Q1 2023 Tandem Diabetes Care Inc Earnings Call
Speaker 1: You
Speaker 2: Good day and thank you for standing by. Welcome to TEM diabetes care first quarter 2023 earnings conference call. At this time, all participants are in 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 11 on your telephone.
Speaker 2: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. 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, Executive Vice President, Chief Administrator Officer. Please go ahead.
Speaker 2: Hello everyone and welcome to Tandem's first quarter earnings call for 2023. We'd like to remind everyone that today's discussion will include forward looking statements.
Speaker 2: 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.
Speaker 2: from those anticipated or projected in our forward-looking statements.
Speaker 2: 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 .
Speaker 2: quarterly report on Form 10Q, and in our other SEC filings.
Speaker 2: We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or other factors.
Speaker 2: Today's discussion will also include references to a number of GAAP and non-GAAP financial measures.
Speaker 2: 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.
Speaker 2: We believe these non-GAAP financial measures facilitate better comparisons of operating results across reporting periods.
Speaker 2: Any non-GAF information presented should not be considered as a substitution, independently or superior to results prepared in accordance with GAF. Please refer to our earnings release, quarterly report on Form 10Q, and the Investor Center portion of our website for a reconciliation of these measures.
Speaker 3: to their most directly comparable GAAP financial measure.
Speaker 3: Today's call participants include John Sheridan, our President and CEO . Brian Hansen, our Executive Vice President and Chief Commercial Officer, and Lee Vossler, our Executive Vice President and Chief Financial Officer.
Speaker 3: Following their prepared remarks, we'll open up the call for questions. Thank you in advance for limiting yourself to one question before getting back into the queue. John , you're welcome to begin. Thanks Susan, and thank you everyone for joining us on today's call.
Speaker 4: We're coming out of the first quarter with confidence about our ability to achieve a key operational and commercial goals we set for this year.
Speaker 4: We continue to expand the insulin pump market while catch room can petitive share and grow the number of tandem customers purchasing a T-slime once again.
Speaker 4: This is a meaningful achievement in a highly competitive environment and a testament to our talented employees and our number one rated piece will next to control IQ technology.
Speaker 4: Internally, our teams continue to prepare for the launch of multiple new products in 2023.
Speaker 4: I'll talk more about each of these later in my comments, but overall, there's an enthusiasm at Tandem as we approach being able to offer another wave of innovative products to the diabetes community. It isn't happening now.
Speaker 4: With these launches, we'll be building a potter reputation for offering kite quality products and services that reduce the burden for diabetes management.
Speaker 4: We set our high bar with our easy to use T-slamex2 with control IQ technology.
Speaker 4: It continues to deliver outstanding clinical and quality of life improvements across a wide range of ages and demographics of people living with type 1 diabetes.
Speaker 4: This was recently highlighted in multiple publications, including the New England Journal of Medicine and diabetes technology and therapeutics.
Speaker 4: The amount of positive data we are amassing for our market leading AID capabilities is unrivaled.
Speaker 4: The New England Journal publication was the third time our T. Swimmies featured in the journal. This time focusing on the benefits of our control IQ technology for very young children.
Speaker 4: The IBD technology and therapeutics recently published a meta-analysis of free randomized control-like trials that demonstrated the immediate and sustained clinical benefit of our system.
Speaker 4: What this meta-analysis shows is that regardless of age, people with the highest baseline hemoglobin A1C and the lowest time in the range experience the greatest benefit, which is important as we work to bring the benefits of our technology to more people living with diabetes.
Speaker 4: Our technology is not only making a positive clinical impact, so we are also making a positive impact on the environment.
Speaker 4: By choosing a T-Slim pump, our customers have kept more than 20 million batteries out of landfills since 2012.
Speaker 4: This is an important part of our longer-term product strategy as we look forward to similar environmental benefits from our future product offerings.
Speaker 4: It's just kind of performance and impact, combined with the customer experience our teams provide. That sets the hand of a part and allows us to continue growing our install base three years following the launch of control IQ.
Speaker 4: I'd now like to ask Brian and Lee to spend a few minutes talking about our performance in the first quarter, the broader commercial environment and our expectations for the remainder of the year. Brian ?
Speaker 4: ask Brian and Lee to spend a few minutes talking about our performance in the first quarter, the broader commercial environment, and our expectations for the remainder of the year. Brian ? Thanks, John .
Speaker 4: In my role, I get to spend quite a bit of time with healthcare providers and their patients. And the personal stories they share quickly put into perspective why our T-Slam X2 and when pump is rated number one.
Speaker 4: It's number one in terms of overall satisfaction, number one in terms of clinical outcomes, number one in ease of use, and number one in reducing burden.
Speaker 4: There is also broad acknowledgement to control IQ technology continues to be best in class.
Speaker 4: Our automated correction bowl is feature, customized profiles, superior overnight control, and abilities is connect, continued with strong selling features.
Speaker 4: This is why over the past several years, including in the Q1 of this year, approximately half of our new customers reported adopting insulin pump therapy from multiple daily injections.
Speaker 4: Demonstrating that we are furthering our long-term goal to expand insulin pump market.
Speaker 4: As we look at the broader commercial environment, the start to the year was largely consistent with what we've seen exiting 2022.
Speaker 4: While there were pressures associated with the competitors new product launching the United States, which created noise and delayed decision making, the experience we've gained selling in this environment will benefit us in the back half of this year.
Speaker 4: Our sales team is excited about the increasing number of in-person diabetes education and advocacy events and our clinical specialists are training more patients than person, which our customers report is a very positive experience.
