing automation,
personalization and simplification, all intended to continue to improve
therapeutic outcomes and provide a positive patient experience characterized by
simplicity and ease of use. Additionally, we have initiated clinical studies to
expand the indications of our Control-IQ technology to include people with type
1 diabetes ages 2 to 5 years old, as well as people living with type 2 diabetes.
We are also researching the use of different insulins with our Control-IQ
technology.

Mobile Control

We are working to expand our mobile control capability. In the future, our
t:connect mobile app is planned to include additional pump control features,
such as full operation of our Mobi pump.

Integration

Building a robust ecosystem and portfolio around our flagship insulin pumps
requires product development efforts to integrate, add, and enhance
complementary system components.

Dexcom CGM: In November 2020, we entered into an agreement with Dexcom to extend
our current collaboration to include integration with their 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 devices.
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Abbott CGM: In June 2020, we announced an agreement with Abbott Laboratories
(Abbott), to develop and commercialize integrated diabetes solutions that
combine Abbott's CGM technology with our insulin delivery systems. 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.

Data and Insights

Our goal is to innovate across our digital health platforms by using the vast
amount of data that we collect, in combination with technology such as
artificial intelligence or machine learning, to provide information and insights
to people living with diabetes, their caregivers and healthcare providers and
insurance payors. Key areas of development include making these insights easy to
understand, provided in a flexible format with mobile or web apps, and available
real time. In addition, we are working to integrate health-related information
from third-party sources and use our data to support current and future products
under development.

Tandem Source

Expanding the capabilities of our t:connect data management application
available for customers in the United States, Tandem Source is our
second-generation web-based data management application that is being designed
to be deployed globally. This application enhances clinical data visualization,
and provides added interface customization for users to personalize how they
engage with their data and for healthcare providers to better manage their care.

Settings Automation

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

Pump Shipments

From inception in 2012 through June 2018, we derived nearly all of our sales
from the shipment of insulin pumps and associated supplies to customers in the
United States. Starting in the third quarter of 2018, we began selling our
t:slim X2 insulin pump in select geographies outside the United States and now
offer our technology solutions in more than 20 countries worldwide. We consider
the number of insulin pump units shipped to be an important metric for managing
our business.

Insulin pumps in the markets we serve worldwide are generally subject to a
four-year reimbursement cycle, imposed by the third-party insurance carrier,
government plan or healthcare system that serves as the primary payor. In the
past four years, we have shipped more than 400,000 insulin pumps worldwide,
which is representative of our estimated global in-warranty installed customer
base. Our estimated worldwide installed base has increased approximately 35%
compared to the third quarter of 2021.

At the end of the typical four-year reimbursement cycle, customers may be
eligible for the purchase of a new insulin pump, subject to the rules and
requirements of their primary insurance payor. While warranties generally expire
four years from the original pump shipment date, our typical renewal cycle, or
time from original pump purchase to a subsequent pump purchase by the same
customer, averages five years. The majority of our insulin pump sales through
the current period have been generated by new customers, but the opportunity for
existing customers to purchase a renewal insulin pump increases each period as
additional customer warranties expire. With programs dedicated to customer
retention efforts, we expect such renewal purchases to represent a more
significant portion of our shipments in the long-term.
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More than 280,000 pumps were shipped to customers in the United States in the
past four years, which aligns with the standard four-year warranty period. Pump
shipments to customers in the United States by fiscal quarter for the last five
years, which aligns more closely with our typical renewal cycle, were as
follows:

                                                                          

United States Pump Unit Shipments

                                                                for Each of 

the Three Months Ended in Respective Years

                                  March 31                  June 30                 September 30                December 31                  Total

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               25,712                     83,317
2022                                    18,658                    20,818                     20,394                        N/A               59,870



Since commencing sales outside the United States in the third quarter of 2018,
we shipped over 120,000 pumps to customers in more than 20 countries, and are
only beginning to complete a full four-year reimbursement cycle in certain of
our markets outside of the United States. Pump shipments to customers outside
the United States by fiscal quarter were as follows:

                                  Outside the United States Pump Unit Shipments
                              for Each of the Three Months Ended in Respective Years
        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                  11,873                 44,995
2022        9,437               11,296                  12,113                     N/A           32,846

