Tandem Diabetes Care, Inc. (NASDAQ:TNDM) Q1 2024 Earnings Call Transcript

Tandem Diabetes Care, Inc. (NASDAQ:TNDM) Q1 2024 Earnings Call Transcript May 2, 2024

Tandem Diabetes Care, Inc. beats earnings expectations. Reported EPS is $-0.65387, expectations were $-0.8. Tandem Diabetes Care, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. Welcome to Tandem Diabetes Care's First Quarter 2024 Earnings. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Susan Morrison, EVP and Chief Administrative Officer. Please go ahead.

Susan Morrison: Hello, everyone, and thanks for joining Tandem's first quarter 2024 earnings call. As a reminder, today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, our product pipeline, 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 as updated by our most recent quarterly report on Form 10-Q.

We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or other factors. Today's discussion will also include references to a number of GAAP and non-GAAP financial measures. Non-GAAP financial measures are provided to give our investors information that we believe is indicative of our core operating performance and reflects our ongoing business operations. We believe these non-GAAP financial measures facilitate better comparisons of operating results across reporting periods. Any non-GAAP information presented should not be considered as a substitution independently or superior to results prepared in accordance with GAAP. Please refer to our earnings release issued earlier today and available on the Investor Center portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure.

Leading today's call is John Sheridan, Tandem's President and CEO, who will be joined by Leigh Vosseller, our Executive Vice President and Chief Financial Officer. I'll now turn the call over to John.

John Sheridan: Thanks, Susan, and welcome, everyone, to our call today. 2024 is off to an impressive start with a solid first quarter performance. We met key commercial milestones with the successful launch of multiple new products worldwide. We outperformed financially, demonstrating a return to growth both in and outside the United States. Operationally, we are continuing to evolve the organization for scalable growth through investments in people, processes and technology. We are laying the foundation for 2024 to be a transformational year for Tandem, much like when we launched our first automated insulin delivery algorithm approximately 5 years ago. There is growing excitement across our company as we deliver on our strategy to bring greater choice and benefits to people living with diabetes worldwide.

In the first quarter, we executed on expanding our robust portfolio of delivery devices that offer choice and sensor integration, applications and data management tools. Beginning with hardware, we marked another first for our company this quarter. We are now the only manufacturer offering multiple insulin pump form factors. This multiplatform approach is a value proposition that makes Tandem unique. We can provide people options and how they wear and operate their AID systems while benefiting from our number one rated Control-IQ technology. Mobi took center stage this quarter, being the first to miniature durable pump that delivers unmatched wearability and the freedom to disconnect. We continue to hear an overwhelmingly positive response from early users.

The feedback is consistent between people new to pump therapy and those who are converting from competitive offerings. Our customers comment that they forget that they're wearing Mobi, how much they love the option to disconnect and that as a durable pump, it's more environmentally responsible than disposable devices. Health care providers highlight the benefit of being able to use the unpumped button to deliver Ebola's even when they're away from their phone. They also greatly appreciate the efficiency it provides to their practices with wireless connectivity to Tandem Source our cloud-based data management platform. This type of positive feedback is incredible to hear. With Mobi just getting started on the market, it's too early to draw conclusions on trends.

But customer behavior in the first quarter is supportive of our research that Mobi provides an opportunity to expand the market while meaningful demand for t:slim X2 continues. Another area of focus where we've demonstrated a competitive advantage is the speed to market with CGM integrations. As our CGM partners advance and drive adoption of sensor technology, it increases the number of people who can benefit from Tandem's AID systems. We've seen this over the years through four generations of Dexcom center technology and more recently, with the U.S. launch of the t:slim with Abbott FreeStyle Libre 2 Plus. Tandem Mobi is currently available with Dexcom's G6 sensor compatibility. We are on track to begin offering integration with Dexcom G7 later in the second quarter.

