Tandem Diabetes Care, Inc. (TNDM) Q1 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for your patients. You've joined Tandem's First Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference may be recorded. I’d now like to turn the call over to your host, Chief Administrative Officer, Ms. Susan Morrison. Ma'am, you may begin.

Thank you. Good afternoon, everyone, and thank you for joining Tandem's First Quarter 2018 Earnings Conference Call. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, product development 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 in our most recent annual report on Form 10-K, quarterly report on Form 10-Q and in our other SEC filings. We assume no obligation to publicly update any forward-looking statements whether as a result of new information, future events or other factors. The Company also filed a Form S-3 Universal Shelf Registration Statement today. The focus of this call is to discuss the Company’s financial results for the quarter ended March 31, 2018, in light of that and the SEC rules and regulations. The Company will not be discussing beyond remarks on this call or answering questions about the registration statement. Kim Blickenstaff, Tandem's President and CEO, will be leading today's call. And at this time, I'll turn it over to Kim.

Thanks, Susan. And welcome everyone to today’s call. Joining me today is Leigh Vosseller, our Chief Financial Officer. 2018 is off to a strong start with record first quarter sales and meaningful operational progress throughout our business. In addition, we continue to advance our new products under development, including our PMA submission to the FDA in February for the t:slim X2 with Basal-IQ which features a predictive low glucose suspend algorithm. Overall, I am proud that the positive momentum from the end of 2017 has continued, further strengthening our confidence that we’ll achieve our goals in 2018. Starting with sales. Two of the key strategic initiatives we executed on in 2017, the launch of the t:slim X2 with Dexcom G5 integration and the launch of our custom t:lock infusion sets continued to drive our top line growth in the first quarter. As we’ve discussed in the past, these initiatives along with current Tandem customers becoming eligible for insurance reimbursement and choosing to renew with our insulin pumps, once again, served as an inflection point in our business model at the end of last year. So, these were not one-time events; we continue to benefit from them in Q1; and we expect, we will continue to do so moving forward as well. Consistent with what we saw in Q4, about half of our organic customers reported being new to pump therapy, suggesting strength in the overall pump market. Of the customers who report converting from another manufacturer, we were pleased to continue to see a high number of former Medtronic and Animas customers choose the t:slim X2. Prior to the Animas October announcement that they were exiting the market, our shipments to former Animas customers as a percent of our business were in the low teens. In December, it grew to more than 20% of our shipments and it remains at this level during the first quarter. This increase in Animas conversions, even with Medtronic being designated as a preferred pump partner emphasizes the importance of people with diabetes, having a choice in their insulin pump therapy management, and that diabetes is not a one size fits all solution. At Tandem, we work hard to offer the diabetes community flexible, differentiated options for therapy management. As a result, we now have the updatable t:slim X2 platform and have found that it's the perfect choice for the vast majority of our customers. At the same time, demand for our t:flex insulin pump, which features the 480-unit insulin cartilage for people with greater insulin needs, has not been enough to support its continued development, and we've decided to discontinue new pump sales at the end of the second quarter. For comparison to the first quarter, we shipped less than 100 t:flex plus compared to more than 4,000 t:slim X2 pumps. Our current t:flex customers can rest assured however that their pumps will remain fully supported. We will continue manufacturing t:flex cartridges all compatible infusion sets, so they will have access to supplies and to the same 24/7 customer support for the time left in their warranties. From an R&D perspective, we are evaluating other potential solutions for people with greater insulin needs such as insulin concentrates and we’ll keep everyone informed, should these initiatives progress. Where our near term product development focus lies is bringing our automated insulin delivery or AID products to the diabetes community. As we've discussed in the past, the three critical components of an AID system are an insulin pump, a continuous glucose monitor sensor and an algorithm. An algorithm can only be as good as the information that is provided to by the CGM. Dexcom has offered best-in-class CGM technology for some time, and they've raised the bar once again with the recent FDA approval of their G6 sensor that will offer people with diabetes a number of important advantages including no fingersticks and acetaminophen blocking. The sensor also