Speaker 4: These interactions with our team contributes overall customer satisfaction, which remains high for our technology and our services.
Speaker 4: It's why we've not seen a change in our modest attrition rate over the past few years.
Speaker 4: We monitor this in multiple ways, including through the incredible amount of therapy data regularly uploaded by our customers through our Pconnect platform and renewal purchases.
Speaker 4: In fact, the number of repeat customers purchasing a new pump from tandem once again increased meaningfully in Q1.
Speaker 4: It's also encouraging based on renewal opportunity this year is significantly higher than 2022 and continues to climb over the next few years and line with our historical puncture.
Speaker 4: The impact of the U.S. economic environment has also been consistent over the past several quarters.
Speaker 4: The more comprehensive payment plans now available to our customers have helped address this pressure. But it is also highlighted that there are some misconceptions held by patients and positions about the affordability of insulin pump therapy through the DME channel.
Speaker 4: Our data shows on average the cost for a direct tandem customer is less than $50 monthly for our system and nearly a third pays zero out of pocket for the pump itself. Our commercial team is focused on driving customer awareness of these facts to counter the perception of cost as a barrier to choosing the T-slip X2 for pump therapy. Outside United States there isn't the same pricing sensitivity.
Speaker 4: As most people recovered under government healthcare plans, we're a little or no additional payment to require to a dot pump therapy.
Speaker 4: Related to our international scaling activity, we continue to work through the logistics of the inventory transition to our European distribution center, which was largely done in the first quarter. We continue to work through the logistics of the inventory transition to our European distribution center.
Speaker 4: We've now on boarded our distributors in France and Germany, which are two of the largest countries we serve. And once completed in the second quarter, this European distribution center will support roughly 70% of our sales outside the United States.
Speaker 4: We're already hearing positive feedback from our distribution partners that it's easing the supply chain process.
Speaker 4: We now serve approximately 25 countries worldwide and in 2023 we'll be focused on bringing the benefits to more people living with diabetes in those countries.
Speaker 4: As we have noted, most of these countries are only 10 to 20% penetrated, which presents an exciting longer term opportunity.
Speaker 4: Overall, we continue to be mindful of our competition and will capitalize on the valuable knowledge we've gained so far to inform our commercial strategy at the Expandor launches worldwide.
Speaker 4: We remain excited about the T-Slam X-Tooth system we offer today as well as a future technology right around the corner.
Speaker 4: We're starting to receive customer and healthcare provider inquiries about MOVI and their early signs of anticipation building, reinforcing conviction and our strategy of offering a true portfolio of pumps to meet the needs of more people living with diabetes.
Speaker 4: With that, I will now turn the call over to Lee.
Speaker 2: Thank you, Brian . As a reminder, unless otherwise noted, the financial metrics I'll be discussing today are on a non-gap basis.
Speaker 2: Reconciliation to GAP can be down in today's earnings release as low as on the investor center portion of our website.
Speaker 2: Worldwide sales in the first quarter were 171 million, which was in line with the high end of our expectations and excludes the deferral associated with the US Ten Entries program that launched in late 2022.
Speaker 2: Nearly half-part sales were driven by 23,000 companies. There were multiple unique factors in the quarter resulting in year-over-year comparisons that are not necessarily reflective of the progress of our business, such as the impact on sales of the ongoing operational transition to our European Distribution Center. Beginning with our results in the US.
Speaker 2: total sales for 133 million. We experienced typical seasonal trends in our first quarter performance associated with insurance deductible reset. For example, the average sequential decline for a pump shipment in the US historically was approximately 30%.
Speaker 2: In the first quarter of 2023, the decline was 28% as we shipped 17,000 pumps.
Speaker 2: While the majority of these shipments were to new customers, renewals also provided a meaningful contribution in the quarter with strong growth year over year.
Speaker 2: We maintain the improvements we saw last year in our renewal rates on an increased number of new opportunities which underscores our high customer satisfaction. Turning to supplies, we found increase in both our cartridges and infusions that failed in line with growth in our in-mortem install base to approximately 300,000 people at the end of the first quarter.
Speaker 2: Similar to pumps and our historical experience, we saw insurance-related sea and the first quarter impacting customer ordering patterns.
Speaker 2: Overall, our direct mix of business in the US and therefore pricing was consistent with 2022 at approximately 35% of sales.
Speaker 2: We are reaffirming our non-GAPS sales expectations in the US for the full year and the range of 650 million to 660 million, based on our current referral trends for new customers and strong renewal rates.
Speaker 2: We assume that sales will increase across the quarters and that the year will be back and loaded due to normal seasonality.
Speaker 2: We're considering the sequential step up from Q1 to Q2, historical trends show a great deal of variability. The Biden and the range has been a low double digit increase over Q1, which is a good starting point for how to think about this year. As customers anticipate new product launches from our partners, competitors, and even our own mobile launch.
Speaker 2: Outside the US, our sales in the first quarter were 38 million. We shipped approximately 6,000 pumps freeing our estimated in warranty customer base outside the United States to 130,000 people.
Speaker 2: This is a 30% increase in the number of our customers out by the U.S. compared with Q1 of last year. A big focus for our internal operations and supply chain team in the quarter was the continued transition to utilization of the European Distribution Center that I am discussed.
Speaker 2: This is a positive move for our business, reducing logistical supply chain challenges, strengthening international distributor relations, and bringing closer correlation between our pump shipments and pump placements on patients. The first quarter impact of this transition was approximately 18 million reflected in our pump and supply sales.
