Q2 2022 Tandem Diabetes Care Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Thank you for standing by and welcome to Tandem's second quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.
As a reminder, today's program is being recorded and now I'd like to introduce your host for today's program, Susan Morrison Executive Vice President Chief Administrative officer. Please go ahead.
Good afternoon, and welcome to Tandem's second quarter 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.
Right.
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 <unk>.
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 adjusted EBITDA, which is a non-GAAP financial measure.
Adjusted EBITDA as a key measure used by us to evaluate operating performance generate future operating plans and make strategic decisions for the allocation of capital. Please refer to our press release issued earlier today for further information.
Our call today will be led by John Sheridan, our president and CEO and he'll be joined by Brian Hansen, Our EVP and Chief commercial officer, and Leigh Vossler, our EVP and Chief Financial Officer.
Following their prepared remarks, we'll open up the call for questions. Thank you in advance for limiting yourself to one question and one follow up before getting back into the queue I'll now turn the call over to John .
Thanks, Susan and thanks, everyone for joining today's call.
Looking back at the first half of 2022, I am proud of the team's performance and the progress we're making throughout the business.
More than 375000 people using the T. So next two and more than 20 countries worldwide. We are delivering on our mission to provide a positively different experience for people living with diabetes.
The highlights of Q2 standout as exceptional.
They were achieved in a more challenging operating environment compared to recent years, our progress and our ability to navigate new headwinds to our business is a direct result of the passion and drive of our talented employees. We thank for their continued efforts.
The highlights for this quarter reflect our continued leadership position in automated insulin delivery technology.
We also saw steady sequential growth in the number of new customers purchasing a pump from tandem once again, expanding global demand for the teasel next to and meaningful product development and operational progress.
More recently, we have also advanced a number of key strategic initiatives such as the last months U S launch of our mobile bolus feature that we offer through the App store on both iOS and Android smartphones.
Our establishing the commercial and operational framework to begin distribution through our European third party logistics provider and our acquisition of a developer capillary biomedical.
These were all achieved while we were navigating a few macro and industry related dynamics, which align in three major groups.
First the continuation of global pandemic related pressures that have fluctuated throughout the past two years. These include an array of things from Covid case rates to endocrinology office staffing shortages and absenteeism.
Next is the anticipated dynamic of competition in the United States.
This is in line with our expectations as is something we've seen with historical new product launches, including our own when new technologies entered the market.
And lastly is the evolving economic environment, including inflation and the threat of recession. Our data suggests that this dynamic began impacting new customers decision to purchase a pump beginning in the second quarter.
This is primarily a factor in the U S.
The United States, it's mitigated by the predominance of government health care plans.
To better reflect these dynamics, we reduced our 2022 sales guidance by 2%.
As these challenges dissipate, we look forward to returning to more normalized growth patterns that are driven by the strength of our technology today and the new product offerings, such as the launch of <unk> and new CGM sensor integration.
We remain confident that we'll achieve our long term growth and profitability objectives and in our ability to continue expanding the insulin pump market by providing new innovations and best in class customer care.
Bryan Hanson has spent much of the last quarter in the field and I'd like to ask him to provide some commercial perspective on Q2.
Ed.
Thanks, John overall, the second quarter was both an exciting and busy one as many of our industry trade shows take place during this period.
The feedback I continue to hear about Houston next two is overwhelmingly positive and very consistent our T. X. Two continues to receive strong accolades for its ease of use reliability and for control IQ is differentiated clinical performance.
It's a product we can stand behind and we've set a high bar in automated insulin delivery.
In fact, the recent data presentations demonstrated that our control IQ technology is a great equalizer, bringing benefit to all populations.
We're also seeing an increasing number of investigator led studies and highlight its benefits for people who may not have been considered good candidates for pump therapy in the past.
Impressive data was also recently featured in the diabetes technology and Therapeutics Journal, demonstrating the real world success of people in the Medicare and Medicaid populations with type one and type two diabetes using control IQ.
This will be particularly helpful. As we advance our longer term managed care initiatives for control IQ.
The strength and consistency of control IQ is positive clinical outcomes is substantially linked to its automated correction bolus feature.