Trends Impacting Financial Results

Overall, we have experienced considerable sales growth each year since the
commercial launch of our first product in the third quarter of 2012, only
recognizing an operating profit on a full year basis for the first time in 2021.
Our operating results have historically fluctuated on a quarterly or annual
basis, particularly in periods surrounding anticipated regulatory approvals, the
commercial launch of 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
decision-making process of our current and potential customers, has been and
will continue to be impacted by a number of general trends, including the
following:

•market acceptance of our products and competitive products by people with
insulin-dependent diabetes, their caregivers and healthcare providers;

•the introduction of new products, treatment techniques or technologies for the
treatment of diabetes, including the timing of the commercialization of new
products by us and our competitors;

•seasonality in the United States associated with annual insurance deductibles
and coinsurance requirements of the medical insurance plans used 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;

•global economic and market uncertainty such as recessionary concerns, rising
inflation rates, changes in discretionary spending, increased interest rates,
and other macroeconomic factors;
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•the 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 and broader availability of vaccines;

•the buying patterns of our distributors and other customers;

•changes in the competitive landscape, including as a result of companies
entering or exiting the diabetes 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, and factors impacting our ability to access
our facilities;

•the impact of any potential claims, investigations, information requests, or
legal, regulatory or administrative proceedings with respect to potential or
asserted violations of law, including: sales and marketing practices,
anti-corruption and the Foreign Corrupt Practices Act, antitrust, securities,
employment, product liability, environmental, data privacy breaches and patent
infringement, which may subject us to fines, penalties, expenses, or
reputational harm;

•anticipated and actual regulatory approvals of our products and competitive
products; and

•product recalls impacting, or the suspension or withdrawal of regulatory
clearance or approval relating to, our products or the 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:

•changes in customer purchasing behavior due to the economic environment such as
inflation or threat of recession;

•anticipated new product launches and the timing of their commercial
availability;

•our recently announced Tandem Choice program and its related financial and
accounting impact;

•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
Control-IQ technology in additional geographies, and the ability to access new
pump software using our Tandem Device Updater;

•increased opportunity to achieve customer renewals as customers become eligible
for insurance reimbursement to purchase a new insulin pump at the end of the
typical four-year reimbursement cycle;

•ability to enter into, maintain agreements, and accomplish continued success in
current and future product integrations with CGM partners;

•expansion and new product launches in select geographies outside the United
States, including initial orders to stock inventories; and

•ability to effectively scale our operations to support rapid growth, including
expanding our facilities, advancing our research and development efforts,
increasing manufacturing capacity through third-party manufacturers, financial
impact and integration of acquired assets or businesses, and hiring and
retaining employees in customer service and support functions.

In addition to working to achieve our sales growth expectations, in the
long-term we intend to continue to leverage our infrastructure investments to
realize additional manufacturing, sales, marketing and administrative cost
efficiencies with the goal of improving our operating margins and ultimately
achieving sustained profitability. While we have achieved profitability in each
fourth quarter since 2018, we were profitable for the first time on a full-year
basis in 2021. We believe we can ultimately achieve sustained profitability by
driving incremental sales growth in markets worldwide, meeting our pump renewal
sales objectives, maximizing manufacturing efficiencies on increased production
volumes, and leveraging the investments made in our sales, clinical, marketing
and customer support organizations.
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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 and continued to launch various iterations
of that platform during the following years. In October 2016, we began shipping
our flagship pump platform, the t:slim X2 insulin pump. The t:slim X2 insulin
pump platform with remote software update capabilities, now represents 100% of
our new pump shipments and is used by nearly all of our in-warranty customers.
Our products also include disposable insulin cartridges and infusion sets, as
well as our complementary t:connect, TDU and mobile application products. We
also offer additional accessories including protective cases, belt clips, and
power adapters, although sales of these products are not significant.

In the United States, we primarily sell our products through national and
regional distributors 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 we can continue to
increase sales by promoting our products to a greater number of potential
customers, caregivers and healthcare providers, although pressures related to
the broader economic environment, new competitive product launches and the
COVID-19 global pandemic have had, and may continue to have, an adverse impact
on our sales.

In 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.
Today, distributor orders are primarily fulfilled in the United States. In the
first half of 2022, we laid the commercial and operational groundwork, as well
as the IT infrastructure, to begin working with a third-party logistics service
provider in the Netherlands to support our distributors in Europe with the
intent to scale utilization in the next twelve months. Our independent
distributor partners outside the United States and Canada 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 markets outside the
United States based on a number of factors, such as the geographical mix, nature
of the reimbursement environment, government regulations and the extent to which
we rely on distributor relationships to provide sales, clinical and marketing
support.