Speaker 2: Although we have substantially completed the onboarding of the participating markets, we anticipate approximately 7 million of remaining sales headlands in the second quarter based on current distributor inventory levels.
Speaker 2: These pressures were partially outset in the first quarter by pricing benefits from the actual mix of the ordering countries.
Speaker 2: Consistent with our previously provided guidance, our full year expectations for our OUS business are in the range of $235 million to $240 million. Turning to margins, our gross margin in the first quarter was in line with our expectations at 50% of sales. Similar to our experience in recent quarters, we benefited from higher average selling prices and reduced manufacturing costs.
Speaker 2: of Priorydain early 2022 for the pressure growth margin.
Speaker 2: Those higher material costs combined with greater freight costs reduced growth margin by 1% of each point.
Speaker 2: We anticipate that the entire inventory cost will be materially behind us in the second half of this year and maintain our expectations of approximately 52% gross margins for the full year.
Speaker 2: From an operating expense perspective, we continue to diligently manage spending, prioritize investments in future growth opportunities, and pursue additional measures to create efficiencies within the organization.
Speaker 2: In relation to those efforts, we recognize the 1x79 million charge for our in-process R&D associated with the closing of the AMF medical acquisition, as well as 3 million in cash and non-cash severance costs in the quarter.
Speaker 2: Beyond these unique items are increasing C1 baseline spending compared to the fourth quarter with primarily associated with ongoing operational costs related to our recent acquisitions and lowly development scale-up costs.
Speaker 2: When excluding the one-time transactions as well as depreciation, amortization, and non-cash stock-based compensation, our adjusted EBITDA margin was negative 12%.
Speaker 2: This was in line with our expectations, particularly in light of the sales impact of the European Distribution Center transition. We anticipate that our adjusted EBITDA margin will improve in the second quarter to negative mid-single digits with the return to positive margins in the second half of the year when the distribution center transition is complete. Therefore, we are maintaining our expectations for adjusted EBITDA to be in the range of the
Speaker 2: is provided on a non-gap basis, our worldwide sales are estimated to be in the range of $885 million to $900 million, including sales outside the United States of $235 million to $240 million. Our gross margin expectation is approximately 52% and adjusted EBITDA is estimated to be in the range of 5 to 6% of sales.
Speaker 2: Our non-cache P&L charges for stock compensation depreciation and amortization are expected to be approximately 115 million, of which 95 million is associated with stock comp and 20 million with depreciation.
Speaker 2: As a reminder, unless otherwise stated, the financial metrics I discussed today are on a non-GAAP basis. These refer to our earnings release and the investor center portion of our website for reconciliation to the most directly comparable GAAP financial measure.
Speaker 4: I will now turn the call back to John . Thanks, Lee. Delivering on innovation is why drove tandem to his leadership position in insulin therapy management.
Speaker 4: We are committed to continue doing so by serving the varying needs and preferences of people living with diabetes.
Speaker 4: The majority of whom use multiple daily injections today This requires a true portfolio of solutions that center around simplification and delivering choice
Speaker 4: This means choice in features, choice in device form factor, and choice in how users can wear and operate their pump.
Speaker 4: We'll continue delivering on this vision in 2023 as we plan for our upcoming new product introductions. Our goal, starting this fall, is for the T-slum X2 to be the first FDA-cleared insulin pump integrated with multiple CGM sensors.
Speaker 4: The choice of more than one CGM is not only a differentiator, it's a true realization of interoperability and opens the door for more people to adopt our technology.
Speaker 4: This empowers users to make the best-fensor decision for their needs and preferences.
Speaker 4: Artisel next to pump in the markets are capable of being remotely updated to integrate with Dexcom's G7 and Abbott's free-style release sensors. These no cost-offer updates will be offered to all X2 users within their warranty period. We find that launching our products in a meter fashion
Speaker 4: provides the best experience for our healthcare providers, customers, and internal teams.
Speaker 4: The key phases, including starting with internal walk-about testing, followed by scaling availability in the United States, and that internationally.
Speaker 4: We've been working closely with DEXCOM to finalize our control IQ integration with G7 and to coordinate its launch. Talk about testing has been taking place and launch with scale across the upcoming months followed by our international rollout.
Speaker 4: We've also been working diligently on the integration of Abbott's freestyle Libre 2 and Libre 3 sensors. We'll talk about testing using Libre 2 is also underway and we plan to start a scale launch in the US in the third quarter with Libre 3 as a fast follow. We believe this path will allow Libre customers to enjoy the benefits of our control IQ technology.
Speaker 4: as we finalize the integration with Libre3.
Speaker 4: Outside the United States, we intend to launch directly with the Liberace III sensor as the implementation path aligns with our target launch timing. The next new technology we are preparing to launch following FDA clearance is the Tandem OV system.
Speaker 4: As a reminder, the mobile pump is about half the size of the T-swim and operated by a smartphone through a mobile application.
Speaker 4: It's designed to expand our portfolio of diabetes solutions and offer people greater choice in how they wear and operate their pump. Our dialogue with the agency remains constructive as we work through the process of FDA review and responding to questions.
Speaker 4: In the meantime, we continue to prepare for its launch in the second half of the year. As you can see, we are making great progress with our future products in addition to the strength that we offer in our T-Slim X2 today. We have historically introduced new diabetes technologies at an industry-leading pace.
Speaker 4: So it's particularly noteworthy that we will be bringing multiple new products to market in the coming months.
Speaker 4: Our employees are extraordinary. And I'd like to express our thanks to everyone for your efforts in making both tandem and our technology offerings positively different.
