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Edited Transcript of TNDM earnings conference call or presentation 26-Apr-18 8:30pm GMT

Q1 2018 Tandem Diabetes Care Inc Earnings Call

San Diego Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Tandem Diabetes Care Inc earnings conference call or presentation Thursday, April 26, 2018 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kim D. Blickenstaff

Tandem Diabetes Care, Inc. - President, CEO & Director

* Leigh A. Vosseller

Tandem Diabetes Care, Inc. - Senior VP, CFO & Treasurer

* Susan M. Morrison

Tandem Diabetes Care, Inc. - Executive VP & Chief Administrative Officer

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Conference Call Participants

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* Doug Schenkel

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Jason M. Bednar

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Associate

* Jonathan Preston McKim

Piper Jaffray Companies, Research Division - VP & Senior Research Analyst

* Mathew Justin Blackman

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Ryan Blicker

Cowen and Company, LLC, Research Division - Associate

* Steven M. Lichtman

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and thank you for patience. You've joined Tandem's First Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference may be recorded.

I would now like to turn the call over to your host, Chief Administrative Officer, Ms. Susan Morrison. Ma'am, you may begin.

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Susan M. Morrison, Tandem Diabetes Care, Inc. - Executive VP & Chief Administrative Officer [2]

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Thank you. Good afternoon, everyone, and thank you for joining Tandem's first quarter 2018 earnings conference call. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, product development time lines and financial performance and operating plans, and speak only as of today's date.

There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward-looking statements. A list of factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is highlighted in our press release issued earlier today and under the risk factors portion and elsewhere in our most recent Annual Report on Form 10-K, quarterly report on Form 10-Q and in our other SEC filings.

We assume no obligation to publicly update any forward-looking statements whether as a result of new information, future events or other factors. The company also filed a Form S-3, universal self-registration statement, today.

The focus of this call is to discuss the company's financial results for the quarter ended March 31, 2018. In light of that and the SEC rules and regulations, the company will not be discussing beyond remarks on this call or answering questions about the registration statement. Kim Blickenstaff, Tandem's President and CEO will be leading today's call.

And at this time, I'll turn it over to Kim.

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Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [3]

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Thanks, Susan, and welcome, everyone, to today's call. Joining me today is Leigh Vosseller, our Chief Financial Officer.

2018 is off to a strong start with record first quarter sales and meaningful operational progress throughout our business. In addition, we've continued to advance our new products under development, including our PMA submission to the FDA in February, so there will be [piece for next 2] with Basal-IQ, which features a predictive low-glucose suspend algorithm. Overall, I'm proud of the positive momentum from the end of 2017 has continued further strengthening our confidence that we will achieve our goals in 2018.

Starting with sales. Two of the key strategic initiatives we executed on in 2017, the launch of the t:slim X2 with Dexcom G5 integration and the launch of our custom t:lock confusion sets continued to drive our top line growth in the first quarter. As we've discussed in the past, these initiatives, along with current Tandem customers becoming eligible for insurance reimbursement and choosing to renew with our insulin pumps once again, served as an inflection point in our business model at the end of last year. Since these were not onetime events, we continue to benefit from them in Q1, and we expect we will continue to do so moving forward as well.

Consistent with what we saw in Q4, about half of our organic customers reported being new to pump therapy, suggesting strength in the overall pump market. Of the customers who report converting from another manufacturer, we were pleased to continue to see a high number of former Medtronic and Animas customers choose the t:slim X2.

Prior to the Animas October announcement that they were exiting the market, our shipments to former Animas customers as a percent of our business were in the low teens. In December, it grew to more than 20% of our shipments, and it remained at this level during the first quarter.

This increase in Animas conversions, even with Medtronic being designated as a preferred pump partner, emphasizes the importance of people with diabetes having a choice in their insulin pump therapy management and that diabetes is not a one-size-fits-all solution.

At Tandem, we work hard to offer the diabetes community flexible differentiated options for therapy management. As a result, we now have the updatable t:slim X2 platform and have found that it's the pump of choice for the vast majority of our customers.