Outside of the U.S., we began a successful rollout of the t:slim X2 with G7 and are working to integrate both platforms with Abbott's FreeStyle Libre 3 technology worldwide in the year ahead. The next area where we've demonstrated innovation leadership is in algorithms. We're preparing for the rollout of enhancements to our number one rated Control-IQ technology. At the end of last year, we received FDA clearance to lower the age indication for Control-IQ to age 2 and above and expand its feature set with options for greater personalization. As a reminder, algorithms and pumps are separately indicated for age groups. The t:slim pump has already indicated for age 2 and above. And in the first quarter, we received FDA clearance to lower Mobi's age indication to 2 and above.

We are preparing to roll out the updated Control-IQ software on both far [ph] platforms later this year. This is an exciting step in our plans to offer continuous improvements to our AID algorithms through software updates to our system. From a clinical perspective, we have numerous activities underway. Fully closed-loop technology that's designed to improve clinical outcomes while reducing the cognitive burden of diabetes management continues to be an important area of focus for us. We've also been making great progress on our clinical trials to support expanding Control-IQ's indication to people living with type 2 diabetes and expect enrollment to be completed this month. In addition, we are advancing our extended wear infusion set technology and began clinical trial enrollment in the first quarter.

Overall, our commitment to innovation and choice contributes to our customers' high satisfaction and loyalty, along with our dedicated training and customer support, reflected in our consistently strong renewal rates. As you can see, the year is off to a strong start, and we are well positioned to achieve our goals. I'd like to thank our employees from across the organization whose diligent efforts to make this possible and who continue to impress and inspire me. I'd now like to turn the call over to Leigh to discuss our Q1 results and updated sales expectations.

Leigh Vosseller: Thanks, John. As a reminder, unless otherwise noted, many of the financial metrics I will be discussing today are on a non-GAAP basis. For measures where there are differences, reconciliations from GAAP to non-GAAP results can be found in today's earnings release, which is available on the Investor Center portion of our website. We are kicking off 2024 strong with a return to growth. Our worldwide sales in the first quarter grew 12% year-over-year to $193 million, with well over half generated through recurring supply and renewal revenue streams from our loyal customer base. In the U.S., it was an exciting quarter with our new product offerings, just beginning to take hold in the market and driving first quarter sales of $131 million on approximately 15,000 pump shipments.

Our renewals continued to grow double digits year-over-year with strong capture rates from a larger number of warranty expirations. Shipments to new customers continue to slightly exceed renewal purchases. As expected this year, within that new customer population, we began to see a shift in mix towards more people coming from MDI. The launch of Mobi, in particular, outperformed our expectations, generating a high level of activity from both new and renewal customers in what is typically our lowest seasonal quarter of the year. Mobi was initially available in mid-February to only our direct customers, followed by our distribution network at the end of March. We saw a benefit in the quarter from customers who have been waiting for Mobi availability since last year.

At the same time, we are also aware of customers who are still waiting for the availability of the G7 integration. I would like to note that we will not be breaking up shipment details between pump platforms nor by sensor integration. As a reminder, our Tandem Mobi customers today made their purchasing decision independent of our Tandem Choice program. t:slim X2 customers who are eligible for this program have not yet made an election to participate. We look forward to offering this opportunity in the coming weeks. The accounting for Tandem Choice has complexities. Note that our deferral of sales for the program, which we report on a GAAP basis only ended with the availability of MOOC [ph] in February. Up to now, we have recorded GAAP sales deferrals that have accumulated to $31 million.

As eligible t:slim users elect to switch to the Mobi platform, we will begin to report the reversal of those deferrals in our GAAP financials only. These switches will not be included in our future reports of non-GAAP pump sales or shipments. Any additional fees received or costs incurred from the Choice program will also only be in our GAAP financials. Non-GAAP sales will continue to exclude any impact of the Tandem Choice program, providing results that measure core operations as well as providing consistency for comparisons to both historical and future periods. Another highlight from our first quarter sales performance in the U.S. was a meaningful price benefit we realized through the DME channel with improvement in average selling prices across all products from both price increases and favorable channel mix.

