Tandem Diabetes Care, Inc. (TNDM) Q1 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Tandem Diabetes Care First Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, today's program maybe recorded. I would now like to introduce your host for today's program, Susan Morrison, Chief Administrative Officer. Please go ahead.

Thanks. Good afternoon everyone and thank you for joining Tandem's first quarter 2017 earnings conference call. Today's discussions may 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 the press release announcing our first quarter 2017 earnings, which was 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. In addition, today's discussion will include references to a number of GAAP and non-GAAP financial measures. Non-GAAP financial measures are provided to give our investors information that we believe is indicative of our core operating performance and reflects our ongoing business operations. We believe these non-GAAP financial measures facilitate better comparisons of operating results across reporting periods. For additional information about our use of non-GAAP financial measures, please see the information under the heading use of non-GAAP financial measures in our press release. Kim Blickenstaff, Tandem's President and CEO will be leading today's call. And at this time, I'll turn it over to Kim.

Thank you, Susan, hello everyone and thank you for joining us on today's call. With me today is John Cajigas, our Chief Financial Officer. We're coming out of our first quarter performance with great confidence about our ability to achieve our key goals for the remainder of the year both operationally and commercially. Although it remains a highly competitive environment, we showed strength in our sales. We also continue to provide our customers with number one rated support and just as importantly we made meaningful progress on our automated insulin delivery pipeline. Across the company we are focused on furthering this momentum in 2017 and closely monitoring our progress toward all of our key goals. The competitive headwinds we expected in the first half of this year are there as anticipated but the reasons customer choose Tandem over the competition is for our best-in-class pump platform and the emphasis our company puts on customer care, and that's where we will continue to focus our time and attention. We understand that our customers have choices and that customers who chooses Tandem product rely on us for the long-term care and it is a responsibility we do not take lightly. To the contrary, we take great pride in the high customer satisfaction scores and we intend to continue to deliver on our new products and development and validate the great across that our customers have placed in us. As a reminder, in September of last year we launched the t:slim X2 pump, our next generation flagship product. It is unique as it brings people with diabetes all the features and benefits that made Tandem fastest-growing pump company while offering an ability like no other pump available today. It's the only insulin pump that can be updated by a customer to add new features using their personal computer. This tool the Tandem Device Updater is revolutionary for our industry because as a company that is constantly innovating. It is designed for us to be able to bring new features to our customers as they are approved by the FDA. The purchasing trends that we saw on the first quarter suggest that this differentiated product offering is helping us successfully compete against Medtronic's launch of their 630G and their 670G pumps. As we discussed in the past, Medtronic announced the approval of both their pumps around the same time we were launching our t:slim X2. As a result we experienced pause in the market which is something we've seen historically during competitive launches as customers look to evaluate the new pump offerings prior to making a decision. But even with the absence of a full-scale launch with the 670G, we found that people with diabetes particularly people using multiple daily injection are beginning to move forward with their purchasing decisions and that the market has slowly begun to unfreeze. The 630G began shipping in the fourth quarter of last year and we're increasingly seeing reports and hearing feedback from customers and healthcare providers who are disappointed in Medtronic's new platform. The weaknesses of the Medtronic product become very real once customers and healthcare providers see and use the product firsthand, especially if they ever seen a Tandem pump. Concerns about 670G have centered around the new interface being difficult to learn, train and use, as well as on the form factor of the pump, namely that is still antiquated and has increased in size compared to Medtronic's historical platform. This is where the t:slim X2 shines in comparison. The 670G is more than 60% larger than the t:slim X2, while the t:slim X2 offers the same 300 unit capacity in addition to modern features such as Bluetooth connectivity, a rechargeable battery that in today's world consumers have come to expect. Our display which is one third larger than the 670G screen provides a convenient and easy-to-use menus of a touch screen similar to today's consumer friendly mobile devices. In addition, we’re partnering with Dexcom for the continuous glucose monitoring technology, the most accurate sensor available. The real-world accuracy of Medtronic's new sensor which is what powers their automated insulin delivery algorithm remains to be seen. We do know that Dexcom CGM sensors superior as the only device allows a person to make therapy decisions without pricking their finger and requires half the calibrations of Medtronic. So the users of the 670G are not able to make dosing decisions using their sensor, this means that user will likely still need 5 to 7 finger sticks per day to use the pump in a real-world setting. In addition to patient burden, this also adds additional cost of extra meters drips to the rest of the system. We also know that the 670G is not indicated for use by anyone below the age of 14 and that Medtronic determined that may not be safe for children under 7. It's not clear to us that Medtronic is going out a way to make these facts apparent to customers or healthcare provider, and we believe it is essential that the marketplace understands what the 670G is and what is not. By highlighting the core differentiated features of the t:slim X2, we’re able to capitalize on the shortcomings of