Speaker 4: We remain confident in our ability to achieve our goals for the year, which focuses on successful executing our business plan, supporting our customers and building shareholder value.
Speaker 4: With that, I'd like to ask the operator to open the call for questions.
Speaker 2: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Speaker 2: Please stand by while we compile the Q&A roster. And our first question is from Matt Mixick with Barclays. Your line is open. Please stand by while we compile the Q&A roster.
Speaker 4: Hi, thanks for taking the question. And congrats on a really solid quarter here. So maybe John , if you could describe the walk about process and the ramp up of the integration that you talked about a little bit different than the clearance and launch.
Speaker 5: cadence that we're used to and then I just have one follow up.
Speaker 4: Sure. Well, the sequence of releases is really going to follow the sequence of the FDA approvals for both Dexcom and Abbott. So Dexcom will be first and then that'll be followed by Abbott.
Speaker 4: And as I said in the current remarks, we conduct this walkabout testing really to help us understand and optimize system performance and customer experience.
Speaker 6: It's followed by a scaled launch, which is going to happen in the upcoming months.
Speaker 6: and we would expect to see a meaningful number of customers using the T-SLIM G7 in the third quarter. So I think that when it comes to the international launch, it will follow the U.S. launch. It will occur on a country-by-country basis for G7.
Speaker 6: and it will commence in a relatively short timeframe after the US launch starts. When it comes to the Abbott product, we are also in the walkabout testing phase right now, and that scaled launch process is going to be delayed a little bit compared to Dexcom. It will happen in the third quarter.
Speaker 6: And so I think that, you know, it'll happen in the third quarter. We would see meaningful numbers of people using the system as we enter the fourth quarter.
Speaker 5: That's great. Thanks so much for the color. And one poll of echo John , we talked about this process. And we pick up on this a little bit when we talk to clinicians and how they're seeing patient choice and a food.
Speaker 5: center, new patients considering, you know, the two leading closed loop systems out there in the market. It seems to have kind of stabilized in sort of a 60, 70 percent of new patients may be flowing to the other system in the very, very anecdotal.
Speaker 5: check that we've performed, but what's your stance? I mean, is it sort of crested? Is it stable? Is there anything else coming up in the narrative and dialogue that clinicians are having with patients that gives us a sense of what that environment's like at the moment? Yeah.
Yeah, I think you're right. I think we saw the situation as having stabilized. There still is pressure for sure, but it's not any dire, it's not any worse, that it has been entering this year.
I think we probably expect to see the pressure for another quarter or two until we start to see the benefits of this new technology, new ways of innovation come to market in the second half. And so we would agree with your, your, your, your characterizations.
One moment for our next question. And our next question is from Stephen Litchman with Oppenheimer. Your line is open. Open.
Thank you, evening everyone. So, just one question and then just one quick clarification just on terms of making...
It looks like you're making a nice progress on the integration with the CGM. That is not embedded in guidance, right? Any sort of contribution you get in the latter part of the year. That's just clarification. And then just going back, Brian , to some of your comments about some of the experiences you've learned in terms of...
of competing with the newer products in the market, and that could help you in the back half of the year. Can you talk a little bit more about what that means? I think you had talked a little bit about the pricing dynamics and some clarifications there. If you can clarify what you mean by that and what you'll be putting in place, thanks. Sure, so, Leigh, you wanna touch the first one? I'll start with just, can...
Sure, I'll start by confirming that we do not have any new product contribution in the guidance for this year.
And to my piece, I commented earlier that first quarter was a lot like fourth quarter. The environment is pretty stable right now from a COVID perspective. We're not seeing those challenges. Maybe a few staffing challenges. So now we sit with some of the economic pressures. And I think we've addressed those very well. And obviously the competitive piece, you know, is part of the prepared remarks and something that we see. And if we are going to allow
I would say most of our conversations with our healthcare providers start with the strength of control IQ and the support that they get from the tandem team. And then we take a look at that six or nine-month window now that the competitive product has been available on the market. Those patients are coming back to the endocrinologist with feedback and we can see how they're doing. The physicians can see how they're doing.
And again, it highlights the strength of our product and to some extent, the strength of their products. We feel very good about our offering and continue to lean into the size, the touch screen, the ability to disconnect all the features that folks have liked. And our team has done a tremendous job there. So in honestly speaking, this is absolutely the thing. It is. And the problem is you cannot do anything withoutmetering the skillset that opponents have. So I'm rather deliberate and still have toCommerce some of my products
you know anytime there's a product introduction like that it takes a little while to kind of play out and that pent-up demand and early excitement but I think we're moving into a more stable environment now going into Q2 and the rest of the year.
Great. Thanks. I appreciate it. Next week. One moment for our next question. And our next question is from Chris Pesquale with Neffron Research. Your line is open.
Yeah, thanks. John , one question on MoVie then, and one just on the model. Are you expecting any slowdown in pump shipments as MoVie gets closer to the finish line here? You talked about anticipation starting to build. We have seen in the past when you guys have launched new products, a bit of an air pocket in front of that. Is that contemplated in your outlook for the year?
I'll take that one, Chris. Yes, anytime a new product is introduced into the market, whether it's a competitive product or own product, we tend to see noise and advance of it. It's usually the strongest in the time from when FDA approval comes around that time frame up until the point where it's actually released on the market.
So when we look at the cadence of how sales will spread across the year, we're taking that into consideration, which is part of the reason when we talk about the sequential step up into Q2, when we think that noise might begin, we're cautioning you to start on the end of the low double digits step up, which is the low end of the range that we've seen historically.