In general, in the United States we have experienced pump shipments being
weighted heavily towards the second half of the year, with the highest
percentage of pump shipments expected in the fourth quarter due to the nature of
the reimbursement environment. Consistent with these historical seasonality
trends, our pump shipments in the United States have typically decreased
significantly from the fourth quarter to the following first quarter. Outside
the United States, 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, the timing of product
launches into new geographies and variability in the ordering patterns of our
distributor partners.

Since early 2020, the COVID-19 global pandemic had a major impact on businesses
around the world, as well as our own quarterly trends. 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. We anticipate
that our sales may not follow historical trends and may continue to be subject
to unpredictable variability 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. We believe customers may
defer purchasing decisions if they believe a new product may be launched in the
future. Additionally, upon the announcement of FDA approval or commercial launch
of a new product, either by us or one of our competitors, potential new
customers may reconsider their purchasing decisions or take additional time to
consider such FDA approval or product launch before making their purchasing
decisions.

In September 2022, we launched Tandem Choice, a technology access program that
provides in-warranty eligible t:slim X2 customers a path towards ownership of
the next generation hardware platform for a fee when available. Tandem Choice
expires on December 31, 2024.
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The accounting treatment for Tandem Choice has a high degree of complexity.
Initially, the program requires the deferral of some portion of sales for
shipments of eligible pumps beginning in the third quarter of 2022. If a
customer elects to participate in Tandem Choice upon launch of our next
generation hardware platform, we will recognize the existing deferral, fees
received and the associated costs of providing the new hardware at the time of
fulfillment. Any remaining deferrals will be recognized at program expiration.
At this time, we are not able to estimate the financial impact for the duration
of Tandem Choice.

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.

Historically, we have manufactured our pumps and disposable insulin cartridges
at our manufacturing facility in San Diego, California. In early 2020, our
third-party cartridge manufacturer completed validation and commenced
commercial-scale manufacturing to supplement our existing cartridge
manufacturing capacity. By the end of 2021, the majority of our t:slim cartridge
manufacturing capacity transitioned to our partner to create capacity for Tandem
Mobi cartridge manufacturing in the future. Infusion sets and pump accessories
are manufactured by third-party suppliers.

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, as our pump sales increase, as we launch new portfolio products with
lower costs to manufacture, improved average selling prices and leverage of our
fixed overhead costs. We expect we will be able to achieve this leverage with
products that use the same technology platform and manufacturing infrastructure,
as well as increased automation, process improvements and raw materials cost
reductions. We also expect our warranty cost per unit to decrease as we release
additional product features and functionality using the Tandem Device Updater.

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 could have a significant impact on our overall
gross margin percentage. In the event that customers delay their pump purchasing
decisions or physicians pause in prescribing new pumps, 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 aside from those associated
with production volumes and product mix. For instance, as a result of the
COVID-19 global pandemic, we are experiencing higher costs as we manage global
supply challenges and anticipate that this will continue for the remainder of
2022 and first half of 2023. 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.

Other factors impacting our overall gross margin percentage may include the
changing percentage of products sold to distributors versus directly to
individual customers, varying levels of reimbursement among third-party payors
in individual markets worldwide, the timing and success of new regulatory
approvals and product launches, changes in warranty 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 (SG&A) expenses primarily consist of
salary, cash-based incentive compensation, fringe benefits and non-cash
stock-based compensation for our sales, marketing and administrative functions,
which also includes our clinical, customer support, technical services,
insurance verification and regulatory affairs personnel. We had approximately
110 sales territories in the United States in the third quarter of 2022, up from
approximately 95 in 2021. Our existing territories are generally maintained by
sales representatives and field clinical specialists, and supported by managed
care liaisons, additional sales management and other customer support personnel,
which have also been rapidly expanding to support our growing installed base.
Our operations in Canada are comprised of approximately ten sales territories.
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Other significant SG&A expenses typically 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. While we experienced reduced spending in areas such as travel
and trade shows in 2021 due to the COVID-19 global pandemic, 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.
Overall, we expect our SG&A expenses, including the cost of our customer support
infrastructure, to continue to increase as our customer base grows worldwide. In
addition, we will continue to evaluate, and may further increase, the number of
our field sales and clinical personnel to optimize the coverage of our existing
territories. In the longer term, SG&A expenses may also increase due to
anticipated costs associated with additional compliance and regulatory reporting
requirements.