competitive products. Suffice it to say that we feel confident in our ability to compete pump platform versus pump platform against Medtronic. And the time when we would be able to offer superior automated insulin system is fast approaching. Historically about half of our customers have reported being new to pump therapy and half of them reported converting from a competitors pump. In the first quarter, nearly 60% of our customers reported being new to pump therapy from multiple daily injection. At among customers switching from competitors pump, we continue to see the largest percentage converting from Medtronic all by anonymous. This is encouraging because we are demonstrating our ability to continue attracting people from MDI. As people converting from another pump take time to evaluate their decision, we are getting closer to FDA approval of our t:slim X2 with G5 integration, which we believe will strengthen our competitive positioning even further. If you look back at our first quarter shipments from 2016, the majority were key slim G4 pumps that are integrated with Dexcom's G4 continuous glucose monitoring sensor. This wasn’t surprising because independent survey show that CGM integration has been and continues to be the top feature impacting a customer's purchasing decision across all durable insulin pumps. That being said, the majority of our customers do not actively use CGM but maybe considering it or want the optionality to use it in the future. The t:slim X2 is the only pump that provides this flexibility without asking customers to make trade-offs such as increasing the pump size and complexity to buy for this feature. Since we announced the launch of the t:slim X2, it quickly became the vast majority of our pump shipments. This trend was encouraging as it was a recognition from our customers that the power of the Tandem Device Updater is game changing. We submitted the PMA supplement for the t:slim X2 with G5 integration to the FDA earlier this year, and have been very pleased with the interactive nature of our review. Our approval is always at the discretion of the FDA we are preparing to launch this summer. As a reminder subject, the FDA approval we expect to offer G5 sensor integration as a software update free of charge for more than 10,000 t:slim X2 customers to the Tandem Device Updater. Our customers won't need to wait months or years to gain access to new features that can benefit the therapy management or pay several thousand dollars out-of-pocket B2B first in line to access the newest technology. In fact, we're preparing to begin shipping new t:slim X2 pumps with G5 integration within 30 days of FDA approval and we expect the current t:slim X2 customers will simply be notified of the update via email and then be able to update their pumps to the new software even sooner. While bringing this pump to market is a top priority for our company equally so our two automated insulin delivery products that we also plan to offer customers as an update to their t:slim X2 platform. Since our last call, we've engaged in several productive discussions with the FDA on our first automated insulin delivery pump with t:slim X2 with predictive low glucose suspend. We recently filed the IDE for a pivotal study and are preparing to commence the study in the upcoming weeks. As a reminder, we anticipate a six-month review process for t:slim X2 with PLGS because it will come shortly after the FDA review of the t:slim X2 with G5 integration. The only different feature will be the PLGS algorithm and so we are preparing for launch in early 2018. Activities also continue to progress surrounding our second-generation automated insulin delivery algorithm which will include our t:slim X2 platform with the treat-to-range technology that we licensed from TypeZero, as well as Dexcom's G6 sensor. With TypeZero's technology, our product will deliver automated correction boluses in addition to adjusting basal insulin. As a reminder we are participating in the NIH-funded International Diabetes Closed-Loop Trial alongside TypeZero and Dexcom. We plan to use the data from this trial as our pivotal trial data in a PMA filing with the FDA. Based on traditional review times, we are targeting launch of the TypeZero algorithm or in our t:slim X2 platform by the end of 2018. As you can see, we're making great progress with our future products in addition to the strength we offer in our t:slim X2 platform today. I think this is recognized by Medtronic as we increasingly hear of their sales efforts focused on discussing our company's stock price or financial condition, rather than product offerings and customer support. In addition, they are pressuring customers to make a commitment to purchase the 630G before artificial deadline which happens to coincide with Medtronic's fiscal year end in order to have priority access to the 670G. We see these tactics as Bayou Theatrics intended to redirect the attention of customers in healthcare providers away from the products themselves, promote peer and suppress choice. As I said in my opening remarks, we are firm believers in market choice and the rapid growth we have experienced underscores the demand in the diabetes community for new and innovative products. Our employees are extraordinary and with their continued support we will continue to deliver our number one rated customer service in advance our key programs even in the face of these negative campaigns. Most importantly, we expect to continue offering the diabetes community a superior product that is always designed with the user in mind and best-in-class customer support. As for our cash needs, we will always seek to appropriately capitalize our business. In addition, we are implementing measures that will help to reduce our cash burn and remain confident that we will spend less in 2017 compared to last year. We expect the t:slim X2 these with G5 integration will be highly competitive and will drive new pump sales in addition to our pump renewals and increase infusion set sales that will benefit the back half of the year. Our goals for 2017 focus on successfully executing our business plan, supporting our customers and building shareholder value. We remain confident that our differentiated insulin pumps, the power of our Tandem Device Updater and our robust pipeline position us well to compete both in the near-term and long-term. I'll now turn the call over John, who will provide further detail on our results for the quarter in our financial guidance.

