Tandem Diabetes Care, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Tandem develops and sells insulin pumps and related supplies and software, principally its t:slim X2 platform. The unaudited interim results may not indicate full-year performance.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Sales | $175.9 million | $141.0 million; up 25% |
| Gross profit / margin | $91.1 million / 52% | $73.3 million / 52% |
| Operating expenses | $106.4 million | $76.5 million; up 39% |
| Operating loss | $15.3 million | $3.2 million |
| Net loss | $14.7 million; $0.23 per share | $5.0 million; $0.08 per share |
| Operating cash flow | $13.8 million | $28.7 million |
| Cash and cash equivalents | $93.7 million at March 31 | $71.2 million at December 31, 2021 |
| Short-term investments | $541.7 million at March 31 | $552.6 million at December 31, 2021 |
| Convertible notes | $281.9 million net carrying value; $287.5 million principal | 1.50% notes due May 2025 |
Cash, cash equivalents and short-term investments totaled $635.4 million. Current assets were $818.5 million and current liabilities $131.8 million. The company reported $137.3 million of operating lease liabilities, including $129.2 million long term. Q1 stock-based compensation was $18.1 million.
Business performance and changes
- Worldwide pump shipments increased 11% to 28,095. Pump-related supply sales rose 35%, supported by growth in the estimated installed customer base.
- U.S. sales were $131.3 million, up from $103.3 million; international sales were $44.6 million, up from $37.7 million.
- Gross margin held at 52%. Management cited higher average selling prices and manufacturing efficiencies, partly offset by higher supply-chain costs. Pumps accounted for 54% of worldwide sales, versus 58% a year earlier.
- SG&A increased 25% to $73.3 million, mainly from staffing and support for additional sales territories and the growing customer base. R&D increased 85% to $33.2 million, reflecting personnel, clinical and product-development spending.
- Operating cash flow declined to $13.8 million from $28.7 million, primarily due to the larger net loss and working-capital movements. Inventory rose to $80.0 million from $68.6 million at year-end; receivables fell to $94.1 million from $110.7 million.
Outlook, risks and notable items
- The filing provides no numerical revenue or earnings guidance. Management expects sales and operating results to remain variable and pandemic-affected, with supply-chain and material-cost pressures expected through the end of 2022. It expects operating expenses to continue increasing as the company invests in sales, support, R&D and capacity; sustained profitability is a longer-term objective, not an assured outcome.
- Management reported component availability constraints, including semiconductors and copper, reliance on limited suppliers, and labor shortages. These may constrain production, raise costs and delay product development or launches. FDA review delays were also noted.
- In February 2022, the FDA cleared smartphone-based insulin bolusing for compatible t:slim X2 users; the company planned to provide the software update to eligible U.S. users at no cost. Pipeline programs include Mobi, t:slim X3, further Control-IQ indications and CGM integrations; timing and approvals remain uncertain.
- The company recognized $107.5 million of right-of-use assets and lease liabilities when it took possession of Phase I of its new Tech Center in March. Base rent was scheduled to begin in September 2022; Phase II is currently estimated to commence in 2025.
- Available-for-sale investments had $3.1 million of gross unrealized losses at quarter-end, primarily attributed to higher interest rates. The company did not consider these credit losses and reported no related impairment.
- A class action arising from a 2020 data breach remained pending; the company could not estimate a probable loss range. A separate employment class action settlement was approved by an arbitrator on April 18, 2022, after quarter-end, with payment and case closure expected subsequently.
- Other key risks include competition, reimbursement and customer retention, product safety and recalls, regulatory compliance, cybersecurity and litigation. Management concluded disclosure controls were effective at a reasonable-assurance level as of March 31, 2022.
Important facts for investors to verify
- Whether shipment growth and recurring supply sales continue, and how the U.S. renewal cycle and international distributor ordering affect results.
- Whether supply constraints, inflation and higher component costs affect production, gross margin or product launch schedules.
- Progress and regulatory timing for smartphone bolusing, Mobi, planned CGM integrations and other development programs.
- Cash generation and spending needs alongside the $287.5 million notes due in 2025 and expanding lease commitments.
- Developments in the data-breach litigation, the employment settlement payment, and any material regulatory or product-safety matters.