Let me take a minute to explain the significance of this feature as a different aig's manufacturer did not use consistent terminology for how the algorithms work.
Control IQ is differentiated clinically compared to other Aig's systems as an addition to modulate and that continuous insulin delivery rate. We're also able to automatically give larger amounts of insulin if needed.
It's like having two different knobs to turn and as the feature that allows our control IQ technology deliver immediate and sustained improve outcomes even in people with the most poorly controlled diabetes.
In addition to our clinical benefits I think the overall ease of use and customer experience. We provide are why we continue to see an increasing number of our customers choose tandem once again when they become eligible for pump reimbursement in fact, our renewals have grown approximately 40% compared to Q2 last year, which is an encouraging trend as our total.
Renewal opportunities scales across the year.
The feedback on our software update ability also continues to differentiate tandems offerings.
We are showcasing these benefits now with our recent mobile bolus launch in the United States.
T Slim <unk> customers are now able to deliver insulin using their iOS or Android app on more than 30 different personal smartphones.
We're also able to include continuous improvement solutions in these updates providing even more enhanced benefits to our customers.
Prior to the launch of mobile bolus, we often thought of it as more of a cool feature offering both convenience and discretionary benefits what's been impressive to hear people describe it as a game changer and that it makes living with diabetes less burdensome.
One customer captured it perfectly.
Its advancements like these that may not seen huge but the effects they have on us our life changing.
We launched mobile bullets at an opportune time as we enter the latter part of the year when the typical timing of year end deductible resets drives purchasing decisions.
In fact in the past few years between 30% to 35% of domestic pump shipments took place in Q4.
We expect this will again be the case in 2022, but it's a different commercial environment than it was a year ago.
<unk> insight on the dynamics, we're navigating we recently did a sales management survey of our team.
The direct and indirect impacts from COVID-19 continue to be cited as having a negative impact throughout the second quarter.
In the United States, and Canada, our sales in critical field teams have been exceptionally flexible and successfully adjusting to the layers of the pandemic is complexity.
So youre seeing their health care providers less frequently compared to prior to the pandemic and when they do it's often virtual.
We have resource our organization to support the continued use of virtual technology, including training and have also invested in enhancing and streamlining the patient onboarding and supplies reordering experience.
Outside the United States. Our distribution partners are also experiencing the same COVID-19 related headwinds that they have the past few years, but continue to execute very well.
Control IQ is available on all the countries, we serve worldwide and has met with the high levels of customer enthusiasm that we see here in the United States.
As a result, we are seeing growth across all countries, which was reflected in our meaningful increase in year over year pump placements.
This demand is somewhat masked by the lumpiness of the sales patterns, which continue to get disrupted due to ordering and supply chain timing.
To help address this and in support of our distribution partners, we laid the commercial and operational groundwork as well as the it infrastructure and the first half of this year to begin working with a third party logistics provider in the Netherlands.
We expect to scale, our utilization of their services in the upcoming quarters in support of our growing international distribution network.
Maintaining warehousing operations in Europe over time, it will help to even out ordering patterns as the unpredictability and timing for order and receive the product will be mitigated.
It's the type of solution, we're putting in place today to provide longer term benefit to our business as we're still in the early stages of our efforts outside the United States.
And that's market dynamic we began to experience this quarter was competition in the United States and was in line with our expectations noise from new Aig's system launch has been anticipated for more than a year. However, the exact timing was dependent on its pace of rollout and availability.
This is the dynamic we've seen multiple times in the past, including in advance of our own control IQ launched two years ago.
It's a broad based pressure across all new U S market segments, which is consistent with what we've seen previously and is likely why our source of new customers. In Q2 remained about half MDI have competitive conversions.
Storage lease the disruption from new system launches last for a few quarters following product availability.
The best way for us to combat the interim noise is twofold.
Because by doing what we do best by leaning into promoting the strength of our current offerings are unique features of control Iq.
This is a large and underpenetrated market and there is not a one size fits all solution and pump therapy <unk>.
It's through innovation, which we're delivering on with the recent launch of our mobile bolus feature and through our upcoming new product launches, which John will discuss.