At the same time, demand for our t:flex insulin pump, which features a 480 unit insulin cartridge for people with greater insulin needs, has not been enough to support its continued development, and we've decided to discontinue new pump sales at the end of the second quarter. For comparison in the first quarter, we shipped less than 100 t:flex pumps compared to more than 4,000 t:slim X2 pumps.

Our current t:flex customers can rest assured, however, that their pumps will remain fully supported. We will continue manufacturing t:flex cartridges and all compatible infusion sets so they'll have access to supplies and to the same 24/7 customer support for the time left in their warranties. For an R&D perspective, we're valuating other potential solutions for people with greater insulin needs, such as insulin concentrates, and we will keep everyone informed should these initiatives progress.

Where our near-term product development focus lies is bringing our automated insulin delivery or AID products to the diabetes community. As we've discussed in the past, the 3 critical components of an AID system are an insulin pump, a continuous glucose monitor/sensor and an algorithm. And an algorithm can only be as good as the information that is provided to it by the CGM.

Dexcom has offered best-in-class CGM technology for some time, and they raised the bar once again with the recent FDA approval of their G6 sensor that will offer people with diabetes a number of important advantages, including no fingersticks and acetaminophen blocking. The sensor also received approval for integrated interoperability, or iCGM, which is expected to stream line the regulatory process when used with other connected devices. Big congratulations to our San Diego partners at Dexcom for this accomplishment.

The G6 approval is a win for the diabetes community and strengthens the overall systems that we plan to integrate with their sensors. As we look to what this means for Tandem's products in development, starting with the t:slim X2 with Basal-IQ, this system is designed to suspend insulin when low blood glucose is predicted and automatically resume insulin delivery when glucose levels begin to rise.

In February, we submitted a PMA to the FDA, which included previously announced positive pivotal study data that showed the system achieved the primary outcome of reducing times spent in hypoglycemia by 31% compared to sensor-augmented pump therapy alone. We were thrilled to see these clinical results, and equally important to us was the feedback from study participants that the system is easy to use and they had a high level of confidence using it without a significant training burden to get started.

As we share the path, this supports the usability data we presented at the diabetes technology meeting in the fourth quarter, which demonstrated a 99% success rate among study participants who performed a series of critical tasks using the Basal-IQ system after initial computer-based training. We believe the ease of the -- use of our system will give us a competitive advantage when compared to other systems that are currently available.

Our t:slim X2 with Basal-IQ pivotal study used Dexcom's G5 sensor. However, based on Dexcom's recent G6 approval and iCGM designation, we've been speaking with the FDA, who have outlined a path for us to offer the t:slim X2 with Basal-IQ and iCGM compatibility. This would allow for the -- our Basal-IQ system to be used with Dexcom's G6 sensor. Due to competitive reasons, we won't be outlining the regulatory path details, but remain confident on our goals to launch the t:slim X2 with Basal-IQ this summer with the G5 sensor, and we're actively working on adding iCGM or G6 sensor compatibility shortly thereafter.

Our ability to have this flexibility and adapt to the pace of our partner's innovation reflects the power of the Tandem device updater. It's a feature that no other insulin pump company offers today and continues allow -- to allow us to stand out compared to the competition. As we previously announced, all new features approved for the t:slim X2 by the FDA in 2018 will be made available to in-warranty users for no cost. Based on our current development activities, we expect these features will include both our Basal-IQ software and the iCGM or G6 compatibility.

We're also making great progress with our second-generation automated insulin delivery system with the t:slim X2 with Control-IQ. Also designed is a software update for t:slim X2 users, the system increases or decreases basal insulin to minimize hyper or hypoglycemia and improve a user's time spent within a targeted glycemic range. The hybrid closed-loop product has also been designed to leapfrog competing products by providing automated correction boluses, which we believe will bring additional benefits to our customers. The system was designed to utilize Dexcom's G6 sensor values and AID technology that we license from TypeZero, and we'll be pursuing the approval of iCGM compatibility as a part of this submission.

As a reminder, we are participating in the international diabetes closed-loop trial, and the pivotal trial portion is anticipated to commence this quarter. Accordingly, we believe we're on track to file a modular PMA submission to the FDA in the second half of this year, and our goal is to launch the t:slim X2 with control IQ, including iCGM compatibility in the first half of 2019 following FDA review on approval.

