TNDM 2Q19 Earnings Release

On Aug 1, Tandem Diabetes released the results from their 2Q, and it was quite the blowout!

Here are their revs and EPS…

	Revs (Millions)						
	Q1	Q2	Q3	Q4		Total Revs	Growth
2017	$19	$21	$27	$40		$107	
2018	$27	$34	$46	$76		$183	        71.0%
2019	$66	$93				$159 (Q1/Q2)
	Non-GAAP EPS						
	Q1	Q2	Q3	Q4		Total EPS
2017	-$7.46	-$4.36	-$3.09	-$1.23		-$16.14
2018	-$1.82	-$1.17	-$0.62	$0.06		-$3.55
2019	-$0.40	-$0.03				-$0.43 (Q1/Q2)

And here are their rev, YOY, seq, and TTM growth rates…

	Revs ($Ms)	Seq Rev Growth	YOY Rev Growth	TTM Rev (Millions)	TTM YOY Rev Growth
1Q17	   $19				
2Q17	   $21	            10.5%			
3Q17	   $27	            28.6%			
4Q17	   $40	            48.1%	         	    $107	
1Q18	   $27	           -32.5%	    42.1%	    $115	
2Q18	   $34	            25.9%	    61.9%	    $128	
3Q18	   $46	            35.3%	    70.4%	    $147	
4Q18	   $76	            65.2%	    90.0%	    $183	            71.0%
1Q19	   $66	           -13.2%	   144.4%	    $222	            93.0%
2Q19	   $93	            40.9%	   173.5%	    $281	           119.5%

Quite the acceleration over the past couple years, and they seem to just be getting started! I forget who I heard about this company from first, I think it was someone on this board, or maybe just on a financial website or channel somewhere. I looked into the company and liked what I saw enough to start a position, and have been building it between $60-$70, but the stock has not really shown any appreciation of note, yet, from those levels (but, it’s up almost 30X in the past 18 months, but I wasn’t in then, unfortunately).

Tandem Diabetes Care, Inc., is a medical device company that designs, develops, and commercializes various products for people with insulin-dependent diabetes. The company’s flagship product is the t:slim X2 insulin delivery system that comprises t:slim X2 pump, its 300-unit disposable insulin cartridge, and an infusion set. The roll-out of the t:slim X2 with Basal-IQ technology, increased supply capacity and renewal sales, as well as the international launch, and drives Tandem’s revenues. Basal IQ is an algorithm which stops basal insulin delivery when low blood sugar is predicted (within 30 minutes) and resumes insulin delivery once blood sugar levels start to rise.

Here’s the company release:

http://investor.tandemdiabetes.com/news-releases/news-releas…

Here are some highlights:

- Worldwide pump shipments increased 290 percent to 21,258 pumps from 5,447 pumps
- Sales increased 173 percent to $93.3 million from $34.1 million
- Operating margin improved to negative 2 percent from negative 41 percent
- Adjusted EBITDA improved to 13 percent of sales from negative 29 percent of sales

Regarding their 2019 guidance, Leigh Vosseller (CFO) said the following:

The record growth we achieved in the second quarter has continued to exceed our expectations, the acceleration of our sales growth drivers in recent quarters suggests that the longer-term goals we laid out a year ago may be attainable more quickly than originally anticipated, particularly with the strength of our near-term product pipeline, scaling renewal opportunity and expanding international launch.

They raised expectations as follows:

- Sales are estimated to be in the range of $350 million to $365 million, which represents an annual sales growth of 90 percent to 99 percent compared to 2018. The Company’s prior sales guidance for 2019 was estimated to be in the range of $300 million to $315 million.
- Includes international sales of approximately $55 million to $60 million. The Company’s prior international sales guidance for 2019 was estimated to be in the range of $45 million to $50 million.
- Gross margin is estimated to be approximately 54 percent, compared to 49 percent in 2018. The Company’s prior gross margin guidance for 2019 was estimated to be 52 percent.

