TANDEM DIABETES CARE INCTNDM
TANDEM DIABETES CARE INC Income Taxes Disclosure
Income Taxes
The income (loss) before provision for income taxes for the Company’s operations was as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| United States | $ | (78,156) | $ | (135,411) | $ | (94,033) | |||||||||||
| Foreign | (13,714) | (84,843) | 1,181 | ||||||||||||||
| Income (loss) before provision for income taxes | $ | (91,870) | $ | (220,254) | $ | (92,852) | |||||||||||
The components of income tax expense were as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 636 | $ | 308 | $ | 216 | |||||||||||
| State | 1,143 | 345 | 1,228 | ||||||||||||||
| Foreign | 2,376 | 1,704 | 298 | ||||||||||||||
| Total current tax expense | 4,155 | 2,357 | 1,742 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | — | — | — | ||||||||||||||
| State | — | — | — | ||||||||||||||
| Foreign | — | — | — | ||||||||||||||
| Total deferred income tax benefit | — | — | — | ||||||||||||||
Income tax expense | $ | 4,155 | $ | 2,357 | $ | 1,742 | |||||||||||
The expense for income taxes reconciles to the amount computed by applying the federal statutory rate to loss before taxes as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
Income tax expense (benefit) at federal statutory rate (1) | $ | (19,293) | $ | (46,253) | $ | (19,499) | |||||||||||
| State income tax, net of federal benefit | (1,444) | (1,313) | (926) | ||||||||||||||
Convertible debt leg-out | 1,658 | — | — | ||||||||||||||
| Warrants revaluation | — | — | (31) | ||||||||||||||
| Research and development credits | (7,865) | (6,283) | (6,263) | ||||||||||||||
| Section 382 limitation | — | (5) | — | ||||||||||||||
| Stock-based compensation | 5,772 | 14,904 | 2,282 | ||||||||||||||
| Officers' compensation | 1,043 | 1,547 | 2,931 | ||||||||||||||
Recognition of acquired deferred tax assets | — | (5,048) | — | ||||||||||||||
| Acquired IPR&D expenses | — | 14,938 | 6,518 | ||||||||||||||
Cross-border tax impacts | (1,422) | (307) | 31 | ||||||||||||||
Foreign rate differential | 2,075 | 7 | 37 | ||||||||||||||
| Other | 1,159 | 1,374 | 894 | ||||||||||||||
| Change in valuation allowance | 22,472 | 28,796 | 15,768 | ||||||||||||||
Income tax expense | $ | 4,155 | $ | 2,357 | $ | 1,742 | |||||||||||
(1)For the years ended December 31, 2024, 2023 and 2022, the federal statutory tax rate was 21%.
Significant components of the Company’s net deferred income tax assets at December 31, 2024 and 2023 are shown in the table below (in thousands). The Company assesses all available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative book loss incurred over the three-year period ended December 31, 2024. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth. On the basis of this analysis, a valuation allowance of $210.4 million and $190.7 million at December 31, 2024 and 2023, respectively, was recorded to offset the net deferred tax asset as realization of such asset is uncertain. However, the amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as the Company’s projections for future growth.
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss (NOL) carryforwards | $ | 40,536 | $ | 54,802 | |||||||
| Research and development tax credits carryforwards | 32,298 | 27,516 | |||||||||
| Capitalized research and development expenses | 74,974 | 52,875 | |||||||||
| Accrued compensation | 38,053 | 32,097 | |||||||||
| Lease liabilities | 29,165 | 31,037 | |||||||||
Warranty reserve | 12,222 | 8,786 | |||||||||
| Other | 8,610 | 11,992 | |||||||||
| Total deferred tax assets | 235,858 | 219,105 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Operating lease right-of-use assets | (19,792) | (20,869) | |||||||||
| Fixed assets | (5,485) | (6,916) | |||||||||
| Other | (218) | (656) | |||||||||
| Total deferred tax liabilities | (25,495) | (28,441) | |||||||||
| Less valuation allowance | (210,363) | (190,664) | |||||||||
| Net deferred tax assets | $ | — | $ | — | |||||||
As of December 31, 2024, the Company had accumulated federal and state NOL carryforwards of approximately $96.5 million, and $248.0 million, respectively. Of the total federal net operating loss carryforwards, approximately $13.2 million were generated after January 1, 2018, and therefore do not expire. NOL generated after January 1, 2018, is subject to 80% limitation in accordance with the Tax Cuts and Jobs Act of 2017. The remaining federal net operating loss carryforwards of $83.2 million will begin to expire in 2033, and state tax loss carryforwards continue to expire. The remaining California NOL carryforwards of $182.4 million will begin expiring in 2029. The Company had approximately $43.3 million of foreign tax loss carryforwards as of December 31, 2024. The foreign tax loss carryforwards begin to expire in 2025, unless previously utilized.
