Tandem Diabetes Care, Inc.
Q3 2017 Earnings Call Transcript

Published: 28 Oct 2017

[Operator:]

Good day, ladies and gentlemen, and thank you for your patience. You've joined the Tandem Diabetes Care Third Quarter 2017 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:]

Thanks. Good afternoon, everyone, and thank you for joining Tandem's Third Quarter 2017 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. In addition, today's discussion will include references to a number of GAAP and non-GAAP financial measures. Non-GAAP financial measures are provided to give our investors information that we believe is indicative of our core operating performance and reflects our ongoing business operations. We believe these non-GAAP financial measures facilitate better comparisons of operating results across reporting periods during 2016 and during 2017. For additional information about our use of non-GAAP financial measures, please see the information under the heading Use of Non-GAAP Financial Measures in our press release. 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:]

Thank you, Susan. Hello, everyone, and thank you for joining us on today's third quarter earnings call. With me today is John Cajigas, our Chief Financial Officer. A lot has happened since our last call. Overall, our key accomplishments since the beginning of the year have strengthened our confidence for Tandem's future success. During the quarter in particular, we, number one, received FDA approval for t

[John Cajigas:]

Thanks, Kim. Good afternoon, everyone. Different from prior earnings call, today, I'll devote most of my prepared comments to providing color on our Q3 results and how we see our improved competitiveness translating into our expected performance in Q4 and in the future. Many of the key GAAP and non-GAAP metrics I've previously provided on earnings call can be found in today's press release or in the 10-Q. As a reminder, our non-GAAP results are adjusted from our GAAP results by excluding the impact of our Technology Upgrade program, which was initiated in July 2016 and expired on September 30, 2017. We believe that looking at our operating results on a non-GAAP basis provides useful information when comparing to our financial results for periods prior to Q3 2016. You can find a reconciliation of our GAAP results to our non-GAAP results as an exhibit to today's earnings press release. Moving on to our results. Starting with sales. I was proud to see both a sequential and year-over-year increase in Q3 sales after experiencing year-over-year decreases during the first and second quarters of 2017. Our Q3 GAAP sales were $27 million compared to $21.3 million in Q2 2017 and $12.3 million in Q3 2016. Our non-GAAP sales were $23.7 million this quarter compared to $21.3 million in Q2 and $20.7 million in Q3 2016. For Q3, our sales were impacted by a number of unique factors. We received FDA approval for our t

[Operator:]

Thank you, sir. [Operator Instructions] Our first question comes from the line of Tao Levy of Wedbush.

[Tao Levy:]

Okay. Thanks. Good afternoon.

[Kim Blickenstaff:]

Hi, Tao.

[Susan Morrison:]

Hi, Tao.

[Tao Levy:]

So maybe we could start off with -- the fourth quarter we've always looked at as potentially being the first real quarter where you start to get a nice tailwind from replacements. And I know, last quarter was a little bit too early to comment on what you've seen. And I was wondering if, by now, you've seen any indication regarding the replacement cycle?

[John Cajigas:]

I think it's still relatively early. I think from what we've seen, I think we're happy with where we are. But the true test will be how the fourth quarter plays out and have enough information there to see how people react to our new product offerings and so forth.

[Tao Levy:]

Got you. And so far, I guess, through the quarter, have you seen any difference in sort of the insulin pump market dynamics, in terms of the sort of, I guess, customer behavior? Are they waiting longer on their pump? Are they staying on a pump off-warranty for a longer period or so far, through October, obviously barring what's going on -- what happened to Animas, the customer base is acting like you'd expect in the fourth quarter?

[Kim Blickenstaff:]

Well, we can't really give you October yet, but I can tell you, it's definitely a different dynamic from last year. I think the prolonged Medtronic launch of the 670G has frustrated many of their patients. We do know from their earnings call that they had a big miss here in the U.S. So something is going on with their renewals. The 630G is a part of that priority access to the 670G. So that's information we know publicly from their conference call. But I would say, it's a totally different environment from last year. I think if the market is beginning to fall, we're hearing that from a lot of different sources. I said the call volume that we talked about after the Animas exit was pretty overwhelming. So, we hope for a very good fourth quarter.

[John Cajigas:]

And I'll add the activity we've seen in our sales pipeline since the end of the quarter has been very good. I think there's a lot of that excitement towards the G5 launch that we have and what the Tandem Device Updater has done over the last month and how that has impacted people's decision-making.

[KimBlickenstaff:]

Yes. And a leading indicator, Tao, is referrals. And we have definitely seen progress out of that hurricane disruption sequentially every month.

[Tao Levy:]

Okay. And then just lastly, obviously, given the challenges in the marketplace, how has the stability of your sales force been? And how many territories you actively have? And has it been a large number of churn sort of in your sales force? And that's it. Thanks.

[Susan Morrison:]

Yes. We own about 70 territories and I'd say that the turnover rate has been very low for our sales reps in particular. I think people were excited about the upcoming and now launch of the t

[Operator:]

Thank you. Our next question comes from Matt O'Brien of Piper Jaffray.

[JP McKim:]

Hi, good afternoon. This is JP on for Matt. Thanks for taking the question. I just wanted to start with just the -- is there any way you could sort of quantify the increase in call volume or pipelines that you've seen thus far in Q4? I'm trying to just -- what gives you the confidence in kind of the updated guidance for Q4? Is there any numbers that you could share with us on that front?

