Tandem Diabetes Care Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 14 speakers on the call.

Operator

Thank you for standing by, and welcome to Tandem's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer I would now like to hand the call over to EVP and Chief Administrative Officer, Susan Morrison. Madam, you may begin.

Speaker 1

Hello, everyone, and thanks for joining Tandem's 2023 Third Quarter Earnings Call. As a reminder, today's discussion will include forward looking statements. These statements reflect management's expectations about future events, Product development timelines and financial performance and operating plans and speak only as of today's date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward looking statements. A list of factors that could cause actual results to be materially different from those expressed or implied By any of these forward looking statements is highlighted in our press release issued earlier today and under the Risk Factors portion and elsewhere We assume no obligation to publicly update any forward looking statements whether as a result of new information, future events or other factors.

Speaker 1

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, quarterly report on Form 10 Q and the Investor Center portion of our website for a reconciliation of these measures to their most direct comparable GAAP financial measure.

Speaker 1

Leading today's call is John Sheridan, Tandem's President and CEO, We'll be joined by Lee Vosseller, our Executive Vice President and Chief Financial Officer Doctor. Jordan Pinsker, our Medical Director, I'll now turn the call over to John.

Operator

Thanks, Susan, and welcome everyone to today's call. In the Q3 and throughout 2023, Tandem has focused on bringing the benefits of our number one rated AID system to more people living with diabetes worldwide, along with providing customer care excellence and making operational progress throughout our business. It's been a transitional time for Tandem As we prepare for the company's next phase of growth through our portfolio of innovation, we are executing on multiple near term product launches, while implementing scalable systems and processes to support our global operations and leverage our infrastructure. Reflecting on our Q3 results, our overall performance was above our baseline expectations, primarily due to the U. S.

Operator

Market. Over the past few weeks, I have had an opportunity to attend some of our regional sales meetings across the United States and was excited and encouraged by my conversations. My first takeaway is that the t:slim X2 with Control IQ continues to be the best AID system available. This is also reflected in 3rd party research and our own customer satisfaction surveys. It's evident in our low attrition and higher percentage of customers choosing to purchase My next takeaway is that overall competitive dynamics remain stable.

Operator

Some products are newer than others, but the noise from the other AID offerings is in line with our expectations and the diabetes community is learning More about what these products are and what they are not. Lastly and most overwhelmingly is the high level of enthusiasm in anticipation for our new sensor integrations and for MobiPump platform. Our sales team shared that some new and renewing t:slim customers are pausing We are highly encouraged by the performance in the hands of our early users. Starting with CGM additions, I am proud of our teams that have demonstrated leadership And the ID Sensor Integration. Developing pump and algorithm software for the compatibility with the new sensor is an extensive process And the technical work is just part of the effort it takes to bring a newly integrated system to market.

Operator

I would like to express our thanks to our CGM partners for their collaborations As we work to launch the t:slim X2 with the DexCom G7 and Abbott's Freestyle Libre sensors, the steps to bring the DexCom G7 integrated system to market are well underway and we made great progress in the early release phases. We are proud to be rolling out the 1st AID system in the world to use DexCom's G7 sensor data and are planning for full availability of G7 across the U. S. By year's end. We've also been preparing for the launch of the t:slim X2 integration with the Abbott Freestyle Libre 2 sensor.

Operator

Based on where we are and being mindful of the upcoming holiday season, we plan to initiate the U. S. Launch of t:slim with Freestyle Libre 2 later this quarter With broad availability early in the New Year. This new integrated offering is an incredible accomplishment for our teams as we bring the benefits of AID technology to Abbott's customers in the U. S.

Operator

For the first time. Now turning to Mobi. In my 10 years with Tandem, I've had the privilege of being part of launching many new innovations that have reduced the burden of diabetes and improved clinical outcomes. The excitement around the launching of Mobi is among the highest I've ever seen and there is incredible interest by the healthcare providers, people using MDI and current pumpers to learn more and gain access to our new pump technology. The most common feedback we hear is that people are surprised and thrilled about Mobi's kind of size and the option it enables for wearability including OnBody wear via a patch accessory or clipped onto a waistband We're easily tucked into a jean coin pocket.

Operator

The On Body wear options combined with the ability to disconnect if needed is a new paradigm. This distinguishes Tandem Mobi from on market patch pumps. And of course, they also appreciate the benefit and discretion of its mobile app operation. For these reasons, we believe that Tandemobi is positioned to expand the insulin pump market and further our mission to improve the lives of more people living with diabetes. Our release of Tandemoebi began in October with a limited number of users and will scale through the quarter.

Operator

Throughout this process, we monitor key criteria and performance metrics, not only for the pump, but also for all the surrounding systems and processes across the company. We feel this rigor ultimately leads to a stronger commercial offering for customers and healthcare providers and delivers a positively different experience that Tandem has built its reputation upon. We are tracking to our plan to begin offering Mobi more broadly in the U. S. Beginning early in 2024.

