Tandem Diabetes Care, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. Tandem develops, manufactures and sells insulin pumps and related supplies, led by its t:slim X2 platform. The unaudited interim statements are prepared under U.S. GAAP.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Sales | $141.0 million | $97.9 million |
| Gross profit / margin | $73.3 million / 52% | $50.3 million / 51% |
| Operating loss | $3.2 million | $13.6 million |
| Net loss | $5.0 million; $0.08 per share | $14.9 million; $0.25 per share |
| Operating expenses | $76.5 million | $63.8 million |
| Operating cash flow | $28.7 million provided | $20.6 million used |
| Cash, cash equivalents and short-term investments | $513.4 million at March 31, 2021 | $484.9 million at December 31, 2020 |
| Convertible notes | $287.5 million principal; $280.2 million net carrying value | Due May 2025; 1.50% coupon |
Sales increased 44% to $141.0 million. U.S. sales were $103.3 million and international sales were $37.7 million. Worldwide pump shipments rose 46% to 25,352; pump-related supply sales increased 54%. Gross margin improved one percentage point, aided by manufacturing efficiencies, fixed-cost leverage and material savings, partly offset by lower pump average selling prices as international sales made up a larger share.
SG&A rose 18% to $58.6 million, mainly from staffing and support for expanded sales territories and the growing installed base; lower stock-based compensation and travel costs partly offset the increase. R&D rose 27% to $18.0 million, primarily due to increased personnel. Net loss improved despite $1.5 million of interest expense on the notes and a $0.7 million warrant revaluation loss.
Cash and cash equivalents were $120.8 million and short-term investments were $392.6 million at quarter-end; cash and cash equivalents include $8.0 million of restricted cash held in escrow. Operating cash flow improved from the prior-year use of cash, reflecting higher sales and gross profit and working-capital movements. Investing activities used $6.1 million and financing activities provided $3.6 million. Management stated available cash and investments were sufficient for at least 12 months from the filing date. Lease liabilities totaled $38.5 million.
Material changes and unusual items
- Sales growth was broad-based: U.S. sales increased about 30% and international sales about 105%. The estimated installed base grew 46% domestically and 102% internationally.
- Effective January 1, 2021, Tandem early adopted ASU 2020-06 for convertible debt. The modified-retrospective transition increased notes’ carrying value by $76.8 million, reduced additional paid-in capital by $85.8 million and reduced accumulated deficit by $9.0 million. This accounting change was not a new cash financing.
- In March, the company amended its San Diego office lease, adding about 14,916 square feet and extending the existing premises’ lease through January 2028. It recognized $15.1 million of additional right-of-use assets and lease liabilities.
- In April 2021, Australia’s TGA lifted a temporary suspension of t:slim X2 pump sales for the Basal-IQ version, subject to post-market surveillance and other conditions. Earlier-generation pump sales there had been discontinued; Control-IQ was not being offered in Australia at filing.
Outlook, risks and contingencies
The filing provides no specific numerical revenue or earnings guidance. Management expected COVID-19 to continue causing adverse and unpredictable effects on sales, operations and product-development timelines. It cited delayed studies and regulatory reviews, limits on in-person customer engagement, and potential supply constraints. Tandem reported that it did not then anticipate significant disruption to pump or cartridge manufacturing, while noting prior infusion-set constraints and uncertainty over suppliers’ ability to meet demand.
Management plans to continue investing in sales and customer support, R&D, manufacturing capacity and international expansion. It expected Control-IQ launches in additional international markets during 2021, subject to regulatory clearances or approvals. Products under development include mobile-health features, the t:sport pump, AID enhancements and Abbott CGM integration. The company noted continued operating losses are possible and that sustained profitability depends on sales growth, manufacturing efficiencies and cost control.
Key risks include competition, reimbursement and market acceptance; dependence on insulin pumps and a limited supplier base; manufacturing scale-up and product quality; regulatory approvals; COVID-19 effects; cybersecurity and privacy; and the company’s history of losses. Convertible notes also create future interest, repayment, conversion and potential dilution obligations. The company reported data-breach class-action litigation in California and a proposed employment class action; it could not estimate potential losses. No legal loss was considered both probable and reasonably estimable at March 31, 2021. Disclosure controls were reported effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether revenue growth and pump shipments continue, particularly as pandemic-related disruption and international distributor ordering variability evolve.
- Whether gross-margin improvement persists as product mix, average selling prices, manufacturing scale-up and warranty costs change.
- Actual cash generation and investment needs against management’s 12-month liquidity assessment, including the $8.0 million restricted-cash balance and convertible-note obligations.
- Regulatory progress and launch timing for Control-IQ outside the U.S., t:sport, mobile bolus features and Abbott CGM integration; confirm any subsequent developments after this filing.
- Developments in the data-breach and employment lawsuits, supplier capacity—especially infusion sets and cartridges—and the conditions attached to the TGA’s Australia decision.