Research and Development

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

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

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

Other Income and Expense

Other income and expense primarily consists of interest expense which includes
the amortization of debt issuance costs related to our 1.50% Convertible Senior
Notes due 2025, interest earned on our cash equivalents and short-term
investments, and changes in the fair value of certain common stock warrants
which were issued in October 2017 and expire in October 2022. We expect interest
income in future quarters to fluctuate depending on the total amount of cash
equivalents and short-term investments and market interest rates. We expect
interest expense in future quarters to be comparable with the amount expensed in
2021, through the date of conversion or redemption of the 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 state and foreign cash tax expense as a result of taxable income
anticipated or incurred in those jurisdictions. Income tax expense (benefit) may
fluctuate in future quarters due to adjustments related to non-recurring
transactions and changes in certain tax assessments.

                                       33
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Results of Operations

                                                    Three Months Ended
                                                       September 30,                   Nine Months Ended September 30,
(in thousands, except percentages)                2022               2021                  2022                   2021
Sales:
United States                                 $ 146,035          $ 133,106          $       422,985           $ 364,025
Outside the United States                        58,512             46,521                  157,731             128,778
Total sales                                     204,547            179,627                  580,716             492,803
Cost of sales                                   100,122             82,882                  283,252             230,317
Gross profit                                    104,425             96,745                  297,464             262,486
Gross margin                                         51  %              54  %                    51   %              53  %
Operating expenses:
Selling, general and administrative              84,104             64,923                  237,989             190,009
Research and development                         36,798             24,102                  103,529              62,562
Acquired in-process research and development     31,016                  -                   31,016                   -
Total operating expenses                        151,918             89,025                  372,534             252,571
Operating income (loss)                         (47,493)             7,720                  (75,070)              9,915
Other income (expense), net:
Interest income and other, net                    1,708                 31                    2,858                 721
Interest expense                                 (1,576)            (1,511)                  (4,629)             (4,526)

Change in fair value of common stock warrants        12               (392)                     103              (1,354)
Total other income (expense), net                   144             (1,872)                  (1,668)             (5,159)
Income (loss) before income taxes               (47,349)             5,848                  (76,738)              4,756
Income tax expense (benefit)                      1,621                 54                    2,003                  (2)
Net income (loss)                             $ (48,970)         $   5,794          $       (78,741)          $   4,758

Comparison of the Three Months Ended September 30, 2022 and 2021

Sales. For the three months ended September 30, 2022, sales were $204.5 million,
which included $58.5 million of sales outside the United States. For the three
months ended September 30, 2022, we deferred $0.6 million of pump sales as the
result of our recently launched Tandem Choice. Sales were $179.6 million for the
same period in 2021, which included $46.5 million of sales outside the United
States.

The increase in worldwide sales of $24.9 million in the third quarter of 2022,
compared to the third quarter of 2021, was primarily driven by a 25% increase in
pump-related supply sales. Sales of pump-related supplies increased primarily
due to the 35% growth in our estimated worldwide installed base of customers.
Pump sales increased 5% in the third quarter of 2022, net of the deferral
associated with the Tandem Choice, which began during the third quarter of 2022.

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

                                       Three Months Ended
                                         September 30,
                                      2022           2021
Pump                               $  80,696      $  78,771
Infusion sets                         44,839         37,725
Cartridges                            20,122         16,289
Other                                    378            321

Total Sales in the United States $ 146,035 $ 133,106

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Pump sales in the United States were $80.7 million for the third quarter of
2022, compared to $78.8 million in the third quarter of 2021 as pump shipments
increased 1% and pump average selling prices improved compared to the same
period in 2021. Pump shipments in the United States were 20,394 in the third
quarter of 2022, compared to 20,296 in the third quarter of 2021. Pump shipments
were driven by continued demand for our t:slim X2 insulin pump with Control-IQ
technology even with the presence of new competitive product launches during the
quarter. We also faced challenging marketplace dynamics and economic conditions
brought on by the global pandemic and a deteriorating macroeconomic environment,
with inflation and the threat of recession beginning to impact pump purchasing
decisions. Sales of pump-related supplies increased primarily due to a 28%
increase year over year in our estimated installed base of customers in the
United States. Sales to distributors accounted for 66% and 68% of our total
sales in the United States for the three months ended September 30, 2022 and
2021, respectively, which contributed to modest improvement in average selling
prices across all products.