The last dynamic as the economic environment, which quickly became a significant in the second quarter, where it was not in Q1.
Accordingly, we saw a meaningful increase in customer utilization of our extended pump payment plans in Q2, which were much higher than we've ever seen historically.
As a mission driven company our goal is to offer solutions. So that the cost of therapy management does not prevent people from getting the technology they need.
In support of this goal, we will be rolling out an enhanced pump payment plan in Q3.
The out of pocket cost to a patient can vary significantly through insurance and we are designing our plan to provide for payment options as low as $50 a month.
Durable pumps typically provide customers as well as payers are lower cost of therapy over the four year warranty period.
Which may increasingly become a factor for people purchasing in today's economy.
It also helps with retention as there is low ongoing cost to customers for their supplies.
We'll be watching their broader economic environment closely and continue to look for ways to make therapy management more affordable for our customers.
With that I'll now turn the call back over to John .
Thanks, Brian .
The basin remains key to tandem's growth ambitions and our teams are continuing to identify new ways to bring benefit to the diabetes community.
<unk> is our next new technology and the pipeline is particularly exciting as it will be the first novel form factor launched in our space since we introduced the T Slim a decade ago.
It's fully control through our mobile App and we're utilizing the same technology and regulatory building blocks that are foundational to our mobile bolus feature.
<unk> is about half the size of the T slim and with it we will be launching a four inch infusion set the shortest set offered in the insulin pump industry and a great option and providing our customers choice and flexibility.
There's a lot of excitement building at tandem for the introduction of <unk>. We are in the final stages of testing as well as drafting the submission and intend to submit a 500 10-K to the FDA this quarter through the ace pump pathway.
This regulatory strategy allows for <unk> to be integrated with interoperable CGM as well as our algorithms like control IQ without additional regulatory review.
While development and regulatory timelines are difficult to predict we are preparing for clearance in the first half of 2023 launch.
<unk> planning activities are underway and we are fine tuning our manufacturing processes with scalability in mind.
CGM integration work is another top priority for us and continues to progress well with both our CGM partners <unk> comment Abbott.
Our development teams interactions with both organizations are active and frequent.
They each progress towards bringing their future technologies to market through the <unk> pathway.
Our goal is to commercially launch in the U S. Within three to six months following the receipt of the FDA ICBM clearance.
Turning to our clinical work, we have a number of active studies underway to bring the benefits of our control IQ technology to more people living with diabetes, all are progressing well and a few highlights since the last call include in.
Enrollment for our type two feasibility study for control IQ is now complete.
The extension phase for the pediatric trial using control IQ as recently wrapped up and data will be compiled over the next few months to support regulatory filings to pursue an age indication for children and younger than six years old and lastly, we've now initiated a study using control IQ with Luna, Jeff to expand the insulin indications and provide additional.
Additional choice to our customers.
As we discussed at our R&D day at the end of last year. We are also working to advance our global digital health initiatives as well as innovations that improve our customers overall experience with the solutions we provide.
Our recent acquisition of capillary biomedical is a great example of this and they are developing unique extended wear infusion set technology.
<unk> provide people flexible options.
One pump wearability and the administration point of insulin into the body is critical for all therapy management systems.
Through this acquisition and through our efforts with existing infusion set partners, we plan to provide our customers with an even greater choice and personalizing their therapy management system.
I'll conclude by summarizing that the T Slim <unk> with control IQ remains the leading product in a market with large and growing demand.
It's an exciting time as we launched mobile bolus, while continuing to make tremendous progress towards multiple new product launches.
We look forward to the broader headwinds society, but even in this interim period, we remain confident in the talent of our team. The service, we provide as well as the technology and solutions, we offer the diabetes community.
With that I'll now turn the call over for Lee Lee.
Thank you John .
<unk>, we've been able to consistently demonstrate record quarterly fail and we achieved this milestone once again in the second quarter.
Fundamentals of our business remain intact.
Worldwide, we shipped 32000 pumps and generated $200 million in sales in the quarter, which is a sales growth rate of 16% over the prior year.
This was largely driven by continued strong retention of our worldwide installed base, which is 40% higher compared with last year driving over half of our sales from recurring revenue sources.