Thank you, Kim. Good afternoon everyone. Today I will be reviewing our Q1 results for 2017 on both the GAAP and non-GAAP basis. Our non-GAAP results are adjusted from our GAAP results by excluding the impact of our technology upgrade program. We believe that looking at our operating results on a non-GAAP basis provide useful information when comparing to our financial results for periods prior to Q3 2016. So today I’ll be discussing both GAAP and non-GAAP financial metrics. In Q1, the non-GAAP adjustments primarily included the recognition of revenues and cost of sales previously deferred as a result of technology upgrade program accounting for upgrades that were filled in Q1. We also recognized incremental upgrade fees and product cost incurred to fill the upgrade obligation until the program expires in September 2017 we'll continue to show similar adjustments in future quarters. A reconciliation of GAAP results to non-GAAP results is included as an exhibit to today's earnings press release. Also as I discussed comparative metrics between Q1 and Q1 2016 I want to remind everyone that we launched the t:slim G4 in September 2015. The t:slim G4 product launch created changes in the sales and gross margin patterns for various reasons. For example we believe there was a significant pent-up demand and continued post-launch interest in the t:slim G4 as it was our first product integration with Dexcom CGM technology. Now looking at our sales and product shipments for Q1 2017 our GAAP sales were 19 million compared to 20.1 million in Q1 2016. We completed nearly 600 pump exchanges under the upgrade program during Q1 and recognized 1.5 million of pumps sales or GAAP purposes that were previously deferred in 2016 as well as 92,000 of upgrade fees. This was offset by only 87,000 of additional revenue deferrals or t:slim G4 pump sales in Q1. Our non-GAAP sales were 17.5 million excluding these upgrade program adjustments. During Q1 we shipped a total of 2,816 pumps of which 2,576 were t:slim X2, 195 were t:flexibility, 45 were t:slim G4's. When we launched the t:slim G4 it quickly became 60% of our pump shipments following the launch of t:slim X2 we saw a similar dynamic in Q1 t:slim X2 represents 91% of our pump shipment. As of the end of Q1 our cumulative pump shipments have grown to more than 53,000 pumps. Pump sales accounted for 66% of our Q1 GAAP sales and 64% of our Q1 non-GAAP sales compared to 81% in Q1 2016. Sales of our pump supplies in Q1 were 6.4 million on both the GAAP and non-GAAP basis compared to 3.9 million in Q1 2016. The 64% increase was attributed to the growth of our installed base as well as an increase infusion sets sales. Sales of our cartridges in Q1 were 2.9 million and increased 22% compared to Q1 2016. Shipments also increased 22%, sales of our infusion sets in Q1 were 3.4 million and they increased 136% compared to Q1 2016 and shipments of our infusion sets more than tripled. The ratio of the number of infusion sets shipped to the number of cartridges shipped increased to 51% in Q1 from 45% in Q4 and 20% in Q1 2016 illustrating that we are continuing to capture more infusion sets revenues through our distributors. We are on track to launch our t:lock Connector in Q3 this is a key catalyst to increasing our ratio of infusion sets to cartridges to 100% by year-end and capturing a meaningful source of future sales and gross profits. Moving onto cost of sales and gross margin our GAAP gross margin in Q1 was 36% compared to 35% for Q1 2016. Our GAAP gross profits during Q1 were 6.8 million compared to 6.9 million in Q1 2016. Our Q1 2017 gross profit includes 1.1 million of gross profit for GAAP purposes that was deferred in 2016. This was offset by 332,000 of net upgrade fulfillment cost and 82,000 of additional deferrals for t: slim G4 pump shipments in Q1. The net impact of the upgrade program was a one point improvement in the GAAP gross margin. On the non-GAAP basis our gross margin for Q1 was 35% and our gross profit was 6 million. The GAAP and non-GAAP gross margins were relatively consistent with Q1 2016. We realized improvements in the manufacturing cost associated with our t:slim X2 and our cartridges driven by lower pump material cost higher volume and improved yields for our cartridges as well as improvements in our warranty trends and cost. The benefit from those improvements was offset by the impact of product sales mix as our pump gross margins are significantly higher than our pump supply gross margin. Looking at the rest of our P&L our GAAP operating loss for Q1 was 21.2 million compared to 19.2 million for Q1 2016. The resulting operating margin was negative 112% for Q1 compared to negative 96% for Q1 2016. Our non-GAAP operating loss for Q1 was 21.9 million with the