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

                                            Three Months Ended
                                              September 30,
                                            2022           2021
Pump                                    $   27,385      $ 23,762
Infusion sets                               21,964        16,175
Cartridges                                   8,996         6,269
Other                                          167           315

Total Sales Outside the United States $ 58,512 $ 46,521

Pump sales outside the United States were $27.4 million for the third quarter of
2022, compared to $23.8 million in the third quarter of 2021. Pump shipments
increased 8% compared to the same period in the prior year due to continued
strong demand for our t:slim X2 insulin pump with Control-IQ technology, which
is now available in all of the markets we serve. The increase in pump sales was
also attributable to an increase in average selling prices. Sales of
pump-related supplies benefited from a 57% increase in our estimated installed
base of customers outside the United States. The ordering patterns of our
distributors outside the United States for pumps and supplies has been, and may
continue to be, highly variable from period to period as distributors continue
to gain familiarity with the markets in which they operate and the acceptance of
our products in those markets evolves. This variability has been compounded by
the differing levels of impact from the global pandemic with regard to access to
both physicians and customers, as well as shipping logistics. Sales to
distributors accounted for 96% and 96% of our total sales outside the United
States for the three-month periods ended September 30, 2022 and 2021,
respectively.

Cost of Sales and Gross Profit. Our cost of sales for the three months ended
September 30, 2022 was $100.1 million, resulting in gross profit of $104.4
million, compared to cost of sales of $82.9 million and gross profit of $96.7
million for the same period in 2021. The gross margin for the three months ended
September 30, 2022 and 2021 was 51% and 54%, respectively.

The increase in our gross profit for the three months ended September 30, 2022
was primarily the result of the $24.9 million increase in total sales, driven by
increased supply sales. Gross margin benefits from progress in underlying
fundamentals, including an increase in average selling prices and manufacturing
efficiencies, as well as leverage of fixed overhead, were more than offset by
increased costs associated with global supply chain challenges. More
specifically, gross margin was pressured by approximately 2 percentage points
from increased pump material costs due to the use of alternative sourcing for
certain raw materials to reduce the risk of component shortages in the near-term
and higher freight costs consistent with our experience in the second quarter of
2022. We anticipate continued pressure from increased supply chain and material
costs through the end of this year into next year as we continue to navigate the
challenges of the global pandemic and the challenging economic environment.
Other factors that have and may continue to impact the gross margin percentage
are changes in product and geographical mix. Pump sales, which have the highest
gross margin, were 53% of total worldwide sales in the third quarter of 2022,
versus 57% in the third quarter of 2021.
                                       35
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Selling, General and Administrative Expenses. SG&A expenses increased 30% to
$84.1 million for the three months ended September 30, 2022, from $64.9 million
for the same period in 2021. Employee-related expenses for our SG&A functions
comprise the majority of SG&A expenses. The increase compared to 2021 was
primarily the result of an $11.8 million increase in salaries, incentive
compensation, non-cash stock-based 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 $15.1 million
for the three months ended September 30, 2022, compared to $11.3 million in the
same period in 2021. We also experienced a $7.4 million increase in facilities
and other non-employee discretionary spending, including outside consulting,
outside services, travel, and equipment costs.

Research and Development Expenses. R&D expenses increased 53% to $36.8 million
for the three months ended September 30, 2022 from $24.1 million for the same
period in 2021. The increase in R&D expenses was primarily the result of an
increase of $8.1 million in salaries, incentive compensation, non-cash
stock-based compensation, and other employee benefits due to an increase in
personnel to support our product development efforts. Non-cash stock-based
compensation expense allocated to R&D was $5.2 million for the three months
ended September 30, 2022, compared to $2.9 million in the same period in 2021.
We also experienced a $4.6 million increase in other non-employee discretionary
spending, including outside consulting and services, clinical trial expenses,
information technology and equipment costs attributable to R&D.

Acquired In-Process Research and Development Expenses. Acquired IPR&D expenses
of $31.0 million for the three months ended September 30, 2022 represented the
value of assets acquired, and acquisition related expenses, in connection with
our acquisition of Capillary Biomedical.

Other Income (Expense), Net. Total other income (expense), net for the three
months ended September 30, 2022 was $0.1 million income, compared to $1.9
million expense in the same period in 2021. Other income, net for the three
months ended September 30, 2022 primarily consisted of $1.7 million of interest
income earned on our cash equivalents and short-term investments, partially
offset by $1.6 million of interest expense which included the amortization of
debt issuance costs related to our Convertible Senior Notes. Other expense, net
for the three months ended September 30, 2021 primarily consisted of $1.5
million of interest expense which included the amortization of debt issuance
costs related to our Notes.