Okay, that's helpful. And then just looking at the international pump revenue this quarter, there was a pretty big delta between pump shift and the revenue you guys recognize there seem to imply a step up in ASP. Is that just because of mix or is another dynamic happening there, it relates to the distribution center?
You know, it actually is related to the distribution center, but it is a price benefit. So if you think about the failed headland that we saw was within particular countries. And so it was a different mix of ordering countries within the quarter than what we would see on a normal life basis.
which gave us that price benefit this quarter. It's not something that I would model in or expect to continue for the future. Okay, thank you. Thank you, one moment for our next question.
Our next question comes from Brooks O'Neill with Lake Street Capital Markets. Your line is open. Good afternoon. So the last few.
Product innovations you guys have delivered have largely been delivered through the free software download and I I know we're anticipating that for the integration with G7 and the free products how how do you view the impact to your revenue line from those
free software downloads versus the impact you might anticipate from MOBI, which is a complete new form factor.
I'm going to say that a hybrid, first of all, how you doing? I would say that we help back to see good. We expect to see, you know, a favorable revenue impact from the G7 launch. It's a brand new form factor. It's got a faster startup time. I've talked to people who are using it and it really is, people really do like it. So we think that it's going to be a positive impact as we mentioned.
We also think that it could help us with renewals to have people renew sooner. So, that's all good. I think that Abbott, when you think about Abbott, there's quite a large number of people with type 1 that are using the Abbott sensors that are not using pump therapy today. So, that may represent even a bigger opportunity than what we see with Dexcom. I do think that when we bring Mobita Market, it's a brand new form factor.
It's going to be controlled by the mobile app. It's got the discretion and the ease of views, just the simplicity of interacting with the system that's on a mobile app. We think that's going to have a positive effect on sales. I think that all three of them are going to have a positive effect and I think that.
You know, probably you know we'll see some effect in the latter part of this year, but the good news about 2024 is we get the full benefit of these products, including tandem source, which we haven't talked much about to the entire year of 2024.
Great. Thank you very much. Thank you. One moment for our next question. And our next question is from Larry Beagelson with Wells Fargo. Your line is open. Hi, this is Nathan Trebeck on for Larry. Can you talk about how new starts trending in Q1 relative to renewal and the underlying drivers? And I guess what you're seeing in April so far. Thanks. Sure.
In terms of new competition, so your competitor recently got approval for their 780G pump in the US. How are you thinking about the competitor landscape once this is on the market? Thanks.
Well, we've been keeping against that product now in the OUS countries for many quarters. And while we know that once the product does come to market, as I said some time this summer, we expect them to step up promotion. But we think we have a better product. We think we have the confidence and trust of the endocrine community in the States. And when you...
Thank you. One moment for our next question. Our next question comes from Danielle and Talfi with UBS. Your line is open. Hey, good afternoon everyone. Thanks so much for taking the question. I can have two questions if I could. One on the competitive environment and that's really around what's factored in. I mean, I think we were all a little surprised about the recent product approval from one of the major competitors. So what's factored in to the guide there. And then my second question. I'll just ask it now and you did touch on this.
when a new product is being introduced, factoring that there will be noise in the market. And in fact, we have been anticipating, I guess you would say, the approval of this product now for a year or two. So it's something that we've always assumed could be just right around the corner. So now we have more certainty about the timing. And so as we look into Q2, we think it'll be noisy, which is why when we look at our historical range of how Q1 usually transitions into Q2, we expect to be on the low end of that.
in the low double digits in terms of sequential growth with that kind of noise that's coming in the market and also add to it that there's going to be conversations people who might be waiting for G7 to be available on the pump as well as people starting to talk about MOBI. And so, you know, that's what we've thought about from a competitive perspective and the noise that could come this year. Daniel regarding liberate, I think the first thing to say that's important is that, you know, we're all about providing choice and we...
You know, we are not engaged in any of the competitive sort of competition between the sensor companies. All we're trying to do is provide a device that has choice of sensors so that people who have. A natural tendency to choose next calm can and if they have an interest in. I'm happy they can do that also but that being said I you know there as we understand that there's approximately 300,000 people.
who have type one in the US that use the avat sensor. And so certainly that becomes an opportunity for us to take advantage of that community. If we even get 30% or 35% penetration with that community, there's, it's 100,000 people that are potential candidates for pump therapy. So I think that there is a big opportunity with the avat device. And I think it's also larger outside the United States.
So, you know, we look at it as a growth driver that's going to, you know, it's really an important growth driver that allows us to get to the numbers we've talked about in 2020, so time frame. So it's an important part of our pipeline going forward.
as a growth driver that's going to know room. It's really an important growth driver that allows us to get to the numbers we've talked about in 2020, so time frame. So it's an important part of our pipeline going forward. Thank you.
One moment for our next question. Our next question comes from Matt Taylor with Jeffries. Your line is open. Hi, thanks for taking the question. Hey, John Lee. I just wanted to follow up on that line of thinking about the app opportunity. And John , you mentioned 13 to 35%. Having done market research on the percentage of people that could convert or how do you think about the opportunity?
overall for them to convert to MBI and say haven't done that previously and your opportunity within that.
Yeah, and as I said, I think that there's about 300,000 and if you look at the current penetration rate of pump therapy in the US, it's about 35%. So, in my mind, that kind of defines a starting point. We certainly are going to have to sell to them, help convince them of the benefits of pump therapy. And just work the process, but I think that when we set a goal for ourselves, I think that's a reasonable starting point.