Operator

Simultaneously, with each of these new launches, we are developing plans for our new products in countries we serve internationally. Reflecting on our overall business outside the United States, our Q3 aligned with our base expectation, which contemplates the European summer holiday season as well as competitive activities. During this period, our distribution partner in one of the largest European countries Experienced capacity constraints and disruptions to its sales activities because their focus was on rolling out a t:slim software update to their installed base. Software update ability is still a relatively new offering outside the United States, especially at such a large scale and individual healthcare systems sometimes have different requirements Our commercial team has been very responsive in helping this distribution partner Identify opportunities for process efficiency and to minimize constraints based on best practices from the U. S.

Operator

And other geographies. We're also working through the timing of G7 integration availability in our key European markets. Much like the U. S, enthusiasm is high for this new offering and our preparations for launch are actively underway. This is impacting our distributors' 4th quarter forecasts, which they are adjusting anticipation of this launch occurring just after the 1st of the year.

Operator

It is rare and exciting to have an opportunity like this one in front of us With so many new product launches in flight worldwide, each of which individually has the opportunity to change the trajectory of our business going forward. It's also an ideal time for us to welcome Mark Navarro as our EVP and Chief Commercial Officer. Mark will succeed Brian Hanson, We thank for his passion and leadership along with laying the foundation for Mark's long term success at Tandem. As you saw from the press release issued this afternoon, Mark brings strategic and operational global experience in diabetes as well as medical devices. He has a successful track record of delivering above market growth, best in class customer experience and scalable commercial operations.

Operator

This knowledge in leading global commercial functions will be critically important as we prepare for the launch of multiple new products in the coming weeks months and we welcome him to our leadership team. 2023 has been a complicated year of transition, but we remain focused on executing diligently to scale our operations in preparation for this exciting next phase of I'd now like to turn the call over to Leigh to share more on the 3Q results and financial expectations. Leigh?

Speaker 2

Thank you, John. As a reminder, unless otherwise noted, the financial metrics I'll be discussing today are on a non GAAP basis. Reconciliations to GAAP can be found in today's earnings release as well as on the Investor Center portion of our website. 3rd quarter sales were above our baseline expectations at $194,000,000 worldwide, primarily due to sales in the U. S.

Speaker 2

We shipped 25,000 pumps and supply sales grew 10% in line with our installed base, which is now nearly 445,000 customers. U. S. Sales in the Q3 were $138,000,000 on 17,000 pump shipments. We experienced the anticipated near term pressure previously discussed As customer enthusiasm builds for the upcoming broad availability of our new products.

Speaker 2

There were also a number of highlights in our performance. First, we continue to expand the U. S. Insulin pump market as half of our new customers reported adopting pump therapy for the first time with the remaining half converting from competitors. Next, our consistently strong retention rate is reflected in our supply sales, which grew 10% in line with our U.

Speaker 2

S. Installed base that has now reached 308,000 people. Another highlight was our continued high capture rate of renewal opportunities. In fact, renewals grew sequentially to nearly half of the pumps we shipped in the quarter. Consistent with our expectations, our renewal With the low switching costs for Tandemobi in the future, new customers have been more inclined to defer the timing of their purchase until our new products are fully available.

Speaker 2

Forecasting the timing of customer purchases remains a challenge in the near term. Seasonal trends as deductibles are met and consistency in renewal and supplies ordering provide a level of predictability, particularly as our renewal opportunities step up nearly 20% in the 4th quarter compared to the 3rd quarter. As a result, we are reaffirming our U. S. Sales baseline of $575,000,000 for 2023.

Speaker 2

Outside the U. S, sales in the 3rd quarter were $55,000,000 in alignment with our base expectation, which contemplated Our OUS markets and grew our installed base year over year by more than 10% to 136,000. As John discussed in the back half of this year, we are working through some For example, we were recently notified that one of our largest distributors materially reduced pump orders for the 4th quarter when planning for the upcoming release of t:slima G7 just after the 1st of the year. While we have not included G7 in a meaningful way in our 2023 forecast, We also did not include an assumption for a meaningful disruption to orders in Europe in advance of G7. In addition, we are analyzing the potential financial newly enacted reimbursement for Control IQ in France with its related rebate structure.

Speaker 2

With these factors in mind, we are updating our baseline outside the U. S. To $190,000,000 for the year, which assumes no meaningful new orders are placed by our distributors outside the U. S. For the remainder of the year and allows for up to $10,000,000 for the initial impact of the change in reimbursement in France.