Income Tax Expense (Benefit). We recognized income tax expense of $1.6 million
on a pre-tax loss of $47.3 million for the three months ended September 30,
2022, compared to income tax expense of $0.1 million on pre-tax income of $5.8
million for the three months ended September 30, 2021. Income tax expense for
the three months ended September 30, 2022 was primarily attributable to federal,
state and foreign income tax expense as a result of current taxable income in
certain jurisdictions. Income tax expense for the three months ended September
30, 2021 was primarily attributable to state and foreign income tax expense as a
result of current taxable income in certain jurisdictions.

Comparison of the Nine Months Ended September 30, 2022 and 2021

Sales. For the nine months ended September 30, 2022, sales were $580.7 million,
which included $157.7 million of sales outside the United States. For the nine
months ended September 30, 2022 we deferred $0.6 million of pump sales as a
result of Tandem Choice, launched in late September 2022. For the nine months
ended September 30, 2021, sales were $492.8 million, which included $128.8
million of sales outside the United States.

The increase in worldwide sales of $87.9 million in the first nine months of
2022 compared to the first nine months of 2021, was driven by a 34% increase in
pump-related supply sales, primarily due to 35% growth in our estimated
worldwide installed base of customers. We also had a 7% increase in worldwide
pump sales in the first nine months of 2022, compared to the same period in
2021, net of the deferral associated with the Tandem Choice.

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

                                          Nine Months Ended September 30,
                                                2022                     2021
Pump                               $        235,849                   $ 221,724
Infusion sets                               128,490                      97,251
Cartridges                                   57,502                      44,136
Other                                         1,144                         914
Total Sales in the United States   $        422,985                   $ 

364,025

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Pump sales in the United States were $235.8 million for the first nine months of
2022, compared to $221.7 million in the first nine months of 2021, as pump
shipments increased 4% compared to the same period in the prior year, net of the
deferral associated with the Tandem Choice, which began during the third quarter
of 2022. Pump average selling prices also improved over the prior period.
Domestic pump shipments were 59,870 in the first nine months of 2022 compared to
57,605 in the first nine months of 2021. Sales of pump-related supplies
increased primarily due to a 28% increase in our estimated domestic installed
base of customers compared to September 30, 2021. Sales to distributors
accounted for 65% and 68% of our total domestic sales for the nine months ended
September 30, 2022 and 2021, respectively, which contributed to modest
improvement in average selling prices across all products.

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

                                               Nine Months Ended September 30,
                                                     2022                     2021
Pump                                    $         75,515                   $  70,300
Infusion sets                                     57,258                      41,074
Cartridges                                        24,539                      16,878
Other                                                419                         526
Total Sales Outside the United States   $        157,731                   

$ 128,778

Pump sales outside the United States were $75.5 million for the first nine
months of 2022, compared to $70.3 million in the first nine months of 2021, as
the 1% decrease in pump shipments was more than offset by an increase in average
selling prices compared to the same period in the prior year. Sales of
pump-related supplies increased 41% primarily due to a 57% increase in our
estimated installed base of customers outside the United States. The ordering
patterns of our distributors outside the United States for pumps and supplies is
highly variable from period to period, as distributors continue to gain
familiarity with the markets in which they operate and the acceptance of our
products in those markets. This variability was compounded during the period by
the differing levels of impact from the global pandemic with regard to both
access to physicians and customers, as well as shipping logistics across the
more than 20 markets in which we operate outside the United States. Sales to
distributors accounted for 96% of our total sales outside the United States for
the nine month period ended September 30, 2022, and 95% for the same period in
2021.

Cost of Sales and Gross Profit. Our cost of sales for the nine months ended
September 30, 2022 was $283.3 million resulting in gross profit of $297.5
million, compared to cost of sales of $230.3 million and gross profit of $262.5
million for the same period in 2021. The gross margin for the nine months ended
September 30, 2022 was 51% compared to 53% in the same period in 2021.

