Tandem Diabetes Care Reports 2016 Financial Results
"More than 50,000 people have chosen a Tandem insulin pump,
approximately half of whom reported being new to pump therapy,
demonstrating that in only 4 years we are rapidly achieving our goal of
bringing the benefits of pump therapy to more people with diabetes,"
said
In
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Sales and Pump Shipments1 |
Three Months Ended | Twelve Months Ended | |||||||||||||||||
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(in millions) |
2016 | 2015 | 2016 | 2015 | |||||||||||||||
| GAAP sales | $ | 28.9 | $ | 29.1 | $ | 84.2 | $ | 72.9 | |||||||||||
| Impact of Technology Upgrade Program | (4.1 | ) | — | 4.3 | — | ||||||||||||||
| Non-GAAP sales1 | $ | 24.8 | $ | 29.1 | $ | 88.5 | $ | 72.9 | |||||||||||
| Pump shipments | 4,418 | 6,234 | 16,938 | 15,483 | |||||||||||||||
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1) |
GAAP Sales are determined in accordance with
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Year and Fourth Quarter 2016 GAAP Results
Pump shipments grew 9 percent to 16,938 for the year ended
Pump shipments declined 29 percent to 4,418 for the fourth quarter of
2016 compared to 6,234 pumps shipped in the same period of 2015. GAAP
sales declined 1 percent to
-
the recognition of
$0.7 million of sales in the fourth quarter of 2015 that were deferred from the third quarter of 2015 in conjunction with a limited exchange program, -
the recognition of
$5.4 million of sales in the fourth quarter of 2016 that were deferred from the third quarter of 2016 as a result of the Technology Upgrade Program, offset by$1.4 million of deferrals relating to shipments in the fourth quarter of 2016, -
pent up demand for the t:slim G4, which launched in
September 2015 and substantially increased pump shipments in the fourth quarter of 2015, -
UnitedHealthcare's decision restricting most of their members who are
over age 18 from having a choice among insulin pumps, which went into
effect
July 1, 2016 and negatively impacted pump shipments during the second half of 2016, - a more competitive market as a result of the Company's commercial launch of t:slim X2, as well as new regulatory approvals and product launches by competitors in the second half of 2016, and the corresponding impact on consumers' decision-making, and
- distributors' ordering patterns in advance of and following the Company's new product launches.
Gross margin for the year ended 2016 was 28 percent compared to 36 percent for the year ended 2015. Gross margin was 35 percent for the fourth quarter of 2016 compared to 46 percent for the same period of 2015. In addition to a number of the factors discussed above, comparisons of the GAAP gross margin for the full year and fourth quarter of 2016 to the same periods of 2015 were also impacted by:
- the timing of sales and cost of sales recognition associated with the Technology Upgrade Program, including the actual cost to fulfill approximately 1,400 upgrades in the fourth quarter of 2016,
- an excess and obsolescence charge relating to raw materials inventory used exclusively in the production of t:slim G4 pumps, due to the substantial decline in sales of t:slim G4 following the Company's announcement of the planned commercial launch of t:slim X2, and
- a shift in product sales mix due to an increase in pump supply sales relative to pump shipments in 2016.
For the year ended 2016, operating expenses totaled
For the fourth quarter of 2016, operating expenses totaled
Year and Fourth Quarter 2016 Non-GAAP Results
Non-GAAP sales, adjusted for the impact of the Technology Upgrade
Program, grew 22 percent to
-
pent up demand for the t:slim G4, which launched in
September 2015 and substantially increased pump shipments in the fourth quarter of 2015, -
the negative impact on pump shipments during the second half of 2016
as a result of UnitedHealthcare's decision that went into effect
July 1, 2016 , - a more competitive market as a result of the Company's commercial launch of t:slim X2, as well as new regulatory approvals and product launches by competitors in the second half of 2016 and the corresponding impact on consumers' decision-making, and
- distributors' ordering patterns in advance of and following the Company's new product launches.