And I think as they become more and more familiar with the benefits of pump therapy, connected up to a sensor that they're comfortable with, we think that represents a significant opportunity for growth in the upcoming couple of years. Maybe just one, I mean, that makes sense. Could you help us think about the timeframe that you would expect some of those folks to convert in? What are the key factors?
whether they're converted in a quarter one or a quarter six after the integration. I think that the, you know, I think it's going to, it's not going to be overnight for sure. I think there's definitely going to be a selling process, a pro promotion, pro marketing process. That's going to have to happen. But I think that, you know, it does represent the large opportunity for us. And I think that something that our sales force is excited to get involved in. All right. Thank you. One moment for our next question. Our next question comes from Matthew O'Brien with Piper Sam.
I'm getting like 42% out.
The full year number is what you should generate the first half historically. It's been you know last year It's 47 this year before that it was 44 So it's just a big ramp in the back half of the year with a competitor making more noise in the space Not including Moby Etc. I mean, you know, why are you confident to be able to get back to you know? Get up to 650 even at the low end of the range. I mean, can you really walk us through how you get there? Sure, thanks for the questions Matt. I'll start with the first one is how new pumpers broke down It again remained consistent at that 50-50 mix of about 50% coming from MDI and 50% from competitive conversions So no change in those dynamics there today, but again just to remark that
Renewals are becoming a much bigger contribution to our pump shipments every quarter. And that leads to the second part of your question about the U.S. this year and why we're so confident in the back half. First, I would say 2022 probably isn't a good comp for how the first half and second half split just based on the dynamics across the year. It was a much healthier environment in the first half than it was in the second half.
And so a 40-60 split isn't too unusual for what we've seen in our history. And this year the conviction comes from the fact that partially more of our business is coming from recurring revenue streams. So more like 60% this year, which is higher than what we've seen in the past when you factor in the supply sales stream that we see from our large install base.
as well as renewals growing pretty significantly. If we look four years ago, there were about 50,000 people that bought tandem pumps in the US up from 30,000 the year before, and those have a strong seasonal scale to them. So when you just think about normal seasonality, you think about the predictability of renewals coming and the predictability of supplies. It seems pretty normal for us to be able to achieve that kind of year and we have high level of conviction in doing that. Yeah.
Yeah, thank you. One moment for our next question. Our next question comes from Jason Bedford with Raymond James. Your line is open. Good afternoon. Just going to be a couple questions to probably work. Excuse me. Good afternoon.
direction you can give us on international revenue in 2Q.
So, I think Jason, the way to look at it is we gave a headwind that hit us in the 4th quarter of about 6M. It was about 18M and 2M. So when you add those back, I mean, considering there's still a little bit of variability in there. Because we haven't fully transitioned, that gets you to almost what I would call a normalized run rate type of.
And so there's still great growth opportunity there. It's just we need to work through these headwinds here in the near term. Okay. And just the up low double digit comment that you've made here, that was related to the US business, right?
Yes, thanks for asking that for clarification. It's US pump shipments is what I'm really referring to. When we look at our traditional seasonal patterns there, that seems like a good place to think about the starting point for Q2 of this year.
Okay. Okay. And then just to show up kind of the apples to apples comparison here, appreciate for you 230,000 in warranty user comment. What was the in warranty install base exiting 22?
Just so I make sure we're comparing the install base on an apples to apples basis. Sure, it was off the top, I think it was about 420,000. There's one thing I'd like to point out there. I think it's a question I've gotten a number of times is how to translate that installed base number into what is an ordering base number and or how to view attrition.
And that install based number that we provide is intended to be representative of who is in warranty in any given period. And while I think it's a good directional tool for modeling supplies for looking at renewal opportunities, it's not the way to measure attrition because it's straight math. So, as you add new people into the warranty base and you drop off people whose warranties have expired.
That's not how the ordering patterns work. We have people who have stopped using the pump and warranty. We have many people who use the pump out of warranty. So it's not necessarily a way to think about the Trishin, but it is good, directly, for modeling, like I said, supplies and thinking about new opportunities. And your comment is you don't believe it's Trishin. Jason, I'm going to need to ask you to.
comes from Joanne Lynch with City. Your line is open.
I'm just looking at my head around, TSLIM 2 is the only thing different between that and the previous TSLIM, the addition of G7 and Labor A3. And then part of that is, so you'll be going to market with Mobi as well as TSLIM 2.
How does your Salesforce sort of decide which one it's selling on which day? Thank you.
So, I just want to be sure I understand we right now we have T-Slim X2 on the market. And we are going to add the capability for G7 and Libre 2 and 3 to T-Slim X2. So we will be providing a software update. To the current install base, so that they can actually.
update to use these new sensors as they come to market. We are also working on the T-SLMX3, which is a technology upgrade to T-SLMX2. And that's something that's going to be coming out here in the near future. And it's essentially just to make sure that we preserve the life of the T-SLM product because it's been on the market for about 10 years right now.
So there's a number of technology upgrades that will enhance the capability, micro processing skills, and think there's capabilities as well. But I just want to be sure I understand the question when you're asking. I'm not sure if I did. Yes, you did. I probably didn't say as clearly as you answered it. But T-7 3 is coming out at the end of this year also. I'm just trying to get my head around how many new things you're talking about in the second half of the year.
Well right now we have 40 products. We have tandem source, which is something we really haven't talked about that much. And that's coming out here in the relatively near future. As we talked about the two sensor integrations, we expect to start scaling launch here in the near future with G7, and we'll start the scaling launch of that in the third quarter.