Turning to another of our growth initiatives. We're on track and actively preparing to commence sales outside of the U.S. in the second half of 2018. We announced the filing of our medical device application in Canada in the first quarter. And we have anticipated receiving a CE Mark this quarter.

As a reminder, we expect to operate direct sales and clinical operations in Canada but primarily leverage our other domestic customer support resources. For other geographies, we plan to utilize distributors with mostly existing infrastructure and resources and have announced some of these key relationships in the past few weeks. We welcome these partners in Australia, New Zealand, Italy and Scandinavia.

While there is significant activity internally preparing to offer the t:slim X2 outside of the United States, we continue to prioritize our efforts within the U.S. and have modest expectations for the contribution from international sales in 2018 but believe it's strategically important to position us for 2019 and beyond.

Overall, it's been a busy start to the year. And I'm very pleased at the progress we've made across all the company's initiatives in the first quarter. I credit these accomplishments to the hard work, passion and dedication of our employees.

I'll now turn the call over to Leigh to further discuss our results for the quarter and our financial guidance. Leigh?

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Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Senior VP, CFO & Treasurer [4]

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Thank you, Kim, and good afternoon, everyone. Our financial results for the first quarter reinforced that the positive dynamics we experienced in the fourth quarter of 2017 were not just the result of onetime events. They were the beginning of a trend into this year that supports our overall top line growth strategy.

Our sales were approximately $27 million, which is an increase of 44% compared to the first quarter of 2017 even with a $1.5 million benefit in 2017 related to the technology upgrade program that was in place at that time. The most significant driver of this growth was a 58% increase in pumps shipped to just over 4,400 for the quarter. This is a record number of pump shipments for our first quarter, which is typically the lowest quarter of the year due to the timing of insurance resets for annual deductibles and copays. This brings us to over 72,000 pump shipped since inception and just over 63,000 in the last 4 years, which we consider a reasonable estimate of our active installed base.

The largest contributing factor to the pump volume growth was the continued demand for our t:slim X2 with G5 for which we received FDA approval in the third quarter of 2017. As Kim mentioned, the customers converting from Animas pumps, again, exceeded our historical rate of conversion at levels similar to what we experienced in the fourth quarter.

Also, we continued to execute on our renewal strategy by shipping approximately 600 renewal pumps in the quarter, bringing us to over 2,600 accumulatively compared to approximately 200 renewals in the first quarter of 2017. The vast majority of these renewals still relate to sales originating in 2013.

It is important to keep in mind that we expect the renewal initiative to be a steady build as we work through the sometimes lengthy insurance verification and purchasing process with our existing customers. Similar to new pump sales, the timing of renewals may be impacted by the normal first quarter seasonality. In all, pump sales of approximately $17 million comprised 63% of total sales.

Supplies revenue also grew substantially to approximately $10 million, which is a growth rate of 60% compared to the prior year. This was the first quarter in which we sold infusion sets to our entire installed base due to the successful launch of our t:lock infusion set connector in late 2017.

Infusion set sales were approximately $7 million or 25% of total of sales. Similar to pump sales, supplies overall were impacted by the typical seasonality trend.

On our last earnings call, I outlined 5 key growth drivers for 2018 and beyond. Renewals, Animas customer conversion and infusion set sales were the first 3, all of which were evident in our strong Q1 result. As Kim discussed earlier, we're on track for the remaining 2, which are the anticipated summer launch of Basal-IQ and international expansion in the second half of this year.

Our products to-date further bolsters are confidence in the ability to achieve our 2018 sales guidance of $132 million to $140 million. In fact, we now expect to be at the mid- to upper end of the range even with the discontinuation of t:flex at the end of this quarter. Consistent with our historical experience, sales will be more heavily weighted to the second half of the year, especially considering the potential pause that may occur in anticipation of the Basal-IQ launch.

Gross margin in the first quarter was 42%, up from 36% in the first quarter of 2017. This improvement was a result of per-unit manufacturing cost improvements from higher volumes and overall manufacturing efficiencies even considering the transition to our new manufacturing facility, which doubled our capacity.

The incremental profits from higher (inaudible) set sales also provided benefit. As a whole, other nonmanufacturing costs, which primarily consist of pump warranty, freight and new customer training also reflected improvement year-over-year.

