Q3 2020 Tandem Diabetes Care Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Tandem's third quarter 2020 earnings call at.
At this time, all participants are in listen only mode.
The speaker presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your Touchtone telephone. Please be advised that todays conference maybe recorded should you require any further assistance. Please press star zero.
I would now like to hand, the conference over to your host SVP and Chief administrative Officer, Susan Morrison Ma'am. Please go ahead.
Thank you good afternoon, everyone and thanks for joining tandem's third quarter 2020 earnings 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.
The risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward looking statements.
Some 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 our other SEC filings.
Q technology once again being featured in the prestigious New England Journal of Medicine. This time with powerful data from our pivotal study with pediatric users and new product launches, including the domestic launch of our first generation mobile app and commencing the international lots of control IQ.
These are all impressive accomplishments under more normal circumstances and are nothing short of extraordinary during these challenging times as we have not yet broadly return to the free COVID-19 practices. For example, our employees who are able to perform their job functions remotely continue to do so at the same time, we continue to practice more stringent pracht precautionary measure.
<unk> for our manufacturing and warehouse employees will have shown unwavering dedication have performed their roles onsite throughout the cramps the pandemic.
And lastly are field based sales and clinical employees in the U S and Canada as state flexible and adaptable as the level of live account and customer interactions fluctuate with COVID-19 Resurges.
The third quarter, we've heard from an increasing number of domestic healthcare providers. So they have begun seeing patients in person, but since telehealth has been a successful option in many practices is likely to remain a lasting offering at some level.
The pace of office reopening as can typically be characterized in three stages.
That remains overwhelmingly positive from experienced Pumpers and people who are converting from multiple daily injection.
Nearly 90% of respondents to our recent customer survey showed that people chose the TMX to for their first pump because of our advanced technology offerings, such as controls Q CGM integration and software updates. This supports our belief that technology that reduces the daily burden of living with diabetes drives therapy adoption.
Our customer centric survey also highlighted the success of our efforts to keep customer experience at the forefront.
Our NPS scores, which already aligned with the high level seen in consumer technology increased by an impressive 12 points over 2019.
In addition, we continue to achieve great success, both in capturing market share and expanding the insulin pump market with approximately half of our new customers reporting conversion from Mds.
This is a metric I'm, particularly proud of as is evidenced that we are seeing success in one of our broader corporate goals to bring the benefits of insulin pump therapy to more people living with diabetes. In fact, we've already achieved nearly 40, 40% of our goal of having 500000 customers using our technology by the end of 2024.
Our TCIL next two with control I Q technology has been a meaningful driver of this year's growth momentum started with a domestic launch in January followed by an expanded age indication in June and then an August feature in the New England Journal of Medicine for a second time more recently new data was presented at the European Association for the study of died.
Which even further supports the clinical efficacy of the control like you algorithm and its optimization into our easy to use T Slim platform.
While held virtually the conference still attracted a large global audience, which was timely following the kickoff of our own us launch of control like Hugh in the UK and South Africa in July by.
By years end, we anticipate control like Q will be available in more than half of the countries outside the United States and look forward to broader availability in the upcoming quarters subject to required regulatory and reimbursement approvals.
They can control acute widely available is fundamental to our goal to increase pump adoption from the 10% to 20% penetration rate, we see in most all us countries today, we've been making steady progress and internationally and look forward to continuing to build our momentum next year.
With 2021, just around the corner, we have been taking the opportunity to review our progress against our longer term strategic goals and fine tune our plans for the year ahead with emphasis on scalability and execution.
Next year is also positioned to be particularly exciting with the planned launch of multiple new offerings.
Tandem has achieved this unprecedented growth based on our ability to rapidly innovate and next year, we'll be prepared to build on that momentum with additional new product offerings, such as our mobile bolus feature for the TCIL next to our new T. sport pump platform and algorithm advancements.
Our apps mobile bolus feature is anticipated to be our first new launch next year, which we plan to offer to our in warranty T. Slim extra customers for no cost we did a metered launch of the first generation of the SAP. This year, primarily in the third quarter and nearly 50000 people now downloaded the app on their Android.
Yes devices.
Overall customers and HCP seven positive about its features but we are continuing to receive customer feedback where people are requesting additional features beyond the display of information and are looking for the ability to program insulin delivery along.
Along these lines, we have recently submitted a five 10-K filing to the FDA for our mobile bolus feature and look forward to delivering what people are asking for to help make their diabetes management easy.
Launch timing for our mobile bolus feature and really any profit that requires agency review, maybe difficult to predict in the upcoming quarters.
The FDA has publicly stating that the review timelines maybe longer than anticipated due to the prioritization of COVID-19 related filings.