received approval for integrated interoperability or iCGM which is expected to streamline the regulatory process when used with other connected devices. Big congratulations to our San Diego partners, the Dexcom for this accomplishment. The G6 approval is a win for the diabetes community and strengths the overall systems that we plan to integrate with our sensors. As we look to what this means for Tandem's products and development, starting with the t:slim X2 with Basal-IQ. This system is designed to suspend insulin when low blood glucose is predicted and automatically resume insulin delivery when glucose levels begin to rise. In February, we submitted a PMA to the FDA, which included previously announced positive pivotal study data that showed the system achieved the primary outcome of reducing times spent in hypoglycemia by 31% compared to sensor-augmented pump therapy alone. We were thrilled to see these clinical results and equally important to us was the feedback from study participants that the system is easy to use and they have high level of confidence using it without a significant training burden to get started. As we shared in the past, this supports the usability data we presented at the Diabetes Technology Meeting in the fourth quarter, which demonstrated a 99% success rate among study participants who performed a series of critical tests using the Basal-IQ system after initial computer-based training. We believe ease of the use of our system will give us a competitive advantage when compared to other systems that are currently available. Our t:slim X2 with Basal-IQ pivotal study use Dexcom's G5 sensor. However, based on Dexcom's recent G6 approval and iCGM designation, we've been speaking with the FDA to outline the path for us to offer t:slim X2 with Basal-IQ and iCGM compatibility. This would allow for our Basal-IQ system to be used with Dexcom’s G6 sensors. Due to competitive reasons, we won’t be outlining the regulatory path details, but we remain confident on our goals to launch the t:slim X2 with Basal-IQ this summer with the G5 sensor and we’re actively working on adding iCGM or G6 sensor compatibility shortly thereafter. Our ability to have this flexibility and adapt to the pace of our partner’s innovation reflects the power of the Tandem device updater. It’s a feature that no other insulin pump company offers today and continues to allow us to stand out compared to the competition. As we previously announced, all new features approved of the t:slim X2 by the FDA in 2018, will be made available to in-warranty users for no cost. Based on our current development activities, we expect these features will include both our Basal-IQ software and the iCGM or G6 compatibility. We’re also making great progress with our second generation automated insulin delivery system with the t:slim X2 with Control IQ. Also designed as a software update, t:slim X2 users, the system increases or decreases Basal insulin to minimize hyper -- or hypoglycemia and improve the user’s time spent within a targeted glycemic range. The hybrid closed loop product has all been designed to leapfrog competing products by providing automated correction boluses which we believe will bring additional benefits to our customers. The system was designed to utilize Dexcom’s G6 sensor values and AID technology that we licensed from TypeZero and we’ll be pursuing the approval of iCGM compatibility as a part of this submission. As a reminder, we are participating in the International Diabetes Closed Loop Trial and the pivotal trail portion is anticipated to commence this quarter. Accordingly, we believe we’re on track to file our modular PMA submission to the FDA in the second half of this year and our goal is to launch the t:slim X2 with Control IQ including iCGM compatibility in the first half of 2019, following FDA review and approval. Turning to another of our growth initiatives, we’re on track and actively preparing to commence sales outside of the U.S. in the second half of 2018. We announced the filing of our medical device application in Canada in the first quarter and we anticipate receiving our CE Mark this quarter. As a reminder, we expect to operate direct sales in clinical operations in Canada, but primarily leverage our other domestic customer support resources. For other geographies, we plan to utilize distributors with mostly existing infrastructure and resources and have announced some of these key relationships in the past few weeks. We welcome these partners on Australia, New Zealand, Italy and Scandinavia. While there’s significant activity internally comparing to offer the t:slim X2 outside of the United States, we continue to prioritize our efforts within the U.S. and have modest expectations for the contribution from international sales in 2018, but believe it’s strategically important to position us for 2019 and beyond. Overall, it’s been busy start to the year and I’m very pleased with the progress we’ve made across all of the Company’s initiatives in the first quarter. I credit these accomplishments to the hard work, passion and dedication of our employees. I will now turn the call over to Leigh to further discuss our results for the quarter and our financial guidance. Leigh?