While our gross margin may fluctuate in a given quarter for a variety of reasons, particularly seasonality [and makes the] product solds in the varying levels of reimbursement, we're on track to achieve our long-term gross margin goal of 55% at our cash breakeven point, which is anticipated in the second half of 2019.

Operating expenses in the first quarter were approximately $27 million, which is slightly down from $28 million in 2017. The majority of that reduction is attributable to noncash stock-based compensation expense, which dropped to $1 million in 2018 versus $3 million in 2017. With or without this noncash expense, we continue to demonstrate tremendous leverage with single-digit increases in operating expenses compared to double-digit growth in sales. Our goal is to contain operating expense growth at a rate of less than 10% in 2018, including spending necessary to successfully launch in international markets.

Overall, we expect our operating margin for 2018 to fall within the range of negative 40% and negative 35% of sales. This includes noncash stock-based compensation and depreciation of approximately $12 million to $13 million.

We ended the quarter with approximately $82 million in total cash and investment. This includes $64 million in net proceeds from the equity financing we completed in February as well as nearly $7 million in proceeds from warrants exercised in the first quarter. Excluding these inflows from these financings, our cash use was only $13 million this quarter as we continued to focus on prudently managing our spending.

Historically, we've experienced a sequential increase in the use of cash from Q4 to Q1, but this quarter, we were actually flat to Q4 2017. Following the close of the quarter and through the expiration date of our Series B warrants on April 17, we received an additional $11 million in proceeds from warrant exercises. This brings our total year-to-date warrant exercise net proceeds to $18 million, of which the vast majority were Series B warrants, and further supports our ability to reach our cash flow breakeven target in the second half of 2019. Beyond our operational goals, we continued to be focused on the restructure or refinance of our outstanding debt in order to achieve a more optimal capital structure.

To summarize our 2018 outlook, we are reaffirming our financial guidance for sales in the range of $132 million to $140 million with an operating margin range of negative 40% to negative 35%. With a strong start to this year, we now anticipate that we will be at the mid- to upper end of the sales range. We believe that our cash on hand provides sufficient funding to reach cash flow breakeven in the back half of 2019, at which time we anticipate having an installed base of at least 80,000 customers ordering supplies on a consistent basis.

With that, I'll turn it over to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Rick Wise of Stifel.

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Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [2]

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It's actually Matt Blackman in for Rick. So Kim, you touched on international in your prepared remarks, but I was hoping you could maybe expand on those comments a little bit and help us think about what Tandem's overall international opportunity could be, let's say, in the next 3 to 5 years? And would you hope that, over time, international could be, I don't know, 10% to 15% of total Tandem? So just some help there would be appreciated.

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Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [3]

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Well, certainly, there's a significant share of this market that's o U.S. Unfortunately, a lot of these markets are sort of fragmented, but Canada has a big chunk, and several of these other countries we're pursuing have a significant chunk for us. So I'd like to think 10%, 15% of our revenues could be international 5 to 10 years down the road, unless our U.S. sales get so big, that dwarfs that opportunity over there.

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Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [4]

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Okay, that's helpful. And then my one follow-up question. I don't think we've talked about sort of the Tandem salesforce service footprint recently, and now particularly the balance sheet is really well funded, are there opportunities to add more scale there and maybe even drive growth higher? Just some thoughts on your footprint in the U.S. and if there are any plans to expand or if you need to expand.

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Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Senior VP, CFO & Treasurer [5]

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Sure, this is Leigh. Right now, we have about 70 territories in the field, and in 2018, we're committed to not expanding the salesforce. We feel like right-sized for the amount of growth that we're anticipating this year and next year. But we'll continue to evaluate as we go forward if we need to expand in order to drive the top line. Part of our opportunity in the future is that we continue to add renewals to our business. As that's more of an internal sales, so it doesn't necessarily require a field expansion.

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Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [6]

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You may want to talk about some of our automation of the systems, if you want, more color.

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Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Senior VP, CFO & Treasurer [7]

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Sure, as Kim was suggesting, we also are focusing on different pieces of automation in order to simplify the process, so -- in ways so we can leverage the existing people that we have while we continue to grow the top line. So for us, it's a leverage story.