That being said we are reviewing our upcoming regulatory strategies to ensure that we are doing everything in our control to help support efficient reviews and bring these new technologies to people, who can benefit from them as soon as possible.
The next product, we look forward to launching next year's T. sport, which is especially exciting as it is our first new form factor since the launch of T. Slim expands our family of insulin pump offerings.
Providing people with the option of using an even smaller pump that is fully operated through a mobile app.
We now plan to file a five 10-K for the mobile App control T. sport pump in advance of a separate filing for Devon dedicated controller. We believe this refined regulatory strategy is the most straightforward and expeditious path to having an app control t. sport offering and although approval timings are difficult to predict we are going to continue to prepare for launch in the second half.
2021.
The third new offering for 2021 that our internal development teams are focused on our features and enhancements to our control like you technology. We are not detailing a feature schedule for competitive reasons, but broadly.
Future enhancements are centered around algorithm refinements that are intended to even further improve clinical outcomes new features for greater personalization and improvements to the overall system usability.
Automated insulin delivery remains a key tenet of our broader strategy to expand the adoption of insulin therapy management.
We have gained invaluable experience since the launch of our first CGM integrated pump in 2015, and our first I'd system in 2018.
As we look to the future. This provides us with a competitive advantage as we further optimize our algorithm and advance our leadership position in insulin therapy management.
Our stacked near term pipeline and the progress that we are continuing to make are great. Examples of the team's commitment to innovation.
We're also working on a number of longer term pipeline initiatives I look forward to providing more color on in the coming quarters.
We are now entering the strongest time of the year seasonally for the domestic pump sales, which is meaningful to our business and to our mission to bring the benefits of insulin therapy management to more people living with diabetes.
While COVID-19 creates a level of uncertainty we remain confident in our updated near term guidance as well as a longer term goals that we set at the beginning of the year, which are stepping stones to even greater accomplishments.
With that I will now turn the call over to Lee.
Thank you John good afternoon, everyone.
Our third quarter results are once again, a demonstration of the strength of our product portfolio and our ability to execute on our plan.
The challenges we have faced this year from Hell take thanks.
Worldwide sales increased 31% on left hand corner to achieve another record quarter of $125 million with 22000 pumps.
We now have nearly 190000 customers in our worldwide installed base.
On a year to date basis, our worldwide sales were 331 million representing 30% Crouse.
Sales change for me you guys continue to be extremely positive profit continuing momentum of our control like your technology domestic.
Domestic touch below third quarter were approximately 18400. This is an increase of 33% over last year and 25% compared to the second quarter, resulting in domestic sales of 108 normal.
Sales for 65% of total profit 70 million, bringing us to over 150000 in warranty customers.
We were extremely pleased that we were able to benefit from access to all United healthcare customers at choir.
For Santa pump purchases this quarter from customers with United Healthcare insurance grew to just over 10% from the 45% we were experiencing in the last few years.
Included in our total pump shipments for the quarter were purchases from approximately 3200 renewing customers.
The 8400 year to date, which now surpasses what we renewed in all of 2019.
75% growth on a year to date basis, it meaningful progress against our growing base of annual opportunity.
The impact this quarter.
There are a number of other moving parts pressuring gross margin this year, which individually are not significant and are more temporary in nature, either due to our current covid operating environment or through anticipated growth leverage these.
These include expansion of our cartridge capacity incorporating a third party manufacturer increased spending to support our digital health product offerings, and COVID-19 risk mitigation measures.
Other factors that have and will continue to influence our gross margin performance from quarter to quarter include changes in product and geographical mix.
Our expectation of achieving a full year 2020 gross margin in the low to mid 50% range is unchanged.
Are adjusted EBITDA margin was 12% of sales in the third quarter, which reflects the sustained trend of reporting positive adjusted EBITDA margin since the fourth quarter of 2018.
This is sequentially double the 6% we reported in the second quarter due primarily to higher sales levels and gross margin improvement.
We continue to focus on investing in initiatives to support our long term strategic plan.
Adjusted EBITDA excludes the impact of non-cash stock based compensation, which declined year over year to $13 million or 10% of sales down from 18% of sales in the prior year at 15% of sales in the second quarter.
We anticipate achieving adjusted EBITDA margins in the low to mid teens as a percent of sales in 2020, which is unchanged from our prior guidance.
We ended the third quarter with $465 million in total cash and investments up from $426 million at the end of the second quarter, which includes $30 million from employee stock plans and warrant exercises as well as $8 million in free cash flow.
In summary, we have increased our 2020 worldwide sales expectations to be in the range of $465 million to $475 million or 28% to 31% growth over 2019.
This includes international sales in the range of $70 million to $75 million.
We continue to anticipate that gross margins in 2020 will be in the low to mid 50% range and adjusted EBITDA margins will be in the low to mid teens as a percent of sales.