Thank you, Kim, and good afternoon, everyone. Our financial results for the first quarter reinforced that the positive dynamics we experienced in the fourth quarter of 2017 were not just a result of one-time event. They were the beginning of a trend into this year that supports our overall top line growth strategy. Our sales were approximately $27 million, which is an increase of 44% compared to the first quarter of 2017, even with the $1.5 million benefit in 2017 related to the technology upgrade program that was in place at that time. The most significant driver of this growth was a 58% increase in pump shipped to just over 4,400 for the quarter. This is a record number of pump shipments for our first quarter and which is typically the lowest quarter of the year, due to the timing of insurance resets for annual deductibles and copays. This brings us to over 72,000 pumps shipped since inception and just 63,000 in the last four years, which we consider a reasonable estimate of our active installed base. The largest contributing factor to the pump volume growth was the continued demand for our t:slim X2 with G5 for which we received FDA approval in the third quarter of 2017. As Kim mentioned, the customers converting from Animas pumps again exceeded our historical rate of conversion, at levels similar to what we experienced in the fourth quarter. Also, we continue to execute on our renewal strategy by shipping approximately 600 renewal pumps in the quarter, bringing us to over 2,600 cumulatively compared to approximately 200 renewals in the first quarter of 2017. The vast majority of these renewals still relate to sales originating in 2013. It is important to keep in mind that we expect the renewal initiative to be a steady build as we work through sometimes lengthy insurance clarifications and purchasing process with our existing customers. Similar to new pump sales, the timing of renewals may be impacted by the normal first quarter seasonality. In all, pump sales of approximately $17 million comprised 63% of total sales. Supplies revenue also grew substantially to approximately $10 million, which is a growth rate of 60% compared to the prior year. This was the first quarter in which we sold infusion sets to our entire installed base due to the successful launch of our t:lock infusion set connector in late 2017. Infusion set sales were approximately $7 million or 25% of total sales. Similar to pump sales, supplies overall were impacted by a typical seasonality trend. On our last earnings call, I outlined five key growth drivers for 2018 and beyond. Renewals, Animas customer conversion, and infusion set sales were the first three, all of which were evident in our strong Q1 results. As Kim discussed earlier, we are on track for the remaining two, which are the anticipated summer launch of Basal-IQ and international expansion in the second half of this year. Our progress to-date further bolsters our confidence in the ability to achieve our 2018 sales guidance of a $132 million to a $140 million. In fact, we now expect to be at the mid to upper end of the range, even with the discontinuation of t:flex at the end of this quarter. Consistent with our historical experience, sales will be more heavily weighted to the second half of the year, especially considering the potential costs that may occur in anticipation of the Basal-IQ launch. Gross margin in the first quarter was 42%, up from 36% in the first quarter of 2017. This improvement was a result of per unit manufacturing costs improvements from higher volumes and overall manufacturing efficiencies, even considering the transition to our new manufacturing facility which doubled our capacity. The incremental profits from higher infusion set sales also provided benefit. As a whole, other non-manufacturing costs which primarily consist of pump warranty, freight and new customer training also reflected improvement year-over-year. While our gross margin may fluctuate in a given quarter for a variety of reasons, particularly seasonality and mix of products sold and the varying levels of reimbursement, we are on track to achieve our long-term gross margin goal of 55% at our cash breakeven point, which is anticipated in the second half of 2019. Operating expenses in the first quarter were approximately $27 million, which is slightly down from $28 million in 2017. The majority of that reduction is attributable to non-cash stock-based compensation expense, which dropped to $1 million in 2018 versus $3 million in 2017. With or without this non-cash expense, we continue to demonstrate tremendous leverage with single digit increases in operating expenses compared to double digit growth in sales. Our goal is to contain operating expenses growth at rate of less 10% in 2018 including spending necessary to successfully launch in international markets. Overall, we expect our operating margin for 2018 to fall within the range of negative 40% and negative 35% of sales. This includes non-cash stock-based compensation and depreciation of approximately $12 million to $13 million. We ended the quarter with approximately $82 million in total cash and investments. This includes $64 million in net proceeds from the equity financing we completed in February as well as nearly $7 million in proceeds from warrants exercised in the first quarter. Excluding these inflows from these financings, our cash used was only $13 million this quarter as we continue to focus on prudently managing our spending. Historically, we have experienced a sequential increase in the use of cash from Q4 to Q1 but this quarter we were actually flat to Q4 2017. Following the close of the quarter and through the expiration date of our Series B warrants on April 17th, we received an additional $11 million in proceeds from warrant exercises. This brings our total year-to-date warrant exercise net proceeds to $18 million of which the vast majority of our Series B warrants and further supports our ability to reach our cash flow breakeven target in the second half of 2019. Beyond our operational goals, we continue to be focused on the restructure or refinance of our outstanding debt in order to achieve a more optimal capital structure. To summarize our 2018 outlook, we are reaffirming our financial guidance for sales in the range of $132 million to $140 million with an operating margin range of negative 40% to 35%. With the strong start to this year, we now anticipate that we will be at the mid to upper end of the sales range. We believe that our cash on hand provides sufficient funding to reach cash flow breakeven in the back half of 2019 at which time, we anticipate having an installed base of at least 80,000 customers ordering supplies on a consistent basis. With that, I will turn it over to the operator for questions.