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Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [8]

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Yes, it's just very labor-intensive chasing paper around. And we're trying to use other people's experiences or software that might automate more of that.

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Operator [9]

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Our next question comes from the line of Doug Schenkel of Cowen.

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Ryan Blicker, Cowen and Company, LLC, Research Division - Associate [10]

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This is Ryan on for Doug. You noted that you launch Basal-IQ with G5 initially and now expect to launch with G6 shortly thereafter. Just to be clear, I mean, how quick after the launch could G6 come? Could you get it approved before the start of the important Q4 quarter? Or is it more likely by the end of year.

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Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [11]

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Well, we're new to this, but I can tell you in general, this reduces the time and regulatory burden for doing this sort of thing. I mean, before, we would've gone back and done a PMA on the G6, and that would've been 12 to 18 months delay. So this approach of interoperability, I think, will give it to us this year. We'll launch as soon as we can get approval. I would hope that it is available for that big season in the fourth quarter.

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Ryan Blicker, Cowen and Company, LLC, Research Division - Associate [12]

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And typically, there's -- will there be any additional paperwork you'll need to go through from a training perspective or anything like that? I think we're used to being able to launch about 1 month after getting FDA approval. Will you still have that type of live time? Or given -- will this one be shorter just because it's already approved?

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Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [13]

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Well, the integration with G5 launched 3 days later. In terms of the training, the training is a module. Before you can upgrade your pump and have that new software, you have to go through a documented training process and actually pass an examination before you then download the software. So that's how the training takes place. There will be no sales or field personnel interaction to do these updates, unless there's a problem, of course. So that's how we'll do both the Basal-IQ and the Control-IQ.

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Doug Schenkel, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [14]

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Got it. And then last one from me. On gross margin, can you give us a little more detail on how you expect the rest of 2018 to trend? Should we expect it to increase sequentially for the rest of the year? And then could you give an update on where your cartridge gross margins are today?

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Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Senior VP, CFO & Treasurer [15]

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So gross margin is heavily influenced by the percent of pumps. And as you know, our business is highly seasonal, so we do tend to expect that the gross margin would increase over the course of the year. And then as we look forward, we expect to scale steadily to that 55% gross margin target in the back half of 2019. In terms of supplies, overall, I should start with pumps. Pumps are still the highest contributing factor to gross margin. They have the highest percent of sales and the highest gross margin percentage. Supplies are steadily increasing as well. We first broke even in the third quarter of 2016 on a supply basis, and that gross margin has steadily increased as well over the quarter since that time. But for cartridges, it's really a volume story now. We've created a lot of efficiencies in the process, so as we continue to add volumes, we'll continue to see improvement in gross margin.

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Operator [16]

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Our next question comes from JP McKim of Piper Jaffray.

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Jonathan Preston McKim, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [17]

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I wanted to first ask some international and whether you'll need to get -- I guess, you need to get CE Mark first, and then what timing around that and then whether these distributors will need to stock up certain amount to make sure they can service their customers and whether you think that'll happen this year?

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Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Senior VP, CFO & Treasurer [18]

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Sure. So for international, in particular, it's expected to be a year of building. It's not necessarily expected to have a significant contribution to the top line. But we do need CE Mark, first of all, which we expect to have this quarter, and we're also awaiting approval from Health Canada. So those are the first triggering factors to be able to ship in those markets. And I'll just add that the people that we're partnering with from a distribution basis outside of the U.S. have a lot of experience in these markets, and so we have a high expectation that they'll be able to start the process, and it will run very smoothly once we get -- are able to ship.

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Jonathan Preston McKim, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [19]

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Got you. And then I wanted to dig in, Kim, on the comments around the iCGM compatibility, and it seems like it's going to present an advantage for you guys in terms of time to market has obviously accelerated. So I know you don't want to get into the details specifically, but how does it work. You don't have to run a separate trial like you would have had before, but if a competitor doesn't have a CGM that fits into that category, they would still have just to continue earning those -- another PMA trial? Is that how it is?