resulting negative operating margin of 126%. Our Q1 operating loss included non-cash expenses of 3 million for stock-based compensation and 1.4 million for depreciation and amortization. For Q1 2016 our stock-based compensation was 2.8 million and depreciation and amortization was 1.3 million. During Q1 our operating expenses increased 7% compared to Q1 2016 the primary reasons were a slight increase in headcount to support our growing installed base as well as increases in research and development for the advancement of our product pipeline. With respect to cash at the end of Q1 our cash and investment balance was approximately 54 million. During Q1 we completed an equity public offering that resulted in net proceeds to the company of approximately 22 million. As I discussed in our Q4 earnings call, we expected a sequentially higher use of cash in Q1 which is consistent with what we've seen historically due to the seasonality of our business. Excluding net proceeds from the offering our cash and investments decreased 23.1 million during Q1 compared to 17.7 million Q1 2016 contributing to this quarter's use of cash were lower sales and gross profits generated during the quarter and in late 2016. Sales during the month of December have historically been significantly higher than the other months within the fourth quarter than year. In Q4 2016 our sales in December were higher than they were in October and November the increase was not as significant as in prior years due to the competitive dynamics we’ve discussed. Additionally working capital changes during Q1 impacted our use of cash. For example we increased our inventory levels in anticipation of moving to our new manufacturing facility and then response to the growing level of sales of infusion sets. We also invested in tenant improvements for the new manufacturing facility and paid higher interest to increase our debt balance in Q4 2016. We continue to expect our cash use for 2017 will be lower than it was in 2016. We believe that the potential launch of our t:slim X2 G5 the addition of pump renewals and sales of t:lock infusion set will have a positive impact on our sales, gross profit and cash flows in the latter part of 2017 and in future years. Additionally, we are implementing some measures to contain or reduce our cash use for capital expenditures and our discretionary spending. For example we are targeting to reduce our operating cost for a portion of our corporate facilities as we transition our manufacturing to the new facility. Also as we focus on creating efficiencies in our operations through the use of technology and operational improvements we expect headcount additions for the remainder of 2017 to be limited. We are also continuing to explore opportunities to enhance our business and strengthen our balance sheet. We are reaffirming our previous guidance with respect to total sales and operating margin for 2017. We still expect our full year 2017 non-GAAP sales guidance to be in the range of 100 million to 107 million for all products which excludes the financial and accounting impact of the upgrade program. Sales are anticipated to be heavily backend loaded particularly towards Q4 due to our typical seasonality, the timing of our new pump and infusion set offerings and our 2017 renewal opportunity. As a reminder 2017 is our first full year with customers eligible for renewal under the typical four year insurance reimbursement cycle. Although it's still too early to quantify any specific trends of the people who are currently eligible we are pleased with the renewal in interest. We also expect the competitive environment we experienced in Q1 and in Q4 2016 will continue to impact us during Q2. However we believe that the approval of the t:slim X2 with G5 this summer will drive growth in the second half of the year as we’ll be offering the features and benefits of the t:slim X2 with the most accurate CGM sensor available. We also continue to expect our non-GAAP operating margin to be in a range of negative 65% and negative 70% for the full year 2007 this guidance includes non-cash operating expenses of approximately 11 million for stock-based compensation and approximately 6 million to 7 million of depreciation and amortization. In conclusion, I would like to echo Kim's earlier comments and that we are focused on continuing to strengthen our business and build shareholder value. We will not hide in the face of competition and will continue bringing our number one rated products and services to more people with diabetes while improving our product margins and diligently managing our operating expenses as we develop our product pipeline and prepare for our continued growth. With that I’ll turn it over to the operator for questions

