Q3 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].
Yeah.
Good day, and thank you for standing by welcome to the tandem diabetes care third quarter 2022 earnings 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 May press star one on your telephone.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today, Susan Morrison, EVP and Chief administrative officer.
Please go ahead.
Hello, everyone and thank you for joining tandem's third 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'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.
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 better comparisons.
Operating results across reporting periods.
For additional information about our use of non-GAAP financial measures. Please refer to our press release issued earlier today.
Our call today will be led by John Sheridan, our President and CEO , Anthony Vossler, Our executive Vice President 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 welcome everyone to today's call.
Collecting on 2022, so far in the third quarter in particular, it's been a year filled with both successes and challenges.
I'm going to spend a few moments upfront talking about our recent business trends before asking me to provide some color on our financial results and near term expectations.
That will conclude our prepared remarks with a pipeline update.
Starting with the highlights in the quarter panel has a long standing goal of bringing the benefits of our technology to more people living with diabetes.
In the third quarter, we reached an incredible milestone of having more than 400000 people worldwide using our T Slim X two it.
It's an achievement I'm proud of and as evidenced that we are making measurable strides towards our longer term goal of having 1 million customers.
As we advance towards this goal, we do not expect our growth to be linear we anticipate there'll be periods of more moderate growth between more exceptional periods driven by our introduce production of new technologies.
Where we stand today is more of the former.
In part due to the timing of our own product cycles. In addition to the recent macro environment and industry related headwinds.
Similar to what we discussed in our last earnings call, we've largely been pressured by three dynamics that continued throughout Q3.
First where the 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.
Second was the competitive environment in the United States.
And third with the economic conditions, including inflation and the threat of recession.
To provide an update on each of these dynamics the broader COVID-19 related pressures began escalating in Q3 of last year and all of our markets.
It is now consistent factor when looking at our year over year comparison, and an environment that we anticipated operate again for the foreseeable future.
The second dynamic is the competitive environment in the U S. This.
This intensified across the year in line with our competitors scaling launched of our new AI algorithm, which is out of device form factor that we've competed with historically.
Our sales management. The majority said the disruption associated with this launch is less than what we've experienced a few years ago when another competitive AIG system launched.
That being said it creates noise in the market that we'll be navigating and managing for the few quarters.
What's been very rewarding in this heightened competitive environment is to hear from the broad clinician feedback that control IQ remains the leader in AI systems.
The vast majority of our customers have control IQ.
We've amassed more than 100 million patient days using the system with incredible user experience and clinical results that demonstrate immediate and sustained benefits.
Using our technology.
It's also been great to see our customer satisfaction remains high and as a result, our low levels of attrition are consistent with what we've seen historically.
This substantial visibility to customer utilization data comes from our iOS and Android mobile applications that launched about two years ago, which automatically and wirelessly upload data to the cloud from our T Slim X too.
I'm also proud that we continue to expand the insulin pump market as in the third quarter about half of our new customers reported adopting insulin pump therapy for the first time.
On the final market dynamic the impact of the economic environment on customer purchasing behavior is primarily a U S phenomenon.
This pressure is something that we saw build quickly at the end of Q2 and has remained steady.
To support our U S customers you want the benefits of our technology, but are concerned about cost.
We began broader marketing of our payment plan program beginning of September .
Outside the United States, partially mitigated by the predominance of governance health care plans.
Overall, the level of pressure from each of these dynamics fluctuated throughout the quarter.
In the U S. We typically see a steady seasonal uptick in demand across the months of Q3. This.
This year August results were in line with these expectations, which we noted at the beginning of the momentum build but then.
Different from years past the same level of momentum did not continue across September .
The variability of each dynamic makes it difficult to speak to any one of them is getting better or worse, but has been consistent in aggregate since the latter part of Q2.
In this environment, our teams are motivated and confident in our product offerings available today.
This is what we remain focused on in advance of our new product launches, which we continue to invest in heavily.
Operationally, we are also focused on identifying and working to implement lean initiatives to further leverage our infrastructure.
This includes systems improvements such as our cloud migration of one of our key four systems in Q3, which created some disruption of September operations that was important to have done so before the fourth quarter.
We're also furthering our efforts outside the United States with a number of people using our T. Slim <unk> pumps continues to grow and.
In the third quarter, we launched our T X two with control IQ and Israel and Portugal.
Which brings the geographies we serve to approximately 25.
Continue to look at new opportunities to bring our technology to people living in smaller markets outside the United States, while executing our primary international strategy of driving greater adoption in the underpenetrated areas, we serve today.
We're also working to expand our product offerings outside the United States and in support of this goal in the third quarter submitted a regulatory filing for our mobile App. This is the first step towards being able to offer mobile phone controlled delivery of insulin to our customers outside the United States.
Reflecting on our recent experiences in the past few quarters, we are taking the opportunity to recalibrate expectations for the fourth quarter and set a new baseline for 2023 with even greater caution.
As Lee will discuss we will be factoring in the persistence of the current macro pressures in anticipation that they will continue to exist for the foreseeable future.
Really from them will serve as upside opportunities.
Ali we anticipate driving additional upside opportunities.
Introduction of new technologies to the diabetes market.
I want to be clear that this reset is to properly align near term expectations.
It does not change our consistent continued expansion of the insulin pump market or is that we continue to capture competitive share.
With pump penetration just over 35% in the U S and typically less than 20% and countries. We serve outside the United States. We remain focused on the large market opportunities available to us and further delivering on our goal to bring the benefits of our technology to the diabetes community.