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Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [20]

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Yes. My understanding unless, you get this iCGM designation, you'll be going in the old PMA route, so to speak. That's our best understanding. So this allows us -- I mean, if you look at our history of integrating with Dexcom, they have the G4, and we were 1 year behind getting that integrated with the t:slim. And that was a big launch in that year, and then we were behind them with the launch of G5, almost immediately, going through the old process, trying to catch up with them. Well now, they just get this approved, which was approved very quickly for them. The G6 was way ahead of schedule. And now we'll be able to keep up with them with a smaller gap. And so I think that is what the FDA actually intended with this is to get really high-quality innovation on the market as quickly as possible because they're concerned about negative outcomes in these patients, the quality of life, the burden, the lifestyle, all that. They're very, very aware of that. So I think this was a big advantage for Dexcom, big advantage for us.

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Jonathan Preston McKim, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [21]

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That make sense. Are you worried about the gap in between your Basal-IQ going out and then the -- before the G6 compatibility gets there with you guys?

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Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [22]

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No, I'm not. I think that gap is manageable. And I don't think there'll be anything in the market that's going to disrupt us and -- in terms of launching the Control-IQ then later on next year. So I think what we're getting with Basal-IQ is going to be very, very competitive, especially when you pair it with no fingersticks on the G6. The competitive system has 4 calibrations a day and a fingerstick at every meal you eat. And so the burden is high. So it's a real advantage.

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Jonathan Preston McKim, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [23]

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And then last one from me is just on the discontinuing of t:flex. I guess, what -- how much of that was -- of your current installed base is t:flex? And then, is there a gross margin advantage now that, that is -- you won't have to produce that system and those specific cartridges?

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Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Senior VP, CFO & Treasurer [24]

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The t:flex is a very small portion of our installed base, in the 3,000 to 4,000 portion of it. So it's not a very big piece. And then in terms of a growth margin perspective, all of our products are made on the same manufacturing platform. So there's no real difference in terms of the manufacturing of the 2 products. It's just a matter of the attention that it takes in order for the future development of the product itself, which is why we're making this decision.

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Operator [25]

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Our next question comes from the line of Steven Lichtman of Oppenheimer & Co.

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Steven M. Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [26]

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Just wondering if you could give us how you're envisioning international expansion over the next couple of years? Obviously, you've had a nice steady cadence of some press releases on a distribution agreement. Do you see it being pretty targeted in terms of the countries you're going to go after? Or should we expect a lot more expansion over the next 12 to 24 months? And if so, what are some of the key countries that you see as opportunities for you guys?

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Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Senior VP, CFO & Treasurer [27]

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Sure. So at this time, we're not going to go into the specific countries that we're looking at, but we are being opportunistic, and we're evaluating where we think there's the largest opportunity that was left available to us by the Animas exit from the market. So we'll evaluate whether the reimbursement makes sense to us, so financially and strategically, if it fits into what we're looking for, and it's to be seen. So we have moved into this international market. We're doing this very quickly, maybe even ahead of what we had originally anticipated, but it was an opportunity that we could impact that with Animas leaving the market. So there's a lot more to come as we think about that in the future, it's impact on the financials and how we'll look in terms of our long-term picture.

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Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [28]

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Yes. I'd add, in some ways, the Animas exit is sort of pulling us into this because they're leaving distributors behind who don't have a product that's competitive to Medtronic, and they're leaving health-care systems behind because there's no competition in the durable pump market, and everybody wants that. So it's a good situation, but again, as Leigh said, we're going to look at -- look at this for financial responsibility, not going to markets where we'll lose money, obviously.

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Steven M. Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [29]

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Got it. And then Leigh, you mentioned, sequentially, OpEx lower both on cash and noncash perspective. From a cash perspective, can you walk through some of the things that you guys been able to achieve to keep that burn down?

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Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Senior VP, CFO & Treasurer [30]

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Sure. So it actually was a slight bit up on a cash basis, but we have just continued to be very prudent in managing our expenses. So for instance, our headcount needs constrained, so we haven't really seen any increase in headcount year-over-year. In fact, on the SG&A side, we think we're actually down 4%. And so it's mostly just managing the headcount levels, and then looking for, Kim mentioned earlier, opportunities to stream line the business in terms of automation and software where we can reduce the people burden.

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Steven M. Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [31]

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Got it. And then lastly, relative to ADA, I'm wondering if you can give us a sneak peek in terms of data presentations or anything else that we should be thinking about coming up in June?