Speaker 2

Moving on to margins. Our gross margin of 51% of sales in the 3rd quarter was consistent with the prior year. We have spoken to certain high cost raw materials over the last year, which were creating margin pressure of up to 2 percentage points in any given quarter. In the Q3, these costs fell to less than 1% of sales. We continued making meaningful progress by driving additional operational cost savings across all products geography and product mix with pumps worldwide representing 45% of sales in the Q3 of 2023 compared to 53% in the prior year.

Speaker 2

Our adjusted EBITDA margin remained positive this quarter at 1% of sales as we continue to benefit from cost savings initiatives across the organization and as we prioritize investments in R and D and marketing. Our operating expenses sequentially declined for a second time this year to 121,000,000 And we're flat compared to the Q3 of the prior year despite year over year increases in costs associated with our acquisitions. We are reaffirming both our gross margin and adjusted EBITDA expectations for the full year 2023. We ended the quarter with approximately $500,000,000 in total cash and investments and our strong balance sheet provides us financial flexibility to strategically invest in our business. In summary, our worldwide sales expectations for the full year 2023 are 765,000,000 which includes sales outside the U.

Speaker 2

S. Of $190,000,000 Our gross margin guidance remains unchanged at 51% and adjusted EBITDA is We believe it was important and prudent for us to set early expectations for baseline 2024 sales growth starting at 10% at our last earnings call. We will learn a great deal in the next 6 months that will better inform our thoughts on the catalyst for growth next year as we scale the launches of multiple new products both in the United States and internationally. We look forward to sharing these earnings with you in the upcoming quarters as we pursue the longer term goals we've set for our business. With that, I'll turn the call back to you, John.

Operator

Thanks, Lee. As we look at Tandem's near and longer term strategy, We are focused on meaningfully expanding the insulin pump adoption by people living with Type 1 diabetes across all our markets And evolving our products and services to attract people living with Type 2 diabetes who use insulin intensive therapy. Our analysis shows that in the U. S, there are more than 1,000,000 people living with Type 1 diabetes who are currently not getting the benefits of insulin pump therapy and 3 times that opportunity in the countries we serve internationally. In addition, there are well over 2,000,000 people in the U.

Operator

S. Living with Type 2 diabetes We're already insulin dependent and do not use a pump today. It's an immense worldwide opportunity. To expand pump penetration from its minority position today requires innovation as people have vastly different needs and preferences that motivate their pump purchasing decision. Our new pump platforms and CGM sensor integrations address many of these current unmet customer needs.

Operator

We also believe our industry leading algorithm, the user and payer facing benefits of our durable device portfolio And the degree of flexibility afforded by the modularity of the Tandem system will help us to drive demand in the years ahead as we enter the next product To really drive our pump adoption opportunity, we've also been busy in advancing our clinical initiatives. Results from the Control IQ post market study were recently published In Diabetes Technology and Therapeutics, the data showed that approximately 3,000 people with type 1 diabetes down to age 6 using Control IQ for 1 year, Adverse events related to severe hypoglycemia and DKA occurred at much lower rates than historic public data for people on standard of care therapy. We are in late stage discussions with the FDA regarding a submission under review for enhancements to our Control IQ algorithm. These advancements represent another exciting milestone for Tandem as we will lower the agent indication for our algorithm and expand its feature set with options for greater personalization. It's part of our ongoing commitment to expanding the user reach of our AID system portfolio and bringing new features to people with diabetes across all the markets we serve.

Operator

We also made progress on enrolling participants in our clinical trial in support of expanding our label indication for our next generation Control IQ algorithm to include people living with type 2 diabetes. In the past few months, we've seen meaningful research on the use of GLP-1s and SGLT-2s in the treatment of insulin dependent diabetes. At Tandem, we look at both devices and therapeutics as part of a broad continuum of care for people living with diabetes. This was reflected in the clinical diabetes publication earlier this year of a study on glycemic outcomes for people with Type 2 diabetes, For most participants, we're using GLP-one and or SGLT-two therapy in addition to insulin delivered by our t:slim X2 with Control IQ technology. The results highlighted the benefits of using Control IQ with these additional therapies, which gave the best outcomes when used together with time in the range of 76% with no hypoglycemic events.

Operator

Heading up our clinical efforts is Doctor. Jordan Pinsker, We joined Tandem in 2021 and as a leading endocrinologist and prominent thought leader in artificial pancreas research. He's been a primary investigator in numerous clinical trials and automated insulin delivery systems prior to joining Tandem and brings We've asked Doctor. Pinsker to join the Q and A portion of our call today As he's been helping us to contextualize how the different drugs currently available along with those in the research stages play in our longer term opportunity. As you can see, this is an extremely busy time at Tandem.

Operator

I'd like to thank our employees for their perseverance, Diligent focus on execution and continued heartfelt care for our customers. Together, we will be working hard to close out 2023 with an eye on the future and the next chapter at Tandem. I'd like to now turn the call back to the operator for questions. Our first question comes from the line of Steve Lichtman of Oppenheimer and Company.