On a year to date basis sales grew 20% to $376 million.
Beginning with the U S market sales grew 14% to $146 million in the second quarter.
<unk> sales grew 35% year over year remaining consistent with our expectations and reflecting high customer retention of more than 265000 people in our U S installed base.
We shipped 21000 pumps, which was in line with the same period last year. It was a much healthier environment than in the first half of 2021, making the year over year comp more difficult.
Typically we see pump demand build across the months within each quarter as well as in the quarters across the year. However, Q2 did not materialize in the same way as it has historically and that pressure continue through July .
Our shipments this quarter grew sequentially from the first quarter by 12%, despite increasing economic pressure that we exited the second quarter.
Our second quarter sales outside the United States for $55 million, representing 23% growth over last year. This includes a 70% increase in supply sales year over year, largely driven by the 67% growth in our U S installed base, which has now reached nearly 110000 people.
As anticipated pump shipments to distributors outside the U S were down year over year, considering the second quarter of 2021, with our highest shipment quarter ever due particularly to timing of distributor orders last year.
As Brian mentioned, the fluctuations, we see in shipments to distributors do not correlate to underlying patient demand.
Box shipments out the door were down the number of pump placements on patients in the <unk>.
Sales for the first half of this year versus the prior year, reflecting continued steady improvement in patient demand for control IQ.
We expect we will begin to see closer alignment of shipments out the door to placements on patients.
The launch of our European distribution center in the coming quarters.
Turning to the outlook since the beginning of the year, we have factored pandemic and competitive related pressure in to our guidance based on what we have experienced historically.
We feel that the results today are largely in line with those expectations.
And the economic environment and its impact on consumer purchasing behaviors as a new dynamic that we began experiencing in the second quarter and even more so as we enter Q3.
We think it's prudent to be cautious about the U S environment for the remainder of the year.
Before we have reduced our 2022 worldwide sales expectations by 2% to a range of 835 million to 845.
Representing growth year over year of 19% to 20%.
This breaks down into an adjusted range of $620 million of 625 million in the U S. While we are maintaining our range of $215 million to $220 million in the markets outside the U S.
U S shipments in Q3 are expected to remain relatively in line with Q2.
Shipments outside the U S are expected to get from the impact of the typical European holiday season, which was already factored into our original guidance for the year.
After the rest of the P&L, we felt positive gross margin contribution from improvement in both labor and overhead rates from manufacturing efficiencies offsetting the impact of product mix with a continuing tailwind from higher average selling prices.
The higher Asp's reflects further progress on our long term initiatives to shift the higher percentage of U S sales through direct channels, which increased to 35% of sales this quarter up from 32% last year.
This progress with masks in our overall gross margin of 51% due to the new pump sales pressure, we discussed as well as the higher cost of raw materials.
In recent quarters, we have in certain circumstances relied on alternative higher cost sources of particular raw materials to reduce the risk of near term component shortages.
In the second quarter. These increased costs negatively impacted our gross margin by more than two percentage points, which was slightly higher than we originally anticipated coming into the year.
We applied our operations team for successfully navigating this environment and ensuring that we have been able to meet our inventory and production goal.
Additionally, we continue to incur higher freight costs associated with increased steel cost and global supply chain pressures more generally.
Based on the change in sales expectations for the year and the near term incremental cost. We are taking the same cautious approach and reducing our 2022 gross margin guidance to a range of 52% to 53%.
Moving on to other key profitability measures operating margin was negative 6% in the quarter and our adjusted EBITDA expanded to a positive 6% of sales compared to the first quarter of 4%.
The change from adjusted EBITDA, 14% in the prior year is reflective of multiple factors.
Significantly we continue to prioritize investment in our R&D programs, which are critical to achieving our long term product development goal.
R&D spending was up five percentage points compared to the prior year at 17% of sales.
Taking into consideration, our adjusted sales expectations and the acquisition of capillary biomedical we now anticipate that R&D will settle in at approximately 17% of sales for the full year.
Our SG&A spending growth compared to the prior year includes expansion of our field sales team from 95 to 110 territory and our customer support team for our growing installed base.
Well, it's higher travel costs are increasing in person interaction.