Here’s a link to the transcript of their call, there’s so much good info in there, read if you’re interested:

https://www.fool.com/earnings/call-transcripts/2019/08/02/ta…

I’m not any sort of expert in this field but the company really seems to be killing it! If anyone else has looked into TNDM I’d love to hear your thoughts.

They are not valued as highly as our software companies, their EV/S is around 13. They don’t have the same margins, percentage of recurring revenue, etc, but it’s a diversification away from the SaaS/cloud/enterprise companies, but being a medical device manufacturer carriers it’s own risks with that, so do your own DD.

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This looks like a very interesting stock. The sales growth is very impressive and it seems to be trading at a reasonable valuation for that growth - despite rising from about $2 to $62 since the beginning of 2018!

I would think the TAM is quite large so there should be plenty of room to continue growing. But is that growth all organic? Do they have a sustainable advantage over competitors?

Thanks for posting Foodles…

I have been following this one for more than a quarter. I had posted notes here in May.
https://discussion.fool.com/tndm-hyper-growth-medtech-company-34…

It seems like Tandem has been a laggard in the past and still a #3 player but for last two years they have delivered best product in the market and they are seeing sustained over the top growth. And what seems to me, its all organic growth. Just a result of stellar product co-incident with a smaller player (I believe it was a division of J&J) that bowed out of the market enabling Tandem to gain huge huge ramp.

While I really like the growth and I bough large chunk last quarter but I sold later as the price action in the stock for last three months have been anemic and puzzling. Its almost as if the street doesn’t believe they can sustain current revenue, forget the growth.

Price hasn’t changed much in last 3 months… therefore, its gotten cheaper on valuation basis… I did buy back a small position on Thursday AH seeing such a huge ramp.

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Thank you for this great post on TNDM. I have been following this company for about 6 months, and I initiated a position at $59. I started this position after noticing the rapid growth that Foodles has clearly explained. But here is the main reason why I started to invest in this company. Warning: this is anecdotal, and I am not a medical professional.

My wife and my son are both Type I diabetics and use insulin pumps. She uses a Medtronic device and he uses a Tandem pump. Some Type I diabetics choose to continue to give themselves shots rather than use an insulin pump, but I cannot see either of them going back to that. There are two life stages that prompted them to switch to pumps. Before I describe that, though, here is a little background for those not familiar with these devices.

The insulin pump delivers very small doses of insulin through a small tube into the bloodstream at prescribed times. Instead of giving yourself multiple shots throughout the day (usually at meal times), the user simply programs the pump to deliver certain amounts over time. This allows for much better control of the insulin and glucose levels. The pump is roughly 3 inches x 4 inches and clips onto a belt or waistband; it has a small polymer tube connecting the small insulin vial to the person’s body. It has a tiny metal needle that inserts into the skin through which the insulin is delivered.

A second device—separate from the pump—is a continuous glucose monitor. Dexcom (another rapidly growing company) makes these. This device is a little bigger than the size of a quarter coin and sticks with adhesive to a place on the body (arm, abdomen, etc). It has a small sensor that is under the skin and measures the glucose level of the person (which informs the need/amount of insulin that should be delivered). So, instead of having to prick a finger to do a blood test every time you need to know your glucose level (at least several times during the day), the glucose monitor continuously transmits the information to us via a smartphone app to tell us exactly what his glucose level is at all times.

For us, the combination of these two devices is priceless for reasons I’ll explain below.

As I mentioned, there were two life stages that motivated my wife and son to start using a pump. (My wife was diagnosed with Type I as a little girl, and my son was diagnosed at about age 6.) My wife started to use a pump with her first pregnancy. We were told (and I think it’s correct) that it would be much healthier for her and the baby to have the better-controlled insulin delivery that a pump allows. (It was not long ago that they used to tell Type I diabetics not to have children!) She has continued to use pumps through multiple pregnancies. And there are important health reasons why she continued to use a pump even after the pregnancies; it has long term positive health effects.

