Tandem Diabetes Care Reports Third Quarter 2016 Financial Results
"For three consecutive years we have offered the #1 rated insulin pump
and maintained a #1 customer service rating1, resulting in
the tremendous growth of our installed base which is now more than
46,000 people," said
In
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Sales and Pump Shipments2 |
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| Three Months Ended | Nine Months Ended | ||||||||||||||
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(in millions) |
2016 | 2015 | 2016 | 2015 | |||||||||||
| GAAP Sales | $ | 12.3 | $ | 15.7 | $ | 55.3 | $ | 43.7 | |||||||
| Impact of Technology Upgrade Program | 8.4 | — | 8.4 | — | |||||||||||
| Non-GAAP Sales2 | $ | 20.7 | $ | 15.7 | $ | 63.7 | $ | 43.7 | |||||||
| Pump shipments | 3,896 | 3,431 | 12,520 | 9,249 | |||||||||||
-
Source: dQ&A
USA Diabetes Connections Surveys, 2013-2016. -
GAAP Sales are determined in accordance with
U.S. Generally Accepted Accounting Principles. Non-GAAP Sales are adjusted for the impact of the Technology Upgrade Program. See the information under the heading "Use of Non-GAAP Measures" in this press release, as well as under the heading "Reconciliation of GAAP versus Non-GAAP Financial Results" in the attached Press Release Exhibit.
Third Quarter 2016 GAAP Results
Pump shipments grew 14 percent to 3,896 for the third quarter of 2016
compared to 3,431 pumps shipped in the same period of 2015. However,
GAAP sales declined 22 percent to
Gross margin was negative 13 percent for the quarter ended
For the third quarter of 2016, operating expenses totaled
Operating loss for the third quarter of 2016 was
Third Quarter 2016 Non-GAAP Results
Sales, adjusted for the impact of the Technology Upgrade Program,
increased 32 percent to
Gross margin, adjusted for the impact of the Technology Upgrade Program,
was 26 percent for the quarter ended
For the third quarter of 2016, non-GAAP operating expenses totaled
Operating loss, adjusted for the impact of the Technology Upgrade
Program, for the third quarter of 2016 was
Cash Balance and Liquidity
As of
2016 Guidance
As a result of the Technology Upgrade Program, the Company is providing
annual financial guidance on a non-GAAP basis, which is consistent with
statements made by the Company in its press release announcing financial
results for the quarter ended
"The short term challenges that we face do not overshadow our
expectations for long term success," said
For the year ending
-
Non-GAAP sales are now estimated to be in the range of
$85 million to$90 million . The Company's prior non-GAAP sales guidance range was$105 million to$110 million . -
Non-GAAP operating margin is now estimated to be in the range of
negative 83 percent to negative 93 percent. The Company's prior
non-GAAP operating margin guidance was negative 52 percent to negative
62 percent. The updated operating margin guidance includes:
-
Approximately
$11.0 million to$12.0 million in non-cash, stock-based compensation expense; and -
Approximately
$5.0 million to$6.0 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. As discussed above, the Technology
Upgrade Program has created and will continue to create unpredictable
GAAP results for its duration due to accounting complexities dependent
on a number of future events and variables that are difficult to
estimate or predict. Due to this accounting complexity, and the
resulting uncertainty, the Company is now providing guidance for the
year ending
These non-GAAP financial measures are 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 sales and operating margin guidance to GAAP sales and operating margin 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
relate to, among other things, the impact of the implementation of the
Technology Upgrade Program, the recent launch of the t:slim X2 Insulin
Pump in a competitive environment and the Company's projected financial
results, including its projected sales and operating margins. The
Company's actual results may differ materially from those indicated in
these forward-looking statements due to numerous risks and
uncertainties. For instance, successful commercialization of the t:slim
X2 Insulin Pump may be negatively impacted by a number of factors
including: lack of market acceptance by physicians and people with
diabetes; the potential that newer products that compete with this
product, or other technological breakthroughs for the monitoring,
treatment or prevention of diabetes, may render this product obsolete or
less desirable; and the potential that the pump purchasing process,
including insurance verification approval for individual customers, may
delay or prevent the sale of the pump. In addition, factors that will
affect the Company's financial results due to the Technology Upgrade
Program include: the mix of pumps sold, the percentage of customers that
choose to upgrade their pump and the upgrade option chosen by the
customers. Other risks and uncertainties include the Company's inability
to manufacture products in commercial quantities at an acceptable cost