The Company also has federal and California research credit carryforwards of approximately $30.7 million and $29.3 million, respectively, as of December 31, 2024. The federal research credit carryforwards will begin expiring in 2040, unless previously utilized. The California research credit will carry forward indefinitely.
Utilization of the Company's net operating loss and research credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitations may result in the expiration of net operating loss carryforwards before utilization. The Company has completed analyses through December 31, 2023 to determine whether its net operating losses and credits are likely to be limited by Section 382. Based on this study, the Company determined that an ownership change, as defined under Section 382, occurred in 2018 and the resulting limitation significantly reduced the Company’s ability to utilize its net operating loss and credit carryovers before they expire. As a result, in 2019 the Company reduced its deferred tax assets for the net operating loss and research credit carryforwards that were projected to expire unused with a corresponding offset to the valuation allowance recorded against such assets. Additionally, future ownership changes under Section 382 may also limit the Company's ability to fully utilize any remaining tax benefits.
In 2022, as part of the Capillary Biomedical, Inc. transaction, the Company acquired deferred tax assets consisting of federal and state net operation loss carryovers, research tax credit carryovers, and other tax attributes of approximately $7.8 million. These deferred tax assets are subject to limitations on future use under Section 382 and some of the attributes may expire unused. The Company completed an analysis under Section 382. As a result, the Company recognized deferred tax assets, net of contra reserve, of approximately $5.0 million in 2023. The Company included these deferred tax assets in its components of deferred tax assets in the table above, to the extent that such deferred tax assets are available for future utilization, and the balances are fully offset by valuation allowance as of December 31, 2024 and 2023.
The evaluation of uncertainty in a tax position is a two-step process. The first step involves recognition. The Company determines whether it is more likely than not that a tax position will be sustained upon tax examination, including resolution of any related appeals or litigation, based on only the technical merits of the position. The technical merits of a tax position are derived from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax position. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate resolution with a taxing authority.
The following table summarizes the activity related to the Company’s gross unrecognized tax benefits at the beginning and end of the years ended December 31, 2024, 2023 and 2022 (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Gross unrecognized tax benefits at the beginning of the year | $ | 21,527 | $ | 16,986 | $ | 13,589 | |||||||||||
| Increases related to current year positions | 5,947 | 3,961 | 3,403 | ||||||||||||||
| Increases (decreases) related to prior year positions | — | 580 | (6) | ||||||||||||||
| Gross unrecognized tax benefits at the end of the year | $ | 27,474 | $ | 21,527 | $ | 16,986 | |||||||||||
As of December 31, 2024 and December 31, 2023, the Company had $24.9 million and $19.2 million of unrecognized tax benefits, respectively, that, if recognized and realized would impact the effective tax rate, subject to the valuation allowance.
The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company had no accrual for interest and penalties on the Company’s consolidated balance sheets and has not recognized interest and penalties in the consolidated statements of operations for the years ended December 31, 2024, 2023 and 2022. The Company does not expect any significant increases or decreases, other than the potential reduction as a result of the Section 382 limitation, to its unrecognized tax benefits within the next 12 months.
The Company is subject to taxation in the United States and various foreign and state jurisdictions. Before 2018, the losses were all attributable to the United States. The Company’s tax years from 2006 (inception) are subject to examination by the United States and state authorities due to the carry forward of unutilized NOLs and research and development credits.
In 2021 the OECD announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued. Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024, including the European Union Member States, with the adoption of additional components in later years or announced their plans to enact legislation in future years. We are continuing to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions we operate in.
Undistributed earnings of the foreign subsidiaries are indefinitely reinvested. Thus, the Company has not recognized any deferred taxes on foreign unremitted earnings.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2024 | Feb 26, 2025 | Showing above |
| 2023 | Feb 21, 2024 | |
| 2022 | Feb 22, 2023 | |
| 2020 | Feb 24, 2021 | |
| 2018 | Feb 26, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Mar 8, 2017 | |
| 2015 | Feb 24, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.