Speaker 3

Thank you. Hi, guys.

Operator

I guess

Speaker 3

just starting in the U. S, Pump shipments held up better than expected given the acute headwinds, particularly on the renewal side, I guess. So Can you talk to what you're seeing in terms of the pattern there? Are patients taking advantage of Tandem Choice? What are you seeing on the renewal side that is driving the particular strength during this period?

Speaker 2

Yes. Thanks for the question, Steve. And so, what we're seeing is and pretty much what we anticipated With renewal customers, they would be more inclined to take advantage of their end of year insurance benefits considering they already know how to use a Tandem t:slim X2, They already know how to use Control IQ. So it's a much easier proposition for them to consider buying a t:slim today while they're out of warranty And then using the Tandem Choice program to switch when Mobi is available. So that's why we didn't see much, if any, disruption on the renewal side.

Speaker 2

In fact, our renewal rates We're consistently strong with what we've been seeing for the past 4, 5, 6 quarters now. It's the new customers where we To see the pressure, the new customer potential, I would say, when you think about the transitioning to a new pump, the fact that they have to learn a whole new pump today and then would So those are the folks that we expect to take more advantage of or actually defer and wait until 2024 to make their purchase. Things played out pretty much like we anticipated in that regard.

Speaker 3

Okay, got it. And then as a follow-up maybe For you, John or Doctor. Pinsker, you talked about certainly the GLP-one discussion over the last few months. I think relative to pumps, One thing I'd look at your opinion on is what drives penetration. So overall, the penetration is Low, I think we estimate 5% or 6% in the intensive Type 2.

Speaker 3

So regardless of sort of the impact on top from GLP-1s, what do you see as the drivers of A pump utilization from where it is today?

Operator

Steve, I think it's largely driven by Reducing the burden of diabetes, just managing diabetes is complex. It's basically every moment of every day you've got to think about it. And the pumps in the AID systems are basically providing better therapy and they're less burdensome to you, so you don't have to think as much about anti diabetes. So we think technology drives adoption and continue to develop Technology that reduces the burden of diabetes is really the way to get the pump adoption up from mid-30s today to the mid-60s in the next couple of years. Jordan, you

Speaker 4

want to add anything to that? I would. Hi, Steve. I'd like to offer some insights into GLP-one use that we are seeing. John alluded to earlier, Our data shows the effects of these newer medications are really complementary with Control IQ use.

Speaker 4

We saw in the recently published paper in clinical diabetes That when Control IQ was used by people with type 2 diabetes, those using the GLP-1s had even better final results than the overall cohort. Their time and range improved from 61% not meeting their glycemic targets to 76% after 6 weeks. Now these individuals still needed insulin, they were not meeting their glycemic goals at baseline and they showed tremendous improvement with Control IQ use. So we think providers are really going to realize how well patients do with our system. And as we move forward toward progressing in our Type 2 diabetes pivotal trial.

Speaker 4

We expect to see similar results in that larger trial as well. I'd like to add, we're seeing very meaningful number of participants In our pivotal trial using these adjuvant medications other than insulin and they're also using quite a bit of insulin They're in the trial because they're not meeting their glycemic target at baseline. So we expect that they're going to show significant improvements in their outcomes as well. And I think that gives us great confidence in the future and as awareness of these outcomes becomes more pronounced over time, We intend to highlight these results from studies.

Operator

Great. Thank you. Thanks, Pete. Thank you. Our next question comes from the line of Brooks O'Neil of Lake Street Capital Markets.

Speaker 5

Good afternoon, everyone. I guess I'd like to I want to clarify and be sure I understand that the pause that we anticipated related to Mobi In Q4, it's pretty much what you're seeing in The U. S, it sounds to me like the additional $20,000,000 reduction in guidance The launch of G7. So maybe you could just help us understand exactly when you think Mobile will launch in the U. S.

Speaker 5

And when it might launch OUS and then also when you're thinking about

Operator

Hi, Brooks. Well, right now, we actually have people using Moby in our sort of our early access phase. We talked about this before that In the Q4, we would have people using it probably for the entire quarter. And the idea here is really to understand how the system performs and make sure that it's an excellent customer experience. And so during this time frame, if there are issues at surface, we'll fix them.

Operator

And we do not want to go to higher numbers of people using the product until we're confident that it's running the way we expect it to. So I would say that Mobi is going to be more of a Q1 product for us in terms of revenue. That being said, when it comes to G7 is also it's a little further along in terms of its launch and we would anticipate that it's we have a number of people using it today, that number is growing And I think that before the end of the quarter, we'll have full availability to the market for G7. And so I think that as we've said in the call, We're seeing pausing in the U. S.

