Tandem Diabetes Care, Inc. — Q1 2015 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2015, compared with Q1 2014. Tandem develops and sells insulin-delivery products; revenue was primarily from the t:slim pump and related supplies in the United States. The FDA cleared t:flex in January 2015, and the company expected to begin U.S. sales in Q2 2015.
Financial and operating results
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Sales | $12.3 million | $8.1 million |
| Gross profit / margin | $2.8 million / 23% | $0.9 million / 11% |
| Operating expenses | $23.2 million | $21.7 million |
| Operating loss | $20.4 million | $20.8 million |
| Net loss | $21.2 million | $22.0 million |
| Net loss per share, basic and diluted | $0.83 | $0.96 |
| Net cash used in operations | $15.4 million | $17.0 million |
Sales increased 53%; t:slim shipments rose 44% to 2,487 from 1,723. Gross margin improved primarily from higher production volumes and manufacturing efficiencies. SG&A rose 7% to $19.4 million, mainly due to increased headcount; R&D rose 5% to $3.9 million. Lower interest expense reflected the reduction in the debt rate from 14% to 11.5%.
At March 31, 2015, cash and cash equivalents were $62.5 million, short-term investments $53.8 million, and restricted cash $2.0 million. The filing describes total cash, cash equivalents and short-term investments, including restricted cash, as $118.4 million. Current assets were $139.2 million and current liabilities $18.8 million. Long-term notes payable were reported at $29.5 million; principal outstanding was $30.0 million. Accumulated deficit was $269.9 million.
Operating cash outflow was $15.4 million; investing cash outflow was $18.3 million, including net purchases of short-term investments; financing cash inflow was $65.1 million, principally from the public offering. Cash and cash equivalents increased $31.4 million during the quarter.
Material changes versus the prior comparable period
- Revenue growth was driven by higher pump shipments and a larger sales network; sales territories numbered 60 at quarter-end.
- Gross margin more than doubled to 23% from 11%. Q1 2014 included approximately $0.3 million of recall-related costs, reducing that period’s margin by about four percentage points.
- Net loss narrowed by $0.8 million, while operating expenses increased by $1.5 million.
- A Q1 public offering of 6,037,500 shares at $11.50 per share generated net proceeds of approximately $64.9 million. Shares issued and outstanding rose to 29.8 million from 23.7 million at year-end 2014.
Outlook, risks, and unusual items
- Management expected available liquidity to meet requirements for at least 12 months, but also expected losses to continue for several years and said additional capital might be needed. No specific earnings or revenue forecast was provided.
- Management expected t:flex U.S. commercial sales to begin in Q2 2015. The company also noted that sales could fluctuate seasonally and that 2015 sales were expected to be weighted toward the second half.
- The $30.0 million Capital Royalty term loan carries 11.5% annual interest, with interest-only payments through December 31, 2019 and principal due March 31, 2020. The debt is secured by company assets. The company reported compliance with covenants at quarter-end; the 2015 minimum annual revenue covenant is $50 million. An additional borrowing tranche expired unused.
- The company completed a voluntary cartridge recall initiated in 2014; the FDA determined it terminated as of December 31, 2014, and Tandem expected no further direct financial impact. The filing cites product reliability, regulatory, reimbursement, competition, manufacturing, supplier, and continued-funding risks.
- No material legal proceedings or material probable and estimable contingencies were reported. Disclosure controls were deemed effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether t:flex launched as planned and gained adequate reimbursement and market acceptance.
- Whether revenue growth, pump shipments, and gross-margin improvements continued beyond Q1, including the impact of distributor mix and production costs.
- Cash burn, available unrestricted liquidity, and the timing or terms of any additional financing.
- Progress toward the $50 million 2015 revenue covenant and continued compliance with loan terms.
- Product quality, warranty costs, and any further regulatory or customer consequences related to the cartridge recall.