Tandem Diabetes Care, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; balance-sheet figures are as of March 31, 2016, compared with December 31, 2015. The company develops and sells insulin pumps and related supplies in the United States, including t:slim, t:flex and the CGM-enabled t:slim G4.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Sales | $20.1 million | $12.3 million; up 63% |
| Gross profit and margin | $6.9 million; 35% | $2.8 million; 23% |
| Operating loss | $19.2 million | $20.4 million |
| Net loss | $20.5 million; $0.68 per share | $21.2 million; $0.83 per share |
| Cash used in operations | $15.9 million | $15.4 million |
- Cash and cash equivalents were $40.6 million; short-term investments were $27.8 million and restricted cash was $2.0 million. Together these totaled $70.4 million, including restricted cash.
- Accounts receivable was $9.1 million, inventory $20.2 million, total current assets $102.6 million and total current liabilities $24.8 million.
- Notes payable were $44.1 million on the balance sheet; the company reported $45.4 million of aggregate loan borrowings outstanding. Stockholders’ equity was $45.9 million, down from $63.5 million at year-end.
- Cash and cash equivalents declined by $2.5 million during the quarter. Investing used $1.6 million, while financing provided $15.1 million, primarily from a $15.0 million loan draw.
Material changes and management commentary
- Pump shipments rose 63% to 4,042 from 2,487. Q1 2016 shipments included 2,416 t:slim G4 and 371 t:flex pumps; both products launched in 2015.
- Management attributed gross-margin improvement mainly to higher production volumes and manufacturing efficiencies that reduced per-unit overhead. SG&A rose 14% to $22.0 million, primarily with expansion of commercial operations; sales territories increased from 60 to 72. R&D rose 8% to $4.2 million.
- Interest and other expense increased to $1.4 million from $0.9 million, reflecting additional borrowing. The company elected to pay 9.5% interest in cash and add 2.0% to principal; the stated annual loan rate is 11.5%.
- In January, the company borrowed $15.0 million under its amended term loan and received an option to draw up to a further $35.0 million in $5.0 million increments by December 31, 2016. The loan is secured by company assets, has interest-only payments through December 31, 2019, and matures March 31, 2020. Revenue covenants require at least $65.0 million in 2016; the company reported compliance at quarter-end.
Outlook, risks and unusual items
- Management expected sales growth over the next 12 months to outpace operating-expense growth, and expected t:slim G4 to remain the largest share of pump shipments in 2016. It also expected quarterly sales to follow historical seasonality, with sales generally weighted toward the second half. These are expectations, not quantified formal guidance.
- The company expected continued net losses for several years and said additional capital may be needed. Management believed available cash, operating cash generation, loan availability and other sources would meet liquidity needs for at least 12 months.
- Key risks include continued losses and cash burn, dependence on pump sales and third-party reimbursement, competition, manufacturing scale-up and supplier availability, product safety and regulatory requirements, and execution of commercial expansion. The company identified t:slim G4 as a majority of shipments since launch and noted dependence on its DexCom collaboration; termination could require redesign and disrupt availability.
- Warranty reserve increased to $4.2 million from $3.5 million, including $0.6 million of increased estimates during the quarter. The JDRF collaboration was terminated in February; the company repaid $0.7 million during Q1, previously accrued as a liability.
- No material legal proceedings were reported, and no material loss contingencies were considered probable and estimable. Management concluded disclosure controls were effective as of March 31, 2016; no material change in internal control over financial reporting was reported.
Investor verification priorities
- Track revenue growth, pump shipments and product mix, particularly t:slim G4, and confirm whether growth translates into sustained margin improvement.
- Monitor operating cash burn, unrestricted liquidity and the timing or need for additional financing.
- Review term-loan interest and PIK accruals, remaining draw availability, revenue-covenant compliance and the 2020 maturity obligation.
- Assess warranty claims and reserve assumptions, reimbursement access, manufacturing capacity and supplier continuity.
- Verify the status and terms of the DexCom relationship and any regulatory or commercial developments affecting current products or planned enhancements.