I'll now turn the call over to Lee for more on our financial results and our guidance expectations.
Thank you John .
Looking back at the quarter it was notably our highest Q3 sales performance in the company's history.
<unk> continued to expand the insulin pump market, while also benefiting from a growing installed base of more than 400000 customers.
This large install base also continued to drive strong pump renewals shipments and recurring supplies now.
As a result third quarter worldwide sales grew 14% year over year to $205 million on a year to date basis worldwide sales grew 18% to $581 million.
Taking a closer look at our results in the U S sales in the third quarter were 146 million growing 10% over last year on a year to date basis, our sales in the U S grew 16% to 423 million.
We now have more than 280000 people in our U S installed base of <unk>.
98% increase over last year.
Total pump shipments for approximately 20000 units in line with our expectations, which was essentially flat both sequentially and compared to the prior year.
As John mentioned the quarter was unusual and that the monthly sales trends did not follow historical patterns, but did include outperformance on a renewal pump shipments, which increased nearly 70% year over year.
The strong rate of retention is a reflection of the high level of customer satisfaction. In this segment of the insulin pump market we serve.
We also saw continued steady improvement in our average selling prices, which resulted in a U S comp sales growth of nearly 3% year over year.
This was driven by price increases and a greater percentage of sales through direct channels, which improved to 34% of total U S sales this quarter from 32% a year ago.
Notably pump sales in the U S included deferral of approximately $600000 associated with the tandem choice program, we launched late in the third quarter.
This program anticipates, our upcoming introduction of the <unk> pumps and provides a pathway for existing tandem customers to access new hardware innovations within their warranty period.
Programs, we have offered in the past.
Revenue deferrals associated with this program will increase in advance of <unk> commercial availability and we will then be recognized as customers adopt the new technology.
The amount of the deferrals and ultimate timing of recognition of the deferred sales is difficult to predict.
Therefore, we will begin discussing our sales outlook in terms of non-GAAP performance, excluding the impact of these deferrals.
Our supplies sales in the U S increased meaningfully by 20%. This is strong growth, but fell just short of our expectations due in large part to timing.
$1 million to $2 million and supplies sales were anticipated at the end of Q3, but instead will materialize in Q4 due in large part to the software system migration John mentioned.
Moving on to our operations outside the U S sales exceeded our expectations in the third quarter, primarily due to the timing of order fulfillment that muted the impact of anticipated seasonality.
<unk> sales grew 26% year over year to $59 million on a 15% increase in pump sales and a 37% increase in supplies Bill.
We shipped approximately 12000 pumps in the quarter and our estimated installed base outside the U S has now surpassed 120000 people.
On a year to date basis, <unk> sales grew 22% to $158 million.
As we have discussed in recent quarters, our pump shipments to distributors outside the U S do not necessarily correlate with actual customer demand or what we refer to as placement.
On a year to date basis shipments to distributors were essentially flat, but placements have grown as distributors continue to work through their inventory and manage challenging supply chain conditions.
We recently began operating a distribution center in Europe that benefits our distributors because it eliminates the variable of transit time, when they place orders from our warehouses in the U S.
We expect to scale our utilization of this new warehouse over the next few quarters at a pace more quickly than we originally anticipated.
Longer term. This will result in a closer alignment of revenue shipments to placements. However over the next 12 months, we anticipate it will impact the timing of sales to our distributors in Europe as they reduce their safety stock levels to account for the shorter transit times.
As a reminder, we have had very little foreign currency exposure in our markets outside the U S and that is expected to remain consistent through the end of 2022.
It's important to note, though that another effective commencing operations at our European distribution center is that our exposure to fluctuations in foreign currency will increase in 2023 as we scale.
On a worldwide basis, the environment, we're operating and continues to be more variable than what we have seen in years past, making it very difficult to predict future trends.
Fortunately, we believe it is prudent to recalibrate expectations for the remainder of 2022.
As we look ahead, we now expect 2022 total non-GAAP sales in the range of $800 million to $805 million, reflecting 14% to 15% year over year growth.
This includes reduced sales guidance of $592 million to $595 million.
We are also adjusting our guidance outside the U S. G. A range of $208 million to $210 million, primarily to account for the accelerated scaling up the European distribution center and continued variability in ordering patterns for the remaining markets.
Turning to margins, our gross margin performance of 51% in the third quarter was in line with the second quarter on approximately the same level of sales.
From an operational perspective. This reflects continued execution on our initiatives to expand gross margin beginning with progress towards our ASP goal.
Our higher average selling prices and reduced costs from manufacturing efficiencies year over year, offset both product and geographical mix changes.
Beyond that global supply chain challenges continued to pressure our gross margin by approximately two percentage points.
Consistent with our expectations as it was primarily related to higher pump material costs from specific components. We purchased earlier in the year to avoid the risk of product shortages.
Well as increased freight and fuel cost.
Based on the level of inventory we are carrying at these higher costs. We expect continued pressure on margins through the first half of 2023.
Due to the change in our sales guidance. We now expect our 2022 gross margin to be approximately 52%, which was the lower end of our guidance range.
Moving on to spending we continue to prioritize investments in R&D, particularly as we prepare for the launch of three major products that will drive the next sales inflection in our business as well as pursuit of other innovations that support our long term sales and gross margin expansion plans.
R&D, which now includes the operational cost of capillary biomedical was approximately 18% of non-GAAP sales in both the third quarter and on a year to date basis and is our expectation for the full year 2022.
Our operating margin in the third quarter of negative 23% was meaningfully impacted by the accounting treatment for the acquisition of <unk>. This resulted in a onetime charge to operating expenses for acquired in process R&D of $31 million or 15% of sales.
