Tandem Diabetes Care, Inc.
Q1 2018 Earnings Call Transcript
Published:
- Operator:
- Good day, ladies and gentlemen, and thank you for your patients. You've joined Tandem's First Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference may be recorded. I’d now like to turn the call over to your host, Chief Administrative Officer, Ms. Susan Morrison. Ma'am, you may begin.
- Susan Morrison:
- Thank you. Good afternoon, everyone, and thank you for joining Tandem's First Quarter 2018 Earnings Conference Call. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, product development timelines and financial performance and operating plans, and speak only as of today's date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward-looking statements. A list of factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is highlighted in our press release issued earlier today and under the Risk Factors portion and elsewhere in our most recent annual report on Form 10-K, quarterly report on Form 10-Q and in our other SEC filings. We assume no obligation to publicly update any forward-looking statements whether as a result of new information, future events or other factors. The Company also filed a Form S-3 Universal Shelf Registration Statement today. The focus of this call is to discuss the Company’s financial results for the quarter ended March 31, 2018, in light of that and the SEC rules and regulations. The Company will not be discussing beyond remarks on this call or answering questions about the registration statement. Kim Blickenstaff, Tandem's President and CEO, will be leading today's call. And at this time, I'll turn it over to Kim.
- Kim Blickenstaff:
- Thanks, Susan. And welcome everyone to today’s call. Joining me today is Leigh Vosseller, our Chief Financial Officer. 2018 is off to a strong start with record first quarter sales and meaningful operational progress throughout our business. In addition, we continue to advance our new products under development, including our PMA submission to the FDA in February for the t
- Leigh Vosseller:
- Thank you, Kim, and good afternoon, everyone. Our financial results for the first quarter reinforced that the positive dynamics we experienced in the fourth quarter of 2017 were not just a result of one-time event. They were the beginning of a trend into this year that supports our overall top line growth strategy. Our sales were approximately $27 million, which is an increase of 44% compared to the first quarter of 2017, even with the $1.5 million benefit in 2017 related to the technology upgrade program that was in place at that time. The most significant driver of this growth was a 58% increase in pump shipped to just over 4,400 for the quarter. This is a record number of pump shipments for our first quarter and which is typically the lowest quarter of the year, due to the timing of insurance resets for annual deductibles and copays. This brings us to over 72,000 pumps shipped since inception and just 63,000 in the last four years, which we consider a reasonable estimate of our active installed base. The largest contributing factor to the pump volume growth was the continued demand for our t
- Operator:
- [Operator Instructions] Our first question comes from the line of Rick Wise of Stifel. Your question, please?
- Unidentified Analyst:
- Good afternoon everyone. it's actually Mat Blackman [ph] in for Rick. Thanks for taking the question. Hey, everyone. So, Kim, you touched on international in your prepared remarks. But, I was hoping you could maybe expand on those comments a little bit. And help us think about what Tandem's overall international opportunity could be, let's say in the next 3 to 5 years? And would you hope that over time, international could be, I don't know, 10% to 15% of total Tandem? So, just some help there will be appreciated.
- Kim Blickenstaff:
- Well, certainly, there is a significant share of this market; that’s why you asked. Unfortunately a lot of these markets are so fragmented, but Canada has a big chunk and several of these other countries we're pursuing have a significant chunk for us. So, I'd like to think, 10% to 15% of our revenues could be international, 5 to 10 years down the road, unless our U.S. sales get so big that dwarf that opportunity over there.
- Unidentified Analyst:
- Okay. That's helpful. And then, my one follow-up question, I don’t think we’ve talked about sort of the Tandem sort of sales force service footprint recently. And now particularly that the balance sheet is really well funded, are there opportunities to add more scale there and maybe even drive growth higher, just some thoughts on your footprint in the U.S. and if there are any plans to expand or if you need to expand?
- Leigh Vosseller:
- Sure. This is Leigh. Right now, we have about 70 territories in the field. And in 2018, we’re committed to not expanding the sales force. We feel like we are at right sized for the amount of growth that we’re anticipating this year and next year, but we’ll continue to evaluate as we go forward, if we need to expand in order to drive the topline. Part of our opportunitiess in the future is that we continue to add renewals to our businesses because that’s more of an internal sales, which doesn’t necessarily require a field expansion.