Also we recently took possession of and began improvements on a facility that will house, our new technology and innovation Center.
This will ultimately replace more than 70000 square feet of existing lease space that.
We will vacate in mid 2023.
In the second quarter. This resulted in $3 million of redundant facility cost and we anticipate the full year incremental cost will be approximately $10 million.
Do you lean initiatives and careful review of discretionary spending remain underway as we optimize our customer support infrastructure their operational efficiencies and digital solution.
These optimization programs combined with significant gross margin expansion are the primary drivers for operating margin leverage in the long term.
Our full year expectation for adjusted EBITDA is now approximately 11% of sales due primarily to our change in gross margin expectation and the impact of our capillary biomedical acquisition.
Our balance sheet remains strong with $635 million in total cash and investment which has increased $12 million from the end of 2021.
Capital expenditures increased to $15 million in the first half of this year, primarily to support facility improvements and manufacturing capacity expansion.
Anticipate capital expenditures for the full year will be approximately $40 million.
In the second quarter, we also entered into a $100 million line of credit agreement as a matter of routine corporate governance and to provide further flexibility in pursuit of our strategic initiatives.
<unk> have been drawn against the facility.
To summarize our 2022 outlook worldwide sales are estimated to be in the range of 835 million to $845 million, including international sales of $215 million to $220 million.
We estimate gross margin for the year will be in the range of 52% to 53% of sales and adjusted EBITDA will be approximately 11% of sales.
Our noncash P&L charges for stock compensation, depreciation and amortization are expected to be approximately $100 million.
$85 million is associated with noncash stock compensation at $15 million with depreciation and amortization.
We remain confident in our longer term goal is to reach an installed base of 1 million customers worldwide in 2027, and meaningfully expand our gross and operating margins. Despite the near term headwinds.
We're already nearly 40% of the way to our installed base target satisfaction and demand for our T. Slim <unk> with control IQ remains high and our exciting R&D programs that are necessary to deliver on our future growth ambitions remain on track.
With that I will turn it over to the operator for questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your touch I'm, Sorry Star one one on your telephone and our first question comes from the line of Steve Lichtman from Oppenheimer. Your question. Please.
Hi, Thanks, John .
John I was wondering if you could talk a little bit more about the economic headwinds that you noted.
Based on what Youre hearing from the field.
Are people not going to pump at all seeing on MDI are you seeing a shift to more toward lower upfront.
Models like patch comp any more color on that would be helpful.
Sure Hi, Steve how are you doing I.
I think that.
As we've noted over the last couple of quarters, we have seen COVID-19 related effects.
Theres been absenteeism staffing shortages in <unk> offices, and they are certainly.
Continue to exist.
Probably 50% of our practices are seeing the effects of that today and we are also seeing the competition come out from the second quarter, we really didn't see any in the second and the first quarter, but in the second half I would say it's in line with what we expected.
I would say similar to what we saw in the second half of 2019, when we ourselves were affected by the control IQ. This is the first quarter that we actually have seen the economic factors and I would say that what's happening is that people are concerned about the threat of a recession and inflation and they're just making.
I'd be more cautious when it comes to spending money.
I think what we're seeing is that people get into the funnel and they just take more time to make pump decisions more than just pause in the funnel.
So our inside sales teams talks directly with these with the people in the funnel and so we know exactly what's going on but it appears to be more timing and delays just because they are making they are just taking a lot more.
Being more sensitive to the financial implications that being said as as Brian .
Brian noted in the prepared remarks, we have seen a significant increase in request for extended payment programs and I would say that this quarter in particular was the highest we've ever seen.
Brian also mentioned that we're actually revising this program and we're going to be rolling it out this quarter to try to offset any of those financial implications and potential FX effects on that on those decisions.
To basically make it a lot easier for people to get past that concern over the finances.
Brian you really want to got it and then just yet.
Okay.
Okay got it and then in terms of what Youre, assuming in the back half on that front.
Are you assuming that these new programs have any offsetting effect or help.
Hum.
And the headwind that youre seeing on the economic side or.
And when can those new programs with enhanced programs will be put in place.
