Tandem Diabetes Care, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing also reports unaudited fourth-quarter results. Tandem develops and sells diabetes-management technology, principally its t:slim X2 insulin pump, related supplies and software.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $702.8 million | $498.8 million |
| Gross profit / margin | $376.2 million / 54% | $260.5 million / 52% |
| Operating income (loss) | $22.7 million | ($8.0 million) |
| Net income (loss) | $15.6 million | ($34.4 million) |
| Operating cash flow | $111.4 million | $24.7 million |
| Cash, cash equivalents and short-term investments | $623.8 million | $484.9 million |
| Convertible notes, principal | $287.5 million, due 2025 | $287.5 million, due 2025 |
Revenue grew 41%. Domestic sales were $524.9 million and international sales were $177.9 million. Worldwide pump shipments rose 41% to 128,312; international shipments more than doubled to 44,995. Pump-related supply sales also increased, supported by growth in the installed customer base.
Operating margin was approximately 3.2%, versus a loss margin of approximately 1.6% in 2020; net margin was approximately 2.2%. The company reported its first profitable full year. Cash used in investing activities was $186.9 million, primarily reflecting purchases and maturities of short-term investments, plus capital expenditures and other investments. The company said available cash and investments should meet liquidity needs for at least 12 months from filing.
Material changes and developments
- Gross margin improved to 54% from 52%, with management citing manufacturing efficiencies, higher production volumes and lower per-unit costs. International product mix partly offset the improvement.
- Operating expenses rose: SG&A increased 28% to $261.5 million, and R&D increased 45% to $92.1 million, reflecting hiring and investment in commercial support and product development.
- Interest expense fell to $6.0 million from $12.8 million, partly due to adoption of new convertible-debt accounting guidance. The 2021 net loss on warrant revaluation was $1.4 million, versus $17.1 million in 2020.
- At year-end, current assets were $811.5 million and current liabilities were $131.9 million. Accounts receivable rose to $110.7 million and inventory to $68.6 million.
- Fourth-quarter revenue increased to $210.0 million from $168.1 million, but operating income fell to $12.7 million from $18.7 million and net income to $10.8 million from $17.0 million.
Outlook, risks and unusual items
The filing provides no quantified revenue or earnings guidance. Management expects ongoing investment in sales and customer support, R&D, manufacturing capacity and new products, and aims to sustain profitability through sales growth, renewals and manufacturing efficiencies. It cautions that operating results may remain variable.
- COVID-19 and supply chain: Management expected impacts to continue into 2022, including unpredictable sales patterns, labor constraints, regulatory delays, higher costs and component shortages. Semiconductor, copper, cartridge and infusion-set availability were identified as concerns.
- Product and regulatory execution: Mobi, t:slim X3, a patch pump, CGM integrations and expanded Control-IQ indications remained in development and require further development and/or regulatory clearances. FDA clearance for a mobile bolus feature was announced in February 2022, after the fiscal year-end.
- Concentration and competition: The two largest distributors represented 21.5% of consolidated sales in 2021. The business depends heavily on t:slim X2 and related supplies, third-party distributors, suppliers and CGM partners.
- Debt and commitments: The $287.5 million senior unsecured notes bear 1.50% interest and mature in May 2025. Supplier purchase obligations totaled approximately $255 million, about $251 million payable within one year. A new San Diego lease carries estimated future base rent of approximately $191.2 million, subject to commencement and other conditions.
- Legal and operational matters: A California class action related to a 2020 phishing incident remained unresolved; the company could not estimate a loss range. A separate employment class action settlement was subject to final approval. An Australian sales suspension was lifted for Basal-IQ pumps in April 2021, with conditions and surveillance obligations.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter was estimation of the $30.4 million product warranty reserve, which depends on replacement-rate and replacement-cost assumptions.
Important facts for investors to verify
- Whether revenue growth and the 54% gross margin are sustainable as product mix, international sales and supply costs change.
- Whether the company can maintain profitability while operating expenses and product-development spending increase.
- Current supply capacity and inventory risks, especially for infusion sets, cartridges and semiconductor-dependent components.
- Progress, timing and required approvals for pipeline products and CGM integrations, including the announced mobile bolus feature.
- Developments in the data-breach lawsuit, employment settlement approval and any regulatory follow-up in Australia.
- Cash needs and potential dilution or cash-settlement exposure associated with the 2025 convertible notes, alongside supplier and lease commitments.