Our success in securing higher reimbursement comes from our recognition by payers of the value that Tandem and Control-IQ bring to the health care systems. Simultaneously, we are very pleased with our progress as we pursue pharmacy channel access for Mobi and look forward to providing future updates. Turning to markets outside the U.S., our sales grew more than 60% to $62 million on nearly 10,000 pump shipments. The large majority of our shipments are driven by market expansion and competitive conversions from the continued enthusiasm for our technology in the 25 countries where we operate today. We have a growing opportunity from renewals as warranties from our earliest customers are beginning to expire but are still in the early stages of that cycle and do not anticipate meaningful contribution this year.

This quarter specifically benefited from the initial rollout of t:slim with G7 integration due to certain orders that shifted into 2024 from the fourth quarter of 2023. We also saw modest pricing favorability compared to our expectations from geographical mix and foreign currency gains. As a reminder, in 2023, we executed a distribution-centric transition in the first half of the year to create long-term efficiency for our European operations. This created a sales headwind in the first quarter of 2023 of approximately $18 million and higher pump ASPs than we would ordinarily anticipate due to the mix of ordering customers. With that transition complete, we expect to see reduced quarter-to-quarter variability and distributor orders, more normalized ASPs and closer alignment to pump market demand and end customer supply ordering patterns.

Moving on to margins. The outperformance in sales drove higher gross and adjusted EBITDA margin. Gross margin was 50%. This was in line with the prior year due to improvements in raw material costs and average selling prices, which combined to offset increased overhead per unit for scaling Mobi volumes and less favorable product mix. Adjusted EBITDA improved nearly 5 percentage points year-over-year to negative 7%. Operating expenses increased only 5% on 12% sales growth, which includes increased sales and marketing spend for all of our new product launches as well as higher clinical trial costs to support advancement of our product pipeline. These investments were in part funded through facility and employee-related cost reduction initiatives in 2023 that continue to drive leverage today.

From a balance sheet perspective, we took advantage of strong conditions in the convertible market to efficiently refinance existing convertible notes that were maturing in May 2021. Our total cash and investments were consistent with the end of the year at nearly $470 million. In all, we are extremely pleased with our progress in the first quarter. As a result, we are increasing our 2024 sales guidance to approximately $868 million or 12% growth year-over-year based on our first quarter sales performance. This breaks down to $634 million in the U.S. and $234 million outside the U.S. Remaining consistent with our approach to setting expectations at the beginning of the year, our sales guidance is primarily based on recurring supply and renewal revenue streams while we evaluate early purchasing behaviors for our new products as awareness grows.

We are also giving consideration to the increasingly competitive environment outside the U.S. We are optimistic about our opportunities in 2024, but not changing the remaining outlook until we are able to observe sustainable trends. From a profitability perspective, we are maintaining our full year guidance of 51% for gross margin and breakeven for adjusted EBITDA. There are many moving parts across the quarters this year, we're considering the timing and scale of product launches, variation in the prior year baseline comps and seasonality. Therefore, we will also provide you into the second quarter. Our worldwide sales are anticipated to be $205 million for the quarter. In the U.S., sales are expected to grow to approximately $150 million, reflecting impacts from the timing of customer purchase for Mobi with G7 integration late in the second quarter.

Sales outside the U.S. are estimated to be slightly lower than the first quarter at approximately $55 million due primarily to the timing of certain distributor orders received in the first quarter associated with the scaling launch of t:slim X2 integration with G7. Gross margin in the second quarter is anticipated to be approximately 50% in line with the first quarter, while adjusted EBITDA is expected to improve to negative 5%. As pump sales grow and Mobi volumes increase across the year, both margins are anticipated to improve with adjusted EBITDA margins and free cash flow returning to positive in the second half of 2024. As we look ahead, the Mobi system at scale is anticipated to be a key driver of long-term margin improvement, and we remain committed to achieving our long-term goals of a 65% gross margin and 25% operating margin when we reach 1 million customers.

We'll now open up the call for questions. Operator?

See also

30 Most Dangerous Cities in the US and

20 Countries with the Highest Suicide Rates in the World.

To continue reading the Q&A session, please click here.