Operator

For both Mobi and for G7. We think that, again, Mobi is more of a Q1 Product and G7 will start to see sales near the end of this quarter.

Speaker 2

So, James, can you say anything about Abbott?

Operator

Yes. Well, with Abbott, I think that, Abbott is going to enter into that early access phase here in the next few weeks. And I think that as that so that's going to be roughly in the closer to the holiday season. We're definitely going to have people wearing it, But we won't really begin to see revenue until we hit the Q1.

Speaker 5

Okay. Lee, I didn't mean to interrupt you.

Speaker 2

You're fine, Brooks. I wanted to add a point of clarification on the change in guidance outside the U. S. I would say it's not all pointed to the timing of G7, although that was a meaningful piece of it. There are a few different moving parts there.

Speaker 2

About half of it's related to new product launches. It's not just when they roll out, but it's also how they're rolled out. What we find is that in our distributor markets at times when they're pushing a new offering, they may be distracted from what I would call routine selling activities as they're Supporting their existing installed base and we saw some of that in the Q3 which contributed to this change. We're also seeing some order timing change because of the G7 launch Coming right after the 1st of the year. And then the other element is related to our reimbursement change that we are anticipating in France.

Speaker 2

And so It's really multifactorial in terms of it's not all because of FG7 necessarily.

Speaker 5

Okay. I got that. That's very helpful clarification.

Operator

Thank you. Our next question comes from the line of Joanne Wuensch of Citi.

Speaker 6

Hey, good afternoon. This is actually Anthony on for Joanne. Thanks One on the EBITDA guidance, I see that breakeven for the year was maintained. That implies a pretty substantial step up, I think, in the Q4. Can you just talk to what gives you confidence in setting that breakeven goal for the year?

Speaker 2

I'm sure happy to talk about it. It starts with we do expect to step up in 4th quarter sales from the Q3 and as we sell more pumps it does Drop more profit to the bottom line. I'll also add that we've demonstrated, pretty, I would say, incredible progress across our operating expenses this year. This will be the 2nd quarter in a row we've seen a reduction of operating expenses as we continue to manage costs, implement efficiencies, Which allows us to slow down on some of the hiring that we've been doing, particularly in some of our customer support functions, where the benefits of our infrastructure and TandemSource are really starting to help And with that efficiency opportunity, and our expenses in the Q3 were actually flat to the prior year. So as we look at continued cost containment improvement on the top line, All of that contributes to our ability to meet our adjusted EBITDA guidance of at least breakeven for this year.

Speaker 2

And you've seen now for Q2 and Q3, we've been positive in both quarters.

Speaker 6

Great. That's helpful. And then on U. S. New pumpers, correct me if I heard you wrong, but I heard about a little maybe a little bit less than Renewals, if I plug that in, I get U.

Speaker 6

S. New pumpers, naive pumpers down year over year in like the high 40s, a, is that correct math? And then b, is that, how we should be thinking about the Q4 in terms of renewals versus new pumpers? Thank you.

Speaker 2

Yes. So you're correct in that renewals were just under half of our shipments this quarter, which does imply that New pumpers declined and that goes back to an earlier point in the conversation about the impact that we're seeing for people waiting for Mobi, Even to some extent people waiting for G7 as we get to our full availability here in the Q4 that tends to impact the new pumpers more so than the renewal pumpers. As we go into the Q4, part of the reasons we have confidence in continuing to drive that step up from Q3 to Q4 is that our renewal opportunities will grow. So the number of new warranties expiring in the Q4 actually is stepping up from Q3 about 20%. And so, it could be that renewals will continue to move closer to that fifty-fifty mark, in terms of versus new pumpers.

Speaker 2

But Stay tuned on that as we see the behavior of people that are considering Tandem for the first time as they're meeting their end of year, deductible.

Speaker 6

Great. Thank you very much.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Matt Taylor of Jefferies. Hi, thanks for taking the question. I guess

Speaker 7

I wanted to ask you a little bit for high level help on the phasing of contributions next year from Mobi and the sensors, I guess, just given this pause that we've seen, do you expect a snapback as you get Pull release is going to be different than normal seasonality or should we think about more normal seasonality on the back of all these new products Through the year next year.

Speaker 2

Yes. Thanks for the question, Matt. So when you think about when you have a new product launch, you have And so even though we're seeing some pent up demand right now, it tends to still be gated by people's insurance And when they will meet their deductible, what it looks like at the beginning of the year. And so I would say 2 factors would cause me to think at this point that we might have a heavier back half loaded year, which Would be people working with their insurance plans, but also just as momentum grows on these products, as there's more awareness as People begin to experience it, physicians see the experiences with it, it will start encouraging more people to move forward with purchases. And so would still think about it as a scale across the year, like we would typically see with the back end being more But potentially with the back end being more heavily loaded than in years past because of the timing of product launches.