- Kim Blickenstaff:
- Talk about some of our automation of the systems…
- Leigh Vosseller:
- Sure. Kim was suggesting, we also are focusing on different pieces of automation in order to simplify the process. So, anyway so we can leverage the existing people that we have while we continue to grow the topline. So, for us, it’s a leverage story.
- Kim Blickenstaff:
- Yes. It’s just very labor intensive chasing taper, we’re trying to use other people's experiences for a software that might automate more of that.
- Operator:
- Thank you. Our next question comes from the line of Doug Schenkel of Cowen. Your line is open.
- Unidentified Analyst:
- Hi. This is Ryan [ph] on for Doug. Thanks for taking my questions. You noted that you’ll launch Basal-IQ with G5 initially and now expect to launch the G6 shortly thereafter. Just to be clear, I mean, how quickly after the launch could G6 come? Could you get it approved before the start of the important Q4 quarter or is it more likely by the end of year?
- Kim Blickenstaff:
- Well, we're new to this, but I can tell you in general, this reduces the time and regulatory burden for doing this sort of thing, I mean before we would have gone back into the PMA on the G6 and that would have been 12 to 18 months delay. So, this approach of interoperability I think will give it to us this year, we’ll launch as soon as we get approval. I would hope that it is available for that big season in the fourth quarter.
- Unidentified Analyst:
- Got it. And typically, there is -- will there be any additional paper work you'll need to go through from a training perspective or anything like that? I think, we’re used to being able to launch about one month after getting FDA approval. Will you still have that type of lag time or given -- will this one be shorter just because it's already approved?
- Kim Blickenstaff:
- Well, the integration with G5 launched three days later. In terms of the training, the training is a module. Before you can update your pump and have that new software, you have to go through documented training process and actually pass an examination before you then download the software. So, that’s how the training takes place. There will be no sales or field personnel interaction to do these updates, unless there’s a problem of course. So, that's how we’ll do both the Basal-IQ and the Control IQ.
- Unidentified Analyst:
- Got it. And then last one for me, on gross margin, can you give a little bit more detail on how you expect the rest of 2018 to trend? Should we expect it to increase sequentially for the rest of the year? And then, could you give us an update on where your cartridge gross margins are today? Thank you.
- Leigh Vosseller:
- So, gross margin is heavily influenced by the percent of pumps. And as you know, our business is highly seasonal. So, we do tend to expect that the gross margin would increase over the course of the year. And then, as we look forward, we expect to scale steadily to that 55% gross margin target in the back half of 2019. In terms of supplies, overall, pumps are still the highest contributing factor to gross margin. They have the highest percent of sales and the highest gross margin percentage. Supplies are steadily increasing as well. We first broke even in the third quarter of 2016 on a supply basis and that gross margin has steadily increased as well over the quarter since that time. But for cartridges, it’s really a volume story now. We’ve created a lot of efficiencies in the process. So, as we continue to add volumes, we’ll continue to see improvement in gross margin.
- Operator:
- Thank you. Our next question comes from J.P. McKim of Piper Jaffray. Your line is open.
- J.P. McKim:
- Thank you. Thanks for taking my question. I wanted to first ask just on international and whether you’ll need to get I guess CE Mark first and then timing around that and then whether these distributors will need to stock up certain amount and make sure they can service their customers and whether do you think that will happen this year?
- Leigh Vosseller:
- Sure. So, for international in particular, it’s expected to be a year of building, it’s not necessarily expected to have a significant contribution to the top line. But we do need CE Mark first of all, which we expect to have this quarter and we’re also awaiting approval from Health Canada. So, those are the first factors to be able to ship in those markets. And I’ll just add that the people that we’re partnering with on a distribution basis outside of the U.S., have a lot of experience in these market. And so, we have a high expectation that they’ll be able to start the process and will run very smoothly when they are able to ship.
- J.P. McKim:
- Got you. And then, I wanted to dig in Kim on the comments around the iCGM comparability and it seems like it’s going to present an advantage for you guys in terms of time to market is obviously accelerated. So, I know you don’t want to get into the details, specifically but -- I mean, how does it work? Because you also run on a separate trial, like you would have had before. But if a competitor doesn’t have a CGM that fits into that category, they would start to just continue running those another PMA trial, so how it is?