Sure. Thanks, Steve So what we've factored in for the economic headwind does that they basically persist through the end of the year, but we still anticipate that we'll begin to see that normal seasonal uptick into the fourth quarter. So our goal is to have the enhanced programs ready to help push that that uptick as we move into the back half of the year. So in the next few more.
Yes.
Okay. Thanks, I'll jump back in queue.
Okay.
Thank you.
Our next question comes from the line of Brooks Oneil from Blake Street Capital. Your question. Please.
Good afternoon, just following that Steve.
Can you guys say if theres any.
Revenue impact of the customer electing a deferred payment plan.
There is not.
Clearly, how we account for our accounts receivable not on the revenue side.
Okay, Good and then.
The second question, obviously, it was a big quarter in the CGM market first you saw the approval of Libre three and then the announcement of the delay in G. Seven I'm just curious.
If you saw any or see any impact for your business.
From those developments and whether you could comment on.
How you feel about things going with <unk> and Abbott now.
Sure.
Hi, Brooks I would say that.
When it comes to CGM, we're very focused we're working closer with closely with our partners, we're making great progress.
I think that.
When it comes to Abbott specifically.
They have to deal with the issues of vitamin C counter indication and why we work with their teams on the integration.
Very confident they're going to deal with that successfully and theyre going to get the counter indication removed.
Well as with.
With decks com, we're continuing to work with <unk>, we have a great relationship with them and we've done several integrations already and we really think we have we know exactly what to do to make this happen. We have stated that we believe that we will introduce our commercial implementation three to six months.
After both <unk> com and Abbott get FDA approval, so sometime probably in the early part of.
2023.
We're again, we're excited about this we think these are great drivers for our business in 2023 and beyond.
Great. Thank you very much thank.
Take care.
Thank you one moment for our next question.
And our next question comes from the line of Travis Steed from Bank of America. Your question. Please hi, thanks for taking the question so on the $15 million to $20 million guide reduction.
For this year, you called out kind of three things staffing competition in kind of the macro recession.
Make sure I understand exactly it sounds like nothing changed except the recession piece versus expectation so as the entire reduction related to the recession piece and how much of that did you see in Q2 versus what you expect in the second half.
Yes. Thanks for the question Travis you are correct. The guidance reduction was solely around that third dynamic that ferritin nude new dynamic we began to really Steven.
We ended the second quarter and moving into the third quarter. So it's something new that's obviously more difficult for us to predict but we think we have good mitigation in place and will continue to manage through it throughout the rest of the year.
Okay.
Since you saw it late in the quarter is it fair to think Q3 revenue was going to be down sequentially or flat sequentially I missed any color on kind of Q3 revenue and then when you kind of think about 2023, you've talked about longer term, 20% revenue growth a year I don't know 2030, threes more likely a recession I mean, I'll transition year, given the recession and some of these lingering impacts or do you think.
You can still kind of be at that 20% revenue growth for 2023.
Yes, so starting with the third quarter.
In particular were expecting shipments to be roughly flat to what we saw in Q2 as we went through some of these dynamics and then late in the third quarter. So let me typically start to see the increase in orders that will really drive that fourth quarter seasonal uptick that we're still anticipating this year.
Thinking ahead to 2023, obviously, it's a little bit early to start talking about guidance for that year.
We continue to work through this and figure out how to forecast that through the remainder of the year.
We look forward to next year, there's a lot of exciting things coming as we think about <unk> as we think about the CGM integration, but when we get closer to that time, we'll obviously give more clear guidance. Then just always a reminder, when we set our guidance. Initially we don't typically include a new products that we expect to have introduced when we kind of beginning of the year will likely be more on the baseline business and by that.
Time will have a better view as to what's going on in the environment.
Okay, great. Thanks for taking the questions.
Thank you.
And our next question comes from the line of Chris Pascal from Nephron Research. Your question. Please.
Thanks for taking my questions.
A national ASP, it's been around 'twenty 100 euros for each of the past two quarters I think last quarter, you said that probably comes back down but it stayed up there which helps to mitigate some of the currency pressure, we otherwise would've felt cannot stay up at that level or does it go back to closer to the 1800, you had last year.