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Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [32]

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No, we really haven't released that. In fact, some of this stuff, I've -- that are people working on it that we're not involved in, so I don't know who's getting into poster sessions or whatever. It's one of the things where you just have to get that book and scan through it and see what comes out.

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Operator [33]

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Our next question comes from the line of Jason Bednar of Baird.

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Jason M. Bednar, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Associate [34]

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Just a couple from my end, just starting on the renewal side. Are you seeing any progress just being made in accelerating that renewal process for customers as you're just getting more experience and going after that -- those cohorts.

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Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Senior VP, CFO & Treasurer [35]

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Yes, so our ultimate goal is still to get to a 70% retention rate for our existing customers, but we're still new to the process and it's early. So we will -- it seems it's a steady scale-up. It's not going to flip overnight. It's more like a marathon than a sprint. And so we do have a dedicated internal team focused on retention and renewal. And we're pleased with the progress to-date. And we expect it to continue to scale up over time.

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Jason M. Bednar, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Associate [36]

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Is there any, I guess, timing of brackets you could give us on how to think about when we might get to that 70%? Is that a 1 to 2 year process, a 3-year process? Or just anything you might think about internally you could share?

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Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Senior VP, CFO & Treasurer [37]

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So, right now, again, we're still evaluating the -- some different hurdles that we experienced as we entered into this process, where last year, we had the competitive disadvantage with all the factors that were happening in the market. And then here we are in the first quarter hitting a typical seasonality period. So still more to come. As we learn, we'll try to give more color into our expectation of when we will get there, but we're still talking to those customers from 2013. We have many in the queue that we're working on and trying to move them through the process.

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Jason M. Bednar, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Associate [38]

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Okay, makes sense. And then, Kim or Leigh, just on the Form 483 that's sitting out there, any update or insight you can provide on the status of that observation?

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Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Senior VP, CFO & Treasurer [39]

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So we have had discussions with the FDA. And so we have resolved that. The -- one of the resolutions is that we have a very minor recall, where we're calling 55 pumps from a time frame a few years ago. And so it's a very small population. We don't believe that there is -- that these will actually fail, but we're just mitigating the risk that is out there. But otherwise, now we've closed out the 483.

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Unidentified Analyst [40]

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So fully clear all and no other outstanding Form 483s that are out there. Correct?

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Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [41]

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No.

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Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Senior VP, CFO & Treasurer [42]

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That's correct.

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Unidentified Analyst [43]

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Okay, perfect. And then just one last one for me. Just on the international side, and just building on something you said previously there, Leigh. International might be ramping maybe a bit quicker, but is it fair to think it's a fairly low OpEx and cash requirement for Tandem as you're absorbing this fast remove? This has to move in your -- that you referenced in your operating margin guidance. And then any additional color you might be able to provide on how to think about, maybe, the cost of going into incremental markets here over the course of 2018 and 2019?

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Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Senior VP, CFO & Treasurer [44]

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Sure, we're managing those expenses closely. So in the markets outside of Canada, we're going in on a distribution basis only, which means that they are taking on the customer technical support, the insurance verification, the fulfillment responsibilities, and so a lot of the OpEx that we would ordinarily spend to support those customers is actually being pushed over to the distributors themselves. And then from a Canadian perspective, we're looking at that on a direct basis, but we feel like we can leverage our infrastructures here in the U.S. just because of proximity. So we're committed to managing those expenses within our normal OpEx, and we have stated earlier in the year that we're -- our goal is to keep those at less than 10% growth from '17 to '18.

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Operator [45]

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This time, I'd like to turn the call back over to Kim Blickenstaff for any closing remarks. Sir?

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Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [46]

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Thanks, Votif. Next month, we're going to be at 2 investor conferences in the month of May. On May 8, we'll be presenting at the Deutsche Bank conference in Boston. And then the following week, we'll be in Las Vegas at the Bank of America Merrill Lynch health-care conference. So you'll have an opportunity to talk to us than. So thanks again, everyone. We had a big crowd today, and it's nice to see everyone coming back, and we look forward to keeping you updated in July when we report our results for the second quarter. Thanks for listening.

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Operator [47]

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Thank you, sir. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation, and have a wonderful day.