And then we're waiting for approval on MoVie. And so there's really four products that we're looking at happening here in the fourth, sorry, the third and fourth quarter of this year. Hand of T-flip X3 is out in time. It'll be the next product that we haven't been specific about when it's going to be available to the marketplace. But it's out there probably 12 to 18 months from now. Thank you.
for approval on Mobi. And so there's really four products that we're looking at happening here in the fourth, sorry, the third and fourth quarter of this year. T-Slim X3 is out in time. It'll be the next product that we haven't been specific about when it's going to be available to the marketplace. But it's out there probably 12 to 18 months from now. Terrific. Thank you so much.
You are 1 moment for our next question. Our next question comes from Matthew Blackman with people. Your line is open. Good afternoon everybody. Thanks for taking my question. I've got 1 clarification question for Lee and then a bigger picture question. Maybe we just to start. I'm not sure if we're doing the math right? And you gave us some different metrics to play with this time. But on renewals was the 1 Q number something approaching 5000 pumps something in that neighborhood just.
Any help there? And then I guess I'll throw the follow-up question, and this is probably for Jon and or Brian . I was hoping you'd give us some sense of your strategy in a primary care channel. There's obviously still some opportunity in endo offices, but it would seem to be a large still untapped cohort of type 1s and type 2 intensives that use PCPs. I know today you target high prescribing insulin docs, and that captures some of the opportunity, but do you need to go deeper and...
for customers when their warranties expire was consistent again this quarter with last year even first quarter. So comparing a healthier environment to what we're seeing today, which is a little bit more challenge. But it says a lot about our own customers and how they really want to, they really want to stick with the product. They love the product. They love our customer service and everything that we offer.
In terms of the number, you know, another piece of information that might be useful, I mentioned the sequential decline for pump shipments from the 4th quarter to the 1st quarter. It was approximately the same for both the renewal population and the new population. And so renewals are becoming a bigger percent of what we ship. Each quarter, and we expect that to continue throughout the year as the number of opportunities grow, but new helpers will still be the majority. And so hopefully that's a little bit of information to help you understand.
that space more aggressively and when they start to get inquiries about pump therapy or the opportunity to work with their patients, they've almost been to several of those meetings. And as physicians become more comfortable with that, we certainly will spend time with anyone who's interested in learning more about pump therapy, expanding to their patients and quite frankly getting trained on it and support them just like we would in an inter-cannology office, but clearly...
the majority of our time is spent in our big diabetes education centers where we see the type ones predominantly sitting. As we start to look at type 2 more aggressively in the future with control IQ and our future products, that becomes probably a bigger piece of our strategy to grow in the primary care space.
All right, thank you. Yep. One moment for our next question. Our next question comes from Joshua Jennings with TD Cohen. Your line is open. Hi. Good afternoon. Thanks for taking the questions. I wanted to ask about the cost per monitor patient for pumps of less than $50. Does that include the expenses related to CGM and the exception
Yeah, so the infusion sets cartridges are only available through the DME channel today and that $50 or less per month does not factor in the CGM portion of you know of their therapy. It's just strictly the you know pump is spread out over time as well as the infusion sets and cartridges necessary to operate the system.
Can the patients access their CGM through their pharmacy benefit instead of the DME to cut down on costs for the CGM? Absolutely. They have a choice if they want to get it in conjunction with their pump supplies, or they can separate those two and get those through the pharmacy channel if their benefits allow it.
back on just
cross-trial comparisons being challenging. So my question is, one, can you just remind us of the roadmap of enhancing the Control IQ Algo? And then how are you thinking about investing in a head-to-head trial against your competition? Would that be worthwhile?
to formally put the stake in the ground. The control IQ, ALGO, was the premier solution. Thanks a lot.
Yeah, sure. We are and have been since 2015 significantly expanding our internal capabilities to develop algorithms. And we have been working on it since that time. 2015 was when we first established the relationship with type 0. And I think that we established that relationship because we didn't have the capabilities initially. But certainly we have been since then, and we continue to work with a number of.
of universities and other institutions to just improve the knowledge and to run clinical studies and just get just better feedback on the performance and ideas on where we ought to be heading. So I will say that as you know we have our second and clinical study underway right now to evaluate certain features for
control IQ, we would, you know, we expect that that's going to inform a pivotal study that would be run sometime next year, and that study would be what would be required to get clinical approval for that next generation system. I think some of the key features that we've talked about in the past have just been simplification of the bolus workflow, personalization, and then I just, just there's a number of things that I think we can do to...
cross-section of people with larger body mass and also the younger children that have smaller body masses to use the system. And there'll be a few features that are going to be available in that, and that'll be available in a relatively short period of time, probably sometime next year. But most of the work that we're focused on right now is really on control I Q2 .0. And we're also looking beyond that. I mean, certainly we are.
working towards ultimately getting a fully closed loop system, but that's going to be out in time.
towards ultimately getting a fully closed loop system, but that's going to be out in time. Great, thanks. I didn't any, any, any, ambitious.
hold a support or invest in the head to head trial with competitive technologies. You know, I think Joshua right now, there's just a lot of clinical data out there, and I think we feel like clinical data stands for itself and it's strong. And I think we compete quite well, both from the sort of the clinical information as well as the real world data. So, at this point in time, I don't think we see the need to do that. And I think that when you talk to people about it, they, they certainly agree with us that our devices the best on the market. Thank you for being to our panel.