Our adjusted EBITDA margin in the third quarter was 5% of sales when excluding the impact of the cat bio transaction and the revenue deferral associated with tandem choice as well as noncash stock based compensation.
Due to the nature of these transactions, we believe that adjusted EBITDA is it more representative measure of profitability.
Our 2022 adjusted EBITDA is estimated to be in the range of 7% to 8% of non-GAAP sales.
We continue to generate strong cash flows year to date, our operating cash flow was $45 million before taking into consideration strategic acquisitions and investments and $28 million in capital expenditures for our new Tech and innovation Center.
We ended the third quarter with $609 million in total cash and investments.
To summarize our 2022 outlook worldwide non-GAAP sales are estimated to be in the range of $800 million to $805 million, including international sales of $208 million to $210 million.
Our gross margin expectation is approximately 52%.
Adjusted EBITDA is estimated to be in the range of 7% to 8% of non gas sales.
Our noncash P&L charges for stock compensation, depreciation and amortization are expected to be approximately 100 million of which $85 million is associated with noncash stock compensation at $15 million with depreciation and amortization.
Looking ahead, we are particularly excited for the series of new product launches beginning next year.
<unk> will serve as a future growth driver for sales, bringing the benefits of our technology to more people living with diabetes.
Our future product portfolio is also designed to drive gross margin improvement for example, <unk> pump and cartridge gross margin benefited scale is expected to drive more than half of the progress towards meeting our longer term, 65% gross margin target and extended wear infusion sets also have the opportunity for meaningful contribution.
Because regulatory and commercial launch Chinese are difficult to predict we would like to level set the starting point for 2023 expectations worldwide at a non-GAAP sales growth rate of 11% to 12% over our 2022 guidance.
This growth rate is similar to recent trends, we've seen pressures intensify.
In the U S. This assumes continued caution for the challenging macro environment. Once we have more certainty on the regulatory timing in general availability of new products, we will factor in the anticipated benefit from those launches.
Outside the U S and anticipate the re leveling of distributor pumping supply inventories in the first half of 2023, which could be an impact of up to eight weeks of sales in certain markets.
2023 is an important year for us as we continue to invest heavily in R&D and execute on multiple strategies that position us for both near and longer term success.
I will now turn it back to John to provide our latest pipeline updates.
Ali.
Tandem as a company founded on innovation and the opportunities in front of us with our products in development are meaningful starting with Mali.
We have filed a 500 10-K submission with the FDA through the eight pumps pathway our.
Our research shows that movie largely appeals to the segment of people, who otherwise would not adopt insulin pump therapy with the options available today.
It's a catalyst for driving further growth in the market.
<unk> is about half the size of the T Slim.
Control through a mobile app and with it we also plan to launch the shortest infusion set offered in the industry, providing our customers with greater choice and flexibility.
While the timelines are difficult to predict we are using this opportunity to further product development and to test and refine our manufacturing processes and preparation for clearance.
Planning for commercial rollout is also underway and will include a robust marketing and training campaign.
With what we have novel design, we want to be certain clinicians have the opportunity to experience our newest technology before making it broadly available to customers.
We will provide more color on our launch plans and timing as we move closer to Clarence.
In addition to having two pumps on the market. We are also looking forward to offering new sensor integration with both our CGM partners <unk> common Abbott.
Starting with Dex Com G seven will be our fourth integrated sensor.
As new generations of their technology, our crude we recognize the importance of ensuring our shared customers can benefit from <unk> newest sensor with Arkansas two technology.
Turning to Abbott, we are actively working toward offering our first integrated aig's solution using libre CGM data.
Following abbott's receipt of FDA clearance for the Libra used in an AI system, you will mark the first time that they are U S customers will have an opportunity to benefit from advanced hybrid closed loop technology.
We look forward to serving this unmet need in the diabetes community.
For both Abbott and decks com our goal is to launch our integrated offering in the U S. Within one to two quarters after their receipt of clearance.
This tour sensor integration work, we're also off to a strong start and our collaborative efforts with capillary biomedical team who joined <unk> at the end of July .
Or in the planning process for our pivotal study for an extended wear infusion set and intend to use the data to support a regulatory filing with the FDA.
Rounding out a development update we are also making great progress on our clinical activities.
Our type two feasibility study using control IQ is now complete and the results will be presented in November 10 at the diabetes technology meeting.
Also the results of the initial portion of the <unk> study evaluating.
Evaluating control IQ in children under six were recently presented at the <unk> meeting in October .
The results for this first phase of this study were very encouraging and the extension period for Peter is now also complete and the data is currently being compiled.
Lastly, we recently completed the enrollment of our study to evaluate control IQ and a population of high insulin using adults with type one which we refer to.
Internally is higher IQ.
We anticipate the data from these studies will help support future regulatory filings as we work to expand our labeling indications for control IQ, while further enhancing its features and benefits.
As you can see the nearer term innovations that we are working to commercialize span all of our R&D verticals and represent a number of first in the industry.
We are applying the same user centric philosophy as we did when designing the T Slim <unk> II and our control IQ technology.
Overwhelmingly positive feedback we received on the solutions and services that we provide today are solely attributable to the hard work talent and dedication of our employees who are passionate about improving the lives of people with diabetes.
We are greatly appreciate all of their efforts and together, we will be working to deliver new and exciting innovations that further our leadership position in diabetes care.
I'll now turn the call back over to the operator for questions.
Thank you.