[Operator Instructions] Our first question comes from the line of Matthew O'Brien from Piper Jaffrey. Your question please.

Thanks so much for taking the questions. Just a few from me. As far as the impact of 630 and 670G throughout that quarter, would love to hear about the progression of pump sales from January through March. Was there a demonstrable improvement that you as you exited Q1 as far as pump sales go? Or does that artificial deadline kind of constrain things even still through the end of Q1?

Well I'd say typically in Q1, there is sort of a drop off in December high as deductible reset. So January is typically very low, and then it progresses throughout that through the end of the quarter. We did see increasing sales as we move from month-to-month sequentially and March was higher than the other previous months. But I wouldn't sort of characterize it just yet without saying it completely months in a quarter here whether or not that is something that we are seeing. But we are comfortable that we are starting to see some impact to our sales trajectory because people are starting to see the benefits of our pumps. They know what the benefits of the Tandem Device Updater are as well as the X2 platform that where are associating with that Tandem Device Updater. But at this point, I wouldn't characterize it as a significant change at this point, but it is an upward trajectory.

Okay. And then sticking with the salesforce and just the top one I guess, are you seeing given kind of the headwinds, competitively? Is your salesforce steady or you’re seeing higher attrition rates? I'm just wondering if they are willing to kind of work through kind of two-three quarters low before things kind of comeback post some of the Medtronic promotional activities?

No, we are not seeing any attrition due to that. I think the frustration is probably around the fact that the 670G launch keeps getting delayed. When it got approved, it was supposed to come out I think in April. Now it's into a limited launch mode. We’re hearing that they're only placing the 670G at the clinical trial sites that they had as a part of their study. So it just gets continued to be kicked down the road, and we’d like to compete head to head on features rather than sort of a promise of what the system is going to do. But I don't think there’s any disappointment on the part of the salesforce. I think they are anxious to compete.