Understood. No, thanks a lot, John . You're welcome. Take care. 1 moment for our next question. Our next question comes from Travis Steed with Bank of America Securities. Your line is open. Hi, this is Stephanie Pizzola on for Travis. Thanks for taking the question. Heard the clarification on the US pump shipments upload double digits next quarter, but wanted to see how we should think about overall Q2 revenue.
on a sequential basis. The street is at 215 million, so I wanted to see if you had any thoughts there. And then on the Q2 EBITDA margin guide of negative mid single digits previously seems like it would be flat in Q2. So I was wondering if that's gotten worse versus before and if so why?
Thanks for the questions, Stephanie. So starting with sales worldwide in QQ, I think it is very important to get the information about where we think U.S. pump shipments trend because that's one of the biggest drivers, which is I would expect a software expectation than what people have right now.
really an anticipation that the market could be noisy in the second quarter, but we think it's temporary. It's really just ahead of some really exciting products that are around the corner for us and until the newest competitive product starts coming out to market, which we feel will compete effectively against. The other piece that I think is really important to understand about the expectations for Q2 is how the distribution center transition outside US is impacting the year.
So, originally I had given the guidance that it's 25M for the year and only said heavily in the 1st quarter. So now I think it's important to take note that that 7M will be ahead when in the 2nd quarter, which I think also was often expectations from where they are today. And so, you know, I think we want to be cautious as we step into Q2 and the environment that we're in, but we feel like everything that we're talking about, they're all just temporary items. And we feel convicted that we can achieve the 2nd half after what we see in the 2nd quarter.
To your question about the EBITDA, a lot of that is just translating what's happening from the OUS market. So as you think about the sales trajectory, we're closely managing costs, but it's really the sales that are influencing what EBITDA looked like in the first quarter and what we expected to look like in the second quarter. So once we get past that transition, EBITDA should start to track more closely to pump sales across the year. And so we do fully expect to be back to positive in the third quarter for the back cap of the year. So you know, to sundron is something then we do important work further along with the
One moment for our next question. Our next question comes from Alex Novak with Craig Halem. Your line is open.
Okay, great. Good afternoon, everyone. What is just the latest in the back and forth the BFBA and the Moby submission? Has there been any questions that have been raised? Kind of stopped for five to eight o'clock. Have you moved into labeling discussion? Just wordy, where's that stand?
We're having a constructive dialogue with them right now. I would say that we're at a point where we're responding to questions, and we're actually in the process of answering some questions, which in some cases take time because there might be additional testing and things like that that's going on. Thank you.
I would say it's constructive and I think that you know it's basically encouraging that we see a lot more activity from the FDA in the last couple of quarters. You know right as we've said in the past though it's difficult to predict exactly when we would expect to get approval and so you know the organization is preparing that that's going to happen in the second half of this year and it'll take us roughly a quarter to have the device on the market.
from the time we actually receive the clearance. Okay, that makes sense. And then in the past, you've talked about on the operating cost base that, well, I guess if you look at the operating cost base, you have doubled that size of the expense lines versus 2021, but the revenues hasn't doubled. Now, I know a lot has been happening last two years, but you're also getting ready for a lot of new projects and enhancements coming.
So I mean, how should we start thinking about efficiencies and margins over the next couple quarters next year or so when these new products come online? Should a lot of that start to drop to the bottom line and just, just, help me get back to the street castle positive territory that we were pretty close at when now we're a little bit farther away.
Right, so I'll start just the first half of this year is inwardly pressured by this transition that we're seeing outside the US. So that's 1 of the biggest pressure points that's. I'm preventing us from being positive on an email line for the last this past quarter in this upcoming quarter. What it takes is we're being we're prudently managing our spending. So we're looking very closely. At where we're putting our dollars where the right places to make investments.
play and not only will be very helpful from the physician perspective and the efficiency it can create in their practices but also internally and how we can offer patients something that's more like a retail experience as opposed to a lot of the today what's a required human interaction.
And so as we look forward, that's one of our biggest opportunities for the longer term to create efficiencies within the operating expense line to help us drive those margins up. And we're and we still remain confident that we can achieve our long term objectives there. And we have our final question comes from Mike Pollard with research. Your line is open.
Thank you for taking the questions. I have a question about this kind of emerging, bring your own sensor paradigm. Do you have any early flavor for weather?
control IQ algorithm performs similarly with the Dexcom products as Libre or are you sorting that out now and kind of if you could speculate What's the future state of this are? the pumps and sensors indifferent or might there be some quality and performance variances that We eventually know about in one two three years
You know, I think that we've carefully evaluated the Abbott sensor, and I think we feel very confident that it will perform very well with Control IQ. We plan on using the sensor data as soon as we initiate the sensor session to power the system and to actually inform Control IQ. So we have confidence that the system is going to work well. I think it just comes down to personal preferences. Some people prefer one sensor over the other, and I think that this just gives people choice.
What's going to happen is there will simply just be a touchscreen on the system, and you'll be able to choose whichever sensor you prefer. And I think that's the idea here, is just to give people choice. Thank you. And a boring follow-up. Reporting change supplies now instead of infusion sets and cartridges, is that permanent, or will there be a breakout in some other materials? And if not, why the change?
Sure, you're right. We did make that change this quarter and frankly the relationship between cartridges and infusion sets has been so consistent that it seemed like an unnecessary level of detail. So the way it has been tracking, you can usually see that infusion set sales run about two to two and a half times cartridge sales.
And it really just follows the use pattern of the patient. So there's not a lot of variation there. Thank you. And this concludes today's conference call. Thank you for participating. You may now disconnect.
I.