Business context and reporting period
Tandem Diabetes Care, Inc. is a medical-device company focused on insulin pumps and related supplies, principally its t:slim X2 platform, with connected software and automated insulin-delivery features. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Amounts below are in U.S. dollars.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Sales | $179.6 million | $123.6 million | $492.8 million | $330.8 million |
| Gross profit / margin | $96.7 million / 54% | $65.3 million / 53% | $262.5 million / 53% | $170.0 million / 51% |
| Operating income (loss) | $7.7 million | $(1.0) million | $9.9 million | $(26.6) million |
| Net income (loss) | $5.8 million | $(9.4) million | $4.8 million | $(51.4) million |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $91.7 million | $9.4 million |
Q3 sales increased about 45% year over year; nine-month sales rose about 49%. Nine-month diluted earnings per share were $0.07, versus a loss of $0.85; Q3 diluted earnings per share were $0.09, versus a loss of $0.15. Nine-month operating cash flow improved substantially, supported by higher earnings and working-capital inflows, including increases in employee-related liabilities, payables and deferred revenue. Stock-based compensation, a non-cash expense, was $43.7 million for the nine months.
Financial position and material changes
- At September 30, 2021, cash and cash equivalents were $112.4 million and short-term investments were $482.6 million, totaling approximately $595.0 million. Management said this liquidity was sufficient for at least 12 months from the filing date.
- Total assets were $850.3 million; current assets were $754.9 million and current liabilities $119.7 million. Accumulated deficit was $645.4 million.
- Convertible senior notes had $287.5 million principal outstanding and a $281.0 million net carrying amount. The notes bear 1.50% interest and mature May 2025; conversion terms and potential cash settlement obligations may affect liquidity and dilution.
- Net cash used in investing was $110.1 million, largely reflecting purchases of short-term investments, property and equipment, and intangible assets/equity investments. Financing provided $36.0 million, mainly from stock-plan issuances. Cash and cash equivalents increased $17.8 million during the nine months.
- Adoption of convertible-instrument accounting guidance on January 1, 2021 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. It also lowered reported interest expense versus 2020.
Performance drivers and outlook
Management attributed growth to increased pump shipments and a larger installed base driving recurring supply sales. Worldwide pump shipments increased 43% in Q3 to 31,558 and 56% for the nine months to 90,727. International sales grew particularly quickly, supported by the rollout of Control-IQ; international sales were $46.5 million in Q3 and $128.8 million year to date. Management cited manufacturing efficiencies, fixed-cost leverage and increased third-party cartridge production as contributors to improved gross margin, partly offset by product and geographic mix.
The filing provides no quantified revenue or earnings guidance. Management expects continued investment in sales, customer support, research and development, and manufacturing capacity; it seeks sustained profitability through sales growth, renewals, and operating efficiencies, but cautions that profitability may fluctuate. The company reported approximately 296,000 customers in its global installed base and expected to have substantially completed the scaled international Control-IQ launch by Q4 2021, subject to regulatory clearances and approvals.
Risks, contingencies and unusual items
- COVID-19 continued to create unpredictable sales and operating impacts. Q3 pump sales were affected by customer and provider vacations and rising COVID-19 variant infections; healthcare-office staffing constraints and labor shortages also challenged sales, hiring and product development.
- Supply risks include constrained infusion-set availability, below-target inventory of some components, and potential semiconductor and copper shortages. The company relies on a limited number of qualified suppliers and third parties.
- The High Bluff office and research lease covers approximately 181,949 square feet. Its commencement had not occurred by quarter-end; estimated minimum base rent over the initial term was approximately $191.2 million, subject to commencement timing and other factors. Existing lease liabilities were $34.9 million.
- A California putative class action relating to the January 2020 data breach remained pending; the company could not estimate the outcome or loss range. A separate employment class/PAGA matter had agreed settlements, but final approval of the class settlement remained outstanding after quarter-end.
- The company disclosed recent regulatory audits with findings requiring corrective actions. It also noted the prior temporary Australian pump-sales suspension was lifted for t:slim X2 with Basal-IQ subject to conditions; future regulatory restrictions remain possible.
- Management identified competitive, reimbursement, regulatory-approval, product-safety, cybersecurity, supplier, international-expansion and execution risks. It stated that disclosure controls were effective and there were no material quarterly changes in internal control over financial reporting.
Important facts for investors to verify
- Whether sales growth, pump renewals and the installed-base expansion continue, particularly in international markets, and whether distributor ordering variability changes reported results.
- Whether margin improvement is sustainable as product mix shifts, manufacturing capacity expands, and warranty, supply and labor costs evolve.
- Cash conversion and working-capital movements, alongside the $287.5 million notes’ maturity, conversion and potential cash-settlement terms.
- Progress on supply constraints, regulatory corrective actions, the High Bluff lease commencement and cost, and the outcomes of the pending data-breach and employment matters.