[Kim Blickenstaff:]

We haven't. It's too early. We'll definitely give you the information when we report the fourth quarter because we'll have it. But obviously, it's sort of early. We've got another week left in the month and we got 2 more months, which are generally the 2 biggest months of the quarter, especially November, December. So I'd say, it's too early to give the quantitative. But qualitatively, we're overwhelmed in the call center.

[John Cajigas:]

Yes. I would say that trajectory of the sales pipeline has increased dramatically from earlier in the year. And I think it's a factor of the products we have offered and brought to market as well as how the Tandem Device Updater has been received.

[JP McKim:]

On the international front, is there -- how quickly could you get to Canada or what's -- I know, I think you said the end of this year, but I'm just trying to understand what needs to be done to go that way.

[Kim Blickenstaff:]

Well, there's definitely some regulatory things that have to be done. There's some language issues. We need 2 languages, French and English. We have a timeline, and we'll give you more information I think on that by that next call. But we're trying to get there in 2018 as early as we can because there is an opportunity there. There's a real vacuum left by the Animas exit, and they're looking for choice there too.

[JP McKim:]

Got it. And then last one for me. I think you said a third have upgraded thus far. Was that surprising to you? Would you expect -- or that -- about a third of customers are using Dexcom, that's kind of where you thought would be the first ones to upgrade or would you have expected more to upgrade by now?

[KimBlickenstaff:]

No. We always have suspected from what we knew and what Dexcom knows that about 30% to 35% of insulin pump users are using CGM. So that upgrade was about in line with what we would have expected. We never thought 50% would do it. But a 30% upgrade in a software route, even for Android and Apple, I mean, that's considered to be very high rate. So, we were very pleased with what we saw. The speed with which it's happened was fairly amazing. I mean, I think we're largely done in 2.5 weeks of having that approval and launching that on that following Tuesday.

[JP McKim:]

Got it. Thank you for taking the questions.

[Kim Blickenstaff:]

Sure.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from Ryan Blicker of Cowen. Your question please.

[Ryan Blicker:]

Thanks for taking my questions. Can we just start with the SG&A, it declined $2 million quarter-over-quarter. Can you comment at all on what actions you guys took to drive that operational improvement and how we should think about that line moving forward?

[John Cajigas:]

Well, a lot of our comps are associated with employee-related comps, so we spent a fair amount of time sort of scrutinizing those comps as we move forward. We also have some physicians that have left the company and we looked at those very closely, whether or not we could cover the responsibilities with the existing infrastructure we have today. So that's a fair amount of it. Also there's also a fair amount of discretionary cost and programs as we looked at and looked at ways to look at better returns and better efforts of deploying our cash. So I think that has been sort of the key aspect of it. I think as we move forward, again, we'll be continuing to look at the employee-related cost and managing that as well as capital expenditures and discretionary expenses.

[Ryan Blicker:]

Got it. And then, maybe moving back to the revenue line. You guys have talked about a notably higher new patient funnel after the launch of G5 just by integration and the Animas exit. But your Q4 guidance does seem to suggest that the proportion of total year sales in Q4 is about in line with what we've seen historically. Are you seeing an increase in the new patient funnel above and beyond what you've seen historically or is it more along with typical seasonality?

[John Cajigas:]

I think there's the typical seasonality. I think there is some excitement that's driving the pipeline because of the G5 integration product being on the market now.

[Kim Blickenstaff:]

As well at the Animas exit. I mean we're hearing that qualitatively in the field. We're hearing it from our people in our phone center that we're having Animas customers who are calling in. And they may still be in warranty, but they're entering into our system to be contacted as they come off of warranty. So we're sort of building a bank of potential sales for the future, but there's no question that this is -- there's been a real change in the activity level, especially, between a year ago this quarter and this quarter. As you know, last year, the last 2 quarters of the year were affected by the whole 670G and we missed our targets there. But, we're definitely seeing that increase we would expect to see.

[Ryan Blicker:]

Got it. And then last one for me and I apologize if I missed this, but -- and I know it's difficult, but is there any way to quantify the weather impact in the quarter? And should we expect any lingering effect as we move into the fourth quarter? Thank you.

[John Cajigas:]

I would say that's very difficult. I think, with the launch of the t

[Kim Blickenstaff:]

Because there definitely was a dip in referrals, if you look at that month day-by-day, you could see when the hurricanes hit. And I think that lingered around about 6, 7 days and that kind of a period. But that's in our results. So, we really can't quantify it.

[John Cajigas:]

Yes. And as far as an ongoing affect, there's obviously going to be some folks that are affected by the hurricane that are going to have to deal with other expenditures in their life that buying a pump might take a backseat too. So I think we recognized that and I think that's an expectation we have. But again, that's not the full impact to the entire country.

[Operator:]

Thank you. At this time, I'd like to turn the call back over to Mr. Blickenstaff for any closing remarks. Sir?

[Kim Blickenstaff:]

Thanks very much. Just want to give you an update on some of our investor meeting activities. In November, we'll actually be at two health care conferences both in New York. The Stifel conference is on November 14. We present then and we'll be taking meetings with investors. On November 29, we'll be at Piper Jaffray, which is two weeks later also in New York City, and we're arranging meetings there and presenting on the 29. So, we look forward to accumulating a bit more experience in the next 60 days and keeping you apprised during the next conference call of our progress here in the fourth quarter. We're expecting to have good results and a good start to next year with all that's going on in the marketplace. So thanks for being on the call and listening to our progress.

[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.