Non-GAAP gross margin for the year ended 2016 was 32 percent, adjusted for the impact of the Technology Upgrade Program, compared to 36 percent for the year ended 2015. Non-GAAP gross margin was 31 percent for the fourth quarter of 2016 compared to 46 percent for the same period of 2015. In addition to a number of the factors discussed above, comparisons between the year and fourth quarter of 2016 and 2015 non-GAAP gross margin were impacted by:
- an excess and obsolescence charge relating to raw materials inventory used exclusively in the production of t:slim G4 pumps, due to the substantial decline in sales of t:slim G4 following the Company's announcement of the planned commercial launch of t:slim X2 in the fourth quarter 2016, and
- a shift in product sales mix due to an increase in pump supply sales relative to pump shipments in 2016.
For the year ended 2016, non-GAAP operating expenses totaled
For the fourth quarter of 2016, non-GAAP operating expenses totaled
Cash Balance and Liquidity
As of
2017 Guidance
As a result of the Technology Upgrade Program, the Company is providing annual financial guidance on a non-GAAP basis. It is difficult to estimate or predict the Company's GAAP financial results because it is difficult to estimate or predict the timing and rate of customer utilization of the Technology Upgrade Program. As a result, it is not currently possible for the Company to provide GAAP financial guidance, or to provide a reconciliation of GAAP guidance to non-GAAP guidance, with any degree of certainty. In the future, the Company expects to continue to provide its operating results on both a GAAP and non-GAAP basis. For additional information regarding the Technology Upgrade Program and a reconciliation of the Company's GAAP financial results to its non-GAAP financial results, please see the attached Press Release Exhibit.
For the year ending
-
Non-GAAP sales are estimated to be in the range of
$100 million to$107 million - Non-GAAP sales for the first quarter 2017 are estimated to be 15 percent of annual sales
-
Non-GAAP operating margin is estimated to be in the range of negative
70 percent to negative 65 percent, which includes:
-
Approximately
$11.0 million in non-cash, stock-based compensation expense -
Approximately
$6.0 million to$7.0 million of depreciation and amortization
-
Approximately
Conference Call
The Company will hold a conference call and simultaneous webcast today
at
Use of Non-GAAP Financial Measures
The Company presents certain non-GAAP financial measures in this press
release, including historical and projected non-GAAP sales and operating
margin, to provide information that may assist investors in
understanding its financial results, assessing its prospects for future
performance and allowing for a meaningful comparison of projected
results to historical results. The Technology Upgrade Program discussed
above has created and will continue to create unpredictable GAAP results
for its duration. This is principally due to accounting complexities
associated with the program that are dependent on a number of future
events and variables that are difficult to estimate or predict. Due to
these accounting complexities, and the resulting uncertainty, the
Company is providing guidance for the year ending
These non-GAAP financial measures will be used internally by the Company to analyze its operating performance and prospects for future performance for the duration of the Technology Upgrade Program. The principal limitation of these non-GAAP financial measures is that they do not necessarily reflect, and may not be a good estimate of, the amount that will actually be recorded in the Company's financial statements in accordance with GAAP. The non-GAAP financial information and guidance is not intended to be considered in isolation or as a substitute for, or superior to, financial information and guidance prepared and presented in accordance with GAAP. To the extent the Company utilizes such non-GAAP financial measures in the future, it expects to calculate them using a consistent method from period to period. Because of the difficultly in estimating the accounting impact from the Technology Upgrade Program, the Company cannot provide a reconciliation of non-GAAP financial guidance to GAAP financial guidance with any level of certainty and without unreasonable efforts. However, the Company has provided a reconciliation of its historical GAAP financial results to its historical non-GAAP financial results under the heading "Reconciliation of GAAP versus Non-GAAP Financial Results" in the attached Press Release Exhibit.