Speaker 5

All right. And then maybe just one follow-up.

Speaker 7

You have the Sensor Integrations and Mobi, both big catalysts. Can you help us understand the relative impact of each? Is Mobi a lot bigger than or vice versa, are they both equal contributors? Help us understand which is going to be the bigger driver and approximately how much if you could?

Operator

Pat, I would say that the feedback we've received so far on Mobius has been overwhelmingly positive. People have been really surprised by how small it is, the flexibility in terms of locating on their body. And I mean, it's really exceeded our we knew it was going to be positive, That's really exceeded our expectations. And so I would expect that Mobi is going to be a positive driver of revenue as soon as it's available And that I would expect to see a turnaround driven by it. That being said, there's also a lot of interest that we're hearing from the field and the G7 integration.

Operator

And so, I think that people are pausing waiting for it now. So I think it's definitely going to have an effect as well, probably not as much as Mobi will. I think that Abbott is, there's a lot of people out there today that use the Abbott sensor, 100 of 1000 that don't use pump technology. So it might be slower to get those people into, a tandem product over time, But it's a meaningful longer term opportunity for us. So I think that Mobi is going to be the driver.

Operator

We're going to definitely see very favorable benefits from the G7 implementation and then Abbott longer term is going to really have a favorable effect on growth. Our next question comes from the line of Connor Chamberlain of Craig Hallum.

Speaker 8

Hey, good afternoon, everyone. This is Connor on for Alex. Thanks for taking my questions. Can you compare the current market pause to similar dynamics that You've seen in the past with Control IQ, Basal IQ or even Medtronic 670 gs launch?

Speaker 2

Sure. You just highlighted, I think, all of them that we've been through across the years. And the level of impact from any new product launch It does vary, kind of depending on the circumstances around it. The 670 gs, I would say, was the most impactful at that time for a variety of reasons. The pause we saw in advance of Control IQ was much lighter considering that it was purely a software update.

Speaker 2

And so You would think that people would be okay with moving forward and buying the pump because the software update is pretty simple, but still many times you may see people who decide that it's just easier to wait when they buy the So for our sensor integration, we do see some level of pausing, and so we're excited to bring it onto market with that new software on it for the people who are waiting for it. But I would say Mobi is on the higher end of the pause with the change in form factor and the excitement that's building as more and more People are hearing about it. The momentum is growing on that. And so I would say it's on the, as you want to call it, the more extreme or the higher end of what a cause might look like.

Speaker 8

Great. Got it. And then do you have any visibility on how long the disruptions for the OUS Distribution Partners is expected to last and then when can we expect a normalization there?

Speaker 2

Sure. So this was very recent information as we were learning about some of these disruptions we were seeing in Europe and really contained 2 key markets. Unfortunately, they're growing very rapidly and have large installed bases. But as that happens, They're still adjusting to that. So they're kind of what I would call in startup phase and we're working expeditiously to help them with best practices, how to manage through product rollouts.

Speaker 2

And so I think that once we get past the back half of this year, we will be through that, particularly because part of it is really about the G7 timing coming right after the 1st of the year. It's just something that we're working through right now and hope that we don't see these sorts of disruptions in the future. But considering they were 2 of our larger markets, When they have these types of activities going on, it's obviously much more material to the business overall.

Speaker 8

Great. That's all I have. Thank you.

Operator

Thank you. Our next question comes from the line of Jayson Bedford of Raymond James.

Speaker 9

Good afternoon.

Speaker 10

Just on the international dynamic,

Speaker 9

does the distributor sell other pumps Or is it just Tandem? And I'm just want to kind of ring fence this. Is this a Tandem distributor issue? Or do you think competition is at play here?

Speaker 2

So this is truly a, I hate to call it issue, a tandem distributor situation or disruption. And it's really about they are selling only tandem pumps. And so for example, in the Q3, there was a software rollout in one of the markets. And so because our installed base is so large and just the way the system works in that particular market, the distributors had to be more hands on with those As opposed to the way the process works in the U. S.

Speaker 2

Where it's very simple, it's in the customer's hands. We're here to support as needed. But in this case, in many Case is a person had to be there with the customer. So long story short, they're very focused on that software update activity and what that means is they don't get To pursue their normal selling activities. And so that's the sort of disruption that we were seeing there.

Speaker 2

And from a competitive perspective, we weren't seeing any different dynamics What we've been seeing in up to now in terms of competition in the markets.

Operator

And Jason, that behavior is driven by the healthcare system in that market. It's a requirement that they have In terms of the way software updates are actually performed.

Speaker 9

Okay. Okay. That's helpful. And then just a quick one and I hate to put you on the spot with this, but The 10% bogey for next year, is the new baseline the 765% here in 2023?