And I’ll just add that the salesforce is anxious to see G5 approved with our X2 platform. And I think there’re anticipating when that comes out, that they’ll have a distinct competitive advantage that will be able to rely on as they go back to the docs and the patients.

Got it. And then last one for me. Just on the gross margin side, understanding it was flat compared to this time last year, but it was higher than I was modeling on. The performance on the top line was a little bit below which it this time last year. So clearly you’re making progress there. Can you help tease out a little bit the big drivers of that improvement? And then just the durability because I know you have a number of different moving parts here. Be it on the disposable side versus some of the internal things that you're doing. But how do we think about that metric moving forward?

Well I think some of the things we talked about on our last call are starting to play out here in this year. And those are things like the manufacturing cost, the material costs associated with the X2. It is lower than it was with our predecessor pumps. So with over 90% of our pump placement being with the X2 platform versus the legacy pumps, I think that is helping sort of the trajectory. We have seen improvements on the pump margins outside that associated with pump warranty, I think we’ve talked about that on the last call as well that we are starting to see some activity there that’s positive. So those are the key things. And I think with the infusion sets also moving into the mix of being a fast grower in our platform I think that's helping us well. So those are probably the key things that are driving our trajectory as we move forward. And I think we’ll continue to see improvement as we gain volume on the cartridges, infusion sets, and t:lock coming to the market and the pump warranty cards to drop as we move forward.

Okay. So just to be a little bit more clear though, I mean, just given the performance during Q1, do you think we could see a gross margin as we exit the year maybe in the 40% range for maybe Q4?

Well, it’s going to highly depend on what our sales mix is. And so that would be assuming that we have good pump contribution to the overall sales mix, as well as the infusion set margin sort of staying up high as we move forward and add that to the mix as we gain volume on infusion sets. Because as everyone knows, some pump supply of margins are lower than our pumps. And so depending on what the mix is on our sales that could drive the overall gross margin. I would say that if you focus on the gross profit, I definitely believe that our gross profits will increase as we move forward, and that have a positive impact on the P&L as well as our cash.

Very helpful. Thank you.

Thank you. Our next question comes from the line of Taylor Levy from Wedbush. Your question please.

Thank you. Just a couple of quick ones. On the replacement side, you mentioned that you are currently pleased with renewal interest. Any way to quantify that for us?

I think it’s just too early at this point to sort of talk about what the renewal rates are. I think we want to make sure we have a sustainable trend before we start talking about it publicly.

And then just you mentioned that, earlier on, that you’re starting to see the market unfreeze and you saw some sequential improvement throughout the first quarter. As we think about the second quarter, should we use historical cadences in terms of percentage of revenues that you typically generate in the second quarter versus your full year guidance?

Yes, I think in the second quarter, we will continue to face the same competitive environment we talked about. As Kim mentioned, the delaying of the launch 670 is going to sort of continue to force us to be in this environment. Until we get the G5 out, once G5 is out, I think that will change the trajectory and that will be particularly helpful in the second half of the year when you layer on our renewal opportunities which are heavily backend loaded, as well as the infusion set increases that we expect with t:lock coming to market.

Taylor, it’s Kim. I’ll make one comment. It is known that the Dexcom G5 CGM is far superior to the unlike the powers of 670G. You have to caliber at last, it has better accuracy and you no longer have to do things confirmations at mealtime which is really going to reduce the burden of using a close loop system on the X2 platform. So we do know that, and we do know that patients prefer the G5. So I agree with John, I think we are going to be very competitive with that offering when we get that approved. We have 10,000 X2s in place, and we can push it out to as many as that want it as quickly as they can get on their computers.

And I think that - to your questions will it be backend loaded, I do believe it will be backend loaded. If you go back to when we launch the G4 it was backend loaded as well because of the anticipation for that product and I think there is anticipation for this product. And the opportunities for pump renewals as well, as pump organic growth is generally higher in the fourth quarter and late third quarter.

And then just lastly, you mentioned that you’ve had some early discussions with the FDA on the PLGS algorithm and you’re going to file the ID here shortly. Is the agency giving you that comfort around that relatively quick turnaround post approval of the X2 G5?