The increase in our gross profit for the nine months ended September 30, 2022
was primarily the result of the $87.9 million increase in total sales. Gross
profit benefited from an increase in average selling prices as well as
improvement in manufacturing efficiencies and leverage of fixed overhead. Gross
margin was pressured by approximately 2 percentage points from increased pump
material costs due to the use of alternative sourcing for raw materials to
reduce the risk of component shortages in the near-term and higher freight costs
we are experiencing in 2022. We anticipate continued pressure from increased
supply chain and material costs through the end of this year into next year as
we continue to navigate the challenges of the global pandemic and the economic
environment. Other factors that have and may continue to impact the gross margin
percentage are changes in product and geographical mix and the level of non-cash
stock-based compensation allocated to cost of sales. Pump sales, which have the
highest gross margin, were 54% of total worldwide sales in the first nine months
of 2022 compared to 59% in the same period in 2021.

Selling, General and Administrative Expenses. SG&A expenses increased 25% to
$238.0 million for the nine months ended September 30, 2022, from $190.0 million
for the same period in 2021. Employee-related expenses for our SG&A functions
comprise the majority of SG&A expenses. The increase compared to 2021 was
primarily the result of a $34.7 million increase in salaries, incentive
compensation, non-cash stock-based 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 $40.7 million
for the nine months ended September 30, 2022, compared to $31.6 million in the
same period in 2021. We also experienced a $13.3 million increase in facilities
and non-employee discretionary spending, including outside services, travel, and
software maintenance and supplies costs.
                                       37
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Research and Development Expenses. R&D expenses increased 65% to $103.5 million
for the nine months ended September 30, 2022, from $62.6 million for the same
period in 2021. The increase in R&D expenses was primarily the result of an
increase of $24.4 million in salaries, incentive compensation, non-cash
stock-based compensation, and other employee benefits due to an increase in
personnel to support our product development efforts. Non-cash stock-based
compensation expense allocated to R&D was $14.1 million for the nine months
ended September 30, 2022, compared to $7.5 million in the same period in 2021.
We also experienced a $16.6 million increase in other non-employee discretionary
spending, including outside consulting and services, clinical trial expenses,
information technology, facilities and equipment costs attributable to R&D.

Acquired In-Process Research and Development Expenses. Acquired IPR&D expenses
of $31.0 million for the nine months ended September 30, 2022 represented the
value of IPR&D assets acquired, and acquisition related expenses, in connection
with our acquisition of Capillary Biomedical.

Other Income (Expense), Net. Total other expense, net for the nine months ended
September 30, 2022 and 2021 was $1.7 million and $5.2 million, respectively.
Other expense, net for the nine months ended September 30, 2022 primarily
consisted of $4.6 million of interest expense which included the amortization of
debt issuance costs related to our Convertible Senior Notes, partially offset by
$2.9 million of interest income earned on our cash equivalents and short-term
investments. Other expense, net for the nine months ended September 30, 2021
primarily consisted of $4.5 million of interest expense which included the
amortization of debt issuance costs related to our Notes, and a $1.4 million
revaluation loss from the change in the fair value of certain common stock
warrants, offset by $0.7 million of interest income earned on our cash
equivalents and short-term investments.

Income Tax Expense (Benefit). We recognized income tax expense of $2.0 million
on pre-tax loss of $76.7 million for the nine months ended September 30, 2022,
compared to an income tax benefit of $2,000 on pre-tax income of $4.8 million
for the nine months ended September 30, 2021. Income tax expense for the nine
months ended September 30, 2022 was primarily attributable to federal, state and
foreign income tax expense as a result of current taxable income in certain
jurisdictions. The benefit for income taxes for the nine months ended September
30, 2021 was primarily attributable to excess tax benefits from stock
compensation, offset by state and foreign income tax expense as a result of
current taxable income in certain jurisdictions.

Liquidity and Capital Resources

At September 30, 2022, we had $608.7 million in cash and cash equivalents and
short-term investments. In addition, we had a total available balance of $95.1
million at September 30, 2022 under our Revolving Line of Credit (the Line of
Credit), which expires in May 2025 (see Note 7, "Debt"). We believe that our
cash and cash equivalents, short-term investments, borrowing availability under
the Line of Credit, and future cash flows from operations will be sufficient to
fund our ongoing core business activities.

Historically, our principal sources of cash have included cash collected from
product sales, private and public offerings of equity securities, exercises of
employee stock awards, and debt financing.

