Tandem Diabetes Care, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Tandem develops and sells insulin pumps and related supplies, centered on its t:slim X2 platform.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Sales | $93.3 million | $34.1 million | $159.3 million | $61.4 million |
| Gross profit / margin | $49.9 million / 54% | $15.1 million / 44% | $83.3 million / 52% | $26.5 million / 43% |
| Operating loss | $(1.9) million | $(14.0) million | $(12.9) million | $(29.5) million |
| Net loss | $(1.5) million | $(59.4) million | $(24.5) million | $(92.1) million |
| Net loss per share | $(0.03) | $(1.17) | $(0.42) | $(2.32) |
- Q2 worldwide pump shipments rose 290% to 21,258; first-half shipments rose 264% to 35,990. Management attributed growth to demand for Basal-IQ, international expansion, and shipments against prior international backlog, as well as growth in recurring supplies.
- Q2 sales included $22.9 million internationally; first-half international sales were $34.2 million, compared with none in the 2018 periods.
- Gross-margin expansion reflected higher production volumes and manufacturing efficiencies. SG&A and R&D increased with staffing and stock-based compensation; first-half stock-based compensation was $22.2 million.
- Warrant remeasurement substantially affects reported net income: the first-half 2019 warrant fair-value loss was $13.2 million, versus $56.8 million in 2018. Q2 2019 warrant remeasurement loss was $0.4 million, versus $42.5 million in Q2 2018.
Cash, liquidity and debt
- At June 30, 2019, cash and cash equivalents were $38.2 million and short-term investments were $93.2 million, totaling $131.4 million. Management said these resources were expected to cover liquidity needs for at least 12 months from the filing date.
- Six-month operating cash use was $0.6 million, compared with $19.0 million in 2018. Investing cash use was $13.9 million, including $8.2 million for property and equipment; financing provided $10.8 million, mainly from employee stock-plan issuances.
- No term-loan borrowings were outstanding. The $82.7 million CRG loan was fully repaid in August 2018. Total liabilities were $109.7 million, including $21.9 million of operating lease liabilities and a $25.6 million warrant liability.
- Accounts receivable rose to $48.4 million from $35.2 million and inventory to $27.3 million from $19.9 million since year-end, reflecting higher sales and inventory rebuilding, respectively.
Outlook, developments and risks
- No formal revenue or earnings guidance is provided. Management said it aims to launch t:slim X2 with Control-IQ in the U.S. in Q4 2019, subject to FDA approval. The FDA submission followed positive reported clinical-trial results. A mobile application was also intended for U.S. launch in 2019, subject to FDA approval.
- Management expects operating expenses, including non-cash stock compensation, to remain elevated as it expands sales, support, R&D and manufacturing. It cautioned that Q4 2018 profitability may not be sustained near term and that sustained profitability is not assured.
- Key risks include continued product acceptance and renewals, reimbursement and coverage (including UnitedHealthcare’s preferred-provider restriction), competition, regulatory approval and clinical execution, dependence on Dexcom CGM collaboration, supplier and manufacturing capacity, and international expansion.
- The company reported no legal or regulatory matters for which a material loss was considered probable or reasonably estimable. It closed its voluntary recall of 55 t:slim G4 pumps in August 2018. Adoption of lease accounting in 2019 added right-of-use assets and lease liabilities; prior periods were not restated.
Important facts for investors to verify
- Whether pump shipment growth and international sales can continue, and whether customer renewals and recurring supply sales support growth.
- FDA timing and commercial launch progress for Control-IQ and the mobile application.
- Gross-margin durability as volumes grow, and the impact of rising operating costs and stock-based compensation on progress toward profitability.
- Cash conversion and working-capital trends, including receivables and inventory, alongside management’s stated liquidity runway.
- Exposure to payer restrictions, supplier or production constraints, Dexcom agreement terms, and the remaining warrant liability and potential share dilution.