Sure. Good question. So first I'll just point out that we have very little exposure to currency fluctuations at this time the vast majority of our business is currently build again in U S dollars.
The fluctuations that you may see from quarter to quarter really vary based on the different geographies and we're the largest orders are coming from because the reimbursement does vary sort of impacts what our distributors pay us for that.
Technology.
That fluctuation.
That will still occur, but I think to continue assuming in that low 2000 per pump is probably a fair way to think about it on average.
Okay. That's helpful. And then just love some additional thoughts on what the capillary medical deal does for you do you see this as offering some flexibility that Mike.
Get more patients to adopt the pump overtime or do you see this becoming maybe a premium offering on the supply side that will actually help you drive more revenue per patient.
Yes, Thanks, Chris first of all we're excited to have counted.
<unk> biomedical team as part of tandem now it's really exciting technology.
I think that is.
Certainly it provides more choice to our customers and it will improve the experience I mean, theres a number of improvements in the cap biotechnology that will it will reduce occlusions.
The <unk> process is actually painless.
Theres a number of things like that and also the extended where of course.
It's a big addition, so we're excited about all of that I think that.
The opportunity really is to provide more choice and also there is an opportunity I think to look at margin improvement over time as we take responsibility for the technology.
Okay.
Thanks.
Thank you and our next question comes from the line of.
Matthew O'brien from Piper Sandler your question. Please.
And thanks for taking the questions just for starters, John or really the second half.
Guide on the us side of things.
It seems a pretty steep ramp, especially in Q4 <unk> got.
Oh, five ramping up and in this recessionary pressure and maybe even medtronic getting into the market with 700 atg. So.
I know renewals will be a big piece of this but if the recession is going to be more impactful if people can't afford things why not just extend your pump a little bit longer why the confidence in that Q4 meaningful ramp.
Sure Good question.
So as we think about the different.
Get them into the three different dynamics.
Learns how to navigate with the staffing shortages on the challenges and the HCP offices, and we expect to continue to improve on that as we look throughout the remainder of the year.
And noise around the competitive launch, particularly right now is more temporary in nature and the most important thing was that we needed the product to be on the market. So everyone could actually see and experience. What it is that's out there so having that come out to its full launch is going to be very helpful. And we expect to see that really start to dissipate in the next quarter or two as it becomes more widely available.
The headwind with the economic environment is the one that we expect to continue with our some of our mitigation plans in place and then again, just the normal seasonality, which will help drive.
People through the funnel as more and more people have met their deductible, we feel confident that we can achieve that fourth quarter number.
Okay. Okay. Thanks for that and then on the international side again pretty big bump in the second half of the year.
It's still a challenging environment confidence there and then the third party distributor distributor that you have how long does it take to really get that group up and running because it seems like the opportunity internationally for you guys from a penetration and share taking perspective is sizable so thats something that can really move the needle next year or is it going to take even more.
Longer than that thanks.
So I'll start with the guidance part of it and we feel very confident in the number we put out there. This year. So two pieces right. We do expect that we will see continued traction and Tom ordering patterns and adds more and more people are being put on control Iq.
Seeing that in the underlying patient demand piece of it but also as our installed base grow as you continue to see that our supplies grow pretty ratably in line with that so those are two of the factors that will drive that back half of a healthy environment and then when it comes to the distribution center, that's something that we've built the framework for and we're implementing it now we expect it to.
About a 12 months, that's what we're going to do is stay then different markets. A few of the trying just to make sure. It is running well operationally that we can greatly satisfied the distributors and thats the point, where we will feel confident that we'll start to see more alignment of the shipments out the door with the patient. So we hope to remove some of that variability that we've been seeing quarter to quarter.
On the ordering pattern.
Got it thank you.
Thank you and our next question comes from the line of Jayson Bedford from Raymond James Your question. Please.
Hi, good afternoon.
And then as Brian mentioned that too, but the 40% growth in renewals does.
Does that imply that renewals were north of 20% of the pumps shipped in <unk> or <unk>.
The renewals as a percent of our U S shipments for just around 20% very similar to the level that we saw in Q1 and that the step up from last year at about 15% of shipment levels.