and in accordance with quality requirements; the Company's inability to
contract with additional third-party payors for reimbursement of the
Company's products; uncertainty associated with the development and
approval of new products generally; possible future actions of the
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| GAAP CONDENSED BALANCE SHEETS | ||||||||
| (in thousands) | ||||||||
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| 2016 | 2015 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents and short-term investments | $ | 34,078 | $ | 71,106 | ||||
| Restricted cash | 2,000 | 2,000 | ||||||
| Accounts receivable, net | 8,198 | 14,055 | ||||||
| Inventory, net | 22,896 | 17,543 | ||||||
| Other current assets | 3,814 | 2,280 | ||||||
| Total current assets | 70,986 | 106,984 | ||||||
| Property and equipment, net | 17,370 | 15,526 | ||||||
| Other long term assets | 1,978 | 2,215 | ||||||
| Total assets | $ | 90,334 | $ | 124,725 | ||||
| Liabilities and stockholders' equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable, accrued expense and employee-related liabilities | $ | 18,165 | $ | 19,116 | ||||
| Deferred revenue | 9,436 | 1,822 | ||||||
| Other current liabilities | 7,219 | 5,582 | ||||||
| Total current liabilities | 34,820 | 26,520 | ||||||
| Notes payable-long-term | 44,681 | 29,275 | ||||||
| Other long-term liabilities | 5,636 | 5,462 | ||||||
| Total liabilities | 85,137 | 61,257 | ||||||
| Total stockholders' equity | 5,197 | 63,468 | ||||||
| Total liabilities and stockholders' equity | $ | 90,334 | $ | 124,725 | ||||
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| GAAP CONDENSED STATEMENTS OF OPERATIONS | |||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
|
Three Months Ended |
Nine Months Ended |
||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||||
| Sales | $ | 12,293 | $ | 15,716 | $ | 55,336 | $ | 43,730 | |||||||||
| Cost of sales | 13,870 | 10,203 | 41,809 | 30,609 | |||||||||||||
| Gross profit (loss) | (1,577 | ) | 5,513 | 13,527 | 13,121 | ||||||||||||
| Operating expenses: | |||||||||||||||||
| Selling, general and administrative | 20,683 | 19,123 | 63,768 | 58,077 | |||||||||||||
| Research and development | 6,154 | 5,093 | 14,464 | 12,828 | |||||||||||||
| Total operating expenses | 26,837 | 24,216 | 78,232 | 70,905 | |||||||||||||
| Operating loss | (28,414 | ) | (18,703 | ) | (64,705 | ) | (57,784 | ) | |||||||||
| Other income (expense), net: | |||||||||||||||||
| Interest and other income | 34 | 87 | 258 | 247 | |||||||||||||
| Interest and other expense | (1,434 | ) | (969 | ) | (4,177 | ) | (2,791 | ) | |||||||||
| Total other expense, net | (1,400 | ) | (882 | ) | (3,919 | ) | (2,544 | ) | |||||||||
| Net loss | $ | (29,814 | ) | $ | (19,585 | ) | $ | (68,624 | ) | $ | (60,328 | ) | |||||
| Net loss per share, basic and diluted | $ | (0.97 | ) | $ | (0.65 | ) | $ | (2.25 | ) | $ | (2.12 | ) | |||||
| Weighted average shares used to compute basic and diluted net loss per share | 30,627 | 30,040 | 30,471 | 28,504 | |||||||||||||
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, will offer
customers a path to new innovations separate from the typical multi-year
hardware replacement cycle. The Upgrade Program is available to eligible
customers through
Eligibility and Terms*
A summary of the eligibility and terms of the Upgrade Program is provided in the following tables:
|
t:slim Insulin Pump Customers |
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| Offer | Purchase Date | Fee to Upgrade | ||
| Exchange existing t:slim Insulin Pump for new t:slim X2 Insulin Pump |
On or after |
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Purchased prior to |
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t:slim G4 Insulin Pump Customers |
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| Offer | Effective Date | Fee to Upgrade | ||
|
Option A: Exchange Option
Exchange existing t:slim G4 Insulin Pump for new t:slim X2 Insulin Pump |
Effective following the launch of the t:slim X2 Insulin Pump |
|
||
|
Option B: Service Plan
Existing t:slim G4 Insulin Pump will have hardware retrofit and returned with same capabilities as new t:slim X2 Insulin Pumps* |
Effective following |
|
||
*Subject to applicable regulatory approvals of future products. Pricing
terms and conditions for the Upgrade Program are subject to change at
any time, without notice. This offer is not available for customers
under 6 years of age. Offer is not valid for prescriptions reimbursed or
paid under
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 Technology 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 Technology Upgrade Program expires. Any fees received by the Company under the Technology 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 Technology 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. The Company has provided a reconciliation of its non-GAAP financial results to its GAAP financial results, which illustrates the impact of the Technology Upgrade Program.