With that I will turn it over to the operator for questions.
Going to remind you to ask a question you will need to press star one on your touch tone telephone to withdraw your question press the pound cute.
Please stambaugh, while we compiled the Q&A rushed.
Our first question comes from a long Danielle Uhm, Charlton Oh actually be Leerink. Your line is open.
Hey, good afternoon, guys. Thanks, so much for taking the question congrats on a really strong quarter.
First Avenue Ola.
I just had a question on the the guidance and I. Appreciate the color that you thought you did gave and first of all also not trying to be greedy loved to see the guidance raised but you did put up a very very strong beat in the guidance does imply some deceleration Ah top adjusted basis in queue for so I was wondering if you could talk about you know.
What baked into the guidance I assume there are some covid uncertainty are you baking anything in.
From a you know sort of I guess, there's no real competition coming but just from a sort of slowdown in queue for there's some seasonality we should be thinking of help us understand what taken to that that get you to that comp adjusted deceleration.
Sure Great question, Danielle and I think you hit the nail on the head with a few of them. There. So first I usually like to separate the domestic from the international because they do behaved quite differently and from the domestic perspective, we are still expecting a seasonal climb into the fourth quarter like we've seen in years past just because people are beginning to have met their deductibles and so we do <unk>.
Checked a strong queue for pump season.
With momentum from control like you, but I think one of the most important factors that's really hard to predict these days, it's what's happening with COVID-19, and what kind of impact it will have on the business and so that's D. U S perspective, I will also add we did see a slight did a pent up demand from the United Healthcare Uhm initiation in July <unk>.
And so we are anticipating in the guidance that it will go back to what we had originally indicated which was a low to mid single digit list on the business as opposed to the more than 10% of pumps shipments we saw it in the third quarter Uhm from an international perspective, it's it's some of the same factors first of all there's just a high degree of variability in.
The ordering patterns that come from the international market, but one big Uhm issue there would be COVID-19, and we're starting to hear more so there right now about shutdowns in some of those Geography's. Even then what we're hearing in the U S. Today. So we're just being thoughtful about those activities happening in the fourth quarter, but we still think uhm that it's going to be a really great year, and we're excited where we've come in now even with the.
Covid pandemic out there affecting us.
That is super helpful and I appreciate all that can I just have one follow up though I mean, you guys pivoted, so well and added.
New patients at such a strong right even in the sort of worst of the Covid peak back in Uhm March through May and so I guess I'm wondering do you expect to be able to do a better job in queue for assuming this resurgence continues or is it you should we be thinking about it for the same type of <unk>.
<unk>.
Yeah right now we're reviewing it is pretty much a similar impact and I guess, one other thing to point out that you're looking at how the distribution of the sales spread across the years to keep in mind. When you compare to our history that Q1 had no impact from Covid. So that also has a bit of an effect if you're just looking how it spreads across the year, but there is a great deal of uncertainty and even though we've been.
Billy successful in this environment, it's still uncertain and you know it's anyone's guess at how things will go in the coming months particular Emilia rose quarters.
Got it yep. Thank you so much guidance.
<unk>.
So do you want this question comes from alarm or Steven looking room of Oppenheimer drunk. Your line is open.
Hi does thank you Uhm Judge you mentioned earlier, the feedback that you've gotten so far about the interest in the mobile bullets in in great to hear about the filing can you talk a little bit more about your how you think that that could be a differentiator for you guys. Once approved next year and you know maybe.
How you get the word out to patients either D to see your other means about about that new feature in particular.
Yeah. So that's the most sought after uhm improvement to the current mobile up and go to the market and so we're very excited about it and I think that the real improvement that comes along with the the mobile bolus feature is this the discretion that provides once you have the ability to bullish remotely from a mobile app.
There's really no reason does it take your pump out while you're outside of your home.
Yeah, So that description chewed and I think people are very excited about it and we have you know marketing programs. We are definitely definitely connected to social media a lot of digital media that we interact with them. So we definitely try to get the word out clearly they need to get the device approved first but now as I said, we're expecting to hear.
You're from yesterday, so I'm from the first half of the year.
The P C P community.
And I think that's an important element as well and I think we've mentioned in the past that it's a possibility of using our digital health initiatives to try to get access to that community and provide training and support so I guess as I said, we're investigating we're doing a lot of analysis. We think it's an important area for us to focus on and I think you'll be hearing more in the in the future as we make me.
Progress.
Great Thanks that sort.
Sure thing, they're talking to you.
Thank you. Our next question comes from Travis State of Bank of America. Your line is open.
Okay. My questions just wanted to start out broad level thinking about 2021, you know give it a number of moving parts you have no control like you calms competitive lunches unitedhealthcare just any any general thoughts on how to think about 2021, even if it's broad strokes in the street that 20 per cent growth right now for next year and it just curious if.