[Operator Instructions] Our first question comes from the line of Rick Wise of Stifel. Your question, please?

Good afternoon everyone. it's actually Mat Blackman [ph] in for Rick. Thanks for taking the question. Hey, everyone. So, Kim, you touched on international in your prepared remarks. But, I was hoping you could maybe expand on those comments a little bit. And help us think about what Tandem's overall international opportunity could be, let's say in the next 3 to 5 years? And would you hope that over time, international could be, I don't know, 10% to 15% of total Tandem? So, just some help there will be appreciated.

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

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

Sure. This is Leigh. Right now, we have about 70 territories in the field. And in 2018, we’re committed to not expanding the sales force. We feel like we are at right sized for the amount of growth that we’re anticipating this year and next year, but we’ll continue to evaluate as we go forward, if we need to expand in order to drive the topline. Part of our opportunitiess in the future is that we continue to add renewals to our businesses because that’s more of an internal sales, which doesn’t necessarily require a field expansion.

Talk about some of our automation of the systems…

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

Yes. It’s just very labor intensive chasing taper, we’re trying to use other people's experiences for a software that might automate more of that.

Thank you. Our next question comes from the line of Doug Schenkel of Cowen. Your line is open.

Hi. This is Ryan [ph] on for Doug. Thanks for taking my questions. You noted that you’ll launch Basal-IQ with G5 initially and now expect to launch the G6 shortly thereafter. Just to be clear, I mean, how quickly after the launch could G6 come? Could you get it approved before the start of the important Q4 quarter or is it more likely by the end of year?

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

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

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

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

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

Thank you. Our next question comes from J.P. McKim of Piper Jaffray. Your line is open.

Thank you. Thanks for taking my question. I wanted to first ask just on international and whether you’ll need to get I guess CE Mark first and then timing around that and then whether these distributors will need to stock up certain amount and make sure they can service their customers and whether do you think that will happen this year?

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

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

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

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

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

And then, the last one for me is just on the discontinuing of t:flex. I guess, how much of that was -- of your current installed base is t:flex? And then, is there is a gross margin advantage now that that is -- you don't have to produce that system and no specific cartridges?

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

Thank you. Our next question comes from the line of Steven Lichtman of Oppenheimer & Company. Your question please.

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

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

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

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

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

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

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

Thank you. Our next question comes from the line of Jason Bednar of Baird. Your line is open.

Good afternoon, everyone. Just a couple from my end, just starting on the renewals side. Are you seeing any progress just being made and accelerating that renewal process for customers, as you just gain more experience and going after that -- those cohorts?

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

Thanks, Leigh. Is there any timing of brackets you could give us on how to think about when we might get to that 70%? Is that a one to two-year process, a three-year process or just anything you might think about internally you could share?

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

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

So, we have had discussions with the FDA. And so, we have resolved that. One of the resolutions that we have a very minor recall. We’re recalling 55 pumps from a timeframe a few years ago. And so, it’s very small population. We don't believe that there is -- people actually feel that we’re just mitigating the risk that is out there, but otherwise now we closed out with 483.

Okay. So, fully clear and no other outstanding Form 4583s that out there, correct?

No.

That’s correct.

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

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

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

Thanks, Latif. Next up we’re going to be at two investor conferences in the month of May. On May 8th, we’ll presenting at the Deutsche Bank Conference in Boston; and then, the following week, we’ll be in Las Vegas at the Bank of America Merrill Lynch Healthcare Conference. So, you’ll have an opportunity to talk to us then. So, thanks again, everyone. We had a big crowd to dance, nice to see everyone coming back, and we look forward to keeping you updated in July when we report our results for the second quarter. Thanks for listening.

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