It's a great demonstration of the progress that we've made with renewables and very exciting as we see those opportunities scaling up this year and again, even doubling in size again next year.
Okay, and then just maybe on the economic headwinds mentioned.
There are many companies that have cited a slowdown at least.
In Med Tech.
I'm wondering is the desire for extended terms from your customers is more a function of the competitive environment.
Up front is obviously lower.
Good sense of that and if there's any metrics you can you can throw out kind of delineating between kind of competitive.
True kind of a macro recession fears.
Sure I think what are the most important elements to think about this is it's typically not an economic decision of which products to purchase the decision is should I be on pump therapy than the choices, which form factor is going to be right for me just going to give me. The best results in the way that I would like to remind my product wins with the Optionality that I would like.
And so we don't see these economic headwind does anything that would shift people's mindset to a different product just because it has a different reimbursement structure and in fact, we think that our payments or an opportunity as the equalizer. There. So that it can mitigate any concerns people might have with the upfront payment and then when you look out further in the future. If you think about it.
Over a four year life, it's less expensive to be on durable pump and it gets to be on.
Patch pump and so that's something that we have helped people to understand until that time, especially in an environment, where maybe they are already on the products. There's less of a question mark about whether or not they can afford the supplies as they go forward.
So back to the original thought is that we don't think that this has anything to do with the competitive dynamics. It truly is when people are able to report with the pump purchases.
I'll also say that.
Our inside sales organization and our sales force really have active communication dialogue with people who are in the funnel and this is what they are hearing it's really not the competitive issues as more of the.
The macroeconomic factors.
Okay. Thank you.
Okay.
Thank you. Our next question comes from the line of Dean <unk> from R. W. Baird. Your question. Please.
Hey, guys. Thanks for taking the question. So one just on capillary how much R&D or kind of other SG&A spend might we have to embed into the model before we get to any sort of revenue generation.
Sure. So we did factor in the spending through the back half of this year at least as a starting point.
And that was part of the reason, we adjusted our EBITDA guidance for the remainder of the year and then as we move into 2023 will give more color as we start to talk about what clinical trials might look like and other factors that would contribute to that but for now it is factored into that adjusted EBITDA guidance of 11%.
Okay. Thank you and then just on the international side are you seeing any sort of competitive really implications. There just because it seems like we've seen real world data for 780, <unk> better than sentiment kind of much better less negative than it is in the U S.
Yes. This is Bryan we certainly have it at this point.
<unk> tend to be very consistent through the year, we see growth in all of our our areas and we don't see any real difference in the competitive pressures at this point.
Thank you. Our next question comes from the line of Joshua Jennings from Cowen Your question. Please.
Hi, This is Brian here for Josh Thanks for taking my questions.
I wanted to start just given some of the current challenges relating to the availability and cost of materials can you comment on your preparedness to launch Mobi next year, just from a components and supply chain standpoint, I understand thats, a smaller device, but are the materials and Matt will be essentially the same as the ones that you currently use for <unk>.
T Slim.
Good question I would say that they're actually very different and we have suppliers lined up they are producing the products for US right now we're actually building up here today as we speak and at this point in time, we don't see any.
Any problems.
If you look back in this past year in these TPB issues that we've experienced this quarter.
Starting at backend.
The latter half of 2021, when we saw a lack of predictability in some of the electronic component supply, but we have seen more recently is the our suppliers have been able to get back on track and are a lot more predictable now than they were back then and so things like seems or if things are beginning to return to normal to a certain extent on the supply chain.
But we feel pretty confident on our ability to produce.
Tobey when we introduced it in the first half of next year.
Okay. Thank you and then just a clarification on the extended pump payment plan, you referenced reducing the monthly payment to as low as $50 a month I believe and just for the payment plans you offer now where does that monthly payment stand typically thanks for taking the question, yes. It is very pretty.
And we have in some cases offer that but what we're doing is packaging packaging and a little bit differently.
Much of focus on the marketing of it as it is the structure of the payment plan itself. So stay tuned more to come when we actually build that out.
Thank you.
This does conclude the question and answer session as well as today's program. Thank you, ladies and gentlemen for your participation you may now disconnect. Good day.
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Yes.