That's something that you're you're comfortable with at this point.
Well I would say just to start off Travis that we remain very confident and appearing in teething are are longer term objectives over the next four to five years since we've identified half a million people using our pump technology.
Gross margins in excess of 60% and operating margins. The 20th So I think we feel that we have you know we've made great progress up until this point.
We intend to maintain our leadership position and pump technology with you know the simple intuitive products that we've got and you know the factors that are made a successful up until this point remain in 2021 and beyond and you know those are clearly.
Competitive convergence, we intend expect those to continue and we also believe that as we as we drive new innovative products to the market that we're gonna see continued uptake and penetration in the empty I community renewables are going to be increasingly important part of our revenue stream as as time goes on and.
I think that you know we aren't really excited about our expansion into the L. U S. Community. So you know we think that we.
We have aggressive plans to get to where we said in the 2024 time frame and that's exciting.
For us.
Okay first any any comments on the 20% growth aware.
Next year and one clarification on the T sport timing I I think the language changed from some or 2021 to I think I heard second half 2021, I don't know if that wasn't intentional change in language or if there was a delay there just wanted to double check on that will.
Well, how bout of asset I'll answer the second part first uhm I I would say that the the uncertainty from the F. D. A approval is really what's driving that for us.
We've had conversations with the F D over the last several months and they've been indicating that resources are going to be transitioned from you know the diabetes support community into COVID-19, and so we're just anticipating that there's going to be just longer longer review times.
So that was that was intentional.
<unk> 2021, and we're not giving any classification obviously at this point, we're not uncomfortable with lack of street in <unk> <unk> <unk>.
Say that while we I can I get about the opportunities in front of his John made out they haven't changed from what we've seen in rock surgery. Yeah can we seem to think that you know that we've experienced there and but I'll add that they're supposed to because I'm checking the amount that kind of thing and then I know how to hear will began and can I. Please get closer to that time will be able to get better on color.
Okay. Thanks for taking my question, Congrats yep be talking to you Travis.
Thank you. Our next question comes from Matt Taylor of UBS. Your line is open.
Hi, Thanks, so much for taking my question Uhm.
So the first one I wanted to ask you about just to understand your your risk exposure is could you talk about the relative waiting of your international revenue to somebody's bigger markets that we've seen <unk>.
Restrictive measures put in place and then <unk>.
Moving forward, how how does this impact your.
Expansion timeline to new geographies.
[laughter], Oh, that's going or Uhm timing, you know anything that we should expect program sure. It's it's going quite well I mean, we're working very well with them. It's a good team uhm, we have a good relationship.
It's a it's a complex implementation and that there's many moving parts and and there's multiple teams that are working on this right now so.
So I think that because of the the timing right now we're in the early design process. You know we're still in the planning phase early design. It really makes it difficult difficult for us to sort of to commit the specific timing I'll, just say, it's going well and that will probably be speak more about this in the fourth quarter call early in the spring.
Okay, great. Thanks, so much.
Sure thing.
And then if I remember correctly metro routine the prior authorization no prior off status through that agreement has that impacted uhm your ability to get those patients at all thank you.
Sir Thank you I'll start with the second half nobody has that impacted our that'll be all with the preauthorization requirement, it's routine and we handle that with all the commercial payers on a regular basis.
You know I think that as as you work with the FDA you basically have to identify these changes from a risk based point of view and understand what kind of clinical studies are required to support those and so we are in the process of.
Really here is just to continue to work with sugar mate and take advantage of the great.
Presence have gotten the market in the reputation they do as well.
Thank you. Our next question comes from Jeff Johnson of Baird. Please go ahead.
New England Journal of medical our article that help quite a bit or white papers up quite a bit and that but is it time to start thinking about adding a DTC component here.
And we do have DTC effort, we focus more on the digital side of things and I think you're referring to what a lot of focus on like me, which is that commercial on primetime TV and when we think about the best use of our dollars in order to reach our targeted audience for us in particular, it feels like the digital platforms are the better way to go at this point.
It's going to we're going to continue to.
Use it we get better customer service scores when we actually provide remote training. So its a very positive thing for us as far as trying to sort.
So to quantify the effect I'll, let leave you that Sharon just at a point that that training costs actually are part of our cost of goods sold today impact our gross margin and Jon made the point that we've been looking at remote training opportunities even before the pandemic as one of our gross margin initiatives in order to reach our 60% or better long term target.
With something that we had kicked off I.
I guess one of the silver linings of the pandemic is that it really accelerated that initiative and so we look forward to continuing to see gross margin benefit in the future from it.
The filing itself delayed as well.
For participating you may now disconnect.