I’d say the environment has gotten so much better over the last seven years. If you remember, we weren’t public at the time, but back in 2010, there were new guidelines on human user interfaces in medical devices and the direction was very unclear. And right now the direction on the whole automated insulin programs are getting far more clear, they give us good guidance and we’re having good interactions.

And I would say that as you look at our interactions with the FDA on our t:slim X2 with G5, that has done very well as far of our interaction in moving that product towards the market. So I think that's helpful as we look at what we could expect on the field.

And let me just clarify, we did file the IDEE on the PLGS.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Rick Wise from Stifel. Your question please.

Hi, good afternoon everybody. Maybe John or Kim maybe talk a little bit more about the first quarter from another angle I mean it seemed like it came a little stronger than consensus numbers might have expected. And I want to understand from your perspective was the first quarter in line with what you thought three months ago was it ahead of your expectation and if it was a bit better it obviously with all the challenges you mentioned if it was a bit better why not expressed that maybe in a slightly higher range for the year just anymore color on all that those thoughts?

So what I would say is that we have a range of expectations as we exited 2016 at that point we knew where we were from a competitive standpoint what we expected to deal with until we launched G5. And so are we happy with where we are I would say we’re happy to where sort of the high-end of our expectation but there's still within our expectations. And I think for the full year I think this is just on par on what we might expect for the full year and that's why we reiterated our guidance to be same range as we exited the year.

And Rick this launch time on the 670G is a dynamic that has changed I don't know would it be resolved by midyear or whether even be launched this year we just don't know but as you know what they're doing they’re selling the 630G and they're doing what's called priority access. So if you want a 670G you got buy a 630G now and that’s being viewed as a bit heavy-handed and but anyway that’s the dynamic that – it will be a little bit different than we thought when we went into the planning for the year.

And then the last thing I'll add on this our sales guidance is 100 to 107 has a lot of the assumptions towards the backend of year associated with pump renewals, the approval and launch of the G5 product with the X2x as well as the t:lock launching. So I think for us to see that activity start to move forward is probably I think we want to see before we adjust and reevaluate our guidance.

Right and back to a couple of product questions let me come at the t:slim X2 G5 approval and launch from another angle. You indicate that you're preparing to launch this summer that's your thought and you’re ready to launch within 30 days of approval. Could you characterize does launch within 30 days of approval mean full launch – as in volume in every, but in every salesperson hand or just maybe some color there. And from another angle on that you guys have had magnificent track record with FDA over the last few years with product approvals. We’ve seen them come early if it's early if you're fortunate that it would - that G5 would be early would that same launch within 30 days of approval timeline hold or no it would take longer?

No, I would say the timeline with hold derivative item is was the updater, and so the updater has been tested for software upgrades to the base t:slims that were out there to bring lot to wear where some of the features are best that the X2 had were available. So that conduit work so as soon as we get approved we’ll send out a blast to all those X2 owners out there and they'll be able to access that website to upgrade their pump as soon as they want to do that.

And then for new placements the pump hardware is exactly is the same X2 which we’re manufacturing today and is just the difference software low which is very easy for us to load on. So if we got approval early we could potentially be ready very quickly.

Okay. And maybe last from me as I had two more t:lock you talked about a gradual second half rollout implementation 100% done by year-end maybe just update us on that – you said today launch in third quarter just help us understand the speed at which you can get it out there and whether your previous comments still hold now?

Yes, previous comments still hold really the reason there is transitions we want to allow our customers the option to potentially bleed down any old product they may have. And so we want to make sure we carry the old product for a period of time to allow them to use any product they have in their hands. And for any new customers there are able to get the new product t:lock right away.

