Tandem Diabetes Care, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Financial amounts are in U.S. dollars; figures are unaudited. Tandem develops and sells insulin pumps and related supplies, primarily through its t:slim X2 platform.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Sales | $94.7 million | $46.3 million | $253.9 million | $107.7 million |
| Gross profit / margin | $50.7 million / 54% | $21.8 million / 47% | $133.9 million / 53% | $48.3 million / 45% |
| Operating loss | $6.0 million | $15.7 million | $18.9 million | $45.2 million |
| Net loss | $2.9 million | $34.2 million | $27.4 million | $126.3 million |
| Net loss per share, basic | $0.05 | $0.62 | $0.47 | $2.81 |
- Q3 worldwide pump shipments rose 112% to 17,839; nine-month shipments rose 194% to 53,829. Management attributed growth to strong demand for t:slim X2 with Basal-IQ, international sales expansion and a larger installed base driving supply sales.
- Q3 international sales were $15.8 million, compared with $2.5 million a year earlier. Nine-month international sales were $50.0 million, compared with $2.5 million.
- Gross margin improved year over year, with management citing greater production volumes and manufacturing efficiencies. SG&A and R&D also increased as the company expanded commercial and product-development operations; stock-based compensation was a significant expense.
- Operating cash flow was $22.5 million provided in the first nine months of 2019, versus $22.5 million used in 2018. Cash flow included substantial non-cash stock compensation and warrant revaluation adjustments, while receivables and inventory increased.
Balance sheet, liquidity and material changes
- At September 30, 2019, cash and cash equivalents were $46.1 million and short-term investments were $110.9 million, totaling $156.9 million. Management said available liquidity should cover requirements for at least 12 months from the filing date.
- No term-loan borrowings were outstanding; the company repaid its $82.7 million CRG loan in August 2018. Current liabilities were $100.3 million and total liabilities were $125.7 million, including $21.2 million of operating lease liabilities and a $23.3 million warrant liability.
- Inventory increased to $40.7 million from $19.9 million at year-end, and accounts receivable rose to $45.3 million from $35.2 million, reflecting business growth. Property and equipment was $28.1 million.
- Operating cash flow improved year over year, while investing cash outflow was $36.1 million and financing cash inflow was $17.8 million. Financing in 2019 was primarily proceeds under employee stock plans; 2018 included public offerings and loan repayment.
- Net loss improved substantially versus 2018, which included a large warrant revaluation loss, term-loan interest and a debt-extinguishment loss. In 2019, the nine-month warrant revaluation loss was $10.8 million. This is a non-cash fair-value item and can cause reported earnings to fluctuate.
Outlook, commentary and risks
- No formal revenue or earnings guidance is provided in the filing. Management expected U.S. commercial sales of t:slim X2 with Control-IQ in Q4 2019, subject to FDA approval. The company planned to offer the technology to eligible international customers in the second half of 2020, subject to regulatory and reimbursement approvals.
- Management described continued investment in sales territories, customer support, manufacturing capacity and product development. It expected operating expenses to rise with growth and aimed to improve margins and achieve sustained profitability, while cautioning that profitability may not recur consistently.
- In October 2019, Tandem and Abbott announced plans to explore integrated diabetes solutions; a definitive agreement had not been reached and was not assured. The filing also cited positive published Control-IQ trial results.
- Key risks include continued losses and uncertain sustained profitability; intense competition; dependence on t:slim X2 and Dexcom CGM integration; reimbursement limitations, including UnitedHealthcare’s preferred-provider decision; regulatory approval and product-development execution; manufacturing scale-up and supplier constraints; and international expansion. Quarterly results may vary with seasonality, product launches and customer purchasing patterns.
- The company adopted the new lease standard in 2019, recognizing right-of-use assets and lease liabilities. It reported no material legal or regulatory matter for which a loss was considered probable and reasonably estimable, and no off-balance-sheet arrangements. Disclosure controls were deemed effective.
Important facts for investors to verify
- Whether Control-IQ received FDA approval and launched on the expected timeline, and whether adoption and renewal-pump sales support continued growth.
- Whether rising sales translate into durable operating cash generation after changes in receivables, inventory and other working capital.
- Whether gross-margin gains persist as production scales and product mix, warranty costs and international sales evolve.
- How operating expenses, stock-based compensation and warrant revaluations affect reported losses and per-share results.
- Whether the $156.9 million liquidity position remains adequate as the company funds growth, and whether any additional financing would dilute shareholders.
- Progress on the Abbott discussions, international approvals and reimbursement access, alongside supplier, manufacturing and competitive risks.