Speaker 2

Yes, off of the new baseline. At this point, in thinking about the fact that we put that 10% out very Early and it was meant to be directional only as a baseline, but I would encourage people to use that now off of what should grow the 10%.

Operator

Fair enough. Thank you. Thank you. Our next question comes from the line of Danielle Antalffy of UBS. Please go ahead, Danielle.

Speaker 11

Hi. This is actually Priya on for Danielle. Thanks for taking the question. I guess if I could continue on 2024 and that 10% growth. If you guys could maybe just lay out some of the headwinds and tailwinds and what it assumes from a share loss perspective versus current rates, Stabilization or improvement?

Speaker 11

And then one follow-up if I could.

Speaker 2

Sure. So that 10% Directional, I'll call it baseline that we put out there was really just to give people a starting point based on the adjustments we made to guidance this year. What we needed to do is for people to all get into the same places essentially. And when you think about it, to get to that 10%, It's really about it's assuming that the market environment next year is similar to what we're seeing this year. And obviously, we have much greater ambition about next year with all these products have coming to market each of them individually can make a substantial change in our opportunity and growth profile.

Speaker 2

But for now, we wanted To set the baseline off of which we can talk about future opportunities as we give more clarity on timing of rollouts and those types of pieces of information.

Speaker 11

Okay, great. Thank you. And then I guess on international, is there any way that you could quantify underlying demand OUS and What growth could have been ex these capacity constraints and how confident you are in continued strong double digit growth there? That's all. Thanks.

Speaker 2

Sure. I think one piece of information I can share, right, so we have had it's difficult to see as an outsider looking in from perspective what's really happening behind the scenes and while we are seeing disruption in a couple of top markets, it's more about timing. But I can tell you that in a handful of markets that make up a substantial portion of our OUS business, we're seeing growth rates when we look at their placements of pumps on patients, In strong double digits, I'm talking about 20% to 30%. We even have one pretty significant market growing 30% plus year over year. So the demand is still very strong.

Speaker 2

There's people really love Control IQ. It's a vastly underpenetrated market. The opportunity exists. We have to work through some of these near term disruptions that we're seeing, but we still feel very confident in the growth potential for that part of the business.

Operator

Thank you. Our next question comes from the line of Matt Miksic of Barclays.

Speaker 12

Hi, thanks for taking the question. So, I wanted to Try to get a sense, I know there's been some questions around sort of turning the quarter into 2024 and these new product launches and how they might Strike the impact growth. And so I had a couple of questions around that subject. And first was, it seemed like DexCom, when they were talking about the sensors required for integration, it felt like those We're going to be available this quarter, but maybe a touch later than originally planned or something like that. And I just wanted to make sure We understand that that was in alignment with your original planning and most recent planning or if your current guidance reflects Absorbing that any delays that there might have been?

Speaker 12

And I have one follow-up.

Operator

Hey, Matt. Yes, I think like on the call they had last week, they indicated that they're shipping the new hardware globally. And we have been coordinating product availability for our early access and the launch customers

Speaker 9

through them

Operator

using the DME channels. So, we don't think it's going to have an issue on the quarter or next year's availability as well. And I think it's we anticipate things are going to move smoothly As we get more and more people on the system.

Speaker 12

Okay. So this was a maybe what was a by the end of the quarter, later in Quarter kind of expectations and on that basis, you're still comfortable and then obviously heading into next year with supply coming and To support the launch, the sound like

Speaker 6

Yes.

Operator

I think that we're expecting that as we progress through this quarter, we will be moving to general availability and it will be Available for all who want to use the product in that system going forward.

Speaker 12

That's great. And then I guess I should have mentioned also just like the Libre side, Any sort of nuances in your updated guidance related to prior expectations there?

Operator

Do you want to get that, Leigh?

Speaker 2

No. And so in fact, when we think about 2023, we didn't factor in any new product opportunities Into the guidance that we laid out. And so anything that would have occurred this year is going to be upside to the numbers that we have in terms of new product launches.

Speaker 12

Okay. That's clear. Then the one follow-up just into next year. Not to the Mobi The process of sales of t:slim with sort of, call it, an option for Mobi. As we get into the Q1 and we start thinking about what kind of demand and growth that could show in terms of units and uptake,

Speaker 5

Is there

Speaker 12

how should we be thinking about sort of the crosscurrents or the offsets So that might not in terms of revenues, but in terms of like new Mobi, because some of that's going to be sort of Mobi, I guess, Conversions and some of that's going to be new mobile users. Any way that you can sort of sketch out The various puts and takes to that early, I'm thinking, 1st quarter, maybe first half Performance metrics that can help us maybe set our expectations properly.