For my son, though, there is a more immediate, absolutely huge reason for us to use the pump/glucose monitor combination. That is so that my wife and I can get an alert when his glucose level goes below a certain level. If untreated, having that low level can cause a person to pass out, or even have more severe consequences. For a young child without a pump and monitor, he may not be able to express to us when his glucose level changes and, most importantly, he may not be able to do so in the middle of the night while he’s sleeping. But with a pump/monitor system attached, we get alerts on our smartphone when his level gets too low, and we can pretty easily treat the situation. That is a life-changer for us. The only other alternative is to (1) just hope nothing goes wrong while he sleeps, or (2) wake up during the night to prick his finger and do a blood test. I cannot overly emphasize how important that has been for us. I can’t think of another single product in our lives that is a “must have” technology in the way that this is.

Ok, more about Tandem and investment aspects. As I mentioned Medtronic also makes an insulin pump, which my wife uses. I believe there are one or two other companies that make them, but Medtronic and Tandem seem to be the most prevalent. We think the Tandem pump is much better, though. As soon as the insurance will allow her to purchase a new pump, my wife plans to switch to a Tandem device.
Potential downsides: One potential negative to the company as an investment is that at first blush it doesn’t look to have recurring revenues like a SAAS company. But there are a couple of considerations that offset that. First, my estimation is that the market is nowhere near saturated. Based on attending several Type I diabetic conferences, my sense is that pump users are still in the minority of Type I individuals, although that is quickly changing. I think there is a long runway, though, and especially so when you consider the international need still to be satisfied. Add to that the fact that new people are diagnosed every year with Type I diabetes, and that is (unfortunately) a renewing source of customers.

Another consideration: although the pump sales are somewhat recurring (I think a pump lasts a few years), the accessory sales for the pumps are definitely recurring much more frequently. This includes the tubing and related materials that need to be changed fairly often. These materials come from Tandem, too, and they are not inexpensive (gratefully paid for by insurance).
Finally, one aspect I haven’t looked into is whether the pumps are used (or might be used in the future) for Type II diabetics. That population is, of course, enormous.

Another issue to watch is that the technologies are continuously changing for the better. An upcoming change that will at some point be available is a “loop” system. In that type of system, the pump and glucose monitor work together in a more advanced way so that the person doesn’t even need to program the pump to deliver specific amounts of insulin. The loop system instead uses algorithms to determine how much insulin to deliver based on the continual information feed. My sense is that Tandem is in a good place to be a part of that next change, and I believe that is the cutting edge of where these devices are going (in addition to becoming smaller and smaller).

Anyway, I’ve kept my investment relatively modest (less than 5%) because I’m wary of being too biased for an objective assessment of the investment. But now that the market has knocked the price back down, I may consider adding to this position. The growth numbers are just very impressive, and I don’t see them slowing soon.

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trek24… thanks for sharing this personal experience…

Another company in the space is Insulet (PODD) which has been TMF favorite for many years now but they are in <20% growth rate…

The pump + CGM has proven to be life saving for many many young type 1 diabetics… and the next loop software promises to make life “as normal as possible” for all type 1 diabetics… so no question, market is growing and will do so for a long time… i dont know about type II and intensity / relevance for this. However, just with Type I, there is a big potential.

Both Insulet and Medtronics are targeting to release their next gen pump sometime in 2020 if i remember right. That will be subject to FDA approval and after they release it, the adoption may take another year or two to become real competition to TNDM.

So the real question is - can Tandem sustain its lead and therefore rapid fire growth for at-least a couple of more years on a reliable basis. To me the answer seems to be clear YES… but the street reaction to TNDM is puzzling and makes me hold back. Ofcourse TNDM price has run up from $2.5 in the middle of 2018 to sustained above $50 through 2019. but that price accent seems to reflect growth from “left to dead” to “ok, you have good business”. Current rate of growth deserves at-least 2x or may be even 3x of current valuation.

May be the street is now concerned about converting revenue growth to cash flow growth… who knows… i am planning to keep adding as price move upwards… that reduces risk, at the cost of lower overall return but keeps my cost of opportunity low!!