As a reminder to ask a question you will need to press star one one on your telephone please.
Please standby, while we compile the Q&A roster.
Okay.
Our first question comes from Matt <unk> with Barclays. Your line is now open.
Oh, hi, thanks, so much for taking the question.
A couple of follow ups on some of the comments you made.
Jonathan.
On.
And sort of share trends and some deferrals.
It sounded like Youre going to start talking a little bit more about the impact of deferrals.
Coming quarters, but maybe you could clarify whether you felt that there was an impact in the quarter.
And I had just one follow up on kind of the.
Market environment, and then share environment, if I could.
Sure. Thanks for the question, Matt when it comes to the deferrals that we spoke of its related particularly to the Kingdom choice program, which we launched late in the third quarter, which is our new technology access pathways for people as we think about.
New hardware solutions coming while people are within their warranty cycle. Since it was only recently launched the deferral in the third quarter associated with that was only $600000. We do expect it to become more meaningful in the coming quarters as we get closer to the movie launch.
And because it's there's a lot of technical accounting behind it it's difficult to predict it. So we'll be reporting our sales on a non-GAAP basis for this quarter. It was not very material, but we wanted to make sure people are prepared for what would be coming in the future.
Got it that's helpful. And then just a follow up on.
As I mentioned some of the some of the utilization trends of share trends in the U S. You mentioned the share pressures there obviously.
Can you talk about.
It may be the impact.
The promotions that are taking place in the marketplace competitively.
And your expectation if you have any for how those were your own efforts.
Stabilize things in the next couple of quarters or.
Or is this an environment that you just sort of expecting to remain in place until until <unk> comes to market.
Yes, Hi, Matt I would say that we definitely expect to have these three dynamics continue on for the foreseeable future and as as we indicated with our Recalibration, it's very difficult to predict because I mean, we certainly are doing what we can to combat the noise from the <unk>.
<unk> situation by promoting the strengths of our products.
Control IQ is really the best products in the market the best system in the market today, we hear this strongly from our clinicians who use it and we hear it also from people, who who benefit from the clinical results and also the.
These reviews.
We have immediate and sustained improvement we have.
Customizable basal rates we've got.
Transparency is data and usability improvements so we're going to do our very best to continue to make the strength of our products.
Visible to our customers as well as our positions and continue to.
To continue to promote the product until we actually see.
The new product come to market along with <unk>.
Seven at Abbott next year.
Great well I appreciate all the color and the outlook.
<unk> 23 as well thanks, so much.
Thanks, Matt.
Thank you.
Our next question comes from the line of Brooks O'neil with Lake Street Capital Partners. Your line is now open.
Good afternoon, I'm curious if your current outlook.
A greater or more or less the same impact from omnipod.
For Q.
Too early 2023.
Brooks, it's difficult for us to actually isolate which of the three.
The factors that we describe the three market dynamics are getting worse or getting better.
I would say that as I mentioned, we we believe we have the best product on the market right now but.
There is the competitive environment right now is that.
I would say that the impact that we're seeing from <unk>.
From the current competitor is what we expected as I mentioned, our sales force.
Has indicated that they don't believe this is as disruptive as the we.
We saw another competitor to come to market several years ago. So it's not as disruptive as that.
We are seeing pressure on new starts and even with that though if you look at the third quarter, 50% of our new starts did come from MDI, we have very low attrition and our renewals are strong. So I think that it's pretty much in line with what we expected, but it's just it's one of three factors that were dealing with right now.
Sure all that makes total sense I am just curious also could you comment on whether you feel you need to offer additional payment plans.
Two.
To respond to the current difficult environment from a economic perspective.
Yes. Good question, we actually rolled out and began marketing our new plan in September .
And that's intended to help people who are feeling the pressures from the current economic conditions.
Early to say, just how well it's being utilized in terms of numbers, but I can say that anecdotally, we've seen a lot of very positive feedback on it.
We think it's a meaningful way to try to help.
Address the current inflation and recessionary experiences that people are having in the marketplace.
Great. Thank you very much.
Thanks Brooks.
Thank you.
Our next question comes from the line of Chris Pasquale with Nephron Research. Your line is now open.
Thanks, I wanted to follow up on the international market and the impact of the new distribution center today, you're talking about eight weeks.
Inventory being drawn down in certain countries.
Any visibility at this point on the timing of when we should expect that.
Results this quarter continue to look.
Pretty strong there. So just wanted to make sure that we're factoring that in going forward.
Yeah, great. Thanks for the question, Chris really the impact of that will begin in the fourth quarter, which is the primary reason that we adjusted the guidance for this year to your point, we've had outperformance on our O U S markets the past few quarters.
And this came about we commenced the launch of operations there in the third quarter with a phase in plan for all of our markets in the next 12 months and based on how things are performing and things are going we decided to accelerate that phased in which is why you're being pulled into this year a little bit ahead of what we had originally anticipated.
You can think about it as a dynamic beginning in the fourth quarter and lasting through the first half of next year.
We think at this point and it is expected to impact up to eight weeks of sales. If you think about some of the distributors are carrying three plus months of inventory and so they will want to work that down to levels that are more consistent with being able to drive the inventory locally if you will.
Okay. That's helpful. And then just to put a finer point on the three headwinds you talked about in the U S. It feels as though the competitive environment. One that may still be on the upswing in terms of the impact you could feel from it but the COVID-19 one should be at least stable if not.
Proving and then the economic one is still TBD is that a.
A good way to think about it or how would you characterize the directionality of those three headwinds at this point.