Speaker 2

Sure. And so I think I'm understanding your question correctly. It's really how will we be discussing the business next year when we have these moving parts Related to Tandem Choice as well as selling pumps to people for the first time, if you will. And so, as we've talked about Tandem Choice all along, it's an opportunity for people to Which? And so for example, if we have a person who buys a t:slim here in the Q4 and they become a switcher to Mobi, We won't be reporting that as a sale, a unit for sale.

Speaker 2

We will take that out of the numbers and what we will share with you would be Information related to people that are actually purchasing pumps for with insurance value attached to it. And so we won't be commingling switchers with and switchers mean people From a tandem pump to a Mobi pump, if they're truly a renewal and out of warranty, that would be a different situation. That's a normal sale. So We'll be talking about metrics that would be very comparable to what we've discussed this year and what we would be discussing in the future for the business.

Speaker 12

Okay. That is helpful color. Thanks so much for taking the questions.

Operator

Thank you. Take care, Matt. Thank you. Our next question comes from the line of Dane Reinhart of Baird.

Speaker 13

Good afternoon, guys. Thanks for the questions. I guess the first one, could you just help clarify maybe the France issue a little bit? I Going into that market or with the recent study, you're kind of expecting a premium reimbursement and now kind of Based on the disclosure in the 10 ks, it's talking about potentially affecting your ability to generate revenues there with the rebates. So you just kind of help us flesh that issue out a little bit and get a better understanding there?

Speaker 2

Sure. I can give you a bit more color. So as you know, anytime you bring the rebate conversation into rebates into a conversation actually means complexity. And what we're talking about that we have the potential to see coming up here in the Q4 is really thinking about Our installed base that we already have. So think about, if you want to call it pumps in the channel or people already on pumps, it's assessing, how many people already have How many people can update to Control IQ, the timing of when they might, the length of time they have left in their warranty to be eligible for that opportunity And just how the value gets allocated across the entire selling chain here.

Speaker 2

And so there's a lot of complexities that come into it. And what we wanted to do is make you aware that you can think of it as almost like an implementation type activity that we have to assess What is the impact today on day 1 of what that rebate structure looks like on our business? And so there's a wide range of And so we're giving you it could be up to $10,000,000 but we will have that worked out by end of the year and be able to better Clarify, Neil, the impact of that on our business.

Speaker 13

Okay. Thank you. And then the second one kind of going back to that 10% baseline for next year, and I know it's kind of a baseline or even maybe floor for that. But I think you could almost probably get to that 10% just Based on renewals that's growing, you'll even have potentially some international renewals and then with supply revenue growth. So can you just help us Understand in that 10% as a baseline, would that even kind of take into consideration new users in the U.

Speaker 13

S. Being down year over year? And then if you do get growth, that's kind of all upside from there. What does that imply just on a new user perspective? Thanks.

Speaker 2

Yes. Thank you. I mean, actually you spelled it out perfectly well there. It's really predicated very heavily on the Reoccurring pieces of our revenue, which are supplies that have been very predictable, it's the step up in renewal opportunities growing from 50,000 ish warranty expirations this year to 70,000 plus next year in the U. S.

Speaker 2

Alone. And to your point, we'll start to see renewal opportunities for the OUS markets Become available to us. And so in order to achieve that 10%, you don't have to believe that new pumpers even grow next year. And And that was the point, as you said, is setting this baseline because we have we're very convicted that with our new products, we will turn that trajectory around. But just as a starting point, it's that we want to put this out there as a number that people could see a line of sight to pretty easily.

Operator

Thank you. Thank you. Our next question comes from the line of Joshua Jennings of TD Cowen.

Speaker 9

Hi, good afternoon. Thanks a lot for taking the questions. Wanted to discuss the pharmacy channel and just learn if there are any updates on Discussions and negotiation with payers on opening that door for Moby and Siggy, any change to the team's optimism or confidence I'll let that door what can ultimately be opened and guess what are next steps for that process? Thanks a lot.

Speaker 2

Sure. Yes. Thank you. It's a Great question. We've talked about the possibility of moving into the pharmacy channel with Mobi, which is something that People see it as a challenge potentially because it's a durable pump much like the tsum pump.

Speaker 2

But as we've been starting these conversations now that we have Approval from Mobi and can really talk about in earnest with the different payer and PBM organizations, our confidence builds every single day in terms of the opportunity for us to make that sort Transition. And so all I can share today is we're still in the early phases, but we're actively engaged in conversations. We're building out the organizational capabilities, Making sure that we're ready and can make this a reality. And so no specific updates I can offer today, stay tuned on that, but our optimism is really high.

Operator

Yes, I just underlined. It's one of our key strategic initiatives for the business and we have a lot of resources focused on it.

Speaker 9

Understood. Appreciate that.

Operator

Take care, Josh. Thank you. As there are no further questions in queue, that does conclude the Q and A portion and our call for today. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Tandem Diabetes Care Q3 2023
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