Okay. Just last from me maybe Kim just with your larger perspective I feel like I want ask you which I might speak to you the diabetes industry there’s a lot of new technology out there not just 670G it’s actually about and there are a lot crosscurrents I mean my sense is that some of your other large competitors are maybe even in disarray. But when you think about the environment do you feel like this makes your job easier or harder as a company looking ahead like the flow of new technology the time it's going to take patients to look at every new approach to diabetes management and again these corporate complexities of assets for sale an operational confusion? Thank you.

Well as for the technology sort of improvements with the technology crosscurrents as you say those are companies talking to the investment community and getting a lot of press and they don't have products available to even be evaluated. So although they may be getting airtime when it comes down to seeing what products are available at their physicians office and what their nurse can show it, show a patient there was Roche, there is Animas, there is us and there is Medtronic and obviously insulin. And as we said before generally MDI patients go on the insulin first so it's really back down to the durable pumpers that we compete with on that piece of our business. And I say the exit of Roche and whatever is going on at Animas would be helpful for us that we would think do about and we disclosed how much would our sales are from Animas.

Of that 50% of the switchers it's a nice piece of that and so they probably have the largest installed base this confusion has probably helpful and I’d say all the noise about new technology is probably more at the investment community level at places like JDRF and other organizations but it does not - they are not approved the product for patients to look at.

Thank you so much.

Thank you. Our next question comes in the line of Ryan Blicker from Cowen and Company. Your question please.

Hi, thanks for taking my questions. So you talked about the operational measures you’re taking to conserve cash and I recognize not all of it, are in P&L but you did reiterate your full year operating margin guidance. Can you comment at all on the magnitude of the expected benefits?

On the operational changes that we were making?

Yes.

I think a lot of the guidance in the operating margin is driven by sort of sales performance and gross margin performance. The cost controls and containment is really just trying to manage smart money and to manage our cash that we have to-date just creates the longest runway that we have possible. But the biggest sort of extension of that runways is going to be driven by sales and gross margin prudence.

Okay, understood. I guess I was just wondering because acknowledging that sales are definitely the biggest driver there you did reiterate your full year sales guidance so you has anything changed relative to last update I know you guys have been obviously focused on trying to conserve cash prior to this call but is anything changed relative to the last update on conserving cash and is there any manage due to want to share?

What we've done is implemented some formal controls on things like I mentioned on the call as we transition our manufacturing to the new facility, that facility as they’re vacating we're going to look at that facility and try to reduce the operating cost of that whether it’s utility, cleaning cost and so forth. And then look at the campus that we have here today with the four, five buildings and ask ourselves do we need to sort of shift people around and try to optimize how we spend our money on things such as utilities and cleaning cost as an example. The headcount as we’ve talked about also on the call as we don't expect to have a lot of headcount addition this year because of where we are and what we think we can do from an efficiency standpoint as we move forward during the next quarter or so. So those we’re just a couple of examples but those are just really again back to sort of where the cash runway gets extended is mostly but what we think we’re going to with the gross margin, gross profit improvements.

Understood, that’s helpful. And then you have 10 million on the balance sheet as long-term restricted cash I manage we’ll get some detail from the Q pretty soon but are there any scenarios under which you’d be able to access that cash this year and if so what are they?

So currently as listed as restricted cash and that’s restricted as part of our agreement with CRG. And so to be able to access that cash we would have to have a discussion with CRG on how they sort of access that cash. We do have a very good relationship with them, but at this point I do believe will be looking to sort of explore opportunities to get additional cash by the end of the year without having to tap into that 10 million.

Okay, thank you.

Thank you. And this does conclude the question and answer session of today's program. I’d like to hand the program back to Kim Blickenstaff for any further remarks.

Well thanks everybody for joining in today. We will be attending the Deutsche Bank Annual Conference next week and we’re going to be making a presentation on the third and we are having investor meetings at that time. As for industry events we’re going to be attending the ADA conference here in San Diego that's June 9 to June 13 and then there's the Children with Diabetes Friends for Life Conference in Orlando, Florida on July 4 to 9. So we look forward to keeping you updated as the company continues to progress and we’ll talk to you next quarter. Thank you.

Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.