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Here is their most recent presentation on their investor relations page:

http://investor.tandemdiabetes.com/static-files/e2b5c113-563…

(Although it has not been updated yet with the latest blowout numbers from the Q2 earnings release and new guidance.)

They state:

Approximately 1.7 million people live with type 1 diabetes in the United States.

And in the US market, pumps have 30% penetration of T1 diabetics. Also,

Approximately 1.6 million people who live with type 2 diabetes are candidates for pump therapy.

So candidate T2 diabetics in the US take that penetration from 30% to 15% (this is for all pump manufacturues, not just TNDM).

They also state, that of their customers:

90% have type 1.

They say their growth drivers are:

Product pipeline.
Renewals.
Animas conversions.
International.

The Animas conversions will only be a short term catalyst.

And international is stated to be:

Approx 42.5 million people outside the US with type 1 diabetes, ~3 million of which are in our long-term target markets.

I’m not sure why such a small number are in their long term market.

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Posting this to this previous thread so it’s easy to see the initial post I made and the numbers associated with their last ER at the beginning of Aug.

The stock price has stayed range bound from $60-$70 and is currently right in the middle of that range. I’ve continued to add to my position here and plan to continue with the news I saw today. This actually came out last week, but I missed it (darn day job!).

http://investor.tandemdiabetes.com/news-releases/news-releas…

The results demonstrate sustained reductions in hypoglycemia across all groups using Basal-IQ technology, regardless of prior therapy. A specific sub-analysis of t:slim X2 pump users who remotely updated their pump software to Basal-IQ technology revealed a 45 percent relative risk reduction in hypoglycemia and a 71 percent relative risk reduction of hypoglycemic events. The reductions in hypoglycemic outcomes with real-world use exceeded reductions observed in the controlled pivotal study for Basal-IQ technology.

“This data supports the overwhelmingly positive feedback we hear from our customers using Basal-IQ technology and the clinical improvement people often report experiencing after initiating its use,” said John Sheridan, president and CEO of Tandem Diabetes Care.

Sounds to me like their t:slim X2™ insulin pump with Basal-IQ® technology has been performing extremely well!

Just as a reminder, here are their last 6 quarters of rev growth:

Qtr     Rev      QoQ     YoY

1Q18	$27	-32.5%	42.1%
2Q18	$34	25.9%	61.9%
3Q18	$46	35.3%	70.4%
4Q18	$76	65.2%	90.0%
1Q19	$66	-13.2%	144.4%
2Q19	$93	40.9%	173.5%

I expect the current quarter to also be triple digit growth, although I don’t expect it to accelerate from the last quarters’ 173.5% rate, as that would be $126M rev for the quarter and they increased guidance to $350M-$365M for this year at the last earnings release. A large increase from $300M-$315M over previous guidance, so I still think they’re sandbagging and there’s room for a beat and raise in the remaining 2 quarters although I’m sure the rate will start coming down from these nosebleed rates.

And keep in mind that we’re getting this growth with at a quite reasonable PS of “just” 13.

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thanks foodles…

TNDM is absolutely one of the best pickings out there today… most rapidly growing stock in a secular growth market…

Look at those numbers… revenue growing at 173% y/y… and their gross margin is rising from ~35% in 2016 to ~53% last quarter… and FCF is now break-even… they have invested a lot in new factories and demand for their product is ramping both in US as well as international markets…

Even if we assume growth slowing down going forward, TNDM can easily get to $1B / year revenue in couple of years from now. A p/s of 10 in would get you $10B in market cap… >2.5x from current $3.8B market cap…

Only other real competitor is Insulet (PODD) which is technologically behind and still growing at ~20% CAGR… Big name in the market is Medtronics which is farthest behind in terms of product and losing share to both these guys…

I have raised my position to ~10% over last couple of months as we see SAAS valuation correction and market is also warming up a bit to medtech, TNDM is as good as it gets IMO.

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