- Kim Blickenstaff:
- Yes. My understanding, unless you get this iCGM designation, you’ll be going in the old PMA route, so to speak. That’s our best understanding. So, this allows us -- I mean if you look at our history of integrating with Dexcom, they have the G4 and we were a year behind that integrated with the t
- J.P. McKim:
- That makes sense. Are you worried about the gap in between your Basal-IQ and before the G6 compatibility gets there with you guys?
- Kim Blickenstaff:
- No, I am not. I think, that gap is manageable. And I don’t there’ll be anything in the market that’s going to disrupt us in terms of launching the Control IQ then later on next year. So, I think what we're getting with Basal-IQ, it's going to be very, very competitive, especially when you pair with no fingersticks on the G6. The competitive system has 4 calibrations a day and fingerstick at every meal. And so the burden is high. So, it’s a real advantage.
- J.P. McKim:
- And then, the last one for me is just on the discontinuing of t
- Leigh Vosseller:
- So, t
- Operator:
- Thank you. Our next question comes from the line of Steven Lichtman of Oppenheimer & Company. Your question please.
- Steven Lichtman:
- Thank you. Hey, guys. Just wondering if you could give us how you're envisioning international expansion over the next couple of years. Obviously, you've had a nice steady cadence of some press releases on distribution agreements. Do you see it being pretty targeted in terms of the countries you’re going to go after, or should we expect a lot more expansion over the next 12 to 24 months? And if so, what are some of the key countries that you see as opportunities for you guys?
- Leigh Vosseller:
- Sure. So, at this time, we're not going to go into the specific countries that we're looking at. But, we are being opportunistic. And we are evaluating where we think there is the largest opportunity that was left available to us by the Animas exit from the market. So, we'll evaluate whether the reimbursement makes sense to us. So financially and strategically if it fits into what we're looking for. And it's to be seen. So, we have moved into this international market, we're doing this very quickly, maybe even ahead of what we had originally anticipated. But, it was an opportunity that we couldn’t pass that with Animas leaving the market. So, there is a lot more to come as we think about that in the future, its impact on the financials and how we’ll look in terms of our long-term picture.
- Kim Blickenstaff:
- Yes. I'd add, some way Animas exit is sort of pulling us into this because they’re leaving distributors behind who don't have a product as competitive to Medtronic. And they're leaving healthcare systems behind, because there is no competition in the durable pump market, and everybody wants that. So, it's a good situation. But again, as we said, we're going to look at this from a financial responsibility and not go in a market where we’ll lose money obviously.
- Steven Lichtman:
- Got it. Thanks. And then, Leigh, you mentioned sequentially OpEx lower, both on cash and non-cash perspective. And from a cash perspective, can you walk through some of the things that you guys have been able to achieve to keep that burn down?
- Leigh Vosseller:
- Sure. So, it actually was slightly up on a cash basis, but we have just continued to be very prudent in managing our expenses. So, for instance, our headcount constraint. [Ph] So, we haven't really seen any increased in headcount year-over-year. In fact on the SG&A side, I think we're actually down 4%. And so, it’s mostly just managing the headcount levels. And then, looking for as Kim mentioned earlier, opportunities to streamline the business in terms of automation and software where we can reduce the people burden.
- Steven Lichtman:
- Got it. Thank you. And then, lastly, relative to ADA, I wonder if you can give us a sneak peek in terms of data presentations or anything else that we should be thinking about coming up in June?
- Kim Blickenstaff:
- No, we really haven't released that. In fact, some of the stuff that our people working on, we are not involved in. So, I don't know who's getting into poster session or whatever. It’s one of the things we're -- you just have to get that book and scan through and see what comes out.
- Operator:
- Thank you. Our next question comes from the line of Jason Bednar of Baird. Your line is open.
- Jason Bednar:
- Good afternoon, everyone. Just a couple from my end, just starting on the renewals side. Are you seeing any progress just being made and accelerating that renewal process for customers, as you just gain more experience and going after that -- those cohorts?
