Tandem Diabetes Care(US:TNDM)2023-08-03 20:08Part I Financial Information Item 1. Financial Statements The unaudited condensed consolidated financial statements for June 30, 2023, detail financial position, performance, and cash flows, reflecting decreased assets and increased net loss from higher operating expenses and an acquired R&D charge Condensed Consolidated Balance Sheets As of June 30, 2023, total assets decreased to $946.7 million from $1,052.8 million, with total liabilities stable at $617.4 million and stockholders' equity declining to $329.2 million due to net loss Condensed Consolidated Balance Sheets (in thousands) | Account | June 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $764,304 | $849,976 | | Total assets | $946,676 | $1,052,785 | | Total current liabilities | $174,655 | $165,290 | | Total liabilities | $617,442 | $612,838 | | Total stockholders' equity | $329,234 | $439,947 | Condensed Consolidated Statements of Operations and Comprehensive Loss Sales for Q2 2023 decreased to $195.9 million and net loss widened to $35.8 million, while H1 sales decreased to $365.3 million and net loss increased to $159.6 million, largely due to an acquired R&D charge Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Sales | $195,917 | $200,262 | $365,300 | $376,169 | | Gross Profit | $101,735 | $101,946 | $184,642 | $193,039 | | Operating Loss | $(38,808) | $(12,239) | $(166,625) | $(27,577) | | Net Loss | $(35,775) | $(15,056) | $(159,648) | $(29,771) | | Net Loss Per Share (basic) | $(0.55) | $(0.23) | $(2.47) | $(0.47) | Condensed Consolidated Statements of Cash Flows For H1 2023, net cash used in operating activities was $24.6 million, a shift from $20.7 million provided in 2022, with cash and cash equivalents decreasing by $41.8 million overall Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(24,649) | $20,701 | | Net cash provided by (used in) investing activities | $(20,631) | $11,554 | | Net cash provided by financing activities | $3,407 | $11,551 | | Net (decrease) in cash and cash equivalents | $(41,766) | $43,785 | Notes to Financial Statements The notes detail accounting policies, including deferred revenue from the Tandem Choice program, a $14.1 million lease impairment, convertible senior notes, and asset acquisitions of AMF Medical and Capillary Biomedical - The Tandem Choice program, which provides customers a material right to upgrade to the new Tandem Mobi pump, resulted in a deferred revenue balance of $10.5 million as of June 30, 20233738 - In Q2 2023, the company recorded a $14.1 million impairment charge ($11.2 million for right-of-use assets and $2.9 million for fixed assets) after consolidating facilities and ceasing use of its Vista Sorrento lease61 - The acquisition of AMF Medical in January 2023 was accounted for as an asset acquisition, resulting in a $78.8 million charge for acquired in-process research and development (IPR&D) with no alternative future use9697 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 and H1 2023 financial performance, noting decreased sales due to market dynamics and inventory adjustments, significantly increased operating expenses from IPR&D and lease impairment, and strong liquidity with over $507 million in cash and investments Overview and Recent Developments Tandem focuses on diabetes management with its t:slim X2 pump, boasting 437,000 installed units, and recently received FDA clearance for the Tandem Mobi pump, with other pipeline products including t:slim X3 and Sigi Patch Pump - The company's global in-warranty installed customer base is approximately 437,000 insulin pumps as of June 30, 2023110 - The FDA cleared the Tandem Mobi insulin pump in July 2023, which is half the size of the t:slim X2. A limited US release is planned for late 2023, with full commercial availability in early 2024115 - Products under development include the t:slim X3, a tubeless version of the Mobi pump, the Sigi Patch Pump (from the AMF Medical acquisition), and integrations with next-generation CGMs from Dexcom (G7) and Abbott (FreeStyle Libre)119120121125126 Results of Operations Q2 2023 total sales decreased 2% to $195.9 million, and H1 sales decreased 3% to $365.3 million, driven by lower pump shipments and distributor adjustments, while operating expenses significantly increased due to a $78.8 million IPR&D charge and a $14.1 million lease impairment Sales by Geography (in thousands) | Region | Q2 2023 | Q2 2022 | % Change | H1 2023 | H1 2022 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | United States | $142,501 | $145,667 | (2)% | $273,743 | $276,950 | (1)% | | Outside the United States | $53,416 | $54,595 | (2)% | $91,557 | $99,219 | (8)% | | Total Sales | $195,917 | $200,262 | (2)% | $365,300 | $376,169 | (3)% | - U.S. pump shipments decreased 9% in Q2 2023 YoY due to challenging marketplace dynamics and economic conditions impacting purchasing decisions150 - International sales were impacted by a material disruption in distributor ordering patterns in H1 2023 as they adjusted inventory levels following the launch of a centralized European distribution center in late 2022151163 - Operating expenses for H1 2023 were $351.3 million, a significant increase from $220.6 million in H1 2022, driven by a $78.8 million IPR&D expense from the AMF Medical acquisition and a $14.1 million operating lease impairment charge167 Liquidity and Capital Resources The company maintained strong liquidity with $507.2 million in cash and investments as of June 30, 2023, despite net cash used in operating activities of $24.6 million for H1 2023, and expects sufficient capital for the next twelve months - As of June 30, 2023, the company had $507.2 million in cash and cash equivalents and short-term investments173 Summary of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Operating activities | $(24,649) | $20,701 | | Investing activities | $(20,631) | $11,554 | | Financing activities | $3,407 | $11,551 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risks include credit, interest rate, and foreign currency exchange, with its short-term investment portfolio minimizing interest rate impact, and foreign currency exposure expected to grow with international expansion - The company's investment portfolio is subject to market risk, but due to the short-term nature of the instruments, a 10% change in interest rates would not have a material effect183185 - Foreign currency exchange risk is primarily related to operations in Canada, the Netherlands (Euro-denominated sales), and Switzerland. This risk is expected to increase as international operations expand187188 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of June 30, 2023, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective190 - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, internal controls192 Part II Other Information Item 1. Legal Proceedings The company reports no material legal proceedings beyond a consolidated class action lawsuit related to a 2020 phishing incident, which was dismissed but is now under appeal - A consolidated class action lawsuit related to a January 2020 phishing incident was dismissed in Superior Court, but the plaintiffs filed a notice of appeal on March 7, 2023. The company is unable to determine the ultimate outcome or potential loss100 Item 1A. Risk Factors This section highlights material changes to risk factors, emphasizing data privacy, security, and regulatory compliance, including potential IT system breaches, evolving U.S. and foreign data privacy laws, and regulatory requirements for product clearances and recalls - The company faces significant risks from security breaches or disruptions to its IT systems, which could compromise sensitive customer health information and lead to litigation, regulatory action, and reputational harm197198 - The company is subject to stringent and evolving U.S. (HIPAA, CCPA) and foreign (GDPR) data privacy laws, where non-compliance could result in substantial fines, bans on data processing, and other adverse consequences206208211 - Modifications to existing products or new products may require new regulatory clearances (510(k) or PMA), and failure to obtain them could lead to marketing cessation or recalls. The FDA or other bodies can also mandate recalls if safety issues are discovered219222 Item 5. Other Information The company disclosed an inadvertently unfiled amendment to its Certificate of Incorporation, approved in May 2022 to declassify the board, which was subsequently filed on August 1, 2023, with a corresponding bylaw amendment - On August 1, 2023, the company filed a Charter Amendment, previously approved by stockholders in May 2022, to begin the phased elimination of its classified board structure232 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including amended corporate governance documents, the 2023 Long-Term Incentive Plan, and CEO and CFO certifications