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Forward Looking Statement
This press release contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that
concern matters that involve risks and uncertainties that could cause
actual results to differ materially from those anticipated or projected
in the forward-looking statements. These forward-looking statements
include statements regarding, among other things, the impact of the
implementation of the Technology Upgrade Program, the Company's
projected financial results, including its projected non-GAAP sales and
non-GAAP operating margins, and the Company's strategic opportunities
for long-term success, including the anticipated
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| CONDENSED BALANCE SHEETS | |||||||
| (in thousands) | |||||||
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| 2016 | 2015 | ||||||
| Assets | |||||||
| Current assets: | |||||||
| Cash and cash equivalents and short-term investments | $ | 53,538 | $ | 71,106 | |||
| Restricted cash | 2,000 | 2,000 | |||||
| Accounts receivable, net | 11,172 | 14,055 | |||||
| Inventory, net | 21,195 | 17,543 | |||||
| Other current assets | 4,187 | 2,280 | |||||
| Total current assets | 92,092 | 106,984 | |||||
| Property and equipment, net | 18,409 | 15,526 | |||||
| Other long term assets | 1,891 | 2,215 | |||||
| Total assets | $ | 112,392 | $ | 124,725 | |||
| Liabilities and stockholders' equity | |||||||
| Current liabilities: | |||||||
| Accounts payable, accrued expense, and employee-related liabilities | $ | 19,325 | $ | 19,116 | |||
| Deferred revenue | 5,208 | 1,822 | |||||
| Other current liabilities | 6,943 | 5,582 | |||||
| Total current liabilities | 31,476 | 26,520 | |||||
| Notes payable—long-term | 78,960 | 29,275 | |||||
| Other long-term liabilities | 7,883 | 5,462 | |||||
| Total liabilities | 118,319 | 61,257 | |||||
| Total stockholders' equity | (5,927 | ) | 63,468 | ||||
| Total liabilities and stockholders' equity (deficit) | $ | 112,392 | $ | 124,725 | |||
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| CONDENSED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||
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| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Sales | $ | 28,912 | $ | 29,120 | $ | 84,248 | $ | 72,850 | ||||||||
| Cost of sales | 18,847 | $ | 15,662 | 60,656 | 46,270 | |||||||||||
| Gross profit | 10,065 | 13,458 | 23,592 | 26,580 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | 19,067 | 20,558 | 82,834 | 78,621 | ||||||||||||
| Research and development | 4,344 | 4,121 | 18,809 | 16,963 | ||||||||||||
| Total operating expenses | 23,411 | 24,679 | 101,643 | 95,584 | ||||||||||||
| Operating loss | (13,346 | ) | (11,221 | ) | (78,051 | ) | (69,004 | ) | ||||||||
| Total other expense, net | (1,491 | ) | (862 | ) | (5,411 | ) | (3,404 | ) | ||||||||
| Loss before taxes | (14,837 | ) | (12,083 | ) | (83,462 | ) | (72,408 | ) | ||||||||
| Provision for income tax expense (benefit) | (15 | ) | 10 | (15 | ) | 10 | ||||||||||
| Net loss | $ | (14,822 | ) | $ | (12,093 | ) | $ | (83,447 | ) | $ | (72,418 | ) | ||||
| Net loss per share, basic and diluted | $ | (0.48 | ) | $ | (0.40 | ) | $ | (2.73 | ) | $ | (2.50 | ) | ||||
| Weighted average shares used to compute basic and diluted net loss per share | 30,866 | 30,168 | 30,570 | 28,923 | ||||||||||||
Press Release Exhibit
Summary of Technology Upgrade Program and
Associated
Reconciliation of GAAP versus Non-GAAP Financial Results
Program Overview
In
The t:slim X2 Insulin Pump features new hardware advancements, including
a two-way Bluetooth® wireless technology radio for communicating with
more than one external device at a time. The Company expects these
advancements, together with the Company's future anticipated use of the
Tandem Device Updater to deliver remote software updates for the t:slim
X2, will offer customers a path to new innovations separate from the
typical 4-year insurance pump replacement cycle. The Upgrade Program is
available to eligible customers through
Accounting Treatment Overview
Pursuant to applicable GAAP
revenue recognition standards, revenue is recognized when the product is
delivered or when an obligation is fulfilled, among other requirements.
Under the Upgrade Program, eligible customers will be provided the
opportunity to receive a t:slim X2 Insulin Pump or a hardware retrofit
at a future date. This creates potential future obligations for the
Company that prevent the full recognition of revenue and cost of sales
at the time of the customer's initial purchase of an insulin pump, which
results in a deferral of revenue and cost of sales on the Company's
financial statements. The deferrals will generally be recognized at the
earlier of when the obligation for such upgrades and services are
fulfilled or when the Upgrade Program expires. Any fees received by the
Company under the Upgrade Program and the Company's cost of fulfilling
the associated obligation will also be recognized at that time.
