Tandem Diabetes Care, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Financial statements are unaudited. Tandem is a medical-device company focused on insulin pumps, related disposable supplies and digital diabetes-management products.
Key financial results
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Sales | $172.1 million | $109.2 million | $313.2 million | $207.2 million |
| Gross profit / margin | $92.5 million / 54% | $54.4 million / 50% | $165.7 million / 53% | $104.7 million / 51% |
| Operating income (loss) | $5.4 million | $(12.0) million | $2.2 million | $(25.6) million |
| Net income (loss) | $4.0 million | $(27.1) million | $(1.0) million | $(42.0) million |
| Diluted earnings (loss) per share | $0.06 | $(0.45) | $(0.02) | $(0.70) |
- Q2 sales increased 58% year over year; first-half sales increased 51%. Q2 worldwide pump shipments rose 81% to 33,817; first-half shipments rose 64% to 59,169.
- Q2 U.S. sales were $127.6 million and international sales $44.6 million. International growth was particularly strong, with pump shipments up 233% in Q2 and 167% in the first half.
- Management attributed improved gross margin to manufacturing efficiencies, fixed-cost leverage, higher third-party cartridge production and lower material costs. Pump sales, which carry higher margins, were 63% of Q2 sales versus 60% a year earlier.
- Operating expenses increased: Q2 SG&A rose 32% to $66.5 million and R&D rose 28% to $20.5 million, primarily reflecting personnel and growth-related spending.
- First-half operating cash flow was $57.6 million, versus cash used of $5.1 million a year earlier. Investing used $70.9 million, including purchases of short-term investments, capital spending and investments; financing provided $17.2 million, mainly from stock-plan issuances. Cash and cash equivalents increased $4.0 million.
Balance sheet, debt and liquidity
- At June 30, 2021, cash and cash equivalents were $98.6 million and short-term investments were $446.7 million, totaling $545.3 million. Current assets were $698.3 million; current liabilities were $108.7 million.
- Convertible senior notes had $287.5 million principal outstanding and a net carrying amount of $280.6 million. The notes bear 1.50% interest and mature May 1, 2025. Their reported fair value was $326.6 million.
- The company reported $36.6 million of operating lease liabilities, including $9.3 million current. Management said cash and investments were sufficient for at least 12 months from the filing date.
- Accumulated deficit was $651.2 million. The company generated net income in Q2 but remained slightly loss-making for the first half and cautioned that it has not achieved consistent profitability.
Changes, outlook and risks
- Year-over-year improvement: Revenue growth and higher margins moved Q2 operating results from a loss to operating income and net income. First-half net loss narrowed substantially. Lower warrant revaluation losses and reduced interest expense also improved comparisons; warrant fair-value changes can make reported results volatile.
- Accounting change: Tandem early adopted ASU 2020-06 on January 1, 2021, changing convertible-note accounting. It increased the notes’ carrying amount by $76.8 million, reduced additional paid-in capital by $85.8 million and reduced accumulated deficit by $9.0 million. Comparability of interest expense with 2020 is affected.
- Outlook: No specific revenue or earnings guidance is provided in the filing. Management expects continued investment in sales, customer support, R&D and manufacturing capacity, and aims to achieve sustained profitability through growth, manufacturing efficiencies and cost leverage. It expects interest expense to be comparable to Q1 and Q2 2021 levels if the notes are not converted or redeemed.
- Products and execution: Control-IQ technology was being rolled out in additional international markets, subject to regulatory and reimbursement approvals. Development priorities included mobile-health features, the t:sport pump, AID enhancements, Abbott CGM integration and future Dexcom G7 integration; timing and commercialization depend on development and regulatory outcomes.
- COVID-19 and supply chain: Management described continuing uncertainty in sales, in-person customer engagement, hiring and regulatory timelines. An infusion-set supplier had experienced inventory constraints; semiconductor and copper shortages could constrain pump production. Summer travel and seasonality could add variability.
- Legal and regulatory matters: A California class action related to the January 2020 data breach remained unresolved; the company could not estimate a possible loss. A wage-and-hour class action had a settlement agreement subject to conditions and court approval. In Australia, a temporary pump-sales suspension was lifted for t:slim X2 with Basal-IQ effective April 1, 2021, subject to conditions and surveillance.
- Other risks: Key exposures include competition, reimbursement and payor access, product safety and recalls, supplier concentration, execution of manufacturing expansion, cybersecurity and privacy, regulatory delays, and the possibility that growth investments do not translate into sustained profitability. The company reported no material change in internal control over financial reporting and said disclosure controls were effective.
Investor verification priorities
- Check whether sales growth, pump shipments and installed-base expansion continued, especially in international markets, and assess distributor order variability.
- Track gross-margin trends and whether manufacturing efficiencies offset product mix, warranty, supply-chain and capacity costs.
- Monitor operating expenses, cash generation and progress toward consistent profitability; distinguish cash performance from stock-based compensation and warrant revaluation effects.
- Review liquidity and the 2025 convertible notes, including potential cash settlement, conversion dilution and refinancing needs.
- Follow supply availability, regulatory clearances and launch timing for products under development, as well as the unresolved data-breach litigation and labor-settlement approval.