For the three months ended
| Impact of Technology Upgrade Program | ||||||||||||||||||||
| (in millions) |
GAAP |
Deferrals at |
Recognition |
Upgrade |
Non-GAAP |
|||||||||||||||
| Sales | $ | 12.3 | $ | 8.4 | $ | — | $ | — | $ | 20.7 | ||||||||||
| Cost of sales |
$ |
13.9 |
$ |
1.4 |
$ |
— |
$ |
— |
$ |
15.3 | ||||||||||
| Gross profit (loss) | $ | (1.6 | ) | $ | 7.0 | $ | — | $ | — | $ | 5.4 | |||||||||
| Gross margin % | (13 | )% | 26 | % | ||||||||||||||||
| Operating loss | $ | (28.4 | ) | $ | 7.0 | $ | — | $ | — | $ | (21.4 | ) | ||||||||
| Operating margin % | (231 | )% | (103 | )% | ||||||||||||||||
For the nine months ended
| Impact of Technology Upgrade Program | ||||||||||||||||||||
| (in millions) |
GAAP |
Deferrals at |
Recognition |
Upgrade |
Non-GAAP Results |
|||||||||||||||
| Sales | $ | 55.3 | $ | 8.4 | $ | — | $ | — | $ | 63.7 | ||||||||||
| Cost of sales |
$ |
41.8 |
$ |
1.4 |
$ |
— |
$ |
— |
$ |
43.2 | ||||||||||
| Gross profit (loss) | $ | 13.5 | $ | 7.0 | $ | — | $ | — | $ | 20.5 | ||||||||||
| Gross margin % | 24 | % | 32 | % | ||||||||||||||||
| Operating loss | $ | (64.7 | ) | $ | 7.0 | $ | — | $ | — | $ | (57.7 | ) | ||||||||
| Operating margin % | (117 | )% | (91 | )% | ||||||||||||||||
For the twelve months ended
| Impact of Technology Upgrade Program | ||||||||||||||||||||
| (in millions) |
Rolling |
Deferrals at |
Recognition |
Upgrade |
Rolling 12 |
|||||||||||||||
| Sales | $ | 84.5 | $ | 8.4 | $ | — | $ | — | $ | 92.9 | ||||||||||
| Cost of sales |
$ |
57.5 |
$ |
1.4 |
$ |
— |
$ |
— |
$ |
58.9 | ||||||||||
| Gross profit (loss) | $ | 27.0 | $ | 7.0 | $ | — | $ | — | $ | 34.0 | ||||||||||
| Gross margin % | 32 | % | 37 | % | ||||||||||||||||
| Operating loss | $ | (75.9 | ) | $ | 7.0 | $ | — | $ | — | $ | (68.9 | ) | ||||||||
| Operating margin % | (90 | )% | (74 | )% | ||||||||||||||||
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 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 will reflect any changes in subsequent periods for deferrals made at the time of the initial sale (see Deferrals at Initial Sale above). It will include recognition of amounts previously deferred when actual product upgrades occur. It will 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 will reflect incremental revenue recognized from an upgrade or service fee, if any, and the cost of sales associated with completing that upgrade or service.
The Company expects to begin reporting Recognition of Deferrals and Upgrade Fulfillments in the fourth quarter of 2016. The above summary of accounting treatment represents the Company's current expectations but remains unaudited.
View source version on businesswire.com: http://www.businesswire.com/news/home/20161101006665/en/
Media Contact:
ssabicer@thesabicergroup.com
or
Investor
Contact:
smorrison@tandemdiabetes.com
Source:
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