Reconciliation of GAAP versus Non-GAAP Financial Results
Due
to this high degree of accounting complexity, which is dependent on a
number of future events and variables that are difficult to estimate or
predict, the Upgrade Program creates unpredictable GAAP results for the
duration of the Program. To aid investors in better understanding the
Company's performance and minimize potential confusion when comparing
its current and future results to historical results, the Company has
provided non-GAAP financial information in the accompanying press
release, in addition to providing GAAP financial information. In the
following tables, the Company has provided a reconciliation of its GAAP
financial results to its non-GAAP financial results, which illustrates
the impact of the Upgrade Program:
For the three months ended
| Impact of Technology Upgrade Program | ||||||||||||||||||||||||
| ($ amounts in millions) |
GAAP |
Deferrals at |
Recognition |
Upgrade |
Non-GAAP |
|||||||||||||||||||
| Sales | $ | 28.9 | $ | 1.4 | $ | (5.4 | ) | $ | (0.1 | ) | $ | 24.8 | ||||||||||||
| Cost of sales | $ | 18.8 | $ | 0.3 | $ | (1.0 | ) | $ | (1.1 | ) | $ | 17.0 | ||||||||||||
| Gross profit (loss) | $ | 10.1 | $ | 1.1 | $ | (4.4 | ) | $ | 1.0 | $ | 7.8 | |||||||||||||
| Gross margin % | 35 | % | 31 | % | ||||||||||||||||||||
| Operating loss | $ | (13.3 | ) | $ | 1.1 | $ | (4.4 | ) | $ | 1.0 | $ |
(15.7 |
) | |||||||||||
| Operating margin % | (46 | )% | (63 | )% | ||||||||||||||||||||
For the twelve months ended
| Impact of Technology Upgrade Program | ||||||||||||||||||||||||
| ($ amounts in millions) |
GAAP |
Deferrals at |
Recognition |
Upgrade |
Non-GAAP |
|||||||||||||||||||
| Sales | $ | 84.2 | $ | 9.8 | $ | (5.4 | ) | $ | (0.1 | ) | $ | 88.5 | ||||||||||||
| Cost of sales | $ | 60.7 | $ | 1.8 | $ | (1.0 | ) | $ | (1.1 | ) | $ | 60.4 | ||||||||||||
| Gross profit (loss) | $ | 23.6 | $ | 8.0 | $ | (4.4 | ) | $ | 1.0 | $ | 28.1 | |||||||||||||
| Gross margin % | 28 | % | 32 | % | ||||||||||||||||||||
| Operating loss | $ | (78.1 | ) | $ | 8.0 | $ | (4.4 | ) | $ | 1.0 | $ | (73.5 | ) | |||||||||||
| Operating margin % | (93 | )% | (83 | )% | ||||||||||||||||||||
Non-GAAP Accounting Definitions
1) Deferrals at Initial Sale - The Company
has deferred sales and cost of sales for eligible pump shipments in the
quarter and year ended
Deferral Treatment for Eligible Shipments on or After
| Product | Sales Deferral | Cost of Sales Deferral | ||||
| t:slim Insulin Pump | 100% of each sale as a right of return. | 100% of the manufacturing cost as a right of return. | ||||
| t:slim G4 Insulin Pump | A portion of each sale as a guarantee liability. | No deferral. |
2) Recognition of Deferrals - This reflects any changes in subsequent periods for deferrals made at the time of the initial sale (see Deferrals at Initial Sale above). It includes recognition of amounts previously deferred when actual product upgrades occur. It will eventually also include a reversal of any remaining deferrals when the program expires for customers who did not elect the upgrade or service options.
3) Upgrade Fulfillments - This reflects incremental revenue recognized from an upgrade or service fee, if any, and the cost of sales associated with completing that upgrade or service. Approximately 1,400 upgrade fulfillments occurred in the fourth quarter of 2016, when the t:slim X2 Insulin Pump became available. At that time, the Company commenced reporting Recognition of Deferrals and Upgrade Fulfillments.
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Media Contact:
ssabicer@thesabicergroup.com
or
Investor
Contact:
smorrison@tandemdiabetes.com
Source: Tandem Diabetes Care®, Inc.
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