- Leigh Vosseller:
- Yes. So, our ultimate goal is still to get to a 70% retention rate for our existing customers, but we’re still new to the process and it’s early. So, we’re seeing this as steady scale up, it’s not going to slip overnight. It’s more like a marathon than a sprint. And so, we do have a dedicated internal team focused on retention and renewal. And we’re pleased with the progress to-date and we expect to continue to scale up over time.
- Jason Bednar:
- Thanks, Leigh. Is there any timing of brackets you could give us on how to think about when we might get to that 70%? Is that a one to two-year process, a three-year process or just anything you might think about internally you could share?
- Leigh Vosseller:
- So, right now, again, we’re still evaluating some different hurdles that we experienced as we entered into this process, where last year we had the competitive disadvantage with all the factors that were happening in the market. And then, here we are in the first quarter having a typical seasonality period. So, still more to come. As we learn, we’ll try to give more color into our expectation as when we’ll get there. But, we’re still talking to those customers from 2013, we have many in the queue that we were working on and trying to move them through the process.
- Jason Bednar:
- Okay, makes sense. And then, Kim or Leigh, just on Form 483 that’s sitting out there, any update or insight you can provide on the status of that observation?
- Kim Blickenstaff:
- So, we have had discussions with the FDA. And so, we have resolved that. One of the resolutions that we have a very minor recall. We’re recalling 55 pumps from a timeframe a few years ago. And so, it’s very small population. We don't believe that there is -- people actually feel that we’re just mitigating the risk that is out there, but otherwise now we closed out with 483.
- Jason Bednar:
- Okay. So, fully clear and no other outstanding Form 4583s that out there, correct?
- Kim Blickenstaff:
- No.
- Leigh Vosseller:
- That’s correct.
- Jason Bednar:
- Okay, all right. Perfect. And then, just one last one for me just on the international side and just building on something you said previously there, Leigh. International might be ramping maybe a bit quicker, but is it fair to think that it’s fairly low OpEx and cash requirement for Tandem as you’re absorbing this faster move in your -- that you referenced in your operating margin guidance? And then, any additional color you might be able to provide on how to think about the cost and going into incremental markets here over the course of 2018 and 2019?
- Leigh Vosseller:
- Sure. We’re managing those expenses closely. So, in the market outside of Canada, we’re going in on a distribution basis only, which means that they are taking on the customer technical support, the insurance clarification, [ph] the fulfillment responsibilities. And so, a lot of OpEx that -- to support those customers is actually being pushed over to the distributors themselves. And then, from a Canadian perspective, we’re looking at that on a direct basis, but we feel like we can leverage our infrastructure here in the U.S. just because of proximity. So, we’re committed to managing those expenses within our normal OpEx. And we have stated earlier in the year that we are able to keep those at less than 10% growth from ‘17 to ‘18.
- Operator:
- Thank you. At this time, I'd like to turn the call back over to Kim Blickenstaff for any closing remarks. Sir?
- Kim Blickenstaff:
- Thanks, Latif. Next up we’re going to be at two investor conferences in the month of May. On May 8th, we’ll presenting at the Deutsche Bank Conference in Boston; and then, the following week, we’ll be in Las Vegas at the Bank of America Merrill Lynch Healthcare Conference. So, you’ll have an opportunity to talk to us then. So, thanks again, everyone. We had a big crowd to dance, nice to see everyone coming back, and we look forward to keeping you updated in July when we report our results for the second quarter. Thanks for listening.
- Operator:
- Thank you, sir. And thank you, ladies and gentlemen. This concludes today’s conference. Thank you for your participation and have a wonderful day.
Other Tandem Diabetes Care, Inc. earnings call transcripts:
- Q1 (2024) TNDM earnings call transcript
- Q4 (2023) TNDM earnings call transcript
- Q3 (2023) TNDM earnings call transcript
- Q2 (2023) TNDM earnings call transcript
- Q1 (2023) TNDM earnings call transcript
- Q4 (2022) TNDM earnings call transcript
- Q3 (2022) TNDM earnings call transcript
- Q2 (2022) TNDM earnings call transcript
- Q1 (2022) TNDM earnings call transcript
- Q4 (2021) TNDM earnings call transcript