Our historical cash outflows have primarily been associated with cash used for
operating activities such as the development and commercialization of our
products, the expansion and support of our sales, marketing, clinical and
customer support organizations, the expansion of our R&D activities, the
expansion of our commercial activities to select geographies outside the United
States, the acquisition of intellectual property, equity investments and
acquired assets, expenditures related to increases in our manufacturing capacity
and improvements to our manufacturing efficiency, overall expansion of our
facilities and operations, and other working capital needs. Additionally, we
have used cash to pay the interest expense associated with our convertible
senior notes.
                                       38
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The following table shows a summary of our cash flows for the nine months ended
September 30, 2022 and 2021 (in thousands):

                                                                    Nine 

Months Ended September 30,

                                                                       2022                    2021
Net cash provided by (used in):
Operating activities                                            $         44,644          $    91,724
Investing activities                                                      (2,609)            (110,058)
Financing activities                                                      10,777               36,046
Effect of foreign exchange rate changes on cash                             (207)                  50
Net increase in cash and cash equivalents                       $         

52,605 $ 17,762

Operating Activities. Net cash provided by operating activities was $44.6
million for the nine months ended September 30, 2022, compared to $91.7 million
in the same period in 2021. The reduction in net cash provided by operating
activities for 2022 compared to 2021 was primarily a result of the $83.5 million
increase in net loss as well as working capital changes. Working capital changes
during the nine months of 2022, primarily consisted of increases in inventories,
accounts payable and accrued expenses, and operating leases and other current
liabilities. Accounts receivable increased to $112.8 million at September 30,
2022, from $110.7 million at December 31, 2021. Inventories increased to $104.8
million at September 30, 2022 from $68.6 million at December 31, 2021.

Investing Activities. Net cash used in investing activities was $2.6 million for
the nine months ended September 30, 2022, which was primarily related to $362.5
million of purchases of short-term investments, $28.5 million in purchases of
property and equipment, and $25.7 million paid for the acquisition of Capillary
Biomedical, including $1.0 million transaction cost. (see Note 2, "Summary of
Significant Accounting Policies"), offset by $422.9 million in proceeds from
maturities and sales of short-term investments. Net cash used by 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, 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.

Financing Activities. Net cash provided by financing activities was $10.8
million for the nine months ended September 30, 2022, which primarily consisted
of proceeds from the issuance of common stock under our stock plans. 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 stock plans.

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

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

•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.

                                       39
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Both our primary short-term and long-term capital needs are expected to include
expenditures related to:

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

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

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

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

•additional facilities leases and related tenant improvements;

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

•payments under licensing, development and commercialization agreements.

•acquisition and subsequent integration of businesses, products and
technologies.

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 cash uses
or the timing or amount of cash used. In addition, from time to time we may
consider opportunities to acquire or license other products or technologies that
may enhance our product platform or technology, expand the breadth of our
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 cash equivalents balances, or cash
generated from operations is insufficient to satisfy our working capital
requirements, we may in the future be required to seek additional capital from
public or private offerings of our equity or debt securities, or we may elect to
borrow capital under the Line of Credit, new credit arrangements or from other
sources. We may also seek to raise additional capital from such offerings or
borrowings on an opportunistic basis when we 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 dilutive impact of financing transactions,
the competitive environment in our industry, uncertainties regarding the
regulatory environment in which we 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 control.

Indebtedness

In May 2020, the Company entered into a purchase agreement with certain
counterparties for the sale of an aggregate of $287.5 million principal amount
of 1.50% Convertible Senior Notes due 2025 in a private offering to qualified
institutional buyers (the Notes). 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"). 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.

Cash payments due by calendar year for our Convertible Senior Notes at
September 30, 2022 are as follows (in thousands):

                                                       Remaining in
                                      Total                2022               2023              2024               2025
Contractual interest               $  12,938          $     2,156          $  4,313          $  4,313          $   2,156
Principal amount of convertible
senior notes(1)                      287,500                    -                 -                 -            287,500
Total                              $ 300,438          $     2,156          $  4,313          $  4,313          $ 289,656

(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.

                                       40
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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.

There have been no material changes to our critical accounting policies and
estimates from the information provided in Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Critical Accounting Policies Involving Management Estimates and Assumptions,"
included in our Annual Report on Form 10-K for the year ended December 31, 2021,
except for the accounting policies and estimates related to an asset acquisition
and Tandem Choice, which are included in Note 2, "Summary of Significant
Accounting Policies" in Part I, Item 1 of this Quarterly Report.

Off-Balance Sheet Arrangements

As of September 30, 2022, we are a party to certain standby letter of credit
arrangements in support of our operating lease obligations. For a description of
the arrangements we consider significant, see Note 12 "Commitments and
Contingencies" to the condensed consolidated financial statements in Part I,
Item 1 of this Quarterly Report.
                                       41

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