Yes, I'm going to follow on to John's comments, a little bit about the headwinds and the fact that it's really the combination of all of them together, which makes it so difficult and challenging to predict and as we thought about the guidance in setting expectations going forward rather than trying to factor in the rate that these will improve or the timing in which they'll improve we've assumed.
Is that pressure continuing throughout the year and even as we think about entering 2023. So in this case when we set our expectations. We're erring more on the cautious side and then leaving the opportunity for as those begin to dissipate as upside for us as we look forward.
Makes sense. Thank you.
Okay.
Our next question comes from the line of Matthew O'brien with Piper Sandler Your line is now open.
Afternoon, Thanks for taking my question and sorry to be blunt here, but.
You guys are talking kind of in early September about things being okay.
You've got another company diabetes dotcom. They just reported taking you through the pharmacy. They just kind of a good Q3 in the U S.
The expectations for a good Q4, there you guys can't go through the pharmacy, So I'm just wondering.
Just given the environment, what what really changed here in the last few weeks for you to pull down expectations, especially in the U S. So much.
Both in Q4 and going forward and what gives us the confidence that.
That next year can even be 11% to 12 with all of these headwinds that you are now facing.
Thanks, Matt I think that's a fair question.
We mentioned that back in the June July timeframe, we saw soft month and in August we absolutely saw this change in the momentum build which was in line with what we've seen historically for the end of the third quarter.
Fortunately in September we just didn't see that trend continue we saw continued pressure.
Say that we've tried to estimate the third quarter taking into account. These three market dynamics and we didn't get it right and I think we've just concluded that it's very difficult to predict them and Thats really why we basically recalibrated guidance for the fourth quarter and for next year, it's really intended to proper to properly align our near term expectations and.
It doesn't change our commitment to expansion of the insulin pump market or competitive gains when you look at it we have the most exciting pipeline we have a great team that can execute.
And we've got a great deal of confidence in our future I think it's a matter of being pragmatic about these market conditions and the ability to predict them I don't think we wanted to continue to go back and forth and not achieve the numbers that we set.
Going forward I will say that when you consider what's happened to.
<unk> com this quarter they have another public company now providing their sensors as well. So there is definitely upside that probably has come from that and I think that.
Sure that helped them through this quarter certainly.
We haven't got that going on we don't have a new products scheduled for some time next year.
Okay. Okay, and then speaking of the new product either John or leave but you filed for movie Thats great.
The expectation I would assume it's still by the end of the year. It gets get approval early next year, what are the plans to rollout that product.
And then it sounds like Youre already getting a little bit of disruption as people are waiting for that so how does that impact things next year as far as cadence goes.
Yes, I wouldn't say that we're seeing any any pausing at this point, Matt I think it's a bit early we just wanted to get the choice program out there in advance.
Sometime next year if people were.
<unk> that we get delays that that from happening.
The team has done a great job in the filing we did get it in.
Our activities initially youre going to be focused on.
Just getting manufacturing ready working with physicians to get them up to speed on the product and working on our training and our marketing.
Plans right now I think that we're anticipating we're going to get clearance in the first half.
I think as we get closer to clearance with will be more.
Specific about what our commercial commercialization plans are at this point in time.
Okay understood. Thank you.
Alright take care.
Thank you. Our next question comes from the line of Steve Lichtman with Oppenheimer. Your line is now open.
Thank you hi, guys.
Just wondering relative to your guidance for the fourth quarter.
Your thoughts on 2023.
To what extent do you factor in.
The benefits of the new pricing program and for 'twenty three the pipeline I know historically, you've not included that I just wanted to see sort of what you are or not including in your update.
Sure. Thanks for the question, Steve I would say it's in.
Important to underscore I'm glad you asked the question to that for Q3, we have not factored in benefits from any of the new product launches. We wanted to set an appropriate baseline so that everyone could come together and get in the same range and I'll be thinking of it the same way I think different people are modeling it in versus out and so as we think about that debt.
What we've built into the guidance for remainder of this year and early next year as caution related to this environment.
We're not assuming necessarily any relief based even on the programs that we've offered from the headwinds that we're facing and again, it's to make sure. We're getting a good baseline that we feel confident that we can achieve.
Exceed as these start to dissipate.
Okay.
You mentioned that relative to the type two program.
Clinical work that that's progressing.
Yeah on the CGM side, there's been some positive updates from CMS.
<unk>.
The latest U curve with regard to potential changes to the mcd.
Relative to insulin pumps, and how that may potentially benefit the market in type two.
Sure I would say that the work that.
What's happening at CMS right now underway when it relates to insulin pumps, we were very encouraged to see some of the changes that they made on the CGM side, which means that they are open and receptive to thinking about some of the ways that they set up the approval processes in the past.
So today, it's not that a person with type two diabetes can't get access it's just more difficult to get the approval through the process and so what we're looking forward to is CMS, considering some of the app liquids simplify that process and make access simpler and easier.
As you well know they don't move very quickly. So we're not anticipating this is going to happen in the next month or two but I can say that it's underway and there are they are taking some of the recommendations in the consideration and I'm hopeful that we'll see something in the coming quarters or get some feedback at least.
Got it thanks Lee.
Thanks, Steve.
Thank you. Our next question comes from the line of Matt Taylor with Jefferies. Your line is now open.
Hi, Thanks for taking my question.
So the first thing I want to ask about was if you.
Could be any more specific about.
The trends that you saw like what would you normally see pick up in September versus what you saw.
And same for up till till now could you give us any sense for how that diverged.
Sure I would say the traditional trends would say that the momentum build across the year starts even in the first quarter of this business.
At Juicy is nearing more and more people meeting their deductibles getting closer to the end of the year.
And as we discussed a few moments ago, we saw a bright spot in August which led us to believe that we are about the typical seasonality, but that didnt.
Persist and I can point out that October has come back up to at least August levels and so as John said, we're not going to try to get ahead of this and predict that when we think things might get better we're going to maintain that cautious side here and consider that these could be persistent through the end of the quarter, but I will point out that we do.
You still expect growth in the fourth quarter, and even a step up in pump shipments from the third quarter in the U S and keeping in mind that the renewals continue to have an increased number of opportunities, which will be a great bright spot for us in the fourth quarter, even looking into next year, we do anticipate adding new pampers, just not at higher rates.
As we have seen in the past and this is the expected trend.
More moderated growth period until we can see the inflection from our new product launches next year.
Okay, Great and let me ask a follow up.
Yes in the past.
At least at certain points you've characterized.
The typical pressure or the historical pressure that you've seen from competitive product launches is lapping a couple of quarters trailing.
Then it tends to tail off is that still what you expect here.
Any new learnings change that expectation.
Yes, I would say maybe slightly different from what we've factored in as I talked about keeping the same level of pressure through the end of the year. What we what we've typically seen is one to two quarters of pressure following a full launch that launch having occurred at the beginning of August that clicks. The most intense pressure right now and still some through the end of the year could trickle into next year.
So based on our historical reference that is a normal expectation.
Yes.
Okay, great. Thank you.
Thanks, Matt.
Thank you and our next question comes from the line of Alex Nowak with Craig Hallum. Your line is now open.
Okay, great. Good afternoon, everyone with all the market challenges competition organic U S pump growth decline. This quarter do you think the goal to get to $1 billion pump users by 2027 is just too optimistic at this point.
Alex I think that you have to take into account. The fact that our 2023 guidance does not include any new product activity. So it's from the start.
Lower than we would anticipate after we have new products in the market and if you remember we intend to launch <unk>.
It will be next year as well as the G seven integration so.
That.
That's an important consideration as you look forward I'd also mentioned that our gross not going to be linear.
Going to be periods of moderated growth that we're experiencing right now followed by <unk>.
Exceptional growth that.
It's close to our new product introductions.
<unk>.
More of those incremental revenues from new products to start to fly to profit.
Slow that investment line.
Sure Uhm. Thanks for the question on that it's something that we talk about everyday and as we we believe that we're making the right investments today and what is critical to our long term future, particularly R&D as it will drive the top line and I would say second to that our customer service operations to make sure. We can keep that high level of customer satisfaction.
<unk>, the best customer experience that and.
Patients can have and I think that's coming through in our renewal accomplishments in that we continue to keep people and renewing at a high rate and so that somebody will think about as we go forward you know even in a period of moderate growth we need to think about what those investments are and how they tied to the long term future. So we'll be uhm conscious of that.
And will be very closely monitoring and being very prudent about we're spending goes and so as we get closer to our urine earnings call will give more color on what do we say to profitability targets are for next year, but we will keep investing in those critical areas.
Okay. Thank you for the update.
Sure. Thank you Charles.
Thank you next question comes from the line of Jason Bedford was Raymond James Your line is now open.
Good afternoon.
There's a couple for me.
You're 22 looks like it'll come in over 50 million lower than your neutral large strawberry shake and I appreciate the.
The dynamics and the pressure zero one there.
When you look back what.
Differently here I'm still struggling a bit with this.
I mean, I think the thing that we didn't anticipate where we originally fifth guards Jason was the tobacco factors that we saw a couple of them and.
In the in the latter part of the second quarter.
Coming into the year.
We're anticipating.
Covid pressures were definitely anticipating the competitive pressures, but I think that'd be the.
Economic environment changed dramatically and I think people became a lot more sensitive to it and you know our sales force began seeing that and conversations that they were having with potential customers and you know we continue to hear it now we meet with our sales organization on a routine basis and they are continuing to hear caution from people who are considering making it the best.
<unk> right now and I think that's just as.
It's reflective of.
Ah more cautious outlook that people have with a.
Current financial situations.
And your your comfort more macro is is it the fact that they're still kind of external pumps payment payment plans that are being utilized like there was an <unk>.
Well I think we wanted to make that more available on it make people more aware that it was available I mean, that's that's certainly something that we did once.
<unk>.
About these pressures and we you know we I guess, we've seen a great deal of interest and we've heard a lot of very positive akalaitis about the program so far but it's a little early to really talk about the uptake that we're experiencing with it so far but we think this is the right.
The right approach, it's a flexible.
Flexible program and we really do work with the individuals to try to do something that they can they can handle financially.
And have you seen any change in nutrition.
Absolutely not and in fact, that's one of the things that we've seen as we've talked about we see great growth and renewals and we have we have a lot of mechanisms out there to actually look at Patricia we have we have I O S. An Android mobile apps.
Wirelessly update update.
The clouds with the current data and we look at that and and we don't see attrition. There. We also have a great sales organization, who is very close connections with our customers and we don't see attrition. There we have people who have tried it.
But they've come back to the <unk> on the product and technology and we think that.
I think that's the battleground really is on the new starts and that's where our focus is.
Mmm.
Thank you.
Our next question comes from the line of Jeff Johnson with Bird and your line is now open.
Thank you. Good afternoon that is two maybe just follow up here for me. We first off I just wanted to make sure I understand that's eight weeks comment on the international inventory. So I mean is the math is simple as next year. If we think new pumps sales in international markets would have grown 20% then we subtract off like fifth.
Teen points of growth eight weeks over 52 weeks is like 15% <unk> just assume there's like a 15 point headwind to international growth next year is that how the math kind of works and does it all fall in the next year. Thanks.
Yeah, I you know I think of your next payment a little bit different way back we're gonna get to the same point here and if you think about it first I should point out. This is just for our European markets, which represent about 70% to 75% of our sales outside the U S.
You think about what you would consider it.
Run right on a on a monthly basis.
We take the shy one to two lumps of sales for that first sent a R. O U S market. It will start hearing the fourth quarter.
Will be still impactful in the first half of next year, but you are right to think about it as impacting the growth rate for next year again as I always say not indicative of the true customer demand. This is and this is why it's so important for us to shift to the <unk> to the European distribution Center is that we want to have it.
Better are closer alignment to what are what are shipmates look like too what a real demand is and so we just need to work through this phase interior Dino after middle of next year and then it should be it should be more reflective alright.
Alright, that's helpful and then John I'm Gonna come back to one question just on timing of of kind of the the shift or the slow down.
Question I'm getting from investors Tonight, and I, frankly, still don't know how to answer it and it's you know you were at our conference September 12th.
Word you used where momentum has returned to the business and.
I I guess I'm I'm trying to figure out what is your visibility on your U S. Sales does that take a couple of weeks to filter Rob had September sales already started to slow and you just had that the threat report or you don't.
How does how does from September 12th to the end of the quarter. We see this big of a a shift in kind of the U S dynamics. Thanks.
Yeah, I mean, I think that the we have visibility to the sales in September and as I said.
A strong pumps of August and as we began to enter it just sort of they began to tail off.
That's that's the best way to describe it.
Began to tail off and it was weaker than we anticipated typically we see it accelerates and once we see that momentum shift to begin food additive and it continues to grow and.
Again at this this in this particular case here is starting to tail off but likely said when you look at October October October .
Pretty much in line with what were with what we saw in August and I think we've comprehended the fourth quarter now in our review the guidance.
Okay, I I get that but if it began to tail off I guess I still don't understand why you use the word momentum has returned on September 12th I mean, it just seems to me you know obviously that is caught quite a few people out.
Ah by surprise today, and and you know, it's not gonna be good for your slot tomorrow. So I I guess I'm just trying to fill understand.
That tale off versus the comment you use.
Yeah, I would say that as of September 12th we still had confidence in the numbers. It really was that a tailed off in the latter half of the month.
Alright, thank you.
Yep.
Thank you.
Next question comes from the line of Joanne Walsh What city. Your line is now open.
It's actually happening on for July and thanks for taking our questions. Just one I guess keeps flush out more some of the puts and takes on margins in 2023, and maybe talk about how you were thinking about the first have versus how come out dynamic. Thank you.
Oh sure. So uhm thinks Anthony and you said margins for 2023, which we haven't given much color to you at this point if I heard you correctly, but I can talk to you about some of the puts and takes to think about you know what's happening now and how to think about the longer term and so from a gross margin perspective in order to achieve our 65 per cent.
And five years, it's really driven by new products and so maybe alone at the whole system. When it gets to scale will drive more than half of that gross margin expansion on where we are today I should also add that right. Now we have two about two point additional pressure, that's just coming from the supply chain challenges mostly points to hire.
Cost inventory that we purchased earlier this year, we should have worked through that by middle of next year. So it will continue to play a little bit in 2023. The other factors that drive gross margin a smaller in nature, but still beneficial would be just heartbeat normally and initiatives manufacturing efficiencies. We get continued uhm price improvement as we look ahead, but.
The real driver will come from new products and I shouldn't I Should've also mentioned from our conclusions that technology is that you looked at that and again. Another example of a new product that we expect to have meaningful gross margin contribution.
Great. Thank you.
Thank you.
Our next question comes from the lineup Travis Steed with Bank of America is your line is now open.
Hey, Thanks for taking the question I just wanted to talk a little bit more on the margin commentary for 2023.
There's a lot of variability on margins, which is important right now in new starts drive a big percentage of your gross margin mix. So long if you'd be willing to commit to like a couple a couple of things, which would be like can gross margin still be above 50%.
And an environment, where you've got 11% to 12% revenue growth and EBITDA margins can can those there'll be positive 78 per cent cheer to those still stay positive for next year are they likely to go negative.
Okay first let's be very clear that we're not getting a lot of color on the rest of the piano for next year at this point, we wanted to make sure. Most importantly that we got rights that on the sales line just.
<unk> thinking about some of those puts it takes I will point out that I wouldn't say, it's just new pampers that drives the margin. It's all it's all pampers and one important fact about 2023 is how much larger the renewal opportunity what will be for us that we will continue to dry pump sales and so if you think about it last year there were about 17000, new opportune.
D as in the U S. This year that kind to about 30000 next year, it's going to grow almost 80%. So if you think about that we still have a healthy opportunity from renewals alone that will help with some of the pressures that are seeing on the new patient side of things.
Okay, and I guess my father was actually on the renewals why don't you give a percentage this quarter, but kind of what you've got assumed an 11, 11% to 12% if you're starting to see any competitive pressure on renewals are those people come up or if you baked any of the competitive pressure in the middle of opportunity and the 11% to 12% and then did you still expect historic.
It's been 50 50 M. B I vs competitive ones, if you're stinks dot mix is gonna stay the same or you see that shifting in 2023.
Sure So with renewals first the last I think metric we gave about progress other than just growth rates with when we exited 2021 with those opportunities that had already come to the table in that year alone, we'd already renewed about half of them and as we look at progress this year with new opportunities coming to market I would say we're renewing.
At a faster clip so that that renewal rate is actually improving each quarter as we move along so when you think of 2023 that bodes very well for an opportunity basis going to exceed 50000 people. So I think that.
You make a strong points, even with all these challenging dynamics that we've seen it has not impacted our renewal progress and like I said, we've actually improved over the last few quarters. So we feel very strong about that and again it goes back to customer loyalty how much they loved the pumps, how much they love control I Q and people don't want to leave and so we feel very good about that piece of.
When you think about the new customer dynamics, you know unusual environment, but I'll I'll I'll give commentary against what I've been saying, all along which is we've always expected that competitive conversion opportunity just start to go down over time, probably will start a little bit next year, just because of the sheer number of opportunities won't be as large as.
It has been.
Now, but we do still expect to attract new <unk>, and particularly with our product launches next year.
We're seeing more moderated growth and does now uhm, we expect to be back to where we would call more exceptional growth after those lunches.
Alright, great. Thanks for taking my questions.
Yep. Thank you. Thank you as a reminder to ask a question at this time. Please press star one one on your Touchtone telephone. Our next question comes from Josh Jennings with Cowan. Your line is now open.
Hi, good evening, thanks for taking the questions I wanted to just.
I was hoping to get some more details on their customer benefit programs and do these programs help patients.
<unk> the pumps or is it the whole.
The whole system to pump the C. G M C fusion sets in the car to choose and the reason I ask is just wanted a better so lucky as to appropriations deductible.
If the <unk> are helping access to the pumps.
And these patients.
Just associate the C G M and peace limits to get their Cgm's do the pharmacy channel should not impact their medical deductible sorry for the granular question, but just wanted to better understand the dynamics you guys are put in place for these patients to help them good access.
Sure. Thanks for the question Josh.
One thing about health care, and you mentioned, you know deductibles and pharmacy versus medical it varies so much from plan to plan and some plans it's that way in some plans at the deductible for the whole thing no matter what your channel isn't so first of all I think that is there's a complexity. There secondly, one thing I would highlight is that when a customer obtains or C. G M.
Doctor Us so they got they work through decks com for that and whatever channel.
<unk> offers of them, depending again on their plan as well so the plan that we offer to patients is focused on the pump purchase and it's all about what they are co insurance or deductible amount that still do is when they buy the pumps and we have made that program very flexible uhm offering payments as low as $50 a month and termed as long as four years.
And so and we hope that we can help.
Patients, who are having trouble, making those decisions on when they can move forward and help them through any financial concerns and also to some extent equalize them to the other business models that might be easier.
Easier to digest in an environment like this.
Thank you and so just to follow up with with a patient of the excesses attendant pumps too they're just.
What are these benefit programs as their deductible remain intact were to you is there a financing where they get reimbursed. The deductible is used for the current year and then.
Just to follow up would be just to get 2023, just thinking about the potential permit tronic lots of seven ATT any assumptions there <unk> just out of high level commentary for next year. Thanks.
Sure I'll take the question on the deductible. So you can think about it as regular professor insurance, which dictate how much they owe separate from that when they come to us and they say they are.
Call. It a thousand dollars, we will finance that for them and so it doesn't change at all how it's being processed through the insurance plan. It's just more about when they need to write a check to us how we help them put it on an installment basis.
Josh relative.
Relative to the next potential competitive product on the market I think that we're competing effectively against the today Oh U S countries in which we operate.
I think that we look at it as an incremental improvement to the Yahoo group.
<unk>, but it's still the same product.
We feel comfortable we will we will be effective competing against it.
Thanks, so much.
Thanks, Josh.
Thank you are.
Our next question comes from the line of Matthew Blackman with Stifel. Your line is now open.
Good afternoon, everybody. Thanks for taking my questions. Just a question on the tandem choice you've you've offered.
Upgrade pathway in the past with a sense of what uptake was when you're first offered it I don't know if there's a way to frame it 10% of patients eligible that did it or 20 per cent, just some way to frame that opportunity and and just one quick follow up after that.
Sure. Thanks, Matt I would we haven't ever quantified it publicly but I can say, it's a very low percentage of uptake. The most important part is that we have something that helps comfort people that they have that opportunity if they choose and I think one major difference. This time too is when you look back to what we offer before it truly wasn't as great people who are <unk>.
Going from standard to accomplish the update about software. So there was a significant difference in that versus with movie. It said choice. It's a choice between two excellent platforms offering the same control IQ algorithm. It's just a matter of how they want to see their data or interact with the pumps and so uhm.
So it'll be interesting to see about it but the uptake are the percentage has always been very low for us in the past.
Got it and then on mortgage on I think you mentioned you were refining takes sometimes of refined some of the features on movie did I hear that correctly entity you can give us.
Some flavor of what you're playing with them and if that's the case would these be refinements that you would file for after you get the original prove I'm just trying to help help me understand what what you're doing with movie some of the comments that you made it.
There's no changes that are going to require additional filings. The work. We're doing right. Now is really it's the normal part of the work for that occurs between a submission on a clearance.
Increasingly focused on manufacturing and things like that but there's this technical that we're working to resolve between now and the actual introduction to the product and that's essentially what we're doing.
Got it okay I appreciate it thank you yep.
Yep. Thanks Ma'am.
Thank you and I'm currently showing no further questions at this time.
This does conclude today's conference